Here is a reminder of the thresholds for the current tax year (6th April 2020 - 5th April 2021)

Personal Allowance

You do not have to pay any tax on income up to the amount of £12,500.

Band

Taxable income

Tax rate

Personal Allowance

Up to £12,500

0%

Basic rate

£12,501 to £50,000

20%

Higher rate

£50,001 to £150,000

40%

Additional rate

over £150,000

45%



National Minimum Wage

It is against the law to pay under the national minimum wage.

Year

25 and over

21 to 24

18 to 20

Under 18

Apprentice

April 2020 (current rate)

£8.72

£8.20

£6.45

£4.55

£4.15

April 2019 to March 2020

£8.21

£7.70

£6.15

£4.35

£3.90



Dividend Allowance

The dividend allowance for this current year is £2,000

Tax band

Tax rate on dividends over the allowance

Basic rate

7.5%

Higher rate

32.5%

Additional rate

38.1%


There are many more rates and threshold that will be of value when it comes to your tax affairs, we have highlighted the most frequent rates.

It has been a rollercoaster of a few weeks with some unprecedented times. It is a new worry that we’ve had to face, and we’ve had to face this together. The Coronavirus has not only brought the whole country to a standstill, but has slowed down the whole world.

 

However, together we must have high spirits, and come out of this stronger. We hope everyone reading this is safe and our thoughts are with those directly affected by the virus. We all must adhere to what the government are saying and stay home. Travel only if necessary as this will delay any spread and get us out of this sooner.

 

The government has pledged support for employees, and have now put together something for the self-employed. It may not be what we all wanted, however, we have to give credit to the government for the level of support they are showing.


Coronavirus Job Retention Scheme


Q: I have heard the government will contribute towards employee wages?


The Chancellor has put together an emergency temporary package to allow employers to keep on their staff. The Coronavirus Job Retention Scheme is open to all UK employers for at least three months starting from 1st March 2020. The scheme is expected to be up and running by the end of April 2020. It is designed to support employers whose day to day trade have been severely affected.

Employers can claim for 80% of furloughed employees’ (employees on a leave of absence) usual monthly wage costs, up to £2,500 a month, plus the associated Employer NI contributions and minimum automatic enrolment employer pension contributions on that wage. Employers can use this scheme anytime during this period and is open to all UK employers that had created and started a PAYE payroll scheme on 28 February 2020.
 
Your furloughed employees must have been on your PAYE payroll on 28 February 2020, and can be on any type of contract, including full-time, part-time, employees on agency contracts and on flexible or zero-hour contracts. The scheme also covers employees who were made redundant since 28 February 2020, if they are rehired by their employer.

To be eligible for this, when on furlough, your employee can not undertake work for or on behalf of you. This includes providing services or generating revenue. While on furlough, the employee’s wage will be subject to usual income tax and other deductions. If your member of staff is working, but on reduced hours, or for reduced pay, they will not be eligible for this scheme and you will have to continue paying the employee through your payroll and pay their salary subject to the terms of the employment contract you agreed.
As an employer you will have to write to your employees confirming that they have been furloughed and keep a record of this communication. Employees hired after 28 February 2020 cannot be furloughed or claimed for. You do not need to place all your employees on furlough. However, those employees who you do place on furlough cannot undertake work for you. Deciding who to offer furlough to, equality and discrimination laws will apply in the usual way.

An employer can also choose to top up an employee’s salary beyond the 80% but is not obliged to under this scheme. You can only submit one claim at least every 3 weeks, which is the minimum length an employee can be furloughed for. Claims can be backdated until the 1st March if applicable and you will have to work out how much you can claim for,

  • Salaried Staff: For full time and part time salaried employees, the employee’s actual salary before tax, as of 28 February should be used to calculate the 80%. Fees, commission and bonuses should not be included.
  • Varied Staff: If the employee has been employed for a full twelve months prior to the claim, you can claim for the higher of either:
    • The same month’s earning from the previous year
    • Average monthly earnings from the 2019-20 tax year
However, if the employee has been employed for less than a year, you can claim for an average of their monthly earnings since they started work. If the employee only started in February 2020, you will need to use a pro-rata for their earnings so far to claim.

