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Finance Act 2021
The Finance Bill that was published on 11 March 2021 received Royal Assent on 10 June and can be viewed online here.
From 1 July the level of government support for the furlough scheme will reduce. The government contribution will fall to 70%, subject to a cap of £2,187.50 per month. The employer will now be required to make a contribution of at least 10% (up to £312.50) to maintain the 80% employees were previously entitled to. Employers can continue to voluntarily top up wages above the 80% minimum, or above the cap, if they wish.
From 1 August the government contribution will fall to 60%, meaning the employer will need to pay 20%. This will remain in place until the end of September when the scheme is set to close.
In June, the Chancellor rejected calls to extend the furlough scheme following the delay of the lifting of restrictions from 21 June to 19 July.
Brexit - EU VAT changes
Several key changes to EU VAT law are to be enacted from 1 July.
The first change is the abolition of small consignment relief which exempted items worth less than €22 from VAT. From 1 July, UK businesses can elect to join the new Import One Stop Shop, meaning that any shipments valued at less than €150 will need to have VAT charged at the point of sale (rather than having import VAT imposed). This VAT must be paid over via a new IOSS return, made every month. UK businesses need to register in a single country for the IOSS. It is intended that this will be a simpler method than requiring the customer to become the importer of record (and therefore responsible for all customs paperwork and charges).
One complication is the requirement for non-EU businesses to appoint a local intermediary. As the intermediary may be jointly and severally liable for any VAT debt, the charges for this can make EU selling a very expensive option. It is hoped that the UK will be exempted from the requirement by the time the scheme is in place, but this remains to be seen at the time of writing. Of course, as the IOSS is optional an alternative is to simply continue with the situation that has been in place since 1 January, i.e. payment of import VAT.
The distance selling thresholds (of €35,000 or €100,000) are being withdrawn from 1 July and replaced by an EU-wide threshold of €10,000. The Mini One Stop Shop (MOSS) is being replaced by a significantly extended version with the One Stop Shop (OSS). The non-Union version of the scheme is also expanded for non-EU established businesses selling services on a B2C basis to EU customers, to include services subject to EU VAT, i.e. where the place of supply is in the EU. Previously, only a limited range of online services (e.g. telecommunications) were covered under MOSS but under the new version, all services will be included.
Information on both schemes is available here.
The agent dedicated line (0300 2003311) has been reintroduced, albeit on a trial basis. The priority line has been unavailable due to reallocation of HMRC's resources during the pandemic. However, HMRC says that it will expect agents to obtain information using digital means wherever possible in order to prioritise queries.
HMRC's most recent spotlight on avoidance takes aim at artificial company pension schemes involving a future obligation to pay a contribution, creating an expense purportedly deductible for corporation tax purposes now. This may then be followed by the transfer of the obligation to a closely associated third-party who receives a payment intended to avoid any immediate income tax or NI consequences. Naturally, HMRC's view is that the arrangements do not work as advertised and will pursue users of the scheme for unpaid amounts and possibly penalties. It is also considering whether the general anti-abuse rule (GAAR) may apply to arrangements going back to 2013. There will also be consequences for promoters or enablers. More information is available in Spotlight 58.
HMRC has warned businesses that pay their VAT bills by direct debit that these will be cancelled if they do not hold a valid email address for the business. The problem is that the banking regulations require HMRC to inform payers of the amount and date of payments in advance, and the period between the VAT return and payment deadlines is too short to enable this by post. If the direct debit is cancelled, a business can reinstate it via the business tax account using an up-to-date email address. Note, this must be done by the business, and not an agent. Cancellation of the direct debit will coincide with the move to a new IT system later in 2021.
The P11D filing deadline for 2020/21 is 6 July 2021. Usually, this is a routine exercise in most cases. However, due to COVID19, some additional consideration may be required this time round. HMRC have published guidance regarding certain items that need some thought because of the pandemic.
Any COVID19 tests provided by the government as part of its national testing scheme, for example for healthcare workers and other frontline staff, are not treated as a benefit in kind.
For other employers, the cost of providing antigen testing kits outside the national testing scheme is not a benefit in kind. There is also no benefit in kind where the employer provides money to an employee in order to obtain a test.
Personal Protective Equipment (PPE)
Where a risk assessment shows that PPE is required for an employee to carry out their duties (e.g. care workers), an employer is required to provide this to the employees free of charge. This is not a benefit in kind. If the employer is unable to procure the PPE directly, there is an obligation to reimburse the cost of purchasing the PPE to employees who purchase it directly. Again, this is not a benefit in kind.
Unless a specific exemption applies, the cost of providing living accommodation for employees working a permanent workplace will be a taxable benefit, even if they are working at that permanent workplace because of COVID19. If the workplace is a temporary workplace the cost of providing the accommodation must still be reported, however the employee may be able to claim relief.
