Our Blog

Numeric Accounting has offices in Salisbury, Wiltshire & in Dibden (near Hythe) in Hampshire. We offer a full range of professional accountancy services to businesses across the UK.

COVID-19

Self-Employed Update

Self-employment Income Support Scheme

On Thursday 26 March the government announced their intention to provide further support for the self-employed in the form of a taxable cash grant.

The scheme allows individuals to claim a taxable grant worth 80% of their trading profits up to a maximum of £2,500 per month for the 3 months from March to May 2020. This may be extended if needed.

The taxable cash grant will be in the form of a single lump sum to cover the three months from March to May 2020. It will be paid in June 2020 to those that are eligible directly into their bank account.

The self-employed including members of Partnerships will be eligible if their trading profits for 18/19 were less than £50,000 and more than 50% of their income stems from self-employment.

Alternatively, they will be eligible if their average trading profits for the tax years 16/17, 17/18 and 18/19 were less than £50,000 and more than 50% of their income stems from self-employment. For those that started trading between 2016-19 HMRC will only use those years for which a Self-Assessment tax return has been filed.

The scheme will be open to those that have submitted an income tax self-assessment tax return for the year to 5 April 2019 (the 18/19 tax year). Worth noting that HMRC’s guidance does state that the 18/19 tax return must be filed by 23 April 2020 in order to eligible! For those that have yet to file their 18/19 tax return, it represents something of an opportunity.

Additional eligibility criteria include the requirement that the individual must have lost trading profits due to Covid-19 and they must have traded in 2019/2020, intend to trade in 2020/2021 and are trading at the point of application or would have been except for Covid-19.

Individuals that claim Tax Credits would need to include the grant as part of their income.

It is crucial to observe that HMRC will contact and invite those that are eligible to apply. Applications will need to be made online when the invitations have been issued by HMRC.

Individuals do not need to contact HMRC now.

Those who pay themselves a salary and dividends through their own company are NOT covered by the scheme but will be covered for their salary by the Coronavirus Job Retention Scheme if they are operating PAYE schemes.

COVID-19

CORONAVIRUS BUSINESS INTERRUPTION LOAN SCHEME

THE CORONAVIRUS BUSINESS INTERRUPTION LOAN SCHEME (CBILS) IS NOW AVAILABLE THROUGH PARTICIPATING LENDERS

INTRODUCTION
CBILS is a new scheme, announced by The Chancellor at Budget 2020, that can provide facilities of up to £5m for smaller businesses across the UK who are experiencing lost or deferred revenues, leading to disruptions to their cashflow.

CBILS supports a wide range of business finance products, including term loans, overdrafts, invoice finance and asset finance. The scheme provides the lender with a government-backed guarantee potentially enabling a ‘no’ credit decision from a lender to become a ‘yes’. The borrower always remains 100% liable for the debt.

Overview of the scheme: https://www.british-business-bank.co.uk/ourpartners/coronavirus-business-interruption-loan-scheme-cbils/

CBILS: KEY FEATURES
Up to £5m facility: The maximum value of a facility provided under the scheme will be £5m, available on repayment terms of up to six years.

80% guarantee: The scheme provides the lender with a government-backed, partial guarantee (80%) against the outstanding facility balance, subject to an overall cap per lender.
No guarantee fee for SMEs to access the scheme: No fee for smaller businesses. Lenders will pay a fee to access the scheme.

Interest and fees paid by Government for 12 months: The Government will make a Business Interruption Payment to cover the first 12 months of interest payments and any lender-levied fees [1], so smaller businesses will benefit from no upfront costs and lower initial repayments.[2]
Finance terms: Finance terms are up to six years for term loans and asset finance facilities. For overdrafts and invoice finance facilities, terms will be up to three years.

Security: At the discretion of the lender, the scheme may be used for unsecured lending for facilities of £250,000 and under. For facilities above £250,000, the lender must establish a lack or absence of security prior to businesses using CBILS. If the lender can offer finance on normal commercial terms without the need to make use of the scheme, they will do so.

The borrower always remains 100% liable for the debt.

ELIGIBILITY CRITERIA
Smaller businesses from all sectors [3] can apply for the full amount of the facility. To be eligible for a facility under CBILS, an SME must:
• Be UK-based in its business activity, with annual turnover of no more than £45m
• Have a borrowing proposal which, were it not for the current pandemic, would be considered viable by the lender, and for which the lender believes the provision of finance will enable the business to trade out of any short-to-medium term difficulty.

Please note: If the lender can offer finance on normal commercial terms without the need to make use of the scheme, they will do so.

