Author: Warren Francis

Self-Employed Income Support – HMRC will be contacting you…

Warren Francis

You will be contacted by HMRC – here’s why…

If you commenced self-employment after 5 April 2019

If you started your self-employment after 5 April 2019, you were initially denied support under the Self-Employed Income Support Scheme (SEISS) and the first three quarterly pay outs to 31 January 2021.

Thanks to a change in the recent Budget, you may be eligible – for the first time – to grants that will be made available for the quarter end 30 April 2021 and a final period to 30 September 2021.

 HMRC are adding a further security check

To counter fraudulent use of the SEISS scheme, HMRC have decided to contact taxpayers who became self-employed during 2019-20, and who submitted a self-assessment return for that period.

What will the letter say?

The letter will tell you to expect a telephone call on the number provided on your tax return. If our contact details were added to your return, HMRC will ask us to pass on your contact number.

On this occasion we cannot deal directly with HMRC and they will need to speak with you to obtain proof of identity and evidence of trade in the form of bank statements.

Why a letter and then a phone call?

Here’s what HMRC said:

We are aware of increased scam activity related to HMRC’s coronavirus support schemes. The purpose of the letter is to explain to you that this is a genuine call, and to give customers details on how to recognise it as such.

Worried about HMRC calling you?

HMRC’s reason for this added layer of security seems to be to exclude fraudsters from making claims. but if you have any concerns regarding this process, please call us on 01242 370298.

Budget Summary – 3 March 2021

Warren Francis

The Chancellor, Rishi Sunak, presented his 2021 Budget on 3 March 2021. The extent to which the measures will affect you will depend on your personal circumstances.

Impact on individuals 

Personal allowance and income tax thresholds frozen

The personal allowance is increased in line with inflation to £12,570 for 2021/22. However, it will remain at this level for the next five years, until April 2026. The basic rate band will also remain at £37,700 for the next five years, freezing the starting point for paying higher rate at £50,270 until April 2026.

If your income increases during this period, for example, your pay rises in line with inflation, you may find that you move into the higher rate band, paying tax on some of your income at 40% where previously you were a basic rate taxpayer.

The basic rate of tax will remain at 20%, the higher rate at 40% and the additional rate at 45%.

Covid support continues

The Coronavirus Job Retention Scheme is extended until 30 September 2021. This means that if you have been furloughed or flexibly furloughed, you will continue to be paid 80% of your normal wages for your unworked hours, subject to the cap of £2,500 per month.

If you are self-employed and your business has been adversely affected by the Covid-19 pandemic, you will be able to claim two further grants under the Self-Employment Income Support Scheme.

Pension lifetime allowance frozen

The pension lifetime allowance will not be increased in line with inflation over the next five years. Instead, it will remain at its current level of £1,073,100 for 2021/22 to 2025/26. This may affect you if you already have pension savings at or near this level. If this is the case, you should review the amount of your pension pot before making further tax-relieved contributions.

Pension savings more than the lifetime allowance are taxed at 25% if the excess is taken as a pension, and at 55% if it is taken as a lump sum.

SDLT threshold to remain at £500,000 until 30 June 2021

The temporary increase in the SDLT threshold to £500,000 will remain in place until 30 June 2021. It will then fall to £250,000 until 30 September 2021, returning to the standard amount of £125,000 from 1 October 2021. If you are looking to move to a new house or to buy an investment property, there is still time to benefit from the higher threshold.

These comments refer to rates in England and Northern Ireland, the devolved administrations of Wales and Scotland may set alternative rates.

Inheritance tax nil rate band to remain at £325,000

The inheritance tax nil rate band will remain at its current level of £325,000 until April 2026. The residence nil rate band, available where your main residence is left to a direct descendant, also remains at its current level of £175,000 until April 2026. This should be considered when undertaking inheritance tax planning.

Impact on the self-employed

Two further grants available under the SEISS

If you are self-employed and you continue to be adversely affected by the Covid-19 pandemic, you will be able to claim two further grants under the Self-Employment Income Support Scheme (SEISS).

The fourth grant under the scheme covers February to April 2021. It is worth three months’ average profits capped at £7,500. It can be claimed from late April.

