My Blog

Category: VAT

  • Top 10 Client Queries During 2021

        1. What claim can I make for home office costs?

          Depending on whether you’re an employee, self employed or an owner-director, your claim can usually be at least £6 per week up to a market rent charged to your company which is included in your income tax return. 

        2. Should I incorporate my sole trader business? How do I incorporate my sole trader business?

          With the increase in dividend tax in 2022 and corporation tax increases in 2023 for many companies, this needs to be revisited. At about £100k to £150k profits you may be better to remain a sole trader, but only if you need to take all the profit out from your company. If not, the tax advantage of spreading your taxable income over several years, is very valuable, particularly if you want to keep your child benefit or tax free personal allowance.

          Often a good way is for you to set up a new company which buys goodwill and other assets from you. At low levels, the goodwill may be taxfree on you. Your company will owe you for these assets which it can repay you tax free when it has the funds. 

        3. How does one of us exit our company?

          If your company has accumulated profits and cash and several other criteria are met, your company may be able to buy your fellow shareholder-director’s shares and cancel the shares. This means you don’t need to find the cash from your personal funds.

        4. What tax efficient choices are there to reward my staff? 

          Many and varied from an annual Christmas Party for everyone, annual health care checks, cycle to work arrangements and small gifts under £50, through to granting share options to senior staff. 

        5. How do I liquidate my company?

          For some small solvent companies, a simple DIY striking off might be approrpriate, but your company can be resurrected in certain situations. Liquidator fees have become more competitive and may enable you to take more accumulated profits out of your company at a 10% capital gains tax rate, which is better than a 32.5% dividend tax rate but more than the 7.5% dividend tax rate where your total income is under £50k.

        6. I don’t understand my company’s accounts. Would you please take over?

          Recent government grants and loans have focussed minds on the advantage of understanding your accounts at some level. We’re seeing quite a few accounts that don’t agree to software or make little sense, which when rectified helps business owners see what’s going on.

        7. What VAT applies to imports and exports? 

          This depends on whether these are goods or services and whether it’s B2B or B2C. With more businesses providing online services which reach consumers outside of the UK, it’s important to understand that local EU VAT is due and how to register and pay EU VAT.

        8. What capital gains tax do I pay on my property sale? 

          This depends on a few factors, mostly whether you’ve ever lived in the property as your home. If it’s never been your home, the entire profit over £12k per owner, after costs of purchase, sale and any capital improvements will be taxed at 18% or 28% or a combination, determined by whether you’re a basic rate or higher rate taxpayer when the property gain is added to your income. If it’s partly been your home, partly rented, a proportional calculation is required.

        9. What pension contributions can I make? Am I claiming enough income tax relief? 

          Broadly, pension contributions are restricted to £40k per year to include all contributions to all schemes by employer and employee. Some unused maximums can be brought forward from previous years but the annual lifetime allowance of £1m must also be considered.

          On the other hand, we often see employee higher rate taxpayers not claiming enough tax relief due to a misunderstanding about how thier pension contributions are paid. Pensions have never been more complicated and many people should take advice from an IFA.

        10. What income tax is due when I work abroad for a UK employer?

          If you are resident and working in another country, you’re usually required to pay tax in that country. We’re seeing some senior staff moving permanently abroad but retaining their UK employment. Their employers are often unclear as to how to deal with local tax systems, instead continuing to pay UK PAYE tax. If this becomes more common it might get more attention from local tax authorities.

    As always take advice specific to your situation as different answers are likely to be appropriate to different people and companies. 

  • Let The Taxman Contribute To Your Christmas Party

    What are the limits?

    You can spend a maximum of £150 including VAT per staff member plus another £150 for a guest in total over a tax year. The main condition is that ALL members of staff at that location must be invited. A location is a bit more blurred this year, so keep your e-invite to show that all employees contractually employed at a certain site are invited.

    In addition to the £150 annual party limit, you may also send a gift to staff with a value up to £50 including VAT, such as a Turkey, wine or chocolates.

    What is the tax treatment and accounting required?

    The cost is fully tax deductible with no benefit in kind income tax or national insurance to worry about. Your staff will feel appreciated and you save 19% corporation tax. Ensure that the costs are called Staff entertainment or Christmas party in your Profit & Loss Account.

