To June's Tax Tips & News, our newsletter designed to bring you tax tips and news to keep you one step ahead of the taxman.
We are committed to ensuring none of our clients pay a penny more in tax than is necessary and they receive useful tax and business advice and support throughout the year.
Please contact us for advice in your own specific circumstances. We're here to help
The government has introduced a temporary tax exemption and National Insurance disregard to ensure that home office equipment purchased by employees as a result of the coronavirus outbreak, will not attract tax and NICs liabilities where reimbursed by the employer. This temporary change applies for 2019/20 from 16 March 2020, and for the 2020/21 tax year.
To be eligible for the exemption the expenditure must meet the following two conditions:
Mobile phones and internet connections
If an employer provides a mobile phone and SIM card without a restriction on private use, limited to one per employee, this is non-taxable.
If an employee already pays for broadband, then no additional expenses can be claimed. However, if a broadband internet connection is needed to work from home and one was not already available, the broadband fee can be reimbursed by the employer and is non-taxable. In this case, the broadband is provided for business and any private use must be limited.
Laptops, tablets, computers, and office supplies
If items are purchased and mainly used for business purposes with incidental private use, these will be non-taxable.
Where the employer does not reimburse the employee for purchased items, the employee can claim tax relief for the expenditure on their tax return (or form P87) as long as the amount claimed is incurred 'wholly, exclusively and necessarily in the performance of their duties of employment'. Employees will need to keep records of their purchase and claim for the exact amount.
Additional household costs of working from home
Payment or reimbursement to employees of up to £6 a week from 6 April 2020 is non-taxable for additional household expenses incurred when an employee is required to work from home.
If an employer wishes to pay more than the guideline rate of £6 per week tax-free, then it is recommended that the employer should agree a scale rate in advance with HMRC. Failing that, records will need to be kept of the actual additional costs incurred by each employee.
If an employee needs to self-isolate but cannot do so in their own home, the employer may reimburse hotel expenses and subsistence costs but such expenses will be taxable.
To help ease the financial impact of the coronavirus (COVID-19), the Government has announced that self-employed taxpayers may be able to defer some tax payments without paying a penalty. At present it is possible to:
Taxpayers have the option to defer their second payment on account for the 2019/20 tax year if they are registered in the UK for self-assessment and finding it difficult to make a second payment by 31 July 2020, due to the impact of coronavirus.
HMRC will not charge interest or penalties on any amount of the deferred payment on account, provided it is paid on or before 31 January 2021.
Taxpayers do not need to tell HMRC that they are deferring the payment on account, and choosing to defer will not prevent them from being entitled to other coronavirus support that HMRC provide, such as grants under the Self-Employment Income Support Scheme (SEISS).
The second payment on account must be made on or before 31 January 2021 if people choose to defer and there is concern around the tax and accountancy professions that deferment may have a knock-on 'snowball effect'. Whilst deferral will give an element of 'breathing space' in the short term, it may store up bigger problems in the future if liabilities continue to remain unpaid. HMRC confirm that the usual interest, penalties and debt collection procedures will apply to missed payments.
Taxpayers should note that other payments which may need to be paid by 31 January 2021 include any balancing payment due for the 2019/20 tax year, and first payment on account due for the 2020/21 tax year. For further information on payments, taxpayers can sign in to their HMRC online account.
From 26 May 2020 onwards, employers can make claims through the Coronavirus Statutory Sick Pay (SSP) Rebate Scheme.
This is a new online service and forms part of the package of support measures for businesses affected by the COVID-19 outbreak. The service enables small and medium-sized employers with fewer than 250 employees, to recover SSP payments they have made to their employees.
Employers will be able to make their claims through the service and receive repayments at the relevant rate of SSP that they have paid to current or former employees for eligible periods of sickness starting on or after 13 March 2020. Tax agents can also use the service to make claims on behalf of employers.
Employers are eligible for the scheme if they have a PAYE payroll scheme that was created and started before 28 February 2020 and they had fewer than 250 employees before the same date.
The repayment will cover up to two weeks of SSP and is payable if an employee is unable to work because they:
The weekly rate of SSP from 6 April 2020 is £95.85 (rising from £94.25 a week in 2019/20). Employers can choose to go further and pay more than the statutory minimum - this is known as occupational or contractual sick pay - but where an employer pays more than the current rate in sick pay, they will only be able to reclaim the SSP rate.
Employers can furlough their employees who have been advised to shield in line with public health guidance and are unable to work from home, under the Coronavirus Job Retention Scheme. Once furloughed, the employee should no longer receive SSP and would be classified as a furloughed employee. Where an employee has been notified to shield and has not been furloughed, the rebate will compensate up to two weeks of SSP from 16 April 2020.
As the new tax year progresses, now is a good time review some of the tax-efficient savings incentives available which may help maximise potential returns.
The Help-to-Save scheme offers working people on low incomes a 50% bonus, rewarding savers with 50p for every £1 saved. Over four years, a maximum bonus of £1,200 is available on savings of up to £2,400. Savings limits are flexible and it is not necessary to pay in every month to get a bonus.
How much is saved and when is up to the account holder - the rules stipulate that investors can save between £1 and £50 every calendar month, up to a maximum of £2,400 over a four-year period.
Accounts last for forty eight months from the date the account is opened and the government bonuses are added at the halfway point, i.e. after two years, and at the end of the four year lifespan of the account, or on the date that the individual becomes terminally ill or dies, if earlier.
Accounts will be available to open up until September 2023.