NOTES:
1. Some lenders indicated that they would not charge arrangement fees or early repayment charges to SMEs borrowing under the scheme.
2. Fishery, aquaculture and agriculture businesses may not qualify for the full interest and fee payment.
3. The following trades and organisations are not eligible to apply: Banks, Building Societies, Insurers and Reinsurers (but not insurance brokers); The public sector including state funded primary and secondary schools; Employer, professional, religious or political membership organisations or trade unions.

ACCESS TO THE SCHEME
Full details click here.

CBILS is available through the British Business Bank’s 40+ accredited lenders, which are listed on the British Business Bank website here:

Businesses should approach their own provider – typically via the lender’s website. They may also consider approaching other lenders if they are unable to access the finance they need.
Decision-making on whether you are eligible for CBILS is fully delegated to the 40+ accredited CBILS lenders. These lenders range from high-street banks, to challenger banks, asset-based lenders and smaller specialist local lenders.

Note: if the accredited lender can offer finance on normal commercial terms without the need to make use of the scheme, they will do so.

WHAT TYPES OF FINANCE ARE AVAILABLE AND WHO OFFERS WHICH TYPE?
CBILS supports a wide range of business finance facilities, including:
• Term loans
• Overdrafts
• Asset finance
• Invoice finance

Additional application notes:
Given there is likely to be a big demand for facilities once the scheme goes live, The British Business Bank asks you to please:

Consider applying via the lender’s website in the first instance. Telephone lines are likely to be busy and branches may have limited capacity to handle enquires due to social distancing
Consider the urgency of your need – it is possible that some businesses may be looking for regular longer-term finance rather than ‘emergency’ finance, and there may other businesses with a more urgent need to speak with a lender.

FAQ Briefing sheet:

A useful summary to compare business loans can be found on the KNOWYOURMONEY website

NEXT STEPS
Applications should be made to your usual bank or finance company.

We can advise you on making the loan application. There will be administration and information to collect before you make the application. Typically, banks will require three years trading results and a Statement of “Support and Resilience”.

The loan process typically involves:

• Step 1: You submit an application (typically online);
• Step 2: An account manager reaches out to you to learn more about your business, collect documentation and find terms that suit your need.
• Step 3: Underwriters review your application and make a decision. They may contact you or your accountant if they have additional questions.
• Step 4: You accept a loan offer and you’ll be fully funded.

Note: As of 23 March 2020, some banks have not updated their websites or provided details of the Coronavirus Business Interruption Loan Scheme. Please keep your eye out for updates.

COVID-19

JOB RETENTION SCHEME

PLEASE NOTE: NOTE THIS GUIDANCE IS STILL INCOMPLETE AND THE GOVERNMENT NEED TO ISSUE FURTHER BRIEFING NOTES ON THE DETAIL.

Introduction

Under the coronavirus Job Retention Scheme, all UK employers with a PAYE scheme will be able to access support to continue paying part of their employees’ salary for those that would otherwise have been laid off during this crisis. This applies to employees who have been asked to stop working, but who are being kept on the payroll, otherwise described as “furloughed workers”. HMRC will reimburse 80% of their wages, up to £2,500 per month. This is to safeguard workers from being made redundant. The Coronavirus Job Retention Scheme will cover the cost of wages backdated to 1ST March and is initially open for 3 months but will be extended if necessary.

All UK-wide employers with a PAYE scheme will be eligible – this includes the public sector, Local Authorities and Charities.

What we know so far:

  • If your businesses has been severely affected by the Pandemic and you were about to make employees redundant, the CJRS offers the alternative of “Furlough”. The ‘furloughed workers’ will be on ‘furlough leave’. During this time, they will continue to be employed by the employer, but they will not be required to work for a temporary period of time.  The CJRS will assist employers by reimbursing them up to 80% of the wages of each ‘furloughed worker’, up to a maximum of £2,500 a month. (We will update you once the government confirms whether this means £2,500 a month before or after tax).
  • The CJRS will run from April 2020 (date to be confirmed) but will be backdated to 1 March 2020 (such that anyone who has been laid off since 1 March and has not left the business under redundancy can be caught by the scheme) and is expected to run for at least 3 months (although the government may decide to extend it as things progress).
  • The current guidance around the CJRS talks about “reimbursing” employers for wage costs and so our expectation is that employers will need to pay their employees at least 80% of their normal wages during any lay off period and then they apply for a grant which will reimburse them. This means that employers are likely to have to deal with cash flow issues in the interim.

CJRS Guidance:

We have had many clients asking us about the mechanics of the CJRS and below we outline (as best we can) the order of actions an employer should take to comply with the scheme:

  1. Employers will need to designate affected employees as ‘furloughed workers’ and notify those employees of this change and agree this with them.

  2. You should check employee contracts of employment to see if there is a contractual right to lay employees off if there is a downturn in work. If not you will need to discuss and agree with employees that they are “Furloughed”. This may involve a negotiation. Either way you will probably need employees’ consent. Given the alternative of redundancy one assumes common sense will prevail. Note if you have more than 20 employees whose contracts need to be changed a more formal consultation process will need to be done and we recommend legal advice at this point.