    The £150 includes all costs which this year may be a hamper sent to all attendees to link up on Zoom at the agreed time, possibly with the employer hosting a comedian, musician or quiz for attendees to enjoy.

    Divide the total cost of each function by the total number of people, including guests, to arrive at the cost per head.

    The VAT is fully recoverable when paying for staff entertaining. If you make a small charge to your staff’s guests and pay over a small amount of VAT, the VAT on the total cost for the guests is also fully recoverable.

    Similarly, small gifts up to £50 are fully tax deductible and VAT may be recoverable if only one small gift is made during a year. Perhaps these costs could be called Staff welfare to help keep them separate from your £150 calculations!

    NB Ensure you don’t go over the £150 or £50, otherwise the entire amount is taxable.

    I’m a director and don’t have any staff. Can I benefit from this favourable tax treatment?

    As you are the only director/employee you might think you can’t have a Christmas party – wrong! And it probably won’t need to be virtual if within the general Covid meeting up rules.

    You can avail yourself of the £150 per head exemption as a member of staff (the only one!) and also a guest. You can also have a gift with a value of up to £50, but you’re likely to be restricted to doing this up to an annual value of £300 so check what other company gifts you’ve taken so far. In this case, we would advise that VAT can’t be reclaimed.

    Now you can have a fabulous tax subsidised Christmas party !

  • Coronavirus Dates To Remember – Just like yesterday’s Valentine date, make sure you don’t miss them!

    BBLs – Loan – apply by 31 March 2021

    Borrow between £2k and up to 25% of turnover up to £50k, very easily with no fees or security and pay annual interest of only 2.5% after 12m, with no repayments due for the first 12m.

    These remain the best loans a small business will ever receive and must be worth considering. We’re seeing the cash give small businesses valuable breathing space so they can focus on re-grouping and re-launching, as restrictions permit.

    Pay As You Grow improvements announced by the British Business Bank on 6 February, appearing to apply to existing BBLs borrowers, allow repayments to be delayed by a further 6m and after making only one repayment the option to pause repayments for up to 6m.

    This is in addition to the existing choices to extend the loan term from 6 to 10 years and/or pay interest-only up to three times during the loan term.

    CBILs – Loan – apply by 31 March 2021

    Designed for small businesses requiring finance for up to £5m, with no personal guarantees required for loans under £250k and even over £250k your home cannot be taken as security. No fees or interest due for the first 12m. These loans may also be extended to a term of up to 10 years.

    Local Authority Grants – current

    There are six schemes currently available:

    • Closed Businesses Lockdown Payment – from 5 January 2021
    • Local Restrictions Support Grant (Closed businesses) – businesses affected by Tier restrictions from 2 December
    • Local Restrictions Support Grant (Open businesses) – hospitality, accommodation and leisure businesses
    • Local Restrictions Support Grant (Closed businesses) – businesses affected by November and from 5 January national restrictions
    • Local Restrictions Support Grant (Sector) – nightclubs, adult entertainment venues and similar
    • Additional Restrictions Grant – discretionary

    For example, a small local authority discretionary Additional Restrictions Grant may be available to a home based business which has been severely impacted throughout, such as an events business.

    Business Rates Holiday (retail, hospitality & leisure) – to 31 March 2021

    Might this be extended in the Budget? We’ll let you know on 3 March…

    Full or Flexible Furlough – to 30 April 2021 – claim within 2 weeks of each month

    The government continues to pay 80% of furloughed non-working hours, the employer paying only employer NIC and pension contributions. Remember to claim within the specified 2 week date of the month end for each claim. 

    SEISS 4.0 – to 30 April 2021 – claim details due by 3 March 2021

    Details of the fourth self employed grant covering February, March and April are due to be announced by Budget day. 

    VAT Deferral – to 31 March 2021 or up to a further 12m – apply from 23 February

    VAT due between 20 March and 30 June 2020 is due by 31 March 2021 unless you apply to join the new interest-free instalment deferral scheme between 23 February to 21 June 2021.

    VAT Rate Reduction (hospitality & tourism) – 20% to 5% – to 31 March 2021

    This increases gross profit margins helping small businesses deal with other aspects of the virus such as bringing in safety measures or adapting their business model. Another one to look out for on Budget Day.

    Income Tax Returns – extension to 28 February 2021

    Apparently there are still quite a few to be submitted! If 28 February is missed, the usual £100 penalty is due, even if no tax is due, escalating after that for continuing delays.