The fifth and final grant covers the period from May to September 2021. The amount of the grant will depend on the impact that Covid-19 has had on your profits. If your turnover has fallen by 30% or more because of Covid-19, you will be able to claim a grant equal to 80% of your average profits for three months, capped at £7,500. However, if your turnover has dropped by less than 30%, you will be entitled to a reduced grant of 30% of three months’ average profits, capped at £2,880. The final grant can be claimed from late July.

Remember, you can only claim the grant if you have been adversely affected by the pandemic.

Grants received under the scheme are taxable and must be considered in working out your profits.

Help for the newly self-employed

Support under the SEISS was not available to traders who commenced self-employment in 2019/20 – to qualify a tax return had to be filed for 2018/19. However, as the deadline for filing the 2019/20 tax return has now passed, you may be eligible for the fourth and fifth grants if your 2019/20 tax return was filed by midnight on 2 March 2021. To qualify, your business must be adversely affected by the pandemic and your profits from self-employment must be at least 50% of your income and less than £50,000.

Carry-back period for losses extended

The period for which losses may be carried back is temporarily extended from one year to three years. For unincorporated businesses, the extended carry-back will apply to losses made in 2020/21 and 2021/22. Losses must be set against a later period before an earlier period.

If you have suffered losses due to Covid-19, carrying back losses for up to three years may generate a most welcome tax repayment.

Impact on small companies

Tax-efficient extraction of profits

For 2021/22, the primary threshold for Class 1 National Insurance purposes increases to £9,568, the secondary threshold to £8,840 and the personal allowance to £12,570.

If you extract profits by taking a mix of salary and dividends, the optimal salary level for 2021/22 (assuming you have not used your personal allowance elsewhere) will be equal to the primary threshold of £9,568 (equivalent to £797 a month) if you are not entitled to the employment allowance. This will be the case if you are a personal company with only one employee who is also a director. At this level, you will have a little bit of employer’s National Insurance to pay, but this will be outweighed by the associated corporation tax deduction.

If you can claim the employment allowance, for example, if your company is a family company with at least two employees, the optimal salary for 2021/22 is equal to the personal allowance of £12,570.

Any further profits can be extracted as dividends but remember you can only pay dividends if you have sufficient retained profits to pay them from. Dividend tax rates remain at 7.5%, 32.5% and 38.1% for 2021/22.

Three-year carry back for losses

Companies, like unincorporated businesses, can benefit from a measure allowing losses to be carried back for three years, rather than for one year. For companies, this applies to losses incurred in accounting periods ending between 1 April 2020 and 31 March 2021 and to losses for accounting periods ending between 1 April 2021 and 30 March 2022. Losses carried back must be used against a later period before an earlier period.

This measure may provide you with earlier relief for losses suffered because of the Covid-19 pandemic and generate a useful tax repayment at a time where cash flow is tight.

Super-deduction for investment expenditure

Companies that invest in plant and machinery in the period from 1 April 2021 to 31 March 2023 will be able to benefit from enhanced capital allowances. Investments in assets that qualify for the main rate of capital allowances of 18% will benefit from a 130% first-year allowance. This means that for every £100 that you spend, you can deduct £130 in computing your taxable profits. This is equivalent to a tax saving of 24.7%.

Investments in assets qualifying for special rate capital allowances benefit from a 50% first year allowance (although claiming the annual investment allowance instead where this is available will be more beneficial).

If you are looking to invest in plant and machinery, it can be advantageous to do so within this window to benefit from the super-deduction. However, it is not available where contracts were agreed before Budget day.

Future increases in corporation tax

To help meet some of the costs of the pandemic, companies with profits of £250,000 or more will pay corporation tax at a rate of 25% from 1 April 2023. A lower rate of 19% will apply to companies with profits of £50,000 or less. Companies with profits of between £50,000 and £250,000 will pay corporation tax at the 25% but will be able to claim marginal relief. The thresholds will be proportionately reduced to take account of associated companies and short accounting periods.

Extension of the Coronavirus job Retention Scheme

If you have furloughed or flexibly furloughed employees, you will be able to continue to claim grant support under the Coronavirus Job Retention Scheme until the end of September.

