A summary of the changes announced to increase funding for the NHS and social care budgets from April 2022.

NIC changes

  • From April 2022, employees, employers and the self-employed will see increases in their Class 1 (employers and employees) and Class 4 (the self-employed and business partners) contributions of 1.25%.
  • From April 2023, assuming that HMRC can adapt their system in time, this increase will be renamed the Health and Social Care Levy and will be shown as a separate deduction on payslips and self-assessment statements.
  • From April 2023, the new Levy will also be payable by individuals who continue to work above the State Pension Age. Presently, pensioners who fall into this category pay no NIC deductions.
  • Class 2 and Class 3 NIC deductions will not be affected by these changes.
  • Most employers will not pay the 1.25% increase in their Class 1 contributions for 2022-23 or the new Levy from April 2023, as both will be covered by the present employment allowance (£4,000 in 2021-22). It is estimated that 70 per cent of the money raised from businesses will come from the largest one per cent of businesses – those with at least 250 employees.

Dividend tax changes

Director/shareholders should note that a similar 1.25% hike in the rates of tax they pay on dividends will also apply from April 2022.

From April 2022, the dividend tax increases will apply as follows:

  • Basic rate taxpayers will see an increase from the present 7.5% to 8.75%.
  • Higher rate taxpayers will see an increase from 32.5% to 33.75%.
  • Additional rate taxpayers will see an increase from 38.1% to 39.35%.

This change will apply UK-wide. It will be confirmed as part of the next Budget and legislated for in the next Finance Bill.

The present £2,000 tax-free dividend allowance will continue, and due to the £2,000 tax-free dividend allowance and the personal allowance, around 60 per cent of individuals with dividend income outside of ISAs are not expected to pay any dividend tax or be affected by this change in 2022-23.

The change will affect director/shareholders who have adopted a high dividend, low salary approach to reduce their NIC footprint.

Need more information?

Please call us on 01242 370298 if you need more information regarding these changes.

 

Find out how much State Pension you will get, when you can get it and how you can increase it, if you can…

We are used to reviewing our private pension arrangements on a regular basis, but when was the last time you checked out your State Pension arrangements?

The following notes assume you have not yet reached your State Pension retirement age, but you want to see how many more years National Insurance contributions (NIC) you will need to make to receive a full pension when you retire.

State Pension and your NIC record

Your new State Pension (NSP) is based on the number of NIC contributions you have made when you reach your State Pension retirement age.

To qualify for any NSP you will need at least 10 qualifying years. To qualify for the maximum NSP you will need 35 years if you have no NIC record before 6 April 2016.

What if you had gaps when you did not work?

You may qualify for NIC credits for years you did not work if during those years:

  • you claimed Child Benefit for a child under 12 years of age,
  • if you received Jobseeker’s Allowance or Employment and Support Allowance; or
  • you received Carer’s Allowance.

In certain circumstances you can also make voluntary NIC contributions to fill gaps in your contribution record.

How to apply for a State Pension forecast

There is a simple online process you can use to apply for this forecast.

You can access at https://www.gov.uk/check-state-pension

This will confirm how many years NIC contributions you have made and the current forecast of State Pension you would receive.

NOTE: The government may extend the State Retirement Age or change the rates of NSP you might receive, which is why it is worth applying for a forecast on a regular basis.

You will need to have a Government Gateway account to apply for a forecast. If you need help, please call us on 01242 370298, and we will talk you through what you need to do.

If you are still claiming support via the Furlough Scheme, what are your options when the scheme ends 30 September 2021?

The Coronavirus Job Retention Scheme (CJRS), commonly referred to as the furlough scheme, has proved to be the most effective government support for employers struggling to keep their teams together during the current, unprecedented COVID disruption.

Unfortunately, we are now entering the final quarter for claims as the furlough scheme is closing 30 September 2021.

How have you been affected by COVID disruption?

There are two extreme positions:

  1. Your business has been severely affected by recent events and with no continuing financial support from the furlough scheme you will need to consider redundancies.
  2. The markets have been kinder to you, and you will be able to maintain your present workforce with no changes.

And there will be businesses that sit between these bookends.

Planning for changes

If your business has been adversely affected by recent events and you cannot see how you can survive financially beyond 30 September without shedding staff, before you make any decisions, consider your options.