    Income Tax Deferral – apply before 2 March 2021.

    If you’ve missed the 31 January payment deadline make sure you pay or enter an online deferral agreement before 2 March 2021 [EDIT: NOW AMENDED TO BY 1 APRIL 2021], to avoid a 5% surcharge. If you owe more than £30k in total, you’ll need to contact HMRC to agree a bespoke payment plan – known as Time To Pay.

    Other Taxes -Time To Pay – case by case – as early as possible

    This has always existed for taxpayers in difficulty. Approach HMRC as early as possible to agree a realistic payment plan. 

    Businesses have done well to keep going and many have improved their entire business model for the long term. Make sure you get the help for your long term success while you can.  

  • Let The Taxman Contribute To Your Virtual Christmas Party

    What are the limits?

    You can spend a maximum of £150 including VAT per staff member plus another £150 for a guest in total over a tax year. The main condition is that ALL members of staff at that location must be invited. A location is a bit more blurred this year, so keep your e-invite to show that all employees contractually employed at a certain site are invited.

    In addition to the £150 annual party limit, you may also send a gift to staff with a value up to £50 including VAT, such as a Turkey, wine or chocolates.

    What is the tax treatment and accounting required?

    The cost is fully tax deductible with no benefit in kind income tax or national insurance to worry about. Your staff will feel appreciated and you save 19% corporation tax. Ensure that the costs are called Staff entertainment or Christmas party in your Profit & Loss Account.

    The £150 includes all costs which this year may be a hamper sent to all attendees to link up on Zoom at the agreed time, possibly with the employer hosting a comedian, musician or quiz for attendees to enjoy.

    Divide the total cost of each function by the total number of people, including guests, to arrive at the cost per head.

    The VAT is fully recoverable when paying for staff entertaining. If you make a small charge to your staff’s guests and pay over a small amount of VAT, the VAT on the total cost for the guests is also fully recoverable.

    Similarly, small gifts up to £50 are fully tax deductible and VAT may be recoverable if only one small gift is made during a year. Perhaps these costs could be called Staff welfare to help keep them separate from your £150 calculations!

    NB Ensure you don’t go over the £150 or £50, otherwise the entire amount is taxable.

    I’m a director and don’t have any staff. Can I benefit from this favourable tax treatment?

    As you are the only director/employee you might think you can’t have a Christmas party – wrong! And it probably won’t need to be virtual if within the general Covid meeting up rules.

    You can avail yourself of the £150 per head exemption as a member of staff (the only one!) and also a guest. You can also have a gift with a value of up to £50, but you’re likely to be restricted to doing this up to an annual value of £300 so check what other company gifts you’ve taken so far. In this case, we would advise that VAT can’t be reclaimed.

    Now you can have a fabulous tax subsidised virtual Christmas party !

  • WEP WEP WEP? Winter Economic Plan? Or…

    To add to the self employed (SEISS) and employee (CJRS) grant schemes already introduced, the employee Job Support Scheme (JSS) will start from 1 November, to pick up from the end of the CJRS the previous day, and run for the following six months. In addition, your business will receive the previously announced £1k Job Retention Bonus in February for those staff.

    The SEISS will similarly be extended to cover a further six months to end of April 2021, also at lower amounts, for the self employed.

    There are extensions to VAT and income tax payment due dates and improvements to the BBLs and CBILs terms to help yuor business’ cashflow further.

    Job Support Scheme (JSS)

    As long as employees work at least a third of their ‘usual’ hours, the government and employer will each pay one third of their ‘usual’ pay for their unworked hours, with the government contribution capped at £697.92.

    Meaning that the government will pay up to 1/3 of 67%, being 22% of pay (up to the cap) and the employer pays 55%, being 22% plus the 33% for the hours worked.

    You may be keen to know where the specific £697.92 came from. It seems to derive from a maximum annual reference salary of about £38k, not far off the £37,500 used for the CJRS.

    There isn’t anything to suggest that directors will be treated differently, although we’ll have to wait for further details to know for sure, but clearly on the usual low director salary the JSS has limited value.

    Self Employed (SEISS)

    The current version SEISS 2.0, opened in August 2020, pays a 3 month lump sum of up to £6,570 being 70% of £3,125 of your average profits.