Until the end of June, you can claim 80% of your employee’s normal pay for their unworked hours, subject to the cap of £2,500. However, while your employees must continue to receive 80% of their normal pay for their furloughed hours, you can only claim 70% from the Government in July and 60% in August and September. You must pay the remaining 10% in July and the remaining 20% August and September. As now, you must meet the employer’s National Insurance and employer pension contributions on all payments to employees.

The scheme will come to an end on 30 September 2021.

 

If you need any more information regarding matters discussed in this report, please call 01242 370298 or email office@wfrancisandco.co.uk

CIS VAT Reverse Charge 1 March 2021 – BUILDING SUB-CONTRACTORS

Warren Francis

A reminder that from 1 March 2021, the long awaited VAT changes for CIS registered sub-contractors, who are registered for VAT, will apply. The following notes explain what needs to be done.

Presently, if you invoice a contractor for your construction services, and you are registered for VAT, you will add VAT at the appropriate rate to your invoice. When the contractor pays you, the VAT element you have collected is then paid to HMRC via your VAT returns.

This process will change from 1 March 2021

The process is changing as a growing number of subcontractors have registered for VAT, collected the VAT added to their invoices from contractors and then disappeared without paying over the VAT collected to HMRC.

To counter this, from 1 March 2021, most of your supplies of services to contractors will be subject to the “VAT domestic reverse charge for building and construction services” (DRC).  In plain English this means that you will no longer add VAT to your invoices for affected construction services, instead, your contractor customer will pay the VAT on your supply, to HMRC.

Generally speaking, the DRC will affect supplies of building and construction services supplied at the standard or reduced rates, that also need to be reported under the CIS regulations. The DRC will not apply if the service you supply is zero-rated for VAT purposes.

Unlike the CIS rules, where tax is deducted from your supply of labour, not materials, the DRC change will affect both supplies.

Needless to say, this change has created a number of complex issues that VAT registered sub-contractors will need to adapt to or face the dark-side of HMRC’s penalty regime. Listing all these complications in this update would no-doubt send you to sleep. Instead, we have added below, the actions that you will need to consider before 1 March 2021. Please read this shopping list and then contact us; we will help you make the changes to your accounting processes to keep you the right side of this new legislation.

Matters you need to consider before 1 March 2021:

  • Are your supplies affected? Check to see if your provision of services to main contractor customers comes within the scope of the DRC. In most cases you will have to contact your customers to confirm this. A list of services is appended to this update.
  • Change your invoices. Make sure you understand how to invoice for your DRC services after 1 March – you need to omit the usual VAT charge and add a note explaining that DRC applies.
  • Update your accounts software. Make appropriate changes to your accounts software or other records that create your VAT returns.
  • Beware cash flow consequences. Consider the effects that adapting to DRC may have on your cash flow.
  • DRC may not apply to all your sales. The DRC will not apply to your services supplied to “end users”, i.e., your customer is not a registered CIS contractor but a house-owner for example. You will need to take this into account when invoicing as you will need to add VAT to these supplies in the normal way.
  • Switch to monthly VAT accounting? If most of your work is with CIS contractors you may find that from 1 March 2021 you have little or no VAT to pay to HMRC, but you still have VAT to claim back from your suppliers, merchants etc. To speed up the recovery of this input VAT you might be advised to register for monthly VAT returns instead of the usual quarterly returns.
  • VAT cash accounting scheme. If you are presently using the VAT Cash Accounting Scheme (CAS) continuing use may be compromised under the DRC rules. The CAS cannot be used for the supply of services that are subject to the DRC. This could impact your cash flow and planning may be required.
  • VAT Flat Rate Scheme (FRS. As with the CAS, DRC supplies to your customers cannot be accounted for under the FRS. This may mean that any advantage of using the FRS after 1 March 2021 may no longer apply; in which case you may be advised to stop using the FRS option.
  • Changes to your sales invoices. From 1 March 2021, your invoices will need to include a formal statement if they are a DRC supply.

The above checklist covers the basic issues you will need to consider.

