Thursday, September 9, 2021
Earlier this week the Government announced the introduction of a 1.25% levy for health and social care. This will be collected via an increase in National Insurance rates for 2022/23 and thereafter through a separately identified levy alongside NI. This increase will be applied to both employees and employers so is effectively a 2.5% increase in the overall NI charge. It is not yet known over what precise band of income the rates will be applied but, based on current rates, it would apply to earnings above £184 per week for employees and over £170 per week for employers.
No announcement has been made regarding Class 2 NI for the self employed but Class 4 will increase by 1.25%. There will also be an increase in the tax on dividends of the same amount bringing the basic rate charge up from 7.5% to 8.75% with higher rates also increasing. These changes will also apply from April 2022 onwards, not to the current tax year.
Tuesday, August 10, 2021
The Self-Employment Income Support Scheme has now reached the stage of the fifth, and final, grant. Whilst the eligibility criteria remains the same as for previous grants there are now two levels of grant depending on a turnover test. Where turnover has fallen by 30% or more a grant of 80% of three months average trading profits up to a cap of £7,500 is payable. Where turnover has fallen by less than 30% the grant is restricted to 30% of average profits capped at £2,850.
For all businesses, other than those who started trading in 2019/20, it is necessary to compare the turnover for the pandemic period with the reference period. The pandemic period is the period of twelve months from April 2020. The reference period is usually the turnover for the tax year 2019/20. In exceptional cases it may be possible to use the 2018/19 figures where the 2019/20 figures are not representative.
For those who started trading in 2019/20 no turnover test is necessary and 80% of average profits for three months (capped at £7,500) will be paid. Be aware that the start date is not taken into account so the average may be rather lower than expected.
Thursday, April 22, 2021
During April you should be contacted by HMRC to let you know that you are eligible for the fourth instalment of the SEISS grant covering the period from 1 February to 30 April 2021. Eligibility criteria for this is different from the first three tranches but the amount due is similar.
To be eligible you must be self-employed or a member of a partnership and have traded in both 2019/20 and 2020/21. Your 2019/20 tax return must have been submitted by 2 March 2021. You may currently be trading but your demand has been reduced due to coronavirus or you may be temporarily closed due to coronavirus. You must declare that you intend to continue trading and your trading profits will be significantly reduced.
To be eligible for the grant your trading profits must be less than £50,000 and at least equal to your non-trading income. HMRC will look at the figures on the latest return but will also consider previous years if necessary to assess eligibility.
The grant will be calculated at 80% of 3 months' average trading profits, capped at £7,500 in total. HMRC will use up to 4 years of submitted tax returns to calculate average trading profits.
As with the previous grants you will need to make the claim yourself through the appropriate portal. Guidance is provided on the gov.uk website if you are in doubt. If you are not contacted by HMRC in the coming weeks but think you should be eligible please get in touch with our office.
Monday, April 5, 2021
In an effort to boost corporate capital expenditure in the coming months, the Chancellor announced a new "super deduction" for certain types of asset acquisitions. Expenditure on new assets incurred between 1 April 2021 and 31 March 2023 which would usually qualify for the writing-down allowance of 18% (up to 100% if under the Annual Investment Allowance) will be eligible for a first-year allowance of 130%. Certain types of assets are excluded from the allowance, including cars, but expenditure on computers, office furniture, commercial vehicles, and machinery will qualify. Unlike the AIA there is no limit to the amount of expenditure which can be claimed. Contrary to some initial reports, the allowance appears to only be available to companies subject to corporation tax not to unincorporated businesses.
The effect of the allowance is to provide tax relief at a rate of 24.7% which perhaps provides us with a clue as to why the allowance has been introduced and why it only applies to companies. The rate of corporation tax for larger companies rises to 25% on 1 April 2023 and, without this allowance, it might have been in the interests of such organisations to delay capital expenditure until they could obtain a 25% tax deduction rather than 19% - or am I a cynic?
There are complex rules for accounting periods which straddle 1 April 2023 and special provisions for balancing charges on assets which benefit from the allowance and are then sold before 1 April 2023 or during a period which straddles that date. Careful thought and expert advice are needed.
In conjunction with the super allowance a new 50% first-year allowance has been introduced, for the same period, applying to assets which would normally be eligible for the special allowance rate of 6%. This applies to items such as long-life assets, thermal insulation, and integral fixtures. This also looks generous but it may be more attractive to use the AIA of 100% where this is available.
Friday, March 5, 2021
Coronavirus Job Retention Scheme
This scheme has been further extended until 30 September 2021. There will be no change to the amount payable to furloughed staff (80% up to a cap of £2,500 per month) but, from July, employers will be asked to make a contribution to the cost. This will amount to 10% in July and 20% in August and September.
Self-employment Income Support Scheme
It was announced in November that a fourth grant would be forthcoming under this scheme and this has now been confirmed. Eligibility for this grant (and the 5th instalment) will be based on the submission of the tax return for 2019/20 but otherwise on similar criteria to the previous tranches. The fourth grant will be 80% of average trading profits for 3 months up to a maximum of £7,500 - broadly in line with the payments under CJRS.
There will be a fifth grant, probably payable in July, covering the period from May to September. Not all the details are available but it appears that the maximum grant will be the same as before ie 80% of 3 months profits up to a maximum of £7,500. However this will only be payable to those businesses whose turnover has reduced by more than 30% between April 2020 and April 2021. If the reduction is less than 30% the payment will only be 30% of 3 months profits capped at £2,850. This seems, on the face of it, to be far less generous than the CJRS given that it only covers 3 months for a 5 month period and could be a much lower percentage.
Here are a few highlights from the Chancellor's statement, we'll cover some of these in more detail once fuller information is available.
The personal allowance is determined for all of the UK and rises to £12,570 for 2021/22. The basic rate of tax for the UK remains at 20% with the higher rate of 40% kicking in at £50,270. Scottish rates start at 19% rising to 21% then up to 41% on income over £43,662. The difference is becoming quite noticeable.
The personal allowance will now be frozen until April 2026 as will the annual exempt amount for Capital Gains Tax (£12,300), Inheritance Tax thresholds, and pension allowances. Any inflation will erode the real value of these allowances probably by around 8-10% over the period.
Corporation tax is to be increased to 25% from April 2023. This will not apply to companies with profits of less than £50,000 who will continue to pay 19%. There will be transitional relief for profits between £50,000 and £250,000.
There is a temporary adjustment to the rules for utilising trading losses incurred between 1 April 2020 and 31 March 2022. It will, in most cases, be possible to carry back these losses against profits of the previous 3 years, rather than the usual 1 year. This will apply to both incorporated and unincorporated businesses.
Purchases of new plant and machinery between 1 April 2021 and 31 March 2023 will qualify for capital allowances at a "super" rate of 130% instead of the usual 18% (or 100% if eligible for AIA). Items which would usually only qualify for a 6% WDA will get 50% instead.
The VAT threshold for registration is frozen at £85,000 until 31 March 2024. The current temporary rate of 5% for hospitality and tourism will stay until 30 September 2021 and will then rise to 12.5% until 31 March 2022.