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Welcome...
To October's Tax Tips & News, our newsletter designed to bring you tax tips and news to keep you one step ahead of the taxman.
If you need further assistance just let us know or you can send us a question for our Question and Answer Section.
We are committed to ensuring none of our clients pay a penny more in tax than is necessary and they receive useful tax and business advice and support throughout the year.
Please contact us for advice in your own specific circumstances. We're here to help!
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Covid-19: Government unveils winter economy plan
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Chancellor Rishi Sunak has unveiled the Government's winter economy plan, providing an update on current coronavirus support measures for individuals and businesses, and announcing the launch of a new Job Support Scheme.
Key points of the statement include:
- the Coronavirus Job Retention Scheme (CJRS) will end as planned on 31 October 2020;
- a new Job Support Scheme will provide funding for employers who are able to retain employees but on shorter hours. The scheme will initially run for six months from November;
- the temporary reduced (5%) rate of VAT will be extended until 31 March 2021;
- taxpayers will be given more flexibility over payment of VAT and personal tax bills. Deferred VAT may be spread over 11 instalments, whilst self-assessment tax due on 31 January 2021 may be spread over 12 interest-free payments; and
- the repayment terms of bounce back loans and other coronavirus support loans are to be extended to help businesses with cashflow. In particular, a new Pay As You Grow scheme will allow businesses with bounce back loans to extend the term of the loan from six to 10 years.
With regard to the news that taxpayers can pay deferred VAT and self-assessment liabilities in instalments, it should be noted that unlike with the original deferments, instalment plans are not automatic and must be applied for. For VAT, the Government has confirmed that an 'opt-in' process will be in place by early 2021. For self-assessment, taxpayers can either use HMRC's self-service time-to-pay facility or contact HMRC's Time to Pay Self-Assessment helpline on 0300 200 3822.
Further details can be found in the Winter Economy Plan. https://www.gov.uk/government/latest?departments%5B%5D=hm-treasury
The Chancellor's speech can be found at Chancellor of the Exchequer, Rishi Sunak on the Winter Economy Plan. https://www.gov.uk/government/speeches/chancellor-of-the-exchequer-rishi-sunak-on-the-winter-economy-plan
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Kickstart for employers
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Under the new Kickstart programme, the Government hopes to create roles for as many as 250,000 young people who are currently receiving Universal Credit (UC).
Initially announced in the July Economic statement, the details of the scheme have now been published and the first placements should be available from November.
Kickstart allows employers to receive funding for six-month work placements for 16 to 24-year-olds currently receiving UC, who are seen to be among the most vulnerable to unemployment.
Applications for funding must be for new jobs - with the funding conditional on the firm proving they are additional jobs. This means that they cannot be replacing existing or planned vacancies, and they must not cause existing employees or contractors to lose or reduce their employment.
Under the scheme, the Government will pay 100% of the relevant National Minimum Wage (NMW) for 25 hours a week. Rates for 16 to 24 year olds are currently as follows:
- Age under 18 - £4.55 per hour
- Age 18 to 20 - £6.45 per hour
- Age 21 to 24 £8.20 per hour
Under the scheme, the Government will also pay the associated employer National Insurance Contributions (NICs) and employer minimum automatic enrolment pension contributions, where applicable.
There is also £1,500 per job placement available for setup costs, uniforms, support and training, Employers will, however, need to show in their application how they intend to help the participants to develop their skills and experience, including:
- support to look for long-term work, including career advice and setting goals;
- support with CV and interview preparations; and
- supporting the participant with basic skills, such as attendance, timekeeping and teamwork;
Once a job placement is created, it can be taken up by a second person once the first successful applicant has completed their six-month term.
According to the Department for Work and Pensions (DWP), there will also be extra funding to support young people to build their experience and help them move into sustained employment after they have completed their Kickstart scheme funded job.
The scheme initially attracted some criticism because employers taking on fewer than 30 new young workers were prevented from applying directly for funds. However, it has now been confirmed that employers who are unable to meet the placement numbers condition can partner with other organisations to reach the minimum number requirement. Moreover, the representative applying on behalf of the group can claim additional funding of £300 per job placement to support with the associated administrative costs of bringing together the employers.
