To September’s Tax Tips & News, our newsletter designed to bring you tax tips and news to keep you one step ahead of the taxman.
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· Covid-19 support: SEISS second claim service open
· HMRC launch consultation on NIC holiday for veterans
· Helping employees with cheap loans
· Applying for a customs grant
· September questions and answers
· September key tax dates
Covid-19 support: SEISS second claim service
The Self-Employment Income Support Scheme (SEISS) claims service for the second and final grant is open from 17 August 2020. Individuals eligible for the second and final grant, where their business has been adversely affected on or after 14 July 2020, can make a claim on or before 19 October 2020.
HMRC will provide claimants with a date from which individual claims can be made.
The second part of the grant is based on 70% of earnings and capped at £6,570.
Who can claim?
Anyone who is self-employed or a partner in a firm can apply if they:
– have submitted their self-assessment tax return for the tax year 2018/19 by 23 April 2020;
– traded in the 2019/20 tax year;
– are trading when they apply, or would be except for Covid-19;
– intend to continue to trade in the 2020/21 tax year; and
– have lost trading or partnership trading profits due to Covid-19.
Claims cannot be made by individuals trading through a limited company or a trust.
HM Treasury made an announcement on 17 June that self-employed parents whose trading profits dipped in 2018/19 because they took time out to have children will be able to claim for a payment under SEISS. Further details on this announcement can be found at https://www.gov.uk/government/news/self-employed-new-parents-can-claim-support-grant.
“Adversely affected by COVID-19”
HMRC provide the following examples of where a trade may have been adversely affected by Covid-19:
‘-“you’re unable to work because you:
– are shielding
– are self-isolating
– are on sick leave because of coronavirus
– have caring responsibilities because of coronavirus
– you’ve had to scale down or temporarily stop trading because:
– your supply chain has been interrupted
– you have fewer or no customers or clients
– your staff are unable to come in to work.'”
Applicants will need to keep evidence that their business has been adversely affected by Covid-19.
HMRC provide the following examples of evidence that may demonstrate that a business has been adversely affected:
– business accounts showing a reduction in turnover;
– confirmation of any coronavirus-related business loans the person has received;
– dates the business had to close due to lockdown restrictions; or
– dates on which the person or their staff were unable to work due to coronavirus symptoms, shielding or caring responsibilities due to school closures.
A person is excluded from the scheme if they are unable to meet at least one of the following conditions relating to ‘trade profits’ and ‘non-trading income’ (including earnings, property income, dividends, savings income, pension income).
For 2018-19, the person’s trade profits:
– are more than £0 and less than £50,001; and
– they are equal to or more than the person’s non-trading income.
The person’s trade profits:
– on average, are more than £0 and less than £50,001; and
– in total, are equal to or more than the person’s non-trading income.
The average and total amounts are summarised in the following table:
Average/total taken for
2016/17, 2017/18 and 2018/19
2017/18 and 2018/19
Condition 2 does not apply where the person began to trade after 6 April 2018 (this includes where they carried on a trade in 2016/17 and 2018-/9 but not 2017/18).
For guidance on making claims, see Claim a grant through the Self-Employment Income Support Scheme, and Check if you can claim a grant through the Self-Employment Income Support Scheme.
For guidance on trading income, see How HMRC works out trading profits and non-trading income for the Self-Employment Income Support Scheme.
For guidance on eligibility, see Decide if your business has been adversely affected for the Self-Employment Income Support Scheme.
HMRC launch consultation on NIC holiday for veterans
The Government currently provides a career transition package to service personnel leaving the Armed Forces which supports around 86% into employment. However, 6% of veterans using the service remain unemployed up to a year after leaving. The Government made a manifesto pledge to back veterans, by scrapping employer National Insurance Contributions (NICs) for a full year for every new employee who has left the Armed Forces. This policy is now being developed and is expected to take effect from April 2021.
HMRC have launched a consultation entitled Supporting veterans’ transition to civilian life through employment, which examines the NIC holiday for veterans announced at Spring Budget 2020. The consultation seeks views on a range of issues and, where appropriate, the Government’s preferred approach to the design and implementation of the policy. The consultation runs until 5 October 2020.
Broadly, the new measure will introduce a Secondary Class 1 employer NICs relief on the wages of veterans for the first 12 months of their civilian employment and will be available to employers from April 2021.
To claim back the employer NICs paid on the salaries of eligible veterans employed between April 2021 and March 2022, employers will be able to make a claim to HMRC from April 2022. From this point onwards, employers will be able to claim the relief in real time through PAYE.
Further information can be found at https://www.gov.uk/government/consultations/supporting-veterans-transition-to-civilian-life-through-employment.
Helping employees with cheap loans
In the current difficult economic client, employees may need to approach their employer for financial assistance in the form of a loan. Under the strict letter of the law, a tax charge will arise where a director or employee obtains a benefit by reason of their employment when they, or any of their relatives, is given a cheap or interest-free loan. The tax charge generally arises on the difference between interest at the appropriate ‘official rate’ (currently 2.25%) and the interest, if any, actually paid. Such loans are called beneficial loans.
However, subject to satisfying a few conditions, as long as the total amount outstanding on all loans from an employer to an employee does not exceed £10,000 at any time in the tax year, then the loans are ignored for the purposes of the rules on beneficial loans for both income tax and national insurance contributions purposes.
No taxable benefit-in-kind will arise where:
– the loan has been made on commercial terms by employers who lend to the general public; or
– the total of all loans made to an employee does not exceed £10,000 at any time in the tax year.