For example, what are your projections for the next year in respect of:

  • Sales
  • What staff do you need to meet these sales forecasts?
  • Direct costs
  • Other overheads
  • Loan repayments
  • Capital investments

Without considering all these issues you may make the wrong decisions.

We can help

Let us help you prepare a business forecast for at least the next year. This will enable you to try out different options and decide which is the strongest candidate to take your business forward as we start to emerge from – what is hopefully – the worst of COVID lockdown disruption.

Pick up the phone and call us on 01242 370298. Making informed decisions will be your best choice to surviving the coming year and minimising any reduction in your present workforce.

Determine COVID effect on profits for 2020-21 and if lower than previous year reduce tax payment due 31 July 2021.

Many of us have been personally impacted by the COVID outbreak, financially and some health-wise. This alert is being sent to all our clients that submit a self-assessment tax return and are due to make a second payment on account for the tax year 2020-21 on or before 31 July 2021. You may have an opportunity to reduce how much you need to pay.

How have you been affected financially by COVID disruption?

The self-assessment tax payment you are due to make 31 July 2021 is presently based on the profits/income you earned during 2019-20. As we all know, COVID disruption started early 2020. Accordingly, many of us have seen a reduction in taxable income in the following tax year 2020-21.

In which case, could you have payments on account rebased on what has happened in 2020-21 rather than the previous tax year? The answer, of course, is yes you can.

Let’s complete your tax return sooner this year

The most effective way to rebase your 2020-21 tax payments on actual data is to complete and file the 2020-21 tax return before 31 July. In this way we can apply – as part of the tax return submission process – to reduce payments on account due 31 July 2021.

But what if you can’t file your tax return before 31 July 2021

If you can produce a realistic estimate of your income for 2020-21, we can lodge a formal request to HMRC to reduce your tax payments for 2020-21 without actually filing your tax return. The downside of this process is that if your subsequent tax return shows higher income levels than the estimate, then interest charges may be applied by HMRC.

What about the first payment on account for 2020-21 made 31 January 2021?

If your taxable income for 2020-21 is lower than that for 2019-20, then any payment on account you may have made in January 2021 my have been too much. By rebasing your income on actual earnings for 2020-21, and if applicable, applying for both payments on account due January and July 2021 to be reduced, any overpayment made in January will automatically be included in the recalculated payment due 31 July. In some cases, this may result in a tax refund.

What to do next

If you have suffered a reduction in income – for 2020-21 compared to 2019-20 – call us now on 01242 370298 or email us office@wfrancisandco.co.uk so we can get organised. There is no point in paying over hard-won cash reserves to HMRC if it is unnecessary.

Deadline to join this scheme is 21st June 2021.

Businesses that deferred VAT payments last year have until 21st June to join the new online payment scheme and spread the impact of deferred VAT payments.

Which VAT arrears can be paid off in this way?

The scheme covers VAT deferred – and is still unpaid – from the period 20 March 2020 to 30 June 2020 under the VAT Payment Deferral Scheme.

How will payments be spread under this scheme?

Businesses can pay their deferred VAT in two to eight consecutive instalments without adding interest if they join online by 21 June 2021.

A first payment will be taken when you join.

How to join this scheme:

Before joining, you must:

  • have your VAT registration number,
  • create your own Government Gateway account (if you do not already have one),
  • submit any outstanding VAT returns from the last 4 years – otherwise you’ll not be able to join the scheme,
  • correct errors on your VAT returns as soon as possible,
  • make sure you know how much you owe, including the amount you originally deferred and how much you may have already paid.

To use the online service, you must:

  • join the scheme yourself, your agent cannot do this for you,
  • still have deferred VAT to pay,
  • be up to date with your VAT returns,
  • join by 21 June 2021,
  • pay the first instalment when you join,
  • pay your instalments by Direct Debit (if you want to use the scheme but cannot pay by Direct Debit, there is an alternative entry route for you).

Time to act

If you still have unpaid, deferred VAT from last year this scheme offers a way to get up to date with payments and minimise the impact on your cashflow.

Claims process for the final Self-Employed Income Support Scheme grant will open next month.

The 5th and final grant under the SEISS will be opened to claims from late July 2021. This grant will cover the five-month period 1 May 2021 to 30 September 2021. To be eligible for the grant you must be self-employed, either a sole trader or member of a partnership.

