To November's Tax Tips & News, our newsletter designed to bring you tax tips and news to keep you one step ahead of the taxman.
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The Chancellor originally announced details of the new Job Support Scheme (JSS) in his Winter Economy Plan, and the details were subsequently updated in a statement on 22 October 2020.
The JSS is the main employment support scheme, which was due to take effect from 1 November 2020, following the cessation of the Coronavirus Job Retention Scheme (CJRS). However, on 31 October, the Government announced that the CJRS would continue to run until December 2020, which means that the start date for the JSS has also been delayed until December.
At present, the scheme is expected to start in December 2020 and run for six months, until April 2021.
There is no need for the employee to have been previously furloughed before the start of the JSS, or for the employer to have claimed under the CJRS.
The primary purpose of the scheme is to support workers in viable jobs in businesses who are facing lower demand over the winter months due to Covid-19. It is hoped that by helping employers top up wages during the most difficult months, more employees will be able to stay in work.
When originally announced, the JSS saw employers paying a third of their employees' wages for hours not worked, and required employers to be working 33% of their normal hours. However, on 22 October, the Chancellor announced that the employer contribution to those unworked hours is reduced to just 5%. The minimum hours requirement has also been reduced to 20%, so those working just one day a week will be eligible. That means that if someone was being paid £587 for their unworked hours, the government would be contributing £543 and their employer only £44.
As things currently stand there are two main qualifying conditions to be met before a claim can be made:
Employees must have been on the employer's payroll (and a Real Time Information (RTI) return must have been submitted which included payment made to that employee) on or before 23 September 2020.
Employees must also be working at least 20% of their normal working hours. There is no requirement for the employee to work a fixed pattern and unworked hours may change from week to week. However, each short-time working arrangement must cover at least seven days.
Employers should ensure all working agreements are made and agreed with employees in writing and that adequate evidence is retained. HMRC have confirmed that they will be incorporating checks into the claims process and employers may need to provide evidence of short time working arrangements.
Employees cannot be made redundant or put under notice of redundancy during the period for which the employer claims a grant.
Financial assessment test
All UK employers can use the scheme as long as they have a UK bank account and UK PAYE scheme.
Large businesses will also need to satisfy a 'financial assessment test', under which they will have to demonstrate that their turnover is lower than it was as a result of Covid-19.
For small and medium sized businesses (SMEs) there are no additional conditions.
The government will provide up to 61.67% of wages for hours not worked, up to £1541.75 per month. The cap is set above median earnings for employees in August 2020 at a reference salary of £3,125 per month.
The government will reimburse grant payments to employers in arrears.
Grants do not cover Class 1 employer national insurance contributions (NICs) or pension contributions. These contributions will remain payable by the employer.
Millions of self-employed individuals have been eligible to receive direct cash grants through the government's Self-Employment Income Support Scheme (SEISS), to help them during the coronavirus outbreak.
There are four opportunities to receive a grant under the SEISS, although the deadlines for the first two parts have now passed.
For parts three and four, the government says it will provide two taxable grants to support those experiencing reduced demand due to Covid-19 but are continuing to trade, or temporarily cannot trade. Payments will be available to anyone who was previously eligible for the SEISS grant one and grant two, and meets the eligibility criteria.
Grants will be paid in two lump sum instalments each covering three months. The part 3 grant will cover a three-month period from the start of November 2020 until the end of January 2021. The government will pay a taxable grant which is calculated based on 40% of three months' average trading profits, paid out in a single instalment and capped at £3,750.
The part 4 of the grant will cover a three-month period from the start of February until the end of April 2021. The government will review the level of the second grant and set this in due course.
Business premises forced to close in England are to receive grants worth up to £3,000 per month under the Local Restrictions Support Grant. Also, £1.1bn is being given to Local Authorities, distributed on the basis of £20 per head, for one-off payments to enable them to support businesses more broadly.
Businesses required to close in England due to local or national restrictions will be eligible for the following:
- For properties with a rateable value of £15k or under, grants to be £1,334 per month, or £667 per two weeks;
- For properties with a rateable value of between £15k-£51k grants to be £2,000 per month, or £1,000 per two weeks;
- For properties with a rateable value of £51k or over grants to be £3,000 per month, or £1,500 per two weeks.
As we approach the end of the year, thoughts may be turning towards upcoming Christmas celebrations and alike - although this year, the traditional work's Christmas party is likely to look very different.
Whilst the tax legislation does not include a specific allowance for an employer providing a Christmas party for employees, HMRC do allow limited tax relief against the cost providing social functions. Relief will still be available even where such an event is being held in a different format due to the coronavirus restrictions - possibly even 'virtually', providing certain conditions are met.
A social event - which of course, includes the annual Christmas party - will qualify as a tax-free benefit if the following conditions are satisfied:
- the total cost must not exceed £150 per head, per year;
- the event must be primarily for entertaining staff; and
- the event must be open to employees generally, or to those at a particular location, if the employer has numerous branches or departments.
The 'cost per head' of an event is the total cost (including VAT) of providing:
a) the event, and
b) any transport or accommodation incidentally provided for persons attending it (whether or not they are the employer's employees),
divided by the number of those persons.
Provided the £150 limit is not exceeded, any number of parties or events may be held during the tax year, for example, there could be three parties held at various times, each costing £50 per head.
Note however, that the £150 is a limit, not an allowance - if the limit is exceeded by just £1, the whole amount must be reported to HMRC.
For the employer, the cost of staff events is tax deductible for the business. Specifically, the legislation includes a let-out clause, which means that entertaining staff is not treated for tax in the same way as customer entertaining. The expenses will be shown separately in the business accounts - usually as 'staff welfare' costs or similar.
