Government support related to Coronavirus Covid-19
There has been no extension of the usual deadlines for a Self-Assessment tax return to be submitted by 31 January 2021. Penalties for being late are automatic and where the pandemic has been a factor there is no sign that it will be accepted as an excuse by HMRC for lateness.
To ease potential financial pressures government decided that any “payments on account” due on 31 July 2020 would be postponed. These typically involve Self-Assessment taxpayers with a bill of over £1,000 pa who then need to make early tax payments on 31 January and 31 July. As the payment has been postponed, not cancelled, if you are in the “payments on account” system your required balancing payment on 31 January 2021 may be higher than usual.
Many self-employed will have received a grant or two from the Self Employed Income Support Scheme (SEISS) This will count as taxable income and and be included in tax returns for 2020/21.
The outbreak of Covid-19 has been desperately sad for the many families bereaved. It has also been disastrous for small businesses, and especially those recently started that have been excluded from self-employment income support. Enterprise Links believes that financial support should have been delivered equally as a flat rate grant. Enterprise Links also believes that a shorter, earlier and stricter lockdown would have saved lives and livelihoods.
Assistance made available by Government is described in detail on www.gov/uk/business-support and guidance on returning the work can also be found on www.gov.uk/coronavirus and both have been well publicised. For that reason it will not be repeated here. All Enterprise Links clients can access tailored advice on 07920 207136. The best way ahead is to be informed and to plan.
In June, the Government introduced a scheme to support business owners with 80% of 3 months average previous profits in 2018-19. The scheme was extended and a second SEISS grant was announced to be paid in August.
The second grant will be worth 70 percent of self employed’ persons average monthly trading profits, covering three months’ worth of profits.
The scheme has a cap at £6,570 in total and will be paid out in a single instalment. This grant only applies to those who have lost earnings on or after July 14. You can apply for the second grant from Monday, August 17 and will be able to claim until the deadline of October.
The deadline to apply for the first SEISS grant has passed. You can continue to work and take on other employment although you claim the second SEISS grant. You don’t need to pay the grant back, but you will be taxed on it just as you would any other income. The grant will also be subject to self-employed National Insurance. You cannot claim the grant if you trade through a limited company or trust.
The Budget 2020
The personal allowance remains at £12,500 and the basic rate limit at £37,500 for 2020/21. All income tax rates and allowances remain the same as for 2019/20 apart from cost of living increases to blind person’s allowance and married couple’s allowance. The capital gains tax annual exempt amount is increased from £12,000 to £12,300.
The NIC Class 1 primary threshold (but not the secondary threshold for employer NICs) is increased to £183 per week, equivalent to £9,500 per year. The Class 4 lower profits limit is similarly increased to £9,500. There is no change to the Class 1 upper limit or Class 4 upper profits limit.
The NICs employment allowance for employers is increased from £3,000 to £4,000 per year, but it is also worth mentioning that the allowance is being separately reformed, also from 6 April 2020, to restrict the allowance to employers whose NICs liability in the previous tax year was less than £100,000.
Inheritance tax thresholds and rates are unchanged, except that (as already planned) the residence nil rate band increases from £150,000 to £175,000 for 2020/21.
Following a recent review the Government is making a number of changes to support the smooth and successful implementation of the reform of the off-payroll working rules in the private and third sectors from April 2020.
A digital services tax (DST) applies from 1 April 2020 to tackle the tax treatment of digital business. The DST is a 2% tax on revenues over £25m generated from search engines, social media platforms and online marketplaces where those activities are attributable to UK users.
The corporation tax rate will remain at 19% from 1 April 2020. Legislation will also be introduced to maintain this rate from 1 April 2021.
It was announced that the zero-rate of VAT which currently applies to physical publications (books, magazines, etc.) is to be extended to include e-publications with effect from 1 December 2020. The Government confirmed the introduction of a plastic packaging tax. Legislation will be introduced in Finance Bill 2020 and a further consultation on the detailed policy design has been launched.
In order to support businesses suffering the consequences of the Coronavirus outbreak, changes to IR35 off-payroll working have been postponed to 2021 and a range of measures have been announced.
The significant dates to remember are the dates that tax returns should be submitted and tax paid to HMRC
Sole traders must complete a tax return and pay the tax due on business profits for the previous Tax Year by the following 31st January. For example, the tax year 2020/21 runs from 6.4.2020 to 5.4.2021, and the income tax not deducted at source (Pay as you earn) must be paid by 31.1.2022.
Directors of limited companies must make a personal tax return of any income they receive from their company .
Directors of limited companies are also responsible for the submission of a Corporation Tax return by 12 months after the end of the company's accounting year. Corporation Tax must be paid within 9 months of the end of the accounting year (when the accounts end). They must also submit accounts and a confirmation statement to Companies House each year.
VAT must be paid and a VAT return made to HMRC by the 7th day following the end of the month after the VAT quarter.
Enterprise Links Ltd can be engaged to do all of the above on your behalf. Although personal tax returns can still be made on paper, most of them, and all other returns and payments, are now made electronically.
For 2020/21 the personal allowance, which is the amount any man woman or child domiciled in the UK is allowed to earn tax free, is £12,500 and the income tax basic rate of 20% applies to income from£12,501 to £50,000.