Conditions to qualify for this grant:

  • You must have traded in the tax year 2019-20 and submitted your tax return for that year on or before 2 March 2021 and traded in the tax year 2020-21.
  • You must either be currently trading but impacted by reduced demand due to COVID or have been trading but are presently unable to do so due to COVID restrictions.
  • To be eligible to claim HMRC will check previous years tax returns to see if your trading profits are no more than £50,000 and at least equal to your non-trading income.
  • When claiming you must declare that you will continue to trade and that you reasonably believe that your business activity will be reduced in the period 1 May to 30 September 2021.

The 5th grant is different:

The 5th grant will be determined by how much your turnover has been reduced in the year April 2020 to April 2021.

  • If the turnover reduction is 30% or more, you can claim 80% of 3 months’ average trading profits up to a maximum £7,500.
  • If the turnover reduction is less than 30%, you can claim 30% of 3 months’ average trading profits up to a maximum £2,850.

HMRC have said they will provide more information by the end of June to help you work out how your turnover will be affected.

When can you claim:

HMRC will contact you mid-July to give you a date to make your claim.

We can help

If you need help deciding if you can make a claim contact us on 01242 370298 or email us office@wfrancisandco.co.uk when HMRC issue their extended guidance notes later this month.

In this update we have listed some of the tax incentives you may be able to claim if you choose or are required to work from home.

If you are employed:

  • Employers can provide the equipment and supplies that an employee needs to work from home, such as office furniture, stationery, a computer and suchlike, without a taxable benefit arising, if ownership of the equipment remains with the employer and private use is not significant.
  • Employers can also pay employees a tax-free allowance of £6 per week (£26 per month) to cover the cost of additional household expenses incurred because of working from home.
  • If employers do not pay the above allowance (£26 per month), employees can claim an equivalent deduction from their taxable income.

If you are self-employed:

  • If you are self-employed and working from home, expenses are deductible if they are wholly and exclusively incurred for the purposes of the business. This will apply to costs incurred in running a home office, such as cleaning, heat and light, Wi-Fi costs etc.
  • If you don’t want to keep a track of actual costs you can claim a tax office approved flat rate deduction. This ranges from £10 to £26 per month and depends on hours of business use.

If you run a company from home:

  • Directors can charge their company a rent for use of a home office, but rents received in this way may be taxable.
  • A company can meet costs paid by a director that are exclusively for business purposes.
  • Beware claiming for the exclusive business use of space in your home as this may create a capital gains tax charge when you sell your home. This can be avoided if there is a duality of use, i.e., your home office doubles as a spare bedroom or storage area.

Need more help on this topic?

If you want to capitalize on the tax-free perks that are available to home workers, but you are unsure how to set up the arrangement in the most tax efficient way, please call us on 01242 370298 or email office@wfrancisandco.co.uk, we can help you consider the options available.

This applies to any person taxed as a self-employed trader during 2020-21 – it includes non-incorporated property businesses (buy-to-let owners for example).

Did you make a loss or suffer reduced profits during 2020-21?

If you are self-employed and suffered a loss or reduction in profits taxable during the 2020-21 tax year, we need your co-operation to access your accounting records as soon as possible.

The trading year applicable will be the year ending 31 March 2021 (5 April 2021) or if your trading year is not the end of March, then the records for the year ending between April 2020 and March 2021, for example, 31 December 2020.

Why we are making this request

There are two reasons for making this request:

  1. If your taxable, self-employed earnings are less for the tax year 2020-21 – as compared to 2019-20 – we may be able to file an election with the tax office to have any self-assessment tax payments due 31 July 2021 reduced or possibly eliminated. We may also be able to recover some or all of any payment on account you made 31 January 2021.
  2. If you actually made a tax loss during 2020-21, we may be able to carry the tax loss back and recover tax paid in earlier years.

 What we need from you

If you keep manual records, perhaps on a spreadsheet, let us have the information you usually send as soon as you can. The year we need to cover is to 31 March 2021 or the trading year that ends during the tax year 2020-21.

If your accounts are kept on a computer, and we have access to the data, we will just need your confirmation that all transactions are completed for the relevant year.

If your records are computerized and we do not have access to the data, please send us copies of the reports we usually receive from you.

Support grants received during 2020-21

Do not forget that any support grants received during the last year will be taxable. For example, payments received under the Self-Employed Income Support Scheme.

We can help

Please call if you feel that this applies to your circumstances, but you are unsure what information we require, or if you need clarification of the information we need.