Smaller businesses may also be able to apply through an intermediary, such as a Local Authority or Chamber of Commerce, who will then bid for 30 or more placements as a combined bid from several businesses. This will make the process easier and less labour intensive to apply for these smaller companies can only consider hiring one or two Kickstarters.
The scheme, which will be delivered by the DWP, will initially be open until December 2021, with the option of being extended.
Applications for funding can be made online and further information can be found at Apply for a grant through the Kickstart Scheme.
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| Can I get a Customs grant? |
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Businesses need to prepare ahead of new Customs procedures coming into play in 2021 when the Brexit transition period ends. The Government has made funding available in the form of a grant to help businesses get ready.
Who can apply?
To qualify for a grant a business must:
- have been established in the UK for at least 12 months before the submission of the application and when the grant is paid; and
- not have previously failed to meet its tax obligations.
In addition, the businesses must meet one of the following descriptions:
- complete or intend to complete customs declarations on behalf of clients;
- be an importer or exporter and complete or intend to complete declarations internally for own goods;
- be an organisation which recruits, trains and places apprentices in businesses to undertake customs declarations.
The grant can cover salary costs for new or redeployed staff, up to a limit of £12,000 per person and £3,000 for recruitment costs for new employees. This will help them to recruit new staff and train them up ahead of July 2021, when all traders moving goods will have to make declarations.
In relation to training, the grant can provide businesses with up to 100% of the actual costs of externally-provided training for employees, up to a limit of £1,500 for each employee on the course. It will also cover the cost of internal training, up to a limit of £250 for each employee on the course.
The grant for IT covers expenses for increasing capacity or productivity for customs declarations, customs software, set-up costs, and related hardware.
There is a state aid restriction, which applies a cap on total grants received in the last three years at 200,000 euros(which is the maximum amount of state aid available).
Funding
The business will receive the funding for the cost of recruitment then 50% of the eligible salary costs once the grant offer is issued. The remaining 50% of salary costs will be paid when details of the new employee's contract have been submitted along with a copy of their first pay slip.
Evidence of expenditure on IT improvements or training will need to be submitted within two months of receiving a grant offer letter. The grant will then be paid directly to the business within 30 days.
For tax purposes, the treatment of the grant will need to be matched to the expense and offset accordingly.
If the business has spent more on capital expenditure (like IT equipment) than is covered by the grant, capital allowances can be claimed on the amount not covered by the grant.
Eligible businesses should consider applying for a grant as soon as possible. Funding will be allocated on a first-come-first-serviced. Applications must be made by 3 June 2021, although the scheme, which is being administered by PricewaterhouseCoopers (PwC) on behalf of HMRC, will close earlier if all funding is allocated before that date.
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VAT: changes to accounting methods used by opticians and sellers of hearing aids
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HMRC have published Brief 14 (2020), which covers changes to the methods used by opticians and sellers of hearing aids to account for VAT on their supplies. The changes take effect from 1 October 2020.
Broadly, opticians that dispense spectacles or contact lenses to their customers are treated as making two supplies for VAT purposes - the spectacles or lenses themselves, which are taxable at the standard rate, and a supply of dispensing services, which is exempt from VAT. Similarly, dispensers of hearing aids make a taxable supply of hearing aids and an exempt supply of dispensing services.
To account for VAT on the taxable element of their sales, opticians and hearing aid dispensers can either:
- use separately disclosed charges for each supply, notifying each separate charge to the customer at the time of sale; or
- charge a single price to the customer and make a fair and reasonable apportionment of the income between the taxable and exempt elements of the supply, using a method of their choice, which must be approved by HMRC.
HMRC have announced that from 1 October 2020, the processes will be simplified.
There is currently no uniform standard of evidence required from businesses to show that they are making separately disclosed charges. Businesses will be required only to hold a till slip or similar evidence to demonstrate that they are making two separate charges to the customer at the time of supply, and that this information is being conveyed to the customer.