Where an employee is unable to return home due to COVID19, an employer may agree to pay for lodging expenses, e.g. hotel room on a temporary basis. These expenses will be taxable but may be covered by a PAYE settlement agreement if this is agreed by 5 July 2021.
Where an employer reimburses the cost of transport between the workplace and the employee's home it is treated as earnings and should be taxed via payroll. There are some circumstances where an exemption applies. For this to be the case, all four of the following conditions must be met:
- the employee has to work later than usual and until at least 9pm
- this happens irregularly
- by the time the employee finishes work, either:
- public transport has stopped
- it would not be reasonable to expect them to use public transport
- the transport is by taxi or similar road transport.
An exemption may also apply if an employee is usually a party to a car sharing arrangement, and this stops due to COVID19 and the employer reimburses the cost of transportation. In either case, the exemption can only cover a maximum of 60 journeys in any tax year.
Where an employer provides free or subsidised transport, this is taxable and should be reported through a PAYE settlement agreement.
Where an employee is working from home, or has been furloughed, it may be the case that the employer has retained any company car. If this has been done in a way that the employee is physically prevented from using the car, e.g. the employer retains the keys or the contract has been terminated, the benefit in kind calculated for P11D purposes may need to be adjusted for the unavailable period.
This only applies if the car is genuinely not available to the employee for at least 30 consecutive days. It is not enough that the employee is simply instructed not to use the car, even if they can prove that they do not use it. The car must be physically unavailable for them to use. This can be the case even if the car remains at the employee's premises, as the return of keys will mean the car is unavailable.
Working from home
Separate guidance is available here regarding what expenses are incurred relating to employees that are working from home due to COVID-19.
Since April 2020, UK-resident taxpayers have been required to report gains on residential property, and make a payment on account of the tax due, within 30 days of completion. One of the key features of the reporting regime is that this 30-day reporting is only required where tax is due. If a gain is covered by the available annual exempt amount, or by losses that have crystallised before the completion date (but not later losses - even from the same tax year), no special return is needed. In addition, 30-day reporting is not required where the gain is covered by private residence relief, or is partly covered but the non-exempt amount is otherwise covered by the annual exempt amount, or pre-existing losses etc..
One problem with these exemptions is that a homeowner may not have sufficient technical knowledge of how private residence relief works, particularly in situations where there have been periods of absence, or there are multiple residences. They may incorrectly assume that the relief applies in full, and therefore not make a report within the 30-day deadline. Where this is the case, the disposal may not even be reported to the accountant or tax adviser, meaning any mistakes may not be picked up for a considerable time - by which point significant penalties may have accrued.
Periods Of Absence
Where the seller only has one available residence and has lived in it continuously throughout the period of ownership, relief should apply in full. However, certain periods of absence can count as "deemed occupation" as well.
Where there is a delay in occupation, for example where refurbishment is required, a period of up to two years can still qualify as occupation for the purposes of the relief. However, if the delay lasts longer than two years, none of the period can qualify. This is now a statutory, rather than discretionary, entitlement under s. 223ZA TCGA 1992.
The final nine months of ownership are always treated as being occupied - as long as the property has been the only or main residence at some point during the period of ownership. However, it was not so long ago that this final period exemption was 36 months, and some sellers may not be aware of the significant reduction.
Certain other periods of absence also count as deemed occupation, as long as the property was used as the main residence both before and after the absent period. These include:
- periods of up to three years (in total) for any reason;
- periods of absence due to overseas employment where all duties are carried out overseas;
- periods of up to four years whilst working away and the distance from the place of work makes it unrealistic to live in the property, and the employer requires the employee to work away from home.
Someone making a disposal that has been physically absent from the property at any time during the period of ownership should check that the requirements for deemed occupation have been met before assuming that relief will apply in full. HMRC's guidance at CG65065 has a useful example that shows how the relief applies where there are multiple absent periods.
Where the seller has multiple properties that are genuinely occupied as a residence for at least some of the period of ownership, they may have made an election to nominate which should be treated as the main residence for the purposes of the relief and so this should be checked. There is no requirement to nominate the residence which is factually the one occupied most of the time. For example, if a taxpayer purchased a property in the town centre that they occupied for five days a week whilst working and maintained another property in the countryside that they only occupy at weekends, it is perfectly acceptable to nominate the second property as the main residence even though it is occupied less frequently.
There is a two-year time limit, measured from the date the combination of available residences changes, for making a nomination. If no valid nomination is made, HMRC will determine the main residence based on the facts pertinent to the situation. The High Court case of Frost v Feltham confirmed that the question of which is the main, or principal, residence cannot be determined by considering the time spent in each one alone. For this reason, it is essential that the seller does not fall into the trap of assuming that the property they have sold will be viewed by HMRC as their main residence for the purposes of the relief. This is an area HMRC appears to be stepping up enquiries in.