  3. Employers should notify employees in writing and explain why the decision was necessary (Covid-19 Pandemic). See Furlough Letters further below.

  4. Please note it is solely the employer’s choice to Furlough and not the employee. If the employee requests to be furloughed, the employer can refuse to agree e.g. if there is still work for them to do.

  5. Employers then need to submit information to HMRC about those employees who have been designated as ‘furloughed’ and their earnings via a new online portal which is being set up. If you are doing this for the March payroll run you should keep a list of Furloughed employees and salary details.

  6. HMRC will then reimburse 80% of wage costs for ‘furloughed workers’ up to a cap of £2,500 per month, per ‘furloughed worker’. Exactly when these funds will be available is currently unknown. (We will advise you when the Portal is “live”).

  7. Furloughed employees could be paid 80% of their pay or higher if the employer chooses (bearing in mind the CJRS will reimburse a maximum of 80% to a maximum of £2500 per employee).

  8. Points 8 and 9 below need Government clarification.

  9. In the government’s guidance to employees on this subject, it mentions that employers can claim a grant of up to 80% of a ‘furloughed employee’s’ wages ‘for all employment costs, up to a cap of £2,500 per month’. This suggests that this covers thing such as pension contributions, employer’s NICs etc.

  10. Further information on this point is awaited so it can be confirmed whether employers can only use the CJRS grant in respect of an employee’s basic pay or their average take-home pay (which may, for example, include overtime and commission too).

  11. Employees should not undertake any work for their employer while they are ‘furloughed’. The fact that the employer is unable to give its employees any work for the time they are ‘furloughed’ is what allows them to claim up to 80% of the employee’s wage for all employment costs (up to £2,500 a month).

  12. This scheme does not seem to apply to those on short-time working (e.g. shorter days) or those working certain days of a working week, although this is not yet clear. We will update you when we have further information.

  13. Guidance is needed on whether employees can work “elsewhere” to make up the 20%

  14. Further guidance is awaited on employees on holiday, maternity, sick or self-isolating.

 

Key points for employers:

  • Ensure that you document your thought processes and discussions when deciding which employees are to be designated at ‘furloughed’ – treat it as if it is a redundancy situation and think about how you would need to evidence your decision.
  • Consider if putting employees on furlough leave is absolutely necessary and reasonable to do in the circumstances. Again, make sure you record your reasons (in writing).
  • Ensure that you notify employees being designated as ‘furloughed’ in writing, giving your reasons, making clear any terms that will apply during this period, and offering reassurance that financial support via the CJRS will be available.
  • The CJRS is intended to be a reimbursement scheme so it is envisaged that the employer will have to make the payments to employees first and then seek reimbursement from HMRC.
  • Be understanding that there may be groups of employees that feel hard done to e.g. those who are genuinely sick with the Coronavirus, those having to self-isolate as a family member is sick, the over 70s and those in vulnerable groups who are only entitled to SSP or contractual sick pay (which may be less than 80% pay) and they feel it is unfair that those ‘furloughed’ are getting much more.

FURLOUGH LETTERS

An employee furlough refers to a temporary leave or modification of normal working hours for a specific amount of time. It’s a leave of absence given to an employee with the promise that they will still have their job once the leave is over.

There are numerous reasons why employers implement a furlough employee policy, such as plant shutdowns, seasonal work, company reorganizations and reduced demand due to COVID-19.

Don’t rush into implementing an employee furlough policy without talking to your lawyer or HR specialist first.

If you need further help with this then we can provide a breakdown of what you will need to include in the letter and a letter template. This is available to clients on request.

COVID-19

VAT DEFERRAL

For VAT, the deferral will apply from 20 March 2020 until 30 June 2020.

All UK businesses are eligible.

How to access the scheme:

This is an automatic offer with no applications required. Businesses will not need to make a VAT payment during this period. Taxpayers will be given until the end of the 2020 to 2021 tax year to pay any liabilities that have accumulated during the deferral period. VAT refunds and reclaims will be paid by the government as normal.

Customers who normally pay by direct debit should cancel their direct debit with their bank if they are unable to pay. Please do so in sufficient time so that HMRC do not attempt to automatically collect on receipt of your VAT return.

https://www.gov.uk/government/publications/guidance-to-employers-and-businesses-about-covid-19/covid-19-support-for-businesses

COVID-19

3-MONTH EXTENSION PERIOD TO FILE ACCOUNTS

Companies to Receive 3-Month Extension Period to File Accounts During COVID-19

From today (25 March 2020), businesses will be able to apply for a 3-month extension for filing their accounts.