There is no monetary limit on the amount that an employer can spend on an annual function. If a staff party costs more than £150 per head, the cost will still be an allowable deduction, but the employees will have a liability to pay tax and National Insurance Contributions (NICs) arising on the benefit-in-kind.
The employer may agree to settle any tax charge arising on behalf of the employees. This may be done using a HMRC PAYE Settlement Agreement (PSA), which means that the benefits do not need to be taxed under PAYE, or included on the employees' forms P11D. The employer's tax liability under the PSA must be paid to HMRC by 19 October following the end of the tax year to which the payment relates.
The full cost of staff parties and/or events will be disallowed for tax if it is found that the entertainment of staff is in fact incidental to that of entertaining customers.
VAT-registered businesses can claim back input VAT on the costs, but this may be restricted where this includes entertaining customers.
HMRC have recently clarified the correct treatment for the deduction of import VAT paid by a taxable person who is not the owner of the relevant goods.
Following the publication on HMRC Brief 2 (2019), which restated the long-standing policy of who is entitled to reclaim VAT paid on imports under current UK legislation, HMRC received a number of representations from businesses and business representatives about the application of the rules in specific cases. HMRC's have now completed their review and have confirmed that the policy outlined Brief 2 (2019) is correct.
It is the owner, whose details (EORI) should be shown in box 8 of the import declaration, who is eligible to reclaim the import VAT, either in accordance with:
- VATA 1994, s 24 (if registered for VAT in the UK); or
- under part XXI of the VAT Regulations 1995 (SI 1995/2518)
HMRC looked at a number of specific examples raised by various businesses and representatives, these included:
- goods temporarily imported for repair;
- goods imported for onward lease; and
- special procedures.
From 1 January 2021, UK VAT registered businesses will be able to use postponed VAT accounting to account for import VAT on their VAT return for goods imported for use in their business from anywhere in the world.
Where a business initially declares goods to customs warehousing or into some other customs special procedure, they can use postponed VAT accounting when they submit the declaration that releases those goods into free circulation.
Businesses do not need to be authorised to use postponed VAT accounting, they simply make the appropriate entry on their customs declaration.
Ordinarily, postponed VAT accounting is not mandatory and businesses can start to use it at any time after 1 January 2021.
However, businesses must use postponed VAT accounting if they import non-controlled goods from the EU to Great Britain from 1 January 2021 to 30 June 2021, and either defer their supplementary customs declaration, or use simplified customs declaration process where authorised and make an entry in declarants records.
As with existing processes, it is the owner of the goods who is using the goods in the course of their business who can use postponed VAT accounting. It means they can declare and recover import VAT on the same VAT return, subject to the normal rules on input tax deduction.
For businesses who currently import goods from non-EU countries, this relieves them from having to pay for the import VAT upfront through their deferment account. Non-owners cannot use postponed VAT accounting.
For further details, see HMRC Brief 15 (2020).
Q. I am self-employed and my business has been struggling this year due to the coronavirus. I opted to defer my 31 July 2020 tax payment but I'm worried that I will not have the cash to pay the whole amount by the end of January 2021. What can I do?
A: The government is allowing self-employed people to defer self-assessment payments due, to help them manage their cash flow during the pandemic.
The government allowed taxpayers to defer their second 2019-20 self-assessment payment on account due on 31 July 2020 until 31 January 2021. The deferment was automatic which means that no late payment penalties or interest will be charged for the deferral period.
On 24 September 2020, the government announced that self-assessment payments due on 31 January 2021 (including payments on account deferred from 31 July 2020) can be paid by instalments over the 12 months to January 2022.
Taxpayers can apply for a payment plan by contacting HMRC's time to pay self-assessment helpline (0300 200 3822), or taxpayers with up to £30,000 of self-assessment liabilities can use HMRC's self-service time to pay facility. Interest is payable on time to pay instalments, but if the plan is set up prior to the payments becoming due there should be no late payment penalties.
Q. I am employed and pay tax on my salary at the basic rate through PAYE. I have no other income and do not complete an annual self-assessment return. My wife works part-time and earns £10,000 per annum and does not pay any tax. Can her personal allowances be transferred to me?
A: It is possible for a spouse or civil partner who is not liable to income tax or not liable above the basic rate for a tax year to 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. The person receiving the allowance will be entitled to a reduced income tax liability of up to £250 for 2020/21. Note that married couples or civil partnerships entitled to claim the married couple's allowance (for people born before 1935) are not, however, entitled to make a transfer.
Eligible couples can backdate their claim for the allowance for up to four years. This means that couples will have until 5 April 2021 to backdate a claim to the 2016/17 tax year.
Q. Why it is important to differentiate between items that are zero-rated for VAT and those that are exempt?
A: Although both zero-rated and exempt supplies result in no VAT being applied to the supply, the consequence is very different between them and it is important to get it right.
Zero-rating is a rate of VAT, albeit at zero per cent. The goods and/or services to which it applies are taxable supplies. This in turn renders any supplier of zero-rated goods and/or services liable to register for VAT, where appropriate (see the GOV.uk website at www.gov.uk/vat-registration for further information on registration). The advantage of VAT registration is that VAT can be reclaimed on costs.
However, a business making solely exempt supplies is not making taxable supplies, so cannot register for VAT. Consequently, all VAT incurred upon expenditure becomes an additional irrecoverable cost.
Where a supply could be either zero-rated or exempt, zero-rating takes priority.
1 - Due date for payment of Corporation Tax for the year ended 31 January 2020
2 - Last day for car change notifications in the quarter to 5 October - Use P46 Car
19/22 - PAYE/NIC, student loan and CIS deductions due for month to 5/11/2020