    Today SEISS 3.0 and 4.0 were announced covering November-December-January and February-March-April, respectively. The SEISS 3.0 grant will be for 3 months of 20% of average profits up to a maximum of £1,875.

    This is much lower than before, being just under 30% of SEISS 2.0. Interestingly, this is about 90% of the JSS. Perhaps this is some in-built clawback of previously lower national insurance payments? The SEISS 4.0 grant hasn’t yet been announced.

    SEISS 3.0 and 4.0 are NOT dependent on claiming SEISS 2.0 or SEISS 1.0 (but you do need to be currently eligible).

    Presumably if you were adversely affected, say in August, but business has since picked up, you can’t claim SEISS 3.0 or 4.0. But how to measure ‘reduced demand’ isn’t yet clear. Perhaps a turnover comparison will be required for SEISS 3.0 and 4.0?

    Reduced 5% VAT

    Proving to be valuable to the hospitality and tourism sector, this reduced VAT will now continue beyond mid January to the end of March 2021. Remember this applies to sales of food and non-alcoholic drinks from restaurants, pubs, bars, cafés and similar premises, supplies of accommodation and admission to attractions. Do check the details if making a claim to recover VAT for subsistence when travelling for business.

    You don’t need to pass this reduced VAT onto your customers, as it may be needed to help keep your staff in their jobs.

    VAT Deferral

    If you deferred your VAT and were expecting to pay it in full by next March 2021, you may now spread that payment over 11 instalments during the 2021/22 financial year to end of March 2022.

    If you want to do this, look out for details on the ‘New Payment Scheme’ which you’ll need to opt into in early 2021.

    Income Tax 31 July 2020 Deferral

    Expected to be due by 31 January 2021, these deferrals already made can enter a plan to pay over a further 12 months, with the final payment due by 31 January 2022. This is only available if your income tax is under £30k.

    If you want to do this, look out for details on the ‘Self-service Time to Pay’ facility.

    Bounce Back Loans – Pay As You Grow

    Borrowers will be offered a delay from 6 years to up to 10 years to repay their loan. You can move to interest-only payments for up to 6 months for up to 3 times and pause repayments entirely for up to 6 months but only once during the term.

    Similarly a loan under CBILs can be extended from 6 years to up to 10 years.

    If you’ve not yet applied for one of these loans, you now have two months until 30 November to do so. Not an easy thing to do for many SMEs, so perhaps these extensions will be persuasive and save some businesses from permanently closing.

    At least, there is no Budget this autumn leaving businesses the time and space to focus on surviving the virus and hopefully thriving in the long run. 

    Please ask your usual On The Spot contact for further assistance. 

  • Breezing Through Brexit – Understanding The Import-Export Jargon

    • C79 – Import VAT certificate – proof of VAT paid on import
    • C88 = SAD
    • C88A – Postal version of the C88
    • CCG – Customs Comprehensive Guarantee
    • CDS – Customs Declaration Service
    • CN22/23 – Customs forms for postal imports and exports up to £900
    • CPC – Customs Procedure Code
    • DDA – Duty Deferment Account
    • DAN – Deferment Account Number
    • EORI – Economic Operator Registration and Identification number
    • FPOs – Fast Parcel Operators
    • FFs – Freight Forwarders
    • NES – National Export System – Usually operated by an intermediary.
    • RMG – Royal Mail Group
    • SAD = C88 – Single Administration Document for non-RMG postal imports and exports over £750

    You’ll see that you could get very distracted from running your business trying to work your way through this. It’s therefore likely you’ll need to use the services of cross border operators (intermediaries) to help you navigate the system. 

    Importing Goods? 

    What essentially do I need to do? 

    1. Get a GB EORI number.
    2. Check import tariffs on the goods you are importing.
    3. Check the commodity code for your products.
    4. Appoint an intermediary such as an FPO, FF, customs agent or broker to complete the paperwork such as SADs.
    5. Use an intermediary with a DDA to make returns on your behalf into the CDS.
    6. Use CN22 and CN23 when importing goods with RMG.
    7. Use your intermediary’s DDA to defer customs duty and VAT to a monthly payment.
    8. If VAT registered, postpone import VAT for longer through your quarterly VAT return.
    9. Imported items with a value less than £135 should have charged VAT on the seller.
    10. Importers of items with a value of less than £135 where VAT hasn’t been charged, must account for the VAT under the reverse charge mechanism.
    11. If bringing in goods in your own luggage with a value under £1,500, make an online or oral declaration.