This joint initiative between the government and Companies House will mean businesses can prioritise managing the impact of Coronavirus.

As part of the agreed measures, while companies will still have to apply for the 3-month extension to be granted, those citing issues around COVID-19 will be automatically and immediately granted an extension. Applications can be made through a fast-tracked online system which will take just 15 minutes to complete.

Please see:

https://www.gov.uk/guidance/apply-for-more-time-to-file-your-companys-accounts

Applying for an extension:

https://beta.companieshouse.gov.uk/extensions?_ga=2.135485106.227783380.1584965618-962621089.1583406783

COVID-19

COVID 19 Resources

As you are no doubt aware the Chancellor, Rishi Sunak, laid out some new measures on the 20th March 2020 in order to help businesses survive the current COVID-19 pandemic.

Below we have listed everything that came out of the speech and how businesses can go about applying for assistance in these uncertain times.

#1 GOVERNMENT SUPPORT FOR BUSINESSES

On Friday 21ST the Chancellor set out a package of measures to support public services, people and businesses through the period of disruption caused by COVID-19.

The package of measures to support businesses includes:

  • Coronavirus Job Retention Scheme
  • Deferring VAT and Income Tax payments
  • A Statutory Sick Pay relief package for SMEs
  • A 12-month business rates holiday for all retail, hospitality and leisure businesses in England
  • Small business grant funding of £10,000 for all business in receipt of small business rate relief or rural rate relief
  • Grant funding of £25,000 for retail, hospitality and leisure businesses with property with a rateable value between £15,000 and £51,000
  • The Coronavirus Business Interruption Loan Scheme offering loans of up to £5 million for SMEs through the British Business Bank
  • A new lending facility from the Bank of England to help support liquidity among larger firms, helping them bridge coronavirus disruption to their cash flows through loans
  • HMRC Time To Pay Scheme

We will keep you informed about the details of each of these packages and how to apply. Be safe and stay strong!

#2 CORONAVIRUS JOB RETENTION SCHEME

Under the Coronavirus Job Retention Scheme, all UK employers will be able to access support to continue paying part of their employees’ salary for those employees that would otherwise have been laid off during this crisis. All UK businesses are eligible.

Eligibility:

You will need to:

  • designate affected employees as ‘furloughed workers,’ and notify your employees of this change – changing the status of employees remains subject to existing employment law and, depending on the employment contract, may be subject to negotiation
  • submit information to HMRC about the employees that have been furloughed and their earnings through a new online portal (HMRC will set out further details on the information required)

HMRC will reimburse 80% of furloughed workers wage costs, up to a cap of £2,500 per month. HMRC are working urgently to set up a system for reimbursement. Existing systems are not set up to facilitate payments to employers.

#3 DEFERRING VAT AND INCOME TAX PAYMENTS

The Government will support businesses by deferring Valued Added Tax (VAT) payments for 3 months. If you’re self-employed, Income Tax payments due in July 2020 under the Self-Assessment system will be deferred to January 2021.

VAT

For VAT, the deferral will apply from 20 March 2020 until 30 June 2020.

All UK businesses are eligible.

How to access the scheme

This is an automatic offer with no applications required. Businesses will not need to make a VAT payment during this period. Taxpayers will be given until the end of the 2020 to 2021 tax year to pay any liabilities that have accumulated during the deferral period. VAT refunds and reclaims will be paid by the government as normal.

INCOME TAX

For Income Tax Self-Assessment, payments due on the 31 July 2020 will be deferred until the 31 January 2021.

If you are self-employed you are eligible. This is an automatic offer with no applications required.

No penalties or interest for late payment will be charged in the deferral period.

HMRC have also scaled up their Time to Pay offer to all firms and individuals who are in temporary financial distress as a result of Covid-19 and have outstanding tax liabilities.

#4 SUPPORT FOR BUSINESSES WHO ARE PAYING SICK PAY TO EMPLOYEES

The Government will make legislation to allow small-and medium-sized businesses and employers to reclaim Statutory Sick Pay (SSP) paid for sickness absence due to COVID-19. The eligibility criteria for the scheme will be as follows:

  • this refund will cover up to 2 weeks’ SSP per eligible employee who has been off work because of COVID-19
  • employers with fewer than 250 employees will be eligible – the size of an employer will be determined by the number of people they employed as of 28 February 2020
  • employers will be able to reclaim expenditure for any employee who has claimed SSP (according to the new eligibility criteria) as a result of COVID-19
  • employers should maintain records of staff absences and payments of SSP, but employees will not need to provide a GP fit note. If evidence is required by an employer, those with symptoms of coronavirus can get an isolation note from NHS 111 online and those who live with someone that has symptoms can get a note from the NHS website
  • eligible period for the scheme will commence the day after the regulations on the extension of SSP to those staying at home comes into force
  • the government will work with employers over the coming months to set up the repayment mechanism for employers as soon as possible.