The transferable tax allowance for married and civil partners (aka the marriage allowance) is £1,250 for 2019/20. The capital gains tax annual exempt amount which became £12,300.
For businesses the annual investment allowance will temporarily increase from £200,000 to £1 million for the two year period from 1 January 2019 to 31 December 2020.
The tax free Individual Savings Account annual subscription limit is £20,000.
Self Assessment - a guide
Self assessment is the system under which taxpayers are required to account for tax that has not been deducted at source. You will need to submit a tax return to HMRC if you are:
working for yourself and your income from self-employment was more than £1,000 - anything under this amount falls within the new ‘trading allowance’.
renting out a property and your rental income is more than £2,500 - you will need to phone HMRC to give them the figures if you receive between £1,000 and £2,500.
a company director (except for directors of a not-for-profit organisation and you did not receive any pay or benefits, like a company car or medical insurance).
a trustee of a trust or registered pension scheme or the executor of an estate.
living abroad and have a UK income - this includes non-UK resident landlords.
or if you receive:
income from savings and investments of more than £10,000.
dividend income of more than £10,000.
other ‘untaxed income’ of more than £2,500. This could be tips or commission. If the income is less than £2,500 a year you might not have to complete a tax return but it is still your responsibility to report such income.
taxable foreign income, even if tax was paid in the country of origin, whether or not you are resident in the UK.
a taxable annual income of more than £100,000.
A P800 form from HMRC showing tax due at the end of the year that cannot be collected via your PAYE income and you did not make a voluntary payment.
regular annual income from a trust or settlement, or income from the estate of a deceased person and further tax is due.
state pension which is more than your personal allowance and is your only source of income, except in cases where your pension commenced on or after 6th April 2016.
income over £50,000 (or your partner’s income was over this amount) and one of you claimed child benefit.
or you have given away or sold assets worth £46,800 or more for 2018/19.
or have a capital loss but your gains net of any losses are more than the annual exemption for 2018/19 of £11,700.
or have no losses to claim but your gains are more than the annual exemption for 2018/19 of £11,700.
and you may also want to complete a tax return if you:
want to claim for expenses of employment which total £2,500 or more.
want to claim tax relief for donations made to charity or private pension contributions.
want to prove you are self-employed, for example to claim tax free childcare.
want to make voluntary class 2 national insurance payments to qualify for benefits.
If HMRC have sent you a tax return, or a notice to complete one, the return must be completed and submitted by the due date, which for the 2019-20 tax year is 31st January 2021 for online submissions.
VAT Registered Businesses - Making Tax Digital
If your taxable turnover is above the VAT registration threshold you must follow the rules set out in VAT Notice 700/22 and keep your accounts in a method that has a digital link to HMRC.
The two methods acceptable are compliant on line accounting software/apps or bridging software for a spreadsheet. Remember that this only applies to businesses that must register for VAT because their sales are greater than £85,000 in the last 12 months.
National Insurance and the State Pension
There are complex rules regarding state pension entitlement as a result of national insurance contributions. Basically the present rules are that you need 10 years NI contributions to get a state pension at all, and 35 years for a full state pension. People retiring could have their state pension provided under three state pension systems: the basic state pension, State Earnings Related Pension (Serps), and State Second Pension. Only the basic state pension is available now.
In April 2016, a calculation was done to work out what pension you have earned under the old rules and the new rules. Pensioners will get the higher of the two, less any deductions from "contacting out". If you have opted out of either Serps or the State Second Pension, or both, your state pension will be reduced.
If this "foundation" pension is less than the maximum state pension then further NI contributions will increase it, at the rate of 1/35 of the maximum state pension, for each further year until you reach the maximum or state pension age.
If you had a private pension that replaced part of your state pension, then by paying more NI in future you could gain a higher state pension than you would have achieved under the old state pension system while keeping the private pension.
HMRC accepts that you can keep documents that form part of your accounting records on paper, digitally or as part of a software program (like accounting software). The Making Tax Digital initiative will mean the abolition of the traditional 'tax return' and its replacement by a three monthly summary confirmation of income and a final statement signed once a year. This process may be introduced in or after 2021, but there is likely to be a threshold to exclude those with small earnings from self-employment.
HMRC already uses third-party data from banks, building societies, pension providers and employers. In time those sources could include income from property, peer-to-peer lending, and dividends and shares. These sources, they argue, are necessary in today’s economy where “taxpayers hold more than one job and may have fluctuating and unpredictable incomes. HMRC is keen to stress that new third-party information will be sourced openly and transparently, and that all legal requirements, including privacy impact assessments, will be met. Taxpayers will be able to see all the third-party data sources linked to their records at any time through their digital personal tax accounts. But many will need help to understand or comply, and will have doubts over security.
HMRC estimates that the use of third-party sources, and the reduction in under- and over-payments, will benefit six million customers in the short-term and up to 40 million taxpayers in future. However previous initiatives did not involve the entire British population, multiple data sets, and real-time information which re often both incorrect and incomplete.
Personal Tax Accounts
The Personal Tax Account gives taxpayers information on their tax affairs 24 hours a day, 7 days a week.
filing a Self-Assessment tax return
claiming a tax refund directly into your bank account
checking and managing tax credits
checking your State Pension and national insurance contributions
For information visit www.gov.uk/personal-tax-account where you can sign up for free.