We look forward to hearing from you.

 

Perhaps the most innovative give-away in the recent budget was “Super-deductions for investment expenditure”.

What does this mean?

Companies that invest in qualifying plant and machinery in the period from 1 April 2021 to 31 March 2023 will benefit from enhanced capital allowances. Investments in assets that qualify for the main rate of capital allowances of 18% will benefit from a 130% first-year allowance. This means that for every £100 that you spend, you can deduct £130 in computing your taxable profits. This is equivalent to a tax saving of 24.7%.

What this does not mean?

What this change does not mean is the notion that you can deduct 130% of the cost of a qualifying purchase from your tax bill. The deduction is made from your company’s taxable profits.

For example…

If your company invests say £5,000 in qualifying plant it will be able to write off £6,500 (£5,000 x 130%) against its taxable profits. If your company has taxable profits more than £6,500, it will save £1,235 (£6,500 x 19%) in corporation tax. Which means:

  • Your tax saving is 24.7% (£1,235/£5,000) of your investment cost, and
  • The net cost of your investment is effectively £3,765 (£5,000 – £1,235)

Beware the fine print

As you would expect, there will be circumstances – grey areas – where the legislation that maps out the do’s and don’ts to claiming this relief will deny you the 130% deduction. In their notes describing the proposed changes HMRC said:

“Certain expenditures will be excluded…, there will be exclusions for used and second-hand assets and expenditures on contracts entered into prior to 3 March 2021 even if expenditures are incurred after 1 April 2021. Plant and machinery expenditure which is incurred under a Hire Purchase or similar contract must also meet additional conditions to qualify for the super-deduction…

And there are alternatives

Even if you cannot claim this 130% Super-deduction, your expenditure may qualify for the existing 100% Annual Investment Allowance, a 50% or 100% First Year allowance or a range of writing down allowances.

Check out if you could claim

However, this is a significant incentive to invest if your company is likely to be profitable from 1 April 2021. To ensure that any significant investment you may make will qualify for the Super-deduction or to discuss other tax options, please call us on 01242 370298.

Since April 2020, all UK residential properties disposed of by UK resident taxpayers – that create a taxable gain for Capital Gains Tax (CGT) purposes – will have to be reported to HMRC within 30-days of the disposal. Any CGT payable will have to be paid over to HMRC in the same 30-day window. Generally, this will include sales of second homes and buy-to-let property.

What if I sell a property and don’t make a taxable profit?

The new 30-day disclosure deadline only applies, in practice, to property disposals that create a taxable gain. For example, if you sell a buy-to-let property and make a loss on sale you will not have to make a return within the 30-day window.

Does this mean I have to submit a tax return every time I sell a property?

Effectively, yes it does, although restricted to details of any property disposal that creates a chargeable gain. Penalties may apply if you file outside the 30-day window.

How do I work out how much tax is payable?

As part of the 30-day submission to HMRC, you are required to estimate the amount of CGT payable based on your present understanding of the factors that affect this liability. As your other earnings will determine if the CGT you pay is at 18% or 28% – or a mix of the two – estimating these other earnings and getting the number crunching right will be no mean feat.

During the 30-day window you will need to: prepare a formal computation and a calculation of the CGT due, and submit both to HMRC, and pay any CGT this computation reveals.

At the end of tax year during which you made the disposal you will also need to include the computation again as part of your actual return. This annual confirmation of the gain may result in an over or under payment of tax as the annual return will be based on actual data and not the estimated data used to comply with the 30-day rule.

We can help. Read the section that follows.

Advise us in advance if you intend to sell a chargeable property

  1. Prior to the completion date, advise us which property is to be sold and the estimated selling price and sales costs.
  2. We will immediately draw together the data we have about the property and confirm with you that this is correct. This will not only include the purchase price, but also improvements made since you bought the property.
  3. We will use this information to prepare a draft computation (based on our prior knowledge of your tax affairs) and advise you of the possible CGT payable 30-days after the sale completes.
  4. When the sale does complete, we can then adjust the numbers for any final changes in the sale particulars and agree the computation with you.
  5. Once agreed, we can file the CGT computation with HMRC and advise you when and where you should pay any tax due.

To meet these relatively new reporting regulations, we will need to move quickly to meet the 30-day deadline and would request that you contact us immediately if you are planning to sell.