Once you’ve worked out how much of an employee’s salary you can claim for, you must then work out the amount of Employer National Insurance Contributions and minimum automatic enrolment employer pension contributions you are entitled to claim.


Coronavirus Business Interruption Loan (CBIL)


Q: It’s great that the government will help with wages once it is due to be out by the end of April 2020, but how can business get help immediately?


During this interrupting time, there is bound to be a dip in cashflow, so how can businesses get an injection of cash when all trade has halted? Well the government has introduced a temporary Coronavirus Business Interruption Loan Scheme which supports SMEs with access to loans, overdrafts, invoice finance and asset finance of up to £5 million and for up to 6 years.


The government will also make a Business Interruption Payment to cover the first 12 months of interest payments and any lender-levied fees, so smaller businesses will benefit from no upfront costs and lower initial repayments.


The government will provide lenders with a guarantee of 80% on each loan to give lenders further confidence in continuing to provide finance to SMEs. This is great for businesses with low credit rating. The scheme will be delivered through commercial lenders, backed by the government-owned British Business Bank.


To be eligible your business must tick the following;

  • Be UK-based in its business activity
  • Have an annual turnover of no more than £45 million
  • Have a borrowing proposal which the lender:
    • Would consider viable, were it not for the COVID-19 pandemic
    • Believes will enable you to trade out of any short-term to medium-term difficulty

To apply, you should talk to your bank or bank manager or one of the 40 accredited finance providers as soon as possible, to discuss your business plan. You can find out the latest on the best ways to contact them via their websites or click here https://bit.ly/CrossAccCBIL


Self-Employment Income Support Scheme


Q: Will the self-employed be looked after by the government?


Great credit must be given to the government as a lot of pressure is on them during this unprecedented time. They have taken strides that no government has in history. The chancellor has left the self-employed questioning whether there would be any support. However, the chancellor has announced that there will be a scheme in place to allow you to claim a taxable grant worth 80% of your trading profits up to a maximum of £2,500 per month for the next 3 months. This may be extended if needed.


You can apply if you’re a self-employed individual or a member of a partnership and you;

  • Have submitted your Income Tax Self Assessment tax return for the tax year 2018-19
  • Traded in the tax year 2019-20
  • Are trading when you apply, or would be except for COVID-19
  • Intend to continue to trade in the tax year 2020-21
  • Have lost trading/partnership trading profits due to COVID-19

Your self-employed trading profits must also be less than £50,000 and more than half of your income, come from self-employment. This is determined by at least one of the following conditions being true;

  • Having trading profits/partnership trading profits in 2018-19 of less than £50,000 and these profits constitute more than half of your total taxable income
  • Having average trading profits in 2016-17, 2017-18, and 2018-19 of less than £50,000 and these profits constitute more than half of your average taxable income in the same period

If you started trading between 2016-2019, HMRC will only use those years for which you filed a Self-Assessment tax return. If you have not submitted your Income Tax Self-Assessment tax return for the tax year 2018-19, you must do this by 23 April 2020. HMRC will use data on 2018-19 returns already submitted to identify those eligible and will risk assess any late returns filed before the 23 April 2020 deadline in the usual way.


So to summarise, the grant will be 80% of average trading profits from the year 2016-17, 2017-18 and 2018-19 and will be up to a maximum of £2,500 per month for 3 months. The grant will be paid directly into your bank account, in one instalment.


You cannot apply for this scheme yet. HMRC will contact you if you are eligible for the scheme and invite you to apply online. Again, this is looking to be all set up by the end of April 2020.


Hospitality, Retail and Leisure Business Grants

Q: I am in the Hospitality, Retail or Leisure sector, I have heard there is extra support since we’ve been effected the most, as we cannot work from home etc...


Restaurants, Cafes, Pubs and Bars have probably been hit the hardest as social distancing gets serious. The Government has forced these businesses to close earlier than any other businesses. However, there is support in the form of business rates relief. Retail, leisure and hospitality businesses with a rateable value of £500,000 or less will get one year business rates relief in the financial year 2020 to 2021. This means that you will not have to pay any business rates during this time. This will be applied through the business rates system. You do not need to do anything. Your local authority will contact you.

 

The Welsh Government is helping in the form of two grants. 


A grant of £25,000 is being made available for retail, leisure and hospitality businesses occupying properties with a rateable value of between £12,001 and £51,000. This means businesses that occupy properties such as shops, restaurants, cafes, drinking establishments, cinemas, live music venues and hotels.