You are eligible for the scheme if your business is UK based and your business is a small or medium-sized and employs fewer than 250 employees as of 28 February 2020.

#5 SUPPORT FOR BUSINESSES THAT PAY BUSINESS RATES 

Business rates holiday for retail, hospitality and leisure businesses

The Government is introducing a business rates holiday for retail, hospitality and leisure businesses in England for the 2020 to 2021 tax year.

Businesses that received the retail discount in the 2019 to 2020 tax year will be rebilled by their local authority as soon as possible.

You are eligible for the business rates holiday if:

  • your business is based in England
  • your business is in the retail, hospitality and/or leisure sector
  • Properties that will benefit from the relief will be occupied hereditaments that are wholly or mainly being used:
    • as shops, restaurants, cafes, drinking establishments, cinemas and live music venues
    • for assembly and leisure
    • as hotels, guest & boarding premises and self-catering accommodation

How to access the scheme:

There is no action for you. This will apply to your next council tax bill in April 2020. However, local authorities may have to reissue your bill automatically to exclude the business rate charge. They will do this as soon as possible.

See: https://www.gov.uk/calculate-your-business-rates where you can estimate the business rate charge you will no longer have to pay and further guidance can be found at: https://www.gov.uk/government/publications/business-rates-retail-discount-guidance

#6 CASH GRANTS FOR RETAIL, HOSPITALITY AND LEISURE BUSINESSES

The Retail and Hospitality Grant Scheme provides businesses in the retail, hospitality and leisure sectors with a cash grant of up to £25,000 per property. For businesses in these sectors with a rateable value of under £15,000, they will receive a grant of £10,000. For businesses in these sectors with a rateable value of between £15,001 and £51,000, they will receive a grant of £25,000.

You are eligible for the grant if:

  • your business is based in England
  • your business is in the retail, hospitality and/or leisure sector

Properties that will benefit from the relief will be occupied hereditaments that are wholly or mainly being used:

  • as shops, restaurants, cafes, drinking establishments, cinemas and live music venues
  • for assembly and leisure
  • as hotels, guest and boarding premises and self-catering accommodation

Accessing the scheme:

You do not need to do anything. Your local authority will write to you if you are eligible for this grant. Guidance for local authorities on the scheme will be provided shortly. Any enquiries on eligibility for, or provision of, the reliefs and grants should be directed to the relevant local authority.

To find your local authority: https://www.gov.uk/find-local-council

#7 SUPPORT FOR BUSINESSES THAT PAY LITTLE OR NO BUSINESS RATES

The government will provide additional Small Business Grant Scheme funding for local authorities to support small businesses that already pay little or no business rates because of small business rate relief (SBBR), rural rate relief (RRR) and tapered relief. This will provide a one-off grant of £10,000 to eligible businesses to help meet their ongoing business costs.

You are eligible if:

  • your business is based in England
  • you are a small business and already receive SBBR and/or RRR
  • you are a business that occupies property

How to access the scheme

You do not need to do anything. Your local authority will write to you if you are eligible for this grant. Guidance for local authorities on the scheme will be provided shortly.

Any enquiries on eligibility for, or provision of, the reliefs and grants should be directed to the relevant local authority.

To find your local authority: https://www.gov.uk/find-local-council 

#8 SUPPORT FOR BUSINESSES THROUGH THE CORONAVIRUS BUSINESS INTERRUPTION LOAN SCHEME

A new temporary Coronavirus Business Interruption Loan Scheme, delivered by the British Business Bank, will launch this week to support primarily small and medium-sized businesses to access bank lending and overdrafts.

The government will provide lenders with a guarantee of 80% on each loan (subject to a per-lender cap on claims) to give lenders further confidence in continuing to provide finance to SMEs. The government will not charge businesses or banks for this guarantee, and the Scheme will support loans of up to £5 million in value.

Businesses can access the first 12 months of that finance interest free, as government will cover the first 12 months of interest payments.

You are eligible for the scheme if:

  • your business is UK based, with turnover of no more than £45 million per year
  • your business meets the other British Business Bank eligibility criteria

How to access the scheme

The full rules of the Scheme and the list of accredited lenders is available on the British Business Bank website: https://www.british-business-bank.co.uk/ourpartners/coronavirus-business-interruption-loan-scheme-cbils/

All the major banks will offer the Scheme once it has launched. There are 40 accredited providers in all.

You should talk to your bank or finance provider (not the British Business Bank) as soon as possible and discuss your business plan with them. This will help your finance provider to act quickly once the Scheme has launched. If you have an existing loan with monthly repayments you may want to ask for a repayment holiday to help with cash flow.

The scheme will be available from early next week commencing 23 March.