One further area that could cause problems is the assumption that letting relief will apply to cover part of the gain not covered by private residence relief. However, the operation of lettings relief changed in April 2020 so that it only applies for periods where a landlord shares occupation of the property with their tenants. Previously, it applied to any property let that has ever been the main residence of the seller. The change was a cliff edge, i.e. disposals made on or after 6 April 2020 take account of the new rules in full for the whole period of ownership, not just the occupation of the property since the change. Landlords who have moved out of the property and subsequently let it to tenants will no longer qualify. Again, if the seller is not aware of the change, they may wrongly assume that up to £40,000 of the gain is covered by relief.
Any of these incorrect assumptions can mean that a gain does in fact need to be reported within 30 days of completion.
Due to COVID19, some businesses are experiencing long delays in obtaining a VAT number after submitting the registration form. HMRC acknowledged the delays earlier this year and have asked businesses to be patient whilst the backlog is worked through. However, a business that is new to VAT may be confused about what they need to do in the interim.
Strictly speaking, if a business is registering due to exceeding the historic twelve-month turnover threshold it must start charging VAT from the first day of the second month after exceeding that threshold. For example, if the management accounts for June 2021 show that sales have exceeded £85,000 in the previous 12 months the VAT registration date will be 1 August and the business must start charging VAT from that date. The problem is without a VAT number, the business cannot raise a valid VAT invoice.
One option would be to wait until the VAT number is received, however this could cause serious cash flow problems - some businesses have experienced delays of up to four months.
A second option would be to invoice for the full amount, but not to show the VAT as a separate line on the invoice. If this option is chosen, the total including the VAT should be shown as a single amount, and it should be made clear that a VAT invoice will be issued once the VAT number is received. The problem is that where the customer is also VAT registered, they may be reluctant to accept an invoice that is not a valid VAT invoice as they will be unable to reclaim the input tax.
A third option would therefore be for the business to invoice for the net amount now, and then send the VAT-only invoice later on once the number has been issued. It is advisable for businesses to discuss this upfront with customers to avoid any conflict.
Q. I own several restaurants which all sell English-style food. I am planning to sell two of these to separate buyers. The first intends to operate an Asian fusion restaurant, and the second (smaller) premises is going to be turned into a micropub. Both buyers are insisting that the sales will meet the conditions for a transfer of a going concern (TOGC) so that I shouldn't and VAT to the purchase costs. However, I'm slightly worried that this is not correct, as in the first case the type of food served will be different, and in the second case the new establishment will not be a restaurant, although I am told the owner will serve bar snacks. What is the correct position?
A: The good news in the first instance is that the fact that the first buyer will be serving a completely different type of food is irrelevant, it is the fact that they intend to operate as a restaurant, i.e. the same type of business, that is key. Subject to all the conditions being met, this should not be a problem and you shouldn't need to charge VAT. However, the second buyer is intending to trade as a completely different type of business and so this cannot come within the TOGC provisions. You will need to add VAT to the price charged accordingly.
Q. Following the end of the first national lockdown last year I moved to the UK to take up employment. I am intending to claim the remittance basis for as long as possible whilst I am here. However, I also intend to make investments in UK shares. If I make substantial gains on these, am I able to offset offshore losses?
A: By default, offshore capital losses cannot be used to offset UK gains where the remittance basis is used. However, it is possible to make an election to permit them to be offset. You must make the election for the first year you claim the remittance basis, and the time limit for doing so is within four years of the end of that tax year. You should be aware that making the election may not be advantageous, as one result of making it is a strict ordering of how all losses, including UK losses, are offset. This can lead to significant inefficiency. As the election is irrevocable once made, you should speak to a specialist adviser before deciding whether or not to make it.
Q. Our company has a year end of 31 July each year. We have managed to increase our profits despite COVID19 and are likely to vote a bonus to the directors for the first time in several years. The problem is we are unlikely to have the cash to make payment until November for various logistical reasons. Can we include the bonus as a deduction in the accounts to 31/7/2021?
A: Yes - if you act promptly. To be able to deduct the bonus from this year's taxable profits, you need to create an obligation to pay it before the year-end. You should hold a board meeting to do this. Once the obligation is created, the amounts must be paid within nine months of the year-end, so payment in November will not be a problem.
1 - Due date for payment of Corporation Tax for accounting periods ending 30 September 2020
6 - The filing deadline for Form P11D
6 - Employment Related Shares return filing deadline
7 - Electronic VAT return and payment due for the quarter ended 31 May 2021
14 - Claim deadline for employers for furlough days in June.
14 - CT61 quarterly deadline for Q/E 30 June 2021
19/22 - PAYE/NIC, student loan and CIS deductions due for the month to 5/7/2021 and Class 1A NIC for 2020/21
31 - Tax credit renewal forms must be submitted
31 - Second payment on account for 2020/21 due
31 - Trigger date for the second round of automatic penalties late payment of self-assessment for 2019/20
31 - Trigger date for £300 or 5% penalty for continued late filing of 2019/20 tax returns