It is important to remember that this is an all or nothing exception. If, however briefly, the loan balance rises above £10,000 at any time in the tax year, then the exception will not be available and the benefit-in-kind will be taxed in full.
In September 2020, Bridgette (a higher rate 40% taxpayer) asks her employer for a loan to help pay for her seasonal bus pass at a cost of £2,320. To pay for this out of her take-home pay she would need to receive gross pay of £4,000 (£4,000 less tax at 40% (£1,600) and Class 1 NICs at 2% (£80)).
If her employer gives her an interest-free loan of £4,000 to enable her to buy the season ticket, it only costs Bridgette the £4,000 she borrows and subsequently repays to her employer. Providing the total of all beneficial loans made to Bridgette by her employer is less than £10,000, no taxable benefit arises, so the cost of the benefit is nil.
In addition, since the loan is not salary, Bridgette’s employer will not have to pay secondary Class 1 NICs on the amount borrowed.
As a final point, it should be noted that loans to directors are prohibited under the Companies Act 2006, though loans not exceeding £10,000 are permitted and larger loans may now be made with approval of the members. It is always worth seeking professional advice before extracting money from a limited company.
Applying for a customs grant
The next phase of the customs grant scheme is now open for applications. It sees a record £50 million investment as part of the measures to accelerate growth of the customs intermediary sector and help meet the increased demand it will see from traders at the end of the transition period.
Broadly, there are three grants available to help businesses complete customs declarations.
A business can apply to get funding for:
– training that helps the business to complete customs declarations and processes;
– hiring new staff to help the business complete customs declarations; and
– IT improvements to help the business complete customs declarations more efficiently.
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.
The grant scheme will continue to offer financial support for training costs to upskill staff and for IT that will allow greater efficiency. The grant for IT will cover expenses for increasing capacity or productivity for customs declarations, customs software, set-up costs, and related hardware.
Who can apply?
The 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 descriptions below:
– 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 its own goods;
– be an organisation which recruits, trains and places apprentices in businesses to undertake customs declarations.
Grants will be issued on a first come, first served basis. Applications will close on 3 June 2021, or earlier if all funding is allocated. The grant scheme is administered by PricewaterhouseCoopers (PwC) on behalf of HMRC.
For more information on the scheme and how to apply, see GOV.uk website at https://www.gov.uk/guidance/grants-for-businesses-that-complete-customs-declarations.
September questions and answers
Q. I am approaching retirement age and I am looking forward to receiving my state pension. Will I have to pay tax on it?
A. The state retirement pension currently counts as taxable income. However, whether you have to pay tax on it will depend on the level of other taxable income you receive.
If your state pension exceeds your personal tax allowance (£12,500 in 2020/21), but you do not have any other source of income, then HMRC will collect the tax in a lump sum through another method. You will be sent Simple Assessment (PA302 calculation). You will need to check that the figures are correct and pay by the following 31st January. If you don’t agree with the figures, you should contact HMRC immediately as late payment interest will start after the payment deadline.
There is no mechanism to deduct tax due at source so those pensioners with occupational pensions have their personal tax allowance reduced by the amount of the state pension so that the tax due on both sources is all deducted from the occupational pension.
Further information on tax on pensions, see the GOV.uk website at https://www.gov.uk/tax-on-pension.
Q. I have recently been able to reopen my small hotel and I am selling face value gift vouchers which can be redeemed against room reservations and/or in the dining room and bar. I have previously charges VAT at the standard rate for all supplies. How does the temporary VAT rate affect my business?
A. A new temporary reduced rate of 5% applies, from 15 July 2020, to sleeping accommodation in hotels and similar establishments, on-premises catering services, hot takeaway food and drink and admissions to certain attractions. This rate can be applied until 12 January 2021.
You can charge VAT at the reduced rate on room reservations and on-site dining until 12 January 2021, but the supply of alcoholic drinks remains at the standard 20% rate.
The changes affect the accounting treatment for VAT when issuing face value vouchers. There are two main types, as follows:
– Single purpose face value vouchers (SPFVV). Where at the time of issue, the goods or services have a single VAT liability and the place of supply is known.
– Multi purpose face value vouchers (MPFVV). These are vouchers which do not fall within the definition of a SPFVV.
For vouchers issued and/or redeemable whilst the temporary reduced-rate is in place, the treatment will change from that of a SPFVV to a MPFVV.
A voucher issued up to 12 January 2021 will be a MPFVV, because the liability of the underlying goods or services is not known and spans across two different VAT rates. You will need to account for any VAT on redemption for this particular type of voucher, instead of when it is issued.
Gift vouchers issued after 12 January 2021 will return to being SPFVV’s, as all supplies will be subject to a single rate of VAT at the standard rate and VAT should be accounted for on issue not redemption.
HMRC Brief 10/2020 provides further details on the temporary rate change.
Further guidance on vouchers can be found in VAT Notice 700/7, at section 9.
Q. My mother is a widow in her nineties but still lives in the same house that she and my late father bought in the early 1960s. I also lived there from birth until I married and moved out in 1990. Will I be able to claim inheritance tax (IHT) relief for the time that I lived there?
A. Unfortunately, the period that you lived in the house will not count because you did not own the house at that time. However, it may not be all bad news for IHT purposes. If your father left everything to your mother when he died, she may well have inherited his ‘nil rate band’. In addition there are ‘residence nil rate band’ rules increasing the IHT nil rate band when the asset passing on death to the descendants of the deceased is the house that the deceased lived in. Further details can be found on the Gov.uk website Check if you can get an additional Inheritance Tax threshold.
September key tax dates
19/22 – PAYE/NIC, student loan and CIS deductions due for month to 5/9/2020
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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