    Exporting Goods?

    What essentially do I need to do?

    1. Get a GB EORI and an EU EORI number.
    2. Check what export licenses you might need.
    3. Check the commodity code for your products.
    4. Appoint an intermediary such as an FPO, FF, customs agent or broker to make overseas customs declarations and returns for you.
    5. Check exactly what an intermediary can and cannot do for you.
    6. Prepare a commercial invoice.
    7. UK VAT is likely to be 0%.
    8. Register for local VAT if exporting large volumes to consumers in the EU.
    9. Use CN22 and CN23 when exporting goods with RMG.
    10. If taking out goods in your own luggage with a value under £1,500, make an online or oral declaration.

    Supplying Services?

    You may be like many UK businesses and provide only services. What changes do you need to make?

    If you sell B2B and currently don’t charge VAT on invoices to EU customers, it’s likely that UK VAT will still not be charged.

    If you sell B2C and currently charge UK VAT, it’s likely that UK VAT will still be charged.

    However, if you sell automatically downloadable digital services such as apps and e-books, to consumers in an EU country, you’ll need to register for VAT and pay EU VAT in each EU country. Or take advantage of EU VAT MOSS administration where you register in one EU country which collects all EU VAT and pays it over to each EU country depending on your sales in each country.

    Certain prescribed professional services provided to consumers such as advertising, consultants and accountants may become outside the scope of UK and EU VAT, as they currently are for non-EU consumers.

    What else do I need to do?

    Go to this tool: https://www.gov.uk/transition  for more details.

    After you’ve input the shape of your business plus also your personal requirements, you get a comprehensive list of links and actions not only for your business, but also for your personal life.

    As this is a changing landscape, always check back with HMRC, your intermediary or adviser before you make any final decisions.

    Remember to build in additional costs such as customs duty and intermediary services into your budgets and review your pricing structure.

    Ensure you don’t miss out on grants, some old, some new, that might be available to you such as: https://www.gov.uk/government/news/20-million-in-new-grants-to-boost-recovery-of-small-businesses

    Happy international trading!

     

  • Summer Statement – Staycation Staycation Staycation?

    However, the reduced VAT from 20% to 5% for food, accommodation and attractions, brought in even earlier from next Wednesday 15 July, and lasting until 12 January, way past Christmas, highlights the struggle this sector is having. 

    Businesses in this sector should use this potentially additional 15% margin wisely. With coronavirus safety measures in place, fewer people can be accommodated at any one time, so takings will be down even if the demand is there. Plus businesses are incurring more costs such as for PPE, cleaning equipment, and cleaners.

    Hence, this 15% shouldn’t necessarily get passed on to the consumer in full. Each business needs to look at their own venue, market, customer base and decide.

    In addition, moving back up to 20% from 13 January, during the usual quiet January, will presumably be hard to pass on to customers from a 5% base. If so, the margin and profit hit will be even more pronounced. 

    If you do take a staycation this year, you’ll help these businesses keep on staff who otherwise may have been made redundant, particularly younger people. Jobs generally for younger people received a further boost from the Chancellor with a new Kickstart scheme paying 6 months of wages, £1,000 per work experience trainee and £2,000 per new apprentice (or £1,500 if 25 or over) and several other initiatives. Might your own business benefit?

    Businesses with furloughed employees who keep them on until the end of January will receive a £1,000 grant in February under the Coronavirus Job Retention Scheme.

    The minimum monthly pay for this is only £520, so it looks as though this could include owner-directors, probably receiving £732 per month. We shall see by the end of the month. If so, it’ll be a welcome payment for those companies who have received very little so far and whose market collpased overnight.

    And when you return from your UK staycation, don’t forget to get on with that house move you’d been planning if it’s for a home costing under £500,000. Make sure you complete in time before 31 March to save all your stamp duty. A great incentive for the property market where we know it’s all about location, location, location…

    After you’ve moved in make use of the Green Homes Grant scheme to install low energy lightbulbs, cavity wall insulation etc for a 1/3 of the usual cost, the rest, up to £5k, government funded.