Those using a method of apportionment will no longer have to seek prior approval from HMRC before operating a method. This will bring opticians and dispensers of hearing aids into line with other businesses that apportion VAT on their sales.
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October questions and answers
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Q. My mother gave my daughter £5,000 on 1 May 2016. She had not made any other gifts in previous years. Unfortunately my mother passed away on 1 September 2020. How much of the gift she gave to her granddaughter is chargeable to inheritance tax?
A: Since your mother did not make any other gifts, the gift she made to your daughter will be covered by inheritance tax annual exemptions - £3,000 for 2016/17 plus her unused exemption brought forward from 2015/16 (£3,000 available).
Q. I am a self-employed builder. I carried out a job for a customer and invoiced him for £750. The customer did not pay the invoice and I have since discovered that he has been declared bankrupt. I included the £750 in my turnover figures. Can I claim tax relief for the unpaid bill?
A: A deduction can generally be made for a bad or doubtful debt in the year in which the debt becomes bad or doubtful. The HMRC Business Income Manual (at BIM42701) states:
'A deduction is not allowed for a debt owed to a trader except:
- a bad debt;
- a doubtful debt to the extent estimated to be bad. In the case of the bankruptcy or insolvency of the debtor this means the debt except to the extent that any amount may reasonably be expected to be received on the debt;
- a debt or part of a debt released by the creditor wholly and exclusively for the purposes of the trade as part of a statutory insolvency arrangement.'
You should be able to write off the debt and claim a deduction of £750 in your accounts.
Q. I have recently become unemployed due to the coronavirus pandemic so I am going to rent a room out in my home to get some extra income. What are the tax implications if this is my only source of income?
A: HMRC's rent-a-room scheme is an optional exemption scheme, which allows individuals to receive up to £7,500 of tax-free gross income (income before expenses) from renting out spare rooms in their only or main home. The exemption is halved where the income is shared with a partner or someone else. Broadly, as long as income is below the annual threshold, it does not need to be reported to HMRC. If income exceeds the threshold, it needs to be reported to HMRC via the self-assessment system.
To work out whether it is preferable to join the scheme, the following methods of calculation should be compared:
- Method A: paying tax on the profit from letting worked out in the normal way for a rental business (ie rents received less expenses).
- Method B: paying tax on the gross amount of receipts (including receipts for any related services they provide) less the £7,500 exemption limit.
If you make an election (within the time limit) for Method B to apply, the first £7,500 will be tax-free, and the remainder will be covered by your income tax personal allowance, so will be tax-free. The remainder is calculated as your gross rental receipts over and above the £7,500 figure, without any deduction for expenses.
HMRC's Helpsheet HS223 contains further information.
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| October key tax dates |
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1 - Due date for payment of Corporation Tax for the year ended 31 December 2019
5 - If a Tax Return has not been received, individuals and trustees must notify HMRC of new sources of income and chargeability in 2019/20
14 - Return and payment of CT61 tax due for quarter to 30 September 2020
19 - Tax and Class 1B national insurance due on PAYE settlements for 2019/20
19/22 - PAYE/NIC, student loan and CIS deductions due for month to 5/10/2020 or quarter 2 of 2020/21 for small employers
31 - Deadline for 2019/20 self assessment paper returns to be filed for HMRC to do the tax calculation. If a paper return is being filed also the deadline for tax underpaid to be collected by adjustment to your 2021/22 PAYE code (for underpayments of up to £3,000 only)
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Morgan Hemp Accountants are one of this area's leading accountants, serving businesses and professional practices across the UK.
Whether you are a large limited company or just starting out we can help you manage all your financial matters from book keeping and wages to annual accounts and raising finance. Visit our website https://www.morganhemp.co.uk for more information.
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Disclaimer
The information contained in this newsletter is of a general nature and no assurance of accuracy can be given. It is not a substitute for specific professional advice in your own circumstances. No action should be taken without consulting the detailed legislation or seeking professional advice. Therefore no responsibility for loss occasioned by any person acting or refraining from action as a consequence of the material can be accepted by the authors or the firm.
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