We will keep you informed on how to apply as the details emerge.

#9 SUPPORT FOR LARGER FIRMS THROUGH THE COVID-19 CORPORATE FINANCING FACILITY

Under the new Covid-19 Corporate Financing Facility, the Bank of England will buy short term debt from larger companies.

This will support your company if it has been affected by a short-term funding squeeze and allow you to finance your short-term liabilities. It will also support corporate finance markets overall and ease the supply of credit to all firms. All UK businesses are eligible. he scheme will be available early in week beginning 23 March 2020. We will provide information on how to access the scheme here shortly. More information is available from the Bank of England: https://www.bankofengland.co.uk/markets/market-notices/2020/ccff-market-notice-march-2020

#10 SUPPORT FOR BUSINESSES PAYING TAX: TIME TO PAY SERVICE

All businesses and self-employed people in financial distress, and with outstanding tax liabilities, may be eligible to receive support with their tax affairs through HMRC’s Time to Pay service.

These arrangements are agreed on a case-by-case basis and are tailored to individual circumstances and liabilities. You are eligible if your business pays tax to the UK government and has outstanding tax liabilities.

If you have missed a tax payment or you might miss your next payment due to COVID-19, please call HMRC’s dedicated helpline: 0800 0159 559. If you’re worried about a future payment, please call them nearer the time.

#11 INSURANCE

Businesses that have cover for both pandemics and government-ordered closure should be covered, as the government and insurance industry confirmed on 17 March 2020 that advice to avoid pubs, theatres etc is sufficient to make a claim as long as all other terms and conditions are met.

Insurance policies differ significantly, so businesses are encouraged to check the terms and conditions of their specific policy and contact their providers. Most businesses are unlikely to be covered, as standard business interruption insurance policies are dependent on damage to property and will exclude pandemics.

Tax News

Tax relief on training costs explained

Is tax relief available for training costs when setting up a new trade in a limited company?

We have been asked this question a number of times recently.

Corporation Tax Relief is generally available for officer and employee training costs. Income Tax Relief and National Insurance Relief is also available to officers and employees who receive work-related training.

Where a limited company provides training to officers and/or employees a corporation tax deduction is available as long as the expenditure meets the basic requirement of being wholly and exclusively for the purpose of the trade. In most cases, the company will be providing training so employees can better perform their duties in the trade or to advance the companies trade and a deduction will be available.

Employees (including officers) are subject to income tax on any benefit received, however, exemptions for income tax and national insurance are available for ‘work-related’ training.

Where a company provides training costs to any officer or employee which is not work-related, for example, a company manufacturing widgets sending its Finance Director on a candle making course, the costs of the training is not work-related and is therefore taxable as a benefit in kind for the director. The benefit is reportable on the director’s p11d.

The cost of the candle making course is, however, a deductible expense for corporation tax purposes, as it is part of the Finance Director’s remuneration package, and their employment is wholly and exclusively for the purpose of the company trade.

This guidance does not apply to sole traders or partnership businesses.

If anyone has any questions regarding training costs please do get in touch.

Helpful Tips

Paying Personal Self Assessment Tax

The easiest way to pay your tax bill is by faster payment transfer using your online banking service.

If you have had a bill from HMRC this will tell you which bank account to use when making payment. If you are not sure which account to use then go with HMRC Cumbernauld.

Account details to use are:

Sort code: 08 32 10
Account number: 12001039
Account name: HMRC Cumbernauld

or;

Sort code: 08 32 10
Account number: 12001020
Account name: HMRC Shipley

You’ll need to use your 11-character payment reference when you pay. This is made up of your 10-digit Unique Taxpayer Reference (UTR) followed by the letter ‘K’. You can find this on your Electronic Self Assessment Tax Return (middle of page 1).

Tax News

Pension Tax Relief Restricted for Higher Earners

As mentioned in the Conservative party manifesto, tax relief for pension contributions is to be restricted for those with income in excess of £150,000 a year. We were told that this is intended to fund the increase in the inheritance allowance for passing on the family home.

The current £40,000 pension annual allowance will be reduced by £1 for every £2 of income in excess of £150,000 down to a minimum of £10,000 at £210,000 of income. So, for example, where an individual has income of £170,000 in 2016/17, the £40,000 annual allowance would be reduced to £30,000.

Note also that, as already announced, the pension lifetime allowance is due to be reduced from £1.25 million to £1 million from 6 April 2016 with transitional protection for those with pension savings in excess of the new limit.

The Chancellor has also announced in the July Budget that there would be a further review of pension savings and pensions taxation.

Contact us if you need advice on pension planning and how the new pension rules will impact on you personally.