    Green is going to be a big part of the long term recovery and businesses who can move more into this area or set up from scratch should continue to receive indirect taxpayer funding and assistance for many years. Perhaps you could set up this new business after your staycation, house move and home improvements… It might be a busy year… 

  • Coronavirus Grants 2.0 – Finding Your Exit – Small Businesses

    Apart from using the same £2,500 monthly maximum, the two schemes are very different with the self employed now compensated for a maximum of 6 months and employees a maximum of 8 months. This perhaps reflects the fact that the self employed can work as much as possible, but employees cannot work at all or, more likely, the government would prefer employers to take more time to make decisions about redundancies.

    What do I need to know?

    Self Employed (SEISS)

    The current version SEISS 1.0 closes on 13 July 2020 with the new version SEISS 2.0 opening in August 2020.

    The maximum drops from £2,500 per month to £2,187.50 per month, rounded up to a 3 month lump sum of £6,570 being 70% of £3,125 or your average profits, as currently calculated, if lower.

    You can claim both grants or only one: SEISS 2.0 is NOT dependent on claiming SEISS 1.0.

    Presumably if you were adversely affected early on, say in April, where your profits dropped in April, but they have since picked up, you can’t claim SEISS 2.0, but this isn’t yet clear.

    Coronavirus Job Retention Scheme (CJRS)

    June – carries on as now, except any employee who needs to be in a claim from July, must be in a claim in June. With the 3 week minimum, this is an effective last date for newly furloughed employees of 10 June. All claims for June (and presumably earlier) must be made by 31 July.

    July – carries on as now, except employers can choose not to claim for any hours/days employees work paying them their full pay as before the crisis.  

    This could be beneficial for shareholder-directors who may be able to generate good profit for their limited companies in a couple of days but pay themselves only their usual small salary.

    August – as July, except employers must pay any employer’s national insurance (NI) and pension contributions on furloughed pay.

    September – as August, except the government grant to the employer is 70% of pay up to a maximum of 70% of £3,125 = £2,187.50 adjusted for any hours/days worked.

    October – as September, except 70% is now 60%, being a maximum 60% of £3,125 = £1,875 adjusted for any hours/days worked.

    What are the figures for shareholder-directors who can’t work?

    Taking the typical reference salary of £719, the £575.20 current furlough claim will change as follows:

    • June £575.20
    • July £575.20
    • August £575.20 (no NI or pension)
    • September £503.30
    • October £431.40

    Unfortunately, a dividend replacement scheme for shareholder-directors wasn’t announced, with the Chancellor reminding us to use other measures such as business bounceback loans, VAT deferral and income tax deferral. HMRC is also being helpful where companies ask to defer corporation tax under general time to pay provisions.

    Further details on both schemes will be available on 12 June. In the meantime, businesses are still working their way through this, looking for their way out.

    Please ask your usual On The Spot contact for further assistance.

  • Coronavirus – Limited Companies – What Are Your Choices?

    Now we’ve probably heard all the major Coronavirus announcements from the Chancellor, what choices do Director-Shareholder Limited Companies have to help them through this crisis? We provide a checklist below with signposting to the relevant part of gov.uk.

    Time To Pay

    Applicable to all companies and all taxes, you can call HMRC and agree a scheduled delay to paying your taxes. Have a realistic proposal that you can stick to. Signpost: https://www.gov.uk/government/news/tax-helpline-to-support-businesses-affected-by-coronavirus-covid-19

    Time To File

    Companies house will allow you to send in your accounts 3 months later than normal, a increase from the usual 9 months to 12 months, as long as you ask before the 9 month deadline.

    This may help if you’re finding it hard to get your figures prepared, but we would urge all companies to keep their figures and accounts up to date to help them keep on top of their finances particularly cashflow. Signpost: https://www.gov.uk/guidance/apply-for-more-time-to-file-your-companys-accounts#coronavirus-covid-19

    Corporation Tax

    Using an existing, normal rule, remember that if you make a trading loss during your current year end, you can carry it back 12 months and generate a corporation tax refund from the tax you paid in your previous accounting year.  Your loss may be increased by making a higher home office claim, due to working from home more often than usual.