APPENDIX:

You will have to apply the domestic reverse charge if you supply any of these services:

  • constructing, altering, repairing, extending, demolishing or dismantling buildings or structures (whether permanent or not), including offshore installation services
  • constructing, altering, repairing, extending, demolishing of any works forming, or planned to form, part of the land, including (in particular) walls, roadworks, power lines, electronic communications equipment, aircraft runways, railways, inland waterways, docks and harbours
  • pipelines, reservoirs, water mains, wells, sewers, industrial plant and installations for purposes of land drainage, coast protection or defence
  • installing heating, lighting, air-conditioning, ventilation, power supply, drainage, sanitation, water supply or fire protection systems in any building or structure
  • internal cleaning of buildings and structures, so far as carried out in the course of their construction, alteration, repair, extension or restoration
  • painting or decorating the inside or the external surfaces of any building or structure
  • services which form an integral part of, or are part of the preparation or completion of the services described above – including site clearance, earth-moving, excavation, tunnelling and boring, laying of foundations, erection of scaffolding, site restoration, landscaping and the provision of roadways and other access works

The following services are not subject to the reverse charge:

  • drilling for, or extracting, oil or natural gas
  • extracting minerals (using underground or surface working) and tunnelling, boring, or construction of underground works, for this purpose
  • manufacturing building or engineering components or equipment, materials, plant or machinery, or delivering any of these to site
  • manufacturing components for heating, lighting, air-conditioning, ventilation, power supply, drainage, sanitation, water supply or fire protection systems, or delivering any of these to site
  • the professional work of architects or surveyors, or of building, engineering, interior or exterior decoration and landscape consultants
  • making, installing and repairing art works such as sculptures, murals and other items that are purely artistic
  • signwriting and erecting, installing and repairing signboards and advertisements
  • installing seating, blinds and shutters
  • installing security systems, including burglar alarms, closed circuit television and public address systems

 

CIS VAT changes 1 March 2021 – BUILDING CONTRACTORS

Warren Francis

A reminder that from 1 March 2021, the long awaited VAT changes for CIS registered contractors, who are registered for VAT, will apply. The following notes explain what needs to be done.

What will happen on 1 March 2021?

Presently, if you receive an invoice from a subcontractor for construction services, and the subcontractor is registered for VAT, you will pay the VAT inclusive amount to the subcontractor and claim back the VAT element on your VAT return.

This process is changing from 1 March 2021 as a growing number of subcontractors have registered for VAT, collected the VAT added to their invoices from contractors and then disappeared without paying over the VAT collected to HMRC.

To counter this, from 1 March 2021, most of the supplies of services from VAT registered subcontractors will be subject to the “domestic reverse charge for building and construction services” (DRC).  In plain English this means that subcontractors will no longer add VAT to their invoices for affected construction services. Instead, you will pay the VAT on their supply, to HMRC.

This does not mean that you will have to foot the extra VAT cost for your subcontractors.

You will still be able to recover the subcontractor VAT that you have paid, as input VAT on your VAT return – subject to the usual rules – so there should be no long-term effect on your costs or cash flow (you add the subcontractors VAT to your output tax and claim back the same amount as input VAT).

Generally speaking, the DRC will affect supplies of building and construction services supplied at the standard or reduced rates and which also need to be reported under the CIS regulations. The DRC will not apply if the services supplied to you are subject to the zero-rate for VAT purposes.

Unlike the CIS rules, where tax is deducted from your subcontractors’ supply of labour, not materials, the DRC change will affect both supplies for VAT purposes.

Needless to say, this change has expanded the grey areas that VAT registered contractors will need to adapt to or face the dark-side of HMRC’s penalty regime. Listing all these complications in this update would no-doubt send you to sleep. Instead, we have added below the minimum actions that you will need to consider before 1 March. Please read this shopping list and then contact us; if required, we will help you make the changes to your accounting processes to keep you the right side of this new legislation.

Matters you need to consider before 1 March 2021:

  • Are the supplies from your subcontractors affected? Check to see if the services you request from subcontractors are subject to the DRC. It is up to you to make this distinction not your subcontractor. Not all services are subject to the DRC. Generally speaking, construction services are included but certain specialist services are not. See the definitive list we have added to this update.
  • Review your invoicing to customers. If your customer is classified as an “end user” your supply to that customer is not subject to the DRC rules. An “end user” is a business that does not make onward supplies of building services.
  • Update your accounts software. Make appropriate changes to your accounts software or other records that create your VAT returns.
  • Beware cash flow consequences. Consider the effects that adapting to DRC may have on your cash flow.
  • Changes to your sales invoices. From 1 March 2021, your invoices will need to include a formal statement if they are a DRC supply.

