Spring Budget 2021- Q1 Newsletter

Coronavirus Support Schemes

Furlough Scheme Extension

The government is extending the Coronavirus Job Retention Scheme (‘CJRS’) for a further five months from May until the end of September 2021.

Employees will continue to receive 80% of their current salary for hours not worked.

There will be no employer contributions beyond National Insurance contributions (NICs) and pensions required in April, May and June.

From July, the government will introduce an employer contribution towards the cost of unworked hours of 10% in July, 20% in August and 20% in September, as the economy reopens.

Self-employed Income Support Scheme (SEISS)

The government confirmed that the fourth SEISS grant will be worth 80% of three months’ average trading profits, paid out in a single instalment and capped at £7,500 in total.

The grant will cover the period February to April and can be claimed from late April. Self-employed individuals must have filed a 2019- 20 Self-Assessment tax return to be eligible for the fourth grant. For personalised guidance on eligibility and the application process for the fourth SEISS grant, self-employed individuals are advised to consult with a professional self-assessment accountant.

This means that over 600,000 individuals may be newly eligible for SEISS, including many new to self-employment in 2019-20. All other eligibility criteria will remain the same as the third grant.

The government also announced that there will be a fifth and final SEISS grant covering May to September. The value of the grant will be determined by a turnover test, to ensure that support is targeted at those who need it the most as the economy reopens.

People whose turnover has fallen by 30% or more will continue to receive the full grant worth 80% of three months’ average trading profits, capped at £7,500. People whose turnover has fallen by less than 30% will receive a 30% grant, capped at £2,850. The final grant can be claimed from late July.

Bounce Back Loan and Recovery Loan

The government have confirmed that the Bounce Back Loan scheme will end by 31 March 2021. However, there will be a new state-backed ‘recovery loan’ available for all viable businesses hit by the pandemic, for legitimate business purposes. Full details will follow, but we currently understand that:

• Loans and overdrafts of between £25,000 and £10m;
• Asset/invoice finance from £1,000 to £10m;
• Unsecured finance of up to £250,000;
• You’ll be able to apply, even if you have a bounce back loan.
• Terms will be up to six years for loans and asset finance, and up to three years for overdrafts and invoice finance.

At this stage we don’t know the interest rate, whether there will be a credit check, or whether they will be available for sole traders and limited companies etc. However, we will update you as soon as we hear anything further. More information of this can be found in our blog.

VAT

You may be able to further defer VAT payments as detailed in our blog. The portal is now open for applications to defer 2020 VAT payments due by 31 March 2021 until March 2022. Further details can be found at GOV.UK. Applications must be submitted by 21 June 2021. Unfortunately, we are unable to do this for you even if we are your agents.

Stamp Duty Land Tax

The government will extend the temporary increase in the residential SDLT Nil Rate Band to £500,000 in England and Northern Ireland until 30 June 2021.

From 1 July 2021, the Nil Rate Band will reduce to £250,000 until 30 September 2021 before returning to £125,000 on 1 October 2021.

Important Changes from April 2021

Businesses

Corporation Tax

This remains at 19%, but will increase after 1 April 2023:

• It will change from 19% to 25% from 1 April 2023.
• This higher rate will apply where company profits are in excess of £250,000, with the low rate of 19% being retained for those with profits under £50,000. For those companies with profits between £50,000 and £250,000, there will be marginal relief applied to bridge the gap between the lower and upper limits.
• These limits will be divided by the number of associated companies; in other words, where one company controls another or both are under the same control. There are increased tax allowances from April 2021 (the “super-deduction”) on certain classes of assets that can be claimed, which will reduce the Company tax by around 25p for every pound invested in qualifying new equipment, and which we will claim as part of the corporation tax work we do for you.
• Companies making trading losses in 2020/21 and/or 2021/2022 will be able to carry back these losses for up to three years to offset against taxable profits.

Company Directors

Setting the best level for your salary for 21/22:

The two most tax efficient options for the current year are:

• £9,568 (up from £9,504) gross per annum; or
• £12,570 (up from £12,500) gross per annum

This is based on you having no other sources of income. If you have any other income sources, please let us know so we can calculate the best scenario for you.

Please note for 20/21 if you have claimed furlough, make sure you have topped up your salary for the year up to the lower earning limit, to ensure you get the national insurance credit for the year if you haven’t already done so. Where we do your payroll, we will be in touch with you, specifically on this.

Dividend Tax

If your salary is now £797.34 per month you can then take £5,002 of dividends per annum tax free. There is then tax payable at 7.5% on the next £35,700 of dividends. The dividend tax rate then increases to 32.5%.

If your salary is £1,017.48 per month you can then take £2,000 dividends per annum tax free. There is then tax payable at 7.5% on the next £35,700 of dividends. The dividend tax rate then increases to 32.5%.