    Business Interruption Loan

    Applicable to all companies, you may borrow from your current bank or another in the scheme, interest free and fee free for 12 months without providing any security up to £250k. If your company should be viable for the long term, this must be worth a look as a flexible option. Signpost: https://www.british-business-bank.co.uk/ourpartners/coronavirus-business-interruption-loan-scheme-cbils-2/for-businesses-and-advisors/

    Director Personal Income Tax Payments Deferral

    You may be due to pay income tax on your dividends on 31 July 2020 on account for the 2019/20 tax year. HMRC will not charge interest if this isn’t paid on 31 July, as long as it’s paid by 31 January 2021, the next income tax payment date. Again, this is designed to provide some immediate breathing space, but will need to be paid 6 months later along with any other income tax due by 31 January 2021. Signpost: https://www.businesssupport.gov.uk/deferral-of-self-assessment-payment/

    If your dividends are less than expected for this tax year to 5 April 2020, it should be worth sending in your income tax return as soon as possible after 6 April to generate an income tax refund from your January 2020 payment on account.

    Director Personal Mortgage Or Rent Deferral

    To help your personal cashflow further, reducing the need to rely fully on your company’s finances, you may ask your mortgage company or landlord for a mortgage or rent deferral for 3 months. This will need paying back in due course, so be confident this is something you should be able to manage.  

    If your personal finances are very stretched you may want to claim state benefits which can also help with housing costs, if you’re eligible.

    VAT Deferral

    If your company is VAT registered, you won’t have to pay any VAT due between 20 March and 30 June 2020. This covers VAT quarters ended 29 February, 31 March, 30 April and possibly 31 May.

    If you pay by direct debit, remember to cancel your direct debit in good time, and then reinstate it afterwards. HMRC won’t ask for any explanation, charge interest or penalties as long as you repay this VAT by 31 March 2021. This may provide good breathing space for the next couple of months, but do have a plan to refund it before 31 March 2021. Signpost: https://www.gov.uk/guidance/deferral-of-vat-payments-due-to-coronavirus-covid-19 

    Your VAT returns are due as normal, refunds will be paid as usual and VAT due outside of this period remains due. 

    Job Retention Scheme

    If you have employees whose jobs are at risk due to a downturn in your business, you can keep them on the books by labelling them as ‘furloughed’ employees for a minimum of 3 weeks at a time for a maximum of the three months March, April and May. They cannot do any work at all for you during the period they are furloughed.

    You need to pay your staff and operate PAYE on either full pay or 80% of their pay. The government will refund you, starting at the end of April, 80% of their pay, up to £2,500 per month, plus the associated national insurance and 3% auto-enrolment pension contribution if the employee is enrolled. Sign post: https://www.gov.uk/guidance/claim-for-wage-costs-through-the-coronavirus-job-retention-scheme

    We are still waiting to hear whether owner-directors can ‘furlough’ themselves where their business is on hold but they need to continue to carry out statutory duties such as preparing VAT returns or filing annual returns. If such a director was on a salary of £719 per month, this should mean a maximum refund of £1,725. [EDIT: It has been confirmed that owner-directors can furlough themselves, as long as they don’t work on the business and confine themselves to statutory duties. This is easy to demonstrate for freelancers and consultants who have no contracts at all or if a high street retailer has closed and isn’t carrying out any alternative business activity. The company through the Board of directors needs to make this decision and record it in the minutes of the meeting.]

    Separate to this, if your employees are off work due to being ill from the Coronavirus you can reclaim their sick pay for up to 2 weeks. This is also available to you as a director. Signpost: https://www.gov.uk/government/publications/guidance-to-employers-and-businesses-about-covid-19/covid-19-support-for-businesses#support-for-businesses-who-are-paying-sick-pay-to-employees

    Business Rates

    If you pay business rates, your company may be entitled to receive a £10k or £25k grant, which we assume will be taxable as for most other grants. 

    A £10k grant is available to any business which receives small business grant relief (SBRR) Signpost: https://www.gov.uk/government/publications/guidance-to-employers-and-businesses-about-covid-19/covid-19-support-for-businesses#support-for-businesses-that-pay-little-or-no-business-rates

    If you’re in the retail, hospitality or leisure sectors, you’ll pay no business rates from 6 April 2020 to 5 April 2021. If your rateable value is up to £15k, you’ll receive a grant of £10k, or if it’s between £15k and £51k a grant of £25k. Signpost: https://www.gov.uk/government/publications/guidance-to-employers-and-businesses-about-covid-19/covid-19-support-for-businesses#support-for-retail-hospitality-and-leisure-businesses-that-pay-business-rates 

    You don’t need to take any action because your local authority will contact you.

    In summary, please take appropriate advice to ensure you optimise your company’s particular situation. We’re in a fast moving situation and HMRC might amend its guidance without any signposting at all! 