Tax News

Corporation Tax Rate to be Cut to 18%

The current UK corporation tax rate of 20% is the lowest rate in the G20, the 20 major trading nations. This rate continues to apply until 2017 when it has been announced that the rate will be reduced to 19% and then 18% in 2020. This appears to make trading via a limited company more attractive but note that there are significant changes to the taxation of dividends that take effect from 6 April 2016.

Tax News

Buy to Let Landlords – Interest Relief to be Restricted to Basic Rate

The Chancellor announced that the amount of income tax relief landlords can get on residential property finance costs (such as mortgage interest) will be restricted to the basic rate of tax. To give landlords time to adjust, the change will be phased in gradually over a 4 year period:

  • 2017/18 – the deduction will be restricted to 75% of finance costs, with 25% being available as a basic rate tax reduction.
  • 2018/19 – 50% finance costs deduction and 50% given as a basic rate tax reduction
  • 2019/20 – 25% finance costs deduction and 75% given as a basic rate tax reduction

From 2020/21 – all financing costs incurred by a landlord will be given as a basic rate tax reduction.

Tax News

Annual Investment Allowance set Permanently at £200,000

The annual investment allowance (AIA) was due to be reduced from the current temporary level of £500,000 to just £25,000 from 1 January 2016. However the Chancellor has bowed to pressure from industry to stop tinkering with this allowance for expenditure on plant and machinery and set it at a permanent level so that businesses can plan their capital expenditure. He has decided on £200,000 for the new limit and businesses should consider bringing forward expenditure to before 1 January 2016 to benefit from the current higher allowance.

News

New ‘National living Wage’ Tax Credit Changes

The most radical announcement by the Chancellor on 8th July was a significant reduction in the amount the government plans to spend on tax credits and other State benefits. At the same time he announced that there would a new national living wage to be paid by employers, rising to £9 an hour by 2020.

This strategy combined with the increase in the personal allowance to £11,000 for 2016/17, and eventually £12,500, means that employees will keep more of what they earn but the tax credits received to top up their income will be significantly reduced.

Employers will need to assess the impact of this change on the profitability of their business and we can help you consider this in more detail as there are other factors such the increase in the employment allowance to £3,000 next year and the planned reductions in the corporation tax rate that may also be relevant to your business.

Tax News

Inheritance Tax and the Family Home

As mentioned last month the Chancellor has confirmed the introduction of an additional inheritance allowance that will be available in addition to the current £325,000 nil rate band which will, when fully phased in, allow a couple to pass on the family home tax free up to a value of £1,000,000.

The additional allowance, which will also be transferrable to the surviving spouse, will start at £100,000 for 2017/18. The allowance will then increase to £125,000 in 2018/19, £150,000 in 2019/20, and £175,000 in 2020/21. Unfortunately the Chancellor also announced that the inheritance tax nil rate band will be frozen at £325,000 until 6 April 2021.

The main residence nil band is subject to a taper where the amount being left is more than £2,000,000 with £1 of the family home allowance being lost for every £2 of estate value over £2,000,000. This clawback is based on the value of the estate before reliefs such as business property relief and agricultural property relief and may result in some additional complications and redrafting of Wills.

If this change is likely to affect your family circumstances you may wish to arrange a meeting with us to consider the impact on your family’s inheritance tax position.

Tax News

Changes to Taxation of Dividends

The Chancellor has announced that from 6 April 2016 there will no longer be a notional tax credit associated with dividends received and the following rates will apply after a £5,000 tax free dividend allowance (which will be treated as a nil rate band):

  • Basic rate taxpayers – 7 ½%
  • Higher rate taxpayers – 32 ½%
  • Additional rate taxpayers – 38.1%

This will mean that from 2016/17 individuals will be able to receive up to £17,000 tax free:

  • Personal allowance £11,000
  • Tax free interest £1,000
  • Tax free dividends £5,000

A common strategy that we often advise to family company director/shareholders is that they extract profits from their company by way of dividends instead of paying themselves a salary. This is because there are no national insurance contributions on dividend payments and where the dividend income falls within the basic rate band (up to £42,385 for 2015/16) there is currently no income tax on dividends.

Where both husband and wife are directors and shareholders they will be able to pay themselves a salary of £11,000 each for 2016/17 and then dividends of £5,000 each tax free. However the next £27,000 of dividends up to the new £43,000 higher rate threshold would be taxed at 7 ½ % resulting in income tax of £2,025 each being payable for 2016/17. Under the current rules there would be no tax on such dividends up to £42,385.

This measure has been introduced to counter tax-motivated incorporation to level the playing field between trading via a company versus an unincorporated business. Note that dividends received in excess of the £43,000 higher rate threshold will be taxed at 32.5 % but without a notional credit thus increasing the effective rate from the current 25% to 32.5%.

In most cases it is still most tax efficient to draw dividends rather than an increased salary.

News

Tax returns filed on time?!!