If you have other income this will reduce the bandings accordingly. The 32.5% band continues until your total income reaches £100k then the % rises again, as noted below.

Top Tax Director/Shareholder Tips to Consider

If you have not already, you may want to transfer some shares, or adding payroll for your spouse or family members to reduce dividend tax.

Alphabet shares can also be a good option if they are setup correctly.

If you are the sole director/employee and take on another employee who is paid at the level where NIC is due, you should increase your salary to £12,570 per annum as this will reduce taxes as you can claim the Employer’s NI allowance.

Construction Industry and VAT

This was scheduled to begin in October 2019 was delayed a year and took effect from 1 March 2021.

Here a person supplying certain construction industry services to a VAT-registered customer will no longer be required to charge VAT. Instead, the customer will account for VAT under a “reverse charge” arrangement. That is, the customer will account for VAT as if they had made the supply (to themselves) and will also, if and to the extent appropriate, recover the same VAT as input tax. HMRC have introduced this so the burden falls on those with the widest shoulders and to minimise VAT fraud.

It applies only to supplies which would otherwise be subject to VAT at the standard or reduced rate. It does not, for example, apply to zero-rated supplies or supplies made by someone who is neither registered nor required to be registered for VAT.

The list of services to which the CSDRC applies (“construction services”) has a familiar ring—they are the same services as those to which the Income Tax Construction Industry Scheme (“CIS”) applies. They thus extend not only to construction but to alteration or repair of buildings, some types of electrical and plumbing work, site clearance etc. More details can be found in our blog.

IR35 – Off Payroll Working

The IR35 rules continue as normal. The fundamental change here is where the potential liability for payroll taxes falls, should HMRC dispute your status. From 6 April 2021, it could be on your client and as a result many medium and large companies are blanket-banning contractors. If this change impacts on you and you are having to move to PAYE or an umbrella company, there will be fundamental changes to your existing company.

Our blog details this further. The only recent news is the ‘soft landing’ where companies will not have to pay penalties on any inaccuracies within the first 12 months of the new rules coming into effect, unless there is “clear evidence of deliberate non-compliance”.

If this impacts you, you should stop your payroll from 31 March 2021. If we run your payroll for you, you MUST let us know that this has impacted on you, so we can cease it.

HMRC CEST tool may be useful if you are currently discussing this with your clients.

Other tax planning opportunities are available on the closure of the company, especially as the rumoured changes to Capital Gains Tax did not materialise. Please contact us if you would like to explore further.

Individuals

Tax Bands*

• Your tax-free personal allowance has increased slightly to £12,570 (from £12,500)
• The point where high-rate tax comes in has increased slightly to £50,270 (from £50,000)
• Your national insurance now starts at £9,568.

*Scotland varies here

Capital Gains Tax

Remember if you sell a residential property as an individual or partnership, you may need to pay Capital Gains Tax and from the 6 April 2020 this needs to be done within 30 days. Please see our blog, as a reminder of this for you.

2020/21 Pension Payments

If you are considering making a further personal pension payment, you may wish to do this before 5 April 2021 as it will extend your basic rate tax band and allow additional tax relief. There are various limits and rules surrounding pensions and if you are considering making a large contribution then you need to check you comply.

If you run your own company, your company can make the contribution, which may allow you to make higher additional payments up to £40,000 per annum plus unused relief brought forward. If you are considering this you should contact your pension advisor and let us know the contribution in due course. Remember that the tax relief on pension contributions is given in the year that the contributions are actually paid.

You can also reduce the tax you will pay by making donations to charities and investments to EIS, SEIS, VCTs etc. Please see our blog for more ideas of how to reduce your tax before the end of the tax year.

Allowances You Can Claim

• Here are a few of the allowances you can claim to help reduce your tax:
• The first £2,000 of dividends are tax-free;
• The first £1,000 of interest is tax-free (if you are a low-rate tax payer);
• The first £12,300 of capital gains you make are tax-free;
• You may be able to claim a trading allowance of £1,000 if you are self-employed;
• You may be able to claim a rental allowance of £1,000 if you rent property;
• Your income tax allowance is £12,570;
• You can claim rent a room allowance of £7,500; and
• Marriage allowance, £1,260.

To name but a few…

Allowances You Can Lose?

On the flip side, if your income is more than £100,000, your Personal Allowance goes down by £1 for every £2 that your income exceeds this threshold. This means your allowance is zero if your income is £125,000 or above.

High Income Child Benefit tax charge is worked out on the highest income of the two spouses. If one of them exceeds £50,000 per annum, this tax charge will be triggered and part or all of your claim will be payable when your individual income exceeds £60,000.

Fee Protection Policy

We will be in touch with you shortly with our new Fee Protection Policy for the new Tax Year, so please keep an eye out for this, in case it is of interest to you and/or your business.