    Stay well.

     

  • Coronavirus – Without The Gym, Learn To Exercise Your Cashflow

    The Chancellor yesterday evening announced further measures to help businesses with their cashflow to bridge the gap during this extended period of reduced income. Now the gym is closed make sure you ‘work out’ which the best ones for you.

    Income Tax and VAT Deferrals

    The self employed July 2020 income tax payment on account for the 2019/20 tax year, will be automatically deferred until January 2021 with no interest or penalties accruing. This appears to be for sole traders and partnerships only, and not include directors or employees also due to make payments on account. [EDIT: This has been amended and now seems to include anyone making payments on account under self assessment including directors or employee].

    Similarly, VAT due between 20 March and 30 June 2020 won’t be collected by HMRC. [EDIT: HMRC have amended their guidance and now state that if you pay by Direct Debit you need to cancel it in good time and reinstate it later]. You will have until 5 April 2021 to catch up with this deferral. VAT refunds will be made as usual. If you’re on an annual VAT scheme to end of March, any VAT due will be deferred and if you’re due a refund, that will be paid. You’re still required to prepare your VAT return so you’ll receive a refund as normal if one is due. 

    I wonder where we’ll be next January and April 2021 when businesses simply can’t afford to pay the deferred amount, as well as the next payment on account. Therefore, where possible, it might be less painful to pay your income tax and VAT as normal. However, if your business is facing difficulty, take advantage of this to see you through, and we’d expect HMRC to be helpful once the imminent health and economic problems have improved. 

    These can be thought of as a simple Time To Pay arrangement without having to agree payments plans with HMRC on a case by case basis. Time To Pay still remains available and you may need to contact HMRC regarding your other tax bills.

    Business Interruption Loan

    These will be available from your bank early next week and will now be interest free for 12 months, a recognition that businesses need more breathing space to get their cashflow in order. They are also unsecured up to £250k meaning you don’t have to put your personal assets on the line. This is the most flexible way to help your cashflow where you decide how to use the money for the long term benefit of your business.

    Mortgage and Rent Deferral 

    You can apply to defer your personal mortgage for 3 months and landlords are offered a mortgage holiday to allow them pass on 3 months rent deferral to their tenants. These are only deferrals, with mortgage interest still accumulating and the rent ultimately due, so again very much temporary cashflow help, not a permanent saving.

    Employee Wages 

    For at least 3 months from 1 March 2020, if your employees aren’t working, because you can’t open your business due to the Coronavirus or your business has suffered a significant loss of business, and you cannot cover their wages, you need to classify them as ‘furloughed workers’ and HMRC will refund 80% of your staff’s wages, up to a £2,500 maximum per month.

    This appears to mean that if you pay your employee a gross salary of £30,000, you can apply to HMRC for a refund of £24,000. We don’t yet know how this links with the PAYE system, which presumably will operate as normal and continue to deduct taxes which apply to the £30,000. We’ll let you know as soon as more details are issued. 

    This should be claimed by all eligible businesses which need their staff to be available to them when they  continue to trade as normal. 

    Business Rates

    Not forgetting the 12 month rates holiday for the retail, hospitality and leisure sectors, and grants of between £10,000 and £25,000 previously announced, which are actual cash savings to keep. We don’t yet know if these grants will be included in taxable income, but we can save that for another day!

    SSP, Universal Credit, Employment and Support Allowance

    These are also payments to keep and are now easier to claim for the duration of the Coronavirus outbreak. The previously announced SSP refund scheme for up to 2 weeks is in place to help your employees. SSP is £94 per week. For the self employed with the virus or who need to self isolate or on low income, Universal Credit and/or a new style Employment and Support Allowance is available. ESA is £73 per week. Being eligible for some benefits opens the door for other benefits such as housing benefit, so is often worth a bit more than at first appears.

    Summary 

    Not all initiatves will be helpful for all businesses. Be clear which are deferrals and therefore need to be repaid someday or those which are cash payments or savings. Employee salary refunds and grants for small property based businesses, should always be claimed where eligible. VAT, income tax, mortgage and rent deferrals, Time To Pay, and loans need to be taken with care with a simple outline plan as to how you think these will eventually be repaid.

    You as a business owner will know which of these weighty options to pick and how to work out the best route for your business with help from trusted advisers, where appropriate.