Hopefully your tax return was in by the end of last month!  If not, what excuse will you give?  Paperwork destroyed in a yacht fire and wasp attack in a car were apparently among the top ten excuses that HMRC received last year to explain late tax returns.  Another was ‘I could not complete my tax return because my husband left me and took the accountant with him.’  Nothing to do with us I should add!!!

Tax News

Government U-Turn on Self-Employed NICs, for Now

During his first Budget on 8th March, new Chancellor Phillip Hammond announced to the world that he would  level the playing field between employees and the self-employed by increasing Class 4 National Insurance Contributions from 9% to 10% from April 2018 and then to 11% from April 2019. In justifying this change he explained that the self-employed are now entitled to more generous State Benefits than in the past, and thus the NIC rate should be increased towards the 12% Class 1 NIC rate paid by employee’s.

However, this was in fact contrary to the Conservative Party manifesto pledge not to raise income tax, national insurance contributions and VAT during the life of the Parliament and since the announcement the Government have bowed to political pressure and decided not to proceed with this proposal. However with the next general election set for 8th June we will wait with bated breath for a possible increase shortly after!

As previously announced, flat rate Class 2 NIC contributions, now £2.85 a week, cease on 5 April 2018.

Tax News

Digital Reporting to Start in April 2018, but Delayed for Smaller Businesses

Legislation to introduce Making Tax Digital (MTD) was planned to be included in the Finance Bill 2017, however Theresa May’s announcement of the general election for the 8th June has meant it is currently withdrawn until it can be properly debated. The Government is still very much committed to MTD which is still scheduled to start in April 2018 with the first quarterly updates being submitted by the self-employed and property landlords in July 2018.

Many business owners, professional advisor’s and the Treasury select committee had expressed concerns about the timescale for the introduction of MTD. The Chancellor therefore announced that there will be a one year deferral in the start date to 2019 for self-employed businesses and property landlords with gross income below the VAT registration limit. Another way of delaying the start of Making Tax Digital (MTD) would be to change the year end of your business. The proposed legislation currently specifies that MTD will apply to accounting periods commencing on or after 6 April 2018. This means that if you currently prepare accounts to 30 April then the first quarterly update to be submitted to HMRC will be for the period to 31 July 2018. However, if you changed the accounting date of your business to 31 March then the first quarterly update would be for the period from 1 April to 30 June 2019.

There will be no late filing penalties in the first year of the new system and the deadline for finalising taxable profit for a period will be the earlier of:

• 10 months after the last day of the period of account, or
• 31 January following the year of assessment in which the profits for that period of account are chargeable

Businesses and property landlords with a turnover up to £150,000 will be able to prepare accounts on a cash basis Digital quarterly reporting for companies and larger partnerships will not be introduced until April 2020. These changes will have a significant impact on how you keep your business accounts and communicate with HMRC and in most cases it is highly recommended that people take on a suitable accounting software package, such as Xero, to get over the hurdle.

Please contact us to discuss the impact of these changes on the way that you keep your accounts and the best possible solution’s to help.

Tax News

IR35 Legislation Changes for Workers in the Public Sector

There are significant changes from 6 April 2017 for workers in the public sector supplying their services via their own personal service companies or other intermediaries.

From 6 April 2017 the public sector employer or agency that engages the worker will have to review the employment status of the worker and decide whether or not to deduct tax and national insurance from payments to the worker even though he or she invoices for the services through their own company. An online tool called “The Employment Status Service” has been made available by HMRC and can help them make that decision. The tool can be used if the worker uses either an employment agency, or other third-party to get work.

These changes come on top of the restrictions on the tax deductibility of travelling expenses for IR35 workers that came into effect on 6 April 2016. Please contact us if you want to discuss whether or not these rules affect you or your organisation.

Tax News

Dividend Allowance to be Reduced

During the March budget the Chancellor announced measures to limit the rise in tax-driven incorporation. The £5,000 tax free dividend allowance introduced by George Osborne will now be reduced to just £2,000 from 6 April 2018. Mr Hammond claimed that many smaller owner-managed businesses have incorporated as limited companies mainly for tax reasons. Typically the director/shareholders of such businesses have paid themselves in dividends and paid less tax than similar unincorporated businesses.

Currently, once the dividend allowance has been used the remaining dividends are taxed at 7.5%, 32.5% and then 38.1% depending upon whether the dividends fall into the basic rate band, higher rate band or the additional rate. There are rumours that these dividend rates may also be increased in future years.

Although the cut in the tax-free dividend allowance is clearly aimed at owner managed companies, it will also impact on those with substantial share portfolios. Mr Hammond reminded us in his speech that the annual ISA investment limit increases to £20,000 from 6 April 2017 and that dividends on shares held within an ISA continue to be tax free.