Also, a £10,000 grant to all businesses eligible for small business rates relief (SBRR) in Wales with a rateable value of £12,000 or less. Again, you do not need to do anything as the local authority will contact you. More information is due to be released as this is only the pilot stage.


There is lots of information available on the Gov website; however, the main details are still being worked on. The government have laid the foundation for its intent on supporting businesses during these incredibly difficult times.


We are still available on the phone and on email as we continue to support our clients. If there is anything you need help understanding or want a chat please feel free to get in touch. These are incredibly tough times and we wish everyone the best of health and hope to come out of this stronger.


We’ve all heard of IR35, but do you know the rule changes that are being introduced? IR35 also known as the ‘off-payroll’ working rules and will kick in if a worker provides their services through an intermediary.  It’s been in the news for some time now affecting a lot of News and TV presenters and has been making big headlines.   From April 2020 this will now be affecting the private sector from any industry where they are working either through a limited company or as a sole trader but the relationship between themselves and the client could constitute an employer/employee relationship.

An intermediary will usually be the worker’s own personal service company, such as a limited company. They could also be a partnership, a managed service company, or an individual who is on self-assessment.

The rules make sure that workers, who would have been an employee if they were providing their services directly to the client, pay broadly the same tax and National Insurance contributions as employees.

 

The rules apply if a worker provides their services to a client through an intermediary but would be classed as an employee if they were contracted directly.

 

So, who decides?

 

If you’re a worker and your client is in the public sector like a school or library, it’s their responsibility to decide your employment status. You should be told of their decision; we’ve seen a large number of the larger companies starting to make changes to their arrangements with their subcontractors in preparation for this event.     This will affect everyone, including people who employ a Cleaner, a subcontractor in the building industry.   IR35 supersedes the CIS scheme i.e. its take priority over the CIS scheme above everything.

 

If you are a worker and your client is in the private sector, it’s your intermediary’s responsibility to decide your own employment status for each contract. The private sector includes third sector organisations, such as some charities.


HMRC do have a calculator on their website to help you see for yourself whether you would have to comply with the rules.

 

There are tests that are run to decide this for you.

 

https://www.gov.uk/guidance/check-employment-status-for-tax

 

Some of the tests are as follows

 

Who has the control, can you say no to projects or specific pieces of work, or are you required to take whatever work is given to you.


Do you use your own tools at work?


Do you have public liability insurance and employers liability insurance?

 

Can you send in a substitute for yourself?   Not a main point but it does get weighted on any HMRC decision.

 

The difference on what this will mean for you, is that you will no longer be able to claim the travel expenses you would have been able to claim before regardless of the distance you are travelling to work, plus you will pay the higher national insurance which currently is 12% for employees and 13.8% for  employers.   You effectively could pay out both rates, not just the one.

HMRC do not care if you have given up your employment rights, i.e. holiday pay and sick pay.    We are expecting them to spot check individuals at any point during 2020.

The costs to the private sector will be very high, we haven’t seen the updated budget expected to be out in March 2020.  But are expecting with all the news coverage and the actions the larger companies are planning, everyone could be affected imminently.

If you are facing this problem with your own subcontractors, please get in touch with us, we have a risk assessment template for our clients that they can use.   If you are a subcontractor yourself, it is worth getting in touch with your contractor to find out their plans for the system.   

A lot of these companies are planning on putting everyone on PAYE whether you receive the employment rights that go with that change, we are still waiting to see.

We all want to leave something behind for our loved ones. It’s what we get up in the morning and work hard for. But a financial gift unfortunately has a tax implication to it. Research shows that only 45% of people making financial gifts are aware of Inheritance Tax.

 

It is always recommended to write a will, you can get a professional to do this for you for as little as £150. Make sure your money goes to who you want it to.    

 

We are hearing a lot of cases where there is no will. It can cause issues in a couple of situations example if your partner needs to go into a nursing home. What happens to children under the age of 18. Your wife, husband or civil partner having difficulty accessing family funds.

 

The treasury benefits from £5.8 billion income in inheritance tax each year. There are also 10,000 unclaimed estates where a no next of kin has been found worth more than £150,000, plus thousands more amounting to several million pounds. After 30 years that money is gone if a direct descendant cannot be found, it goes straight to the treasury and not to your family.    