The investment limits mean that £2,400 is the maximum an individual can save, with a maximum government bonus payable of £1,200. In comparison, high street banks are currently offering a typical interest rate of between 1 and 2% on savings bonds, which does appear to make the Help-to-Save account a particularly attractive option for someone looking to save.
ISAs and Junior ISAs
The maximum annual investment limit for Individual Savings Accounts (ISAs) remains at £20,000 for 2020/21. The limit effectively allows a couple to save a not-insignificant £40,000 a year and receive interest on the investment tax free. There will also be no capital gains tax to pay when the account is closed.
Junior ISAs are available to UK-resident children under-18 and run on similar lines to 'adult' ISAs. The maximum investment limit has been significantly increased for 2020/21 to £9,000 (from £4,368 in 2019/20). This increase provides adequate scope for parents and grandparents to make tax-free savings investments on behalf of their children/grandchildren.
Most individuals aged between 18 and 40 are eligible to open a Lifetime ISA (LISA) and contribute up to £4,000 each year, with the government providing a 25% bonus on contributions at the end of each tax year up to the age of 50. The funds in the account, including the government bonus, may be used to buy a first home worth up to £450,000 at any time from 12 months of opening the account and can be withdrawn from age 60 for any other purpose. Savers are also able to access the funds in their account if they become terminally ill. Under the normal rules, any other withdrawals that are made will be subject to a 25% charge. However, to help with the impact of the coronavirus (COVID-19) outbreak, the Government has confirmed that the charge for unauthorised withdrawals from a LISA during the period 6 March 2020 to 5 April 2021 inclusive has been reduced from 25% to 20%. Further details on this announcement can be found in HMRC's Policy Paper of 14 May 2020.
With a return rate comparable with regular savings accounts (currently 1.40%), Premium Bonds (PBs) remain one of Britain's most popular ways to save. Currently the minimum amount of PBs that can be purchased is £25 and the maximum that may be held is £50,000. It is now permissible for anyone over the age of 16 to buy PBs on behalf of children. The odds on winning a prize in any one month are currently 24,500 to one. There are currently two £1m prizes, five £100,000 prizes and ten £50,000 prizes each month.
Although Premium Bonds are not strictly an 'investment', they can be encashed at any time with the full amount of invested capital being returned - and in the meantime, any returns by way of 'winnings' will be tax-free.
Q. I am the director of a limited company and due to the impact of the coronavirus, I will need to waive my entitlement to company dividends for the time-being. Are any formal waiver procedures necessary?
A. A 'waiver of remuneration' happens when a director or employee gives up rights to remuneration and gets nothing in return.
If an employee and employer agree to a reduction in the employee's remuneration before they are paid, for example to support company cashflow during the pandemic, then no income tax or National Insurance contributions (NICs) will be due on the amount given up. This is provided the agreement is not part of any wider arrangement to divert the amount to a particular recipient or a cause. For example, if it was waived on condition that the sum would be donated to a particular charity, this would still be liable to tax.
Directors or other shareholders, including employees, are able to waive their right to be paid a dividend. For this to be effective, a Deed of Waiver must be formally executed, dated and signed by shareholders and witnessed and returned to the company.
The waiver must be in place before the right to receive a dividend arises. For final dividends, this is before they are formally declared and approved by the shareholders. For interim dividends, the waiver must be in place before the dividends are paid.
Q. I have recently registered for VAT. Although my turnover is only just above the VAT registration threshold, I anticipate that it will now increase year-on-year. How does the flat rate scheme for VAT work and will it help me with business administration?
A. The VAT flat rate scheme (FRS) is used by many small businesses to help simplify their VAT reporting obligations, although some would argue that the scheme is not simple to use.
Broadly, the FRS is a simplified VAT accounting scheme for small businesses, which allows users to calculate VAT using a flat rate percentage by reference to their particular trade sector. When using the FRS, the business ignores VAT incurred on purchases when reporting VAT payable, with the exception of capital items which cost £2,000 or more.
In summary, with the flat rate scheme:
- you pay a fixed rate of VAT to HMRC; and
- you keep the difference between what you charge your customers and pay to HMRC; but
- you can't reclaim the VAT on your purchases - except for certain capital assets over £2,000.
The percentages applicable to this scheme depend on the nature of the services provided. Full details of the scheme are included in the HMRC VAT Notice 733: Flat rate scheme for small businesses.
In your first year of VAT registration you get a 1% reduction in flat rate, which means that you can take 1% off the flat rate you apply to your turnover, until the day before your first anniversary of becoming VAT registered.
The scheme works well for some but not others. On the positive side, the scheme may save you some admin because you don't have to work out every item of input and output tax, but if your customers are VAT registered, you do have to calculate the VAT and issue VAT invoices in the normal way. Financially, the flat rates averages may work out cheaper for you than normal accounting or you may find this scheme more expensive.
Q. I have a part time job and I earn about £9,000 a year. As my earnings are less than the tax-free personal allowance, can I transfer the unused amount to my husband?
A. A spouse or civil partner who is not liable to income tax or not liable above the basic rate for a tax year may transfer part of their personal allowance to their spouse or civil partner, provided that the recipient of the transfer is not liable to income tax above the basic rate.
The transferor's personal allowance will be reduced by the same amount. For 2020/21 the amount that can be transferred is £1,250 (remaining unchanged from 2019/20). The spouse or civil partner receiving the transferred allowance will be entitled to a reduced income tax liability of up to £250 for 2020/21.
Backdated claims are possible and could be worth in excess of £800.
19/22 - PAYE/NIC, student loan and CIS deductions due for month to 5/6/2020