The above checklist covers the basic issues you will need to consider.

APPENDIX:

You will have to apply the domestic reverse charge if you supply any of these services:

  • constructing, altering, repairing, extending, demolishing or dismantling buildings or structures (whether permanent or not), including offshore installation services
  • constructing, altering, repairing, extending, demolishing of any works forming, or planned to form, part of the land, including (in particular) walls, roadworks, power lines, electronic communications equipment, aircraft runways, railways, inland waterways, docks and harbours
  • pipelines, reservoirs, water mains, wells, sewers, industrial plant and installations for purposes of land drainage, coast protection or defence
  • installing heating, lighting, air-conditioning, ventilation, power supply, drainage, sanitation, water supply or fire protection systems in any building or structure
  • internal cleaning of buildings and structures, so far as carried out in the course of their construction, alteration, repair, extension or restoration
  • painting or decorating the inside or the external surfaces of any building or structure
  • services which form an integral part of, or are part of the preparation or completion of the services described above – including site clearance, earth-moving, excavation, tunnelling and boring, laying of foundations, erection of scaffolding, site restoration, landscaping and the provision of roadways and other access works

The following services are not subject to the reverse charge:

  • drilling for, or extracting, oil or natural gas
  • extracting minerals (using underground or surface working) and tunnelling, boring, or construction of underground works, for this purpose
  • manufacturing building or engineering components or equipment, materials, plant or machinery, or delivering any of these to site
  • manufacturing components for heating, lighting, air-conditioning, ventilation, power supply, drainage, sanitation, water supply or fire protection systems, or delivering any of these to site
  • the professional work of architects or surveyors, or of building, engineering, interior or exterior decoration and landscape consultants
  • making, installing and repairing art works such as sculptures, murals and other items that are purely artistic
  • signwriting and erecting, installing and repairing signboards and advertisements
  • installing seating, blinds and shutters
  • installing security systems, including burglar alarms, closed circuit television and public address systems

Nearly 1.8m late filers miss tax return deadline

Warren Francis

 

Nearly 1.8m late filers miss tax return deadline late-filing-300x169

More than 10.7m taxpayers filed their tax returns by 31 January. Yet nearly 15% didn’t make the deadline. This is almost twice the amount reported last year.

On the day after the self assessment deadline, HMRC had received 10,743,387 returns (which includes expected returns, unsolicited returns and late registrations). Another 1.8m are still outstanding.

The majority of the tax returns (95.6%) were submitted online, which inches ahead of the 93% of returns filed this way in 2020.

However, HMRC noted that due to the unusual filing patterns this year, the final figure for 31 January may end up lower, as the 392,000 unsolicited returns/late registrations are an estimate based on returns received by early January.

Late filers up on last year

Although the filing rates were on track at the start of the month, the remaining tax returns are up on the 958,296 late filers this time last year. After HMRC’s decision to waive late filing penalty, the 1,790,368 taxpayers who still need to file will not incur an immediate £100 fine as long as they submit their tax return online by 28 February.

HMRC will also not charge late filing penalties for SA700s and SA970s received in February, which can only be filed by paper; and SA800s and SA900s.

While these late filers have some breathing space on the penalty, interest will still be chargeable on any tax not paid by the 31 January due date. HMRC is encouraging these taxpayers to pay an estimated amount as soon as possible to minimise any interest.

A 5% late payment penalty will be charged if tax remains outstanding, and a payment plan has not been set up, before 3 March 2021.

Karl Khan, HMRC’s interim director general for customer services, reiterated that HMRC will not send anyone a late filing penalty as long as they meet the 28 February due date: “We know that many individuals and small businesses are finding it harder to pay this year, due to the pandemic. Anyone who can’t afford to pay their tax bill in full can set up a payment plan, once they’ve filed their return, to spread their tax bill into monthly instalments.”

Last week HMRC’s chief executive Jim Harra waived late penalties after recognising the “immense pressure that many people are facing in these unprecedented times”.