  

Live in partners are not next of kin, even if they have been living with you for 20 years or more. Under inheritance tax law they have no rights to anything if a will has not been created.

 

So, what is Inheritance Tax?

Inheritance Tax is a tax on an estate of someone who’s died. An estate is the likes of property, money and possessions. There is a tax-free threshold of £325,000. You normally don’t have to pay inheritance tax if the value of your estate falls below the £325,000 threshold.

 

If you pass all your assets to your wife/husband, civil partner there is no inheritance tax to pay, its only when you give assets away to other people that inheritance tax is payable. Its 40% tax over and above the nil rate band.

 

There is an elected transfer to your spouse, civil partner or charity where both your nil rate band and your partners can be added together to make a maximum tax-free amount of £650,000. The transfer is claimed on the occasion of the 2nd partner dying. It’s not automatic there is a form to complete for this. Don’t assume its Automatic.

 

Your threshold can also increase if your estate is worth more than £325,000 and you give your home away to your children (this includes adopted, foster or stepchildren) or grandchildren. There is up to an extra £150,000 available to be added to your threshold. If the estate is below £325,000, you will still have to report this to HMRC. Probate forms usually must be completed within a certain timeframe of someone dying.    

 

Example

Say your estate is worth £550,000, your tax-free threshold is £325,000. You will get an increase of up to £150,000 if your home is given to direct descendants. The inheritance tax charged will be 40% of £75,000.

 

Who pays the tax bill?

Funds from your estate are used to pay the Inheritance Tax to HMRC.  If there is a will this is done by the person dealing with the estate known as the executor. The beneficiaries are the people who inherit your estate do not normally pay the tax on the things they inherit.

 

7 Year Rule

There is normally no inheritance tax to pay if you gift your home and live for another 7 years, although capital gains tax might come into play.  If you die within 7 years of giving all or part of your property, your home will be treated as a gift and the 7-year rule applies. There are many tax reliefs that can be gained between the 0 years and 7-year rule. Always use an accountant if your estate has multiple sources of income. Don’t miss out on the hidden tax reliefs.

 

Gifts

You do not have to pay any tax on gifts between spouses, you can give them as much as you like during your lifetime.   

 

Anyone is entitled to give gifts of up to £3,000 per annum without any inheritance tax being involved. You can carry over an unused annual exemption to the next financial year, this can only be the next financial year that immediately follows. It’s important to record this in a diary as proof to avoid it being used to reduce your nil rate band.

 

You can also give away the following, in each tax year:

·         Wedding gifts of up to £1,000 to any person (£2,500 to a grandchild, and £5,000 to a child)

·         Normal gifts out of your income, such as Christmas or birthday presents

·         Payments to help another person’s living cost such as an elderly relative

·         Gifts to charities and political parties

You can also give as many gifts of up to £250 per person as you want during the tax year if you have not used another exemption on the same person.

 

Inheritance tax is a complicated tax system that encounters many of the other tax systems within it, always seek professional advice if this is not a straightforward estate.

The summer months are coming to an end as autumn closes in. Everyone is returning from their summer break, the children will be heading back to school its back to business.

 

It’s always great to plan ahead, so this time we talk about the new Making Tax Digital (MTD) that HMRC are set to introduce from April 2019, this has been going back and forth in consultation for some time now, HMRC now have communicated the requirements.

 

This will be mandatory for businesses registered for VAT with a turnover above the VAT registration threshold of £85,000. Businesses will need to keep VAT records digitally and their VAT returns using MTD compatible software. This will start from their first VAT period starting on or after 01 April 2019.

 

If you submit a quarterly return for the period 01 March to 31 May 2019 then you will have to comply with MTD rules for the period starting 01 June 2019. Businesses under the VAT threshold will not have to operate MTD but can choose to do so voluntarily, which we would recommend.

 

Going forward the use of compatible accounts software will be mandatory. The use of spreadsheets can no longer be used.   

 

HMRC are trying to reduce the number of VAT inspection on businesses that are complying and MTD will make this clearer for all. If you’re struggling and not understanding what to do and how to be ready for the April 2019 deadline, do not panic and contact us, as we are always here to help.