HMRC – Changes to late filing penalty for 2019/20 Self Assessment returns

Warren Francis

HMRC - Changes to late filing penalty for 2019/20 Self Assessment returns hmrc-300x157

 

HMRC has announced that Self Assessment customers will not receive a penalty for filing their 2019/20 tax return late, as long as they file online by 28‌‌ ‌February. We are still encouraging customers who have not yet filed to do so by 31‌‌ ‌January, if possible.

Customers still need to pay their Self Assessment tax bill by 31‌‌ ‌January. Interest will be charged from 1‌‌ ‌February on any outstanding liabilities. Customers can pay online, or through their bank, or by post before they file.

If any customer cannot afford to pay by 31‌‌ ‌January, they may be able to set up an affordable plan and pay in monthly instalments. But they will need to file their 2019/20 tax return before setting up a time to pay arrangement.

More information is available on GOV.UK.

 

Supreme Court sides with small firms in business interruption insurance case

Warren Francis

The Supreme Court has delivered its judgment in the Financial Conduct Authority’s (FCA)’s business interruption insurance test case, with the court’s ruling in the favour of small firms potentially forcing insurers to pay out £1.2bn in CBI claims.

Following the judgement, thousands of policyholders will now have their claims for coronavirus-related business interruption losses paid out.

The court’s decision brings to a close the legal arguments imposed by 14 types of policies issued by six insurers, and a substantial number of similar policies in the wider markets.

The FCA first brought the case against the courts in a bid to “urgently clarify key issues of contractual uncertainty for as many policyholders and insurers as possible”, initially selecting a representative sample of 21 policy types issued by eight insurance groups.

Sheldon Mills, executive director for Consumers and Competition at the FCA, said: “Coronavirus is causing substantial loss and distress to businesses and many are under immense financial strain to stay afloat. This test case involved complex legal issues.

“Our aim throughout this test case has been to get clarity for as wide a range of parties as possible, as quickly as possible, and today’s judgment decisively removes many of the roadblocks to claims by policyholders.”

He added: “We will be working with insurers to ensure that they now move quickly to pay claims that the judgment says should be paid, making interim payments wherever possible.

“Insurers should also communicate directly and quickly with policyholders who have made claims affected by the judgment to explain next steps.”

Huw Evans, ABI director general, said: “Insurers have supported this fast-track legal process every step of the way and we welcome the clarity that the judgment will bring to a number of complex issues. Today’s judgment represents the final step in the appeal process.

“The insurance industry expects to pay out over £1.8bn in Covid-19 related claims across a range of products, including business interruption policies. Customers who have made claims that are affected by the test case will be contacted by their insurer to discuss what the judgment means for their claim.”

He added: “All valid claims will be settled as soon as possible and in many cases the process of settling claims has begun. Some payments have already been made where valid business interruption claims have not been impacted by the test case ruling.

“We recognise this has been a particularly difficult time for many small businesses and naturally regret the Covid-19 restrictions have led to disputes with some customers. We will continue to work together as an industry to ensure customers have the clarity they need when it comes to what they can expect from their business insurance policies.”

Have you filed your tax return yet?

Warren Francis

Have you filed your tax return yet? Tax-time-300x180

HMRC are urging everyone to file their tax return before the deadline of 31 January 2021. They expect 12.1 million returns to be filed this year and 55% have already been submitted, however there are roughly 5.4 million yet to be done!

Once it is completed, you will know how much tax to pay and HMRC can also help set up payment plans to help spread the cost of the liabilities, up to the value of £30,000. HMRC have said that they are ready to offer support to those who are yet to file their returns or are worried about paying their tax bill, but you must act now so they can help before the deadline.

If you need any assistance with submitting your return, please get in touch on 01242 370298 or email office@wfrancisandco.co.uk

Happy New Year 2021

Warren Francis

Happy New Year 2021 2021-300x150

Happy New Year from all of the team at Francis & Co.

We are back to it and ready for a busy month ahead!

We are working remotely so digital records are preferred, however there is always somebody in the office should you need to drop any records off. Please arrange this beforehand.

Don’t forget self assessment tax returns need to be submitted to HMRC by 31st January 2021, so if you haven’t already done so, now is the time to get in touch.

As always if you have any questions or queries then please get in contact with us via telephone, 01242 370298 or email, office@wfrancisandco.co.uk