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Month: February 2021

Self-assessment late payment penalty

Self-assessment late payment penalty

HMRC announced in January that they would not charge a late filing penalty if your 2019/20 tax return was not filed by midnight on 31 January 2021, as long as the return was filed by 28 February 2021. Any tax due by 31 January 2021 should still have been paid by that date, unless a time-to-pay arrangement had been agreed.

Where tax is paid late, interest is charged from the due date (31 January) until the date of payment. Penalties may also be charged. However, this year, a late payment penalty will not be charged as long as the tax is paid by 1 April 2021, or a time to pay agreement set up by that date.

Interest on late paid tax

Interest is charged from 1 February 2021 on any amounts unpaid at that date. This is the case regardless of whether or not a time-to-pay arrangement is in place.

Late payment penalty waived

The first late payment penalty – set at 5% of the unpaid tax – is normally charged where the tax remains unpaid after 30 days. However, HMRC have announced that the late payment penalty will be waived as long as the tax is paid, or a time-to-pay arrangement is agreed, by 1 April 2021.

You can set up a time-to-pay arrangement online.

Speak to us

Speak to us if you have unpaid tax and you need help in setting up a time-to-pay arrangement.

February 24, 2021

Gift Aid warning

Gift Aid warning

If you are a taxpayer and you make a Gift Aid declaration when making a donation to a charity, the charity can reclaim basic rate tax on your donation.

Tax relief on the donation

A donation made under Gift Aid is treated as being made net of the basic rate of tax, currently 20%. The charity can reclaim 25% of the amount donated. For example, if you donate £100, the charity can reclaim £25 (25% of £100), bringing the total donation up to £125. Your donation of £100 is 80% of the total donation, with the charity reclaiming the remaining 20%, i.e., £25.

If you are a higher rate taxpayer or an additional rate taxpayer, you can claim relief through your self-assessment tax return for the difference between the highest rate at which you pay tax and the basic rate relief received at source – a further 20% of the gross donation for higher rate taxpayers and a further 25% for additional rate taxpayers.

Have you paid enough tax?

The tax that is reclaimed by the charity on the donation is funded by the tax that the taxpayer has paid. As long as you pay more tax than the charity reclaims on your Gift Aided donations, all is well. However, problems can arise if your income falls and you have not paid enough tax to cover that reclaimed on your Gift Aid donations. If this is the case, HMRC will look to you to make up the shortfall.

Review your Gift Aid donations

If your income has fallen for 2020/21, either as a result of the COVID-19 pandemic or otherwise, you may wish to review your regular Gift Aid donations to ensure that you have paid sufficient tax to cover the basic rate relief given at source. If your income has fallen below the level of the personal allowance, set at £12,500 for 2020/21 and rising to £12,570 for 2021/22, you should cancel any existing Gift Aid declarations so that you do not have to repay the tax claimed on those donations back to HMRC.

When making one-off donations, consider your tax position before completing the Gift Aid declaration.

Contact us

If you would like to review the tax effectiveness of your charitable donations, please contact us.

February 17, 2021

Updating PAYE codes for 2021/22

Updating PAYE codes for 2021/22

The 2021/22 tax year starts on 6 April 2021. If you employ staff, you will need to update their tax codes before you pay them for the first time in the new tax year. However, remember to finalise the 2020/21 tax year before updating your payroll software and data for 2021/22.

Tax codes from 6 April 2021

The tax code that you will need to use for an employee from 6 April 2021 will depend on whether or not HMRC have sent you a notification of a new tax code to use from that date.

The personal allowance is increased to £12,570 for 2021/22. As a result, the PAYE starting threshold will increase to £242 per week (£1,048 per month). The emergency tax code for 2021/22 is 1270L.

Employees with a new tax code

If HMRC issue a new tax code for an employee, you will receive either a paper form P9(T), ‘Notice to employer of employee’s tax code’, or an internet notification of coding if you are registered for HMRC’s PAYE Online Service. To access your code online, you will need to:

  1. Go to the login page for PAYE online and select ‘Sign in’.
  2. Sign in to the service using your Government Gateway User ID and password.
  3. From your Business Tax Account home page, select ‘Messages’ and then select ‘PAYE for employers messages’.
  4. Select ‘View your tax code notices’.
  5. From the tax year drop down menu, select ‘2021/2022’.

You should use the form P9(T) or the online tax code notification with the most recent date if you have received more than one for 2021/22, and discard any previous notifications. You should update your 2021/22 payroll to reflect the tax code shown in the notification for that employee.

Employees without a new tax code

If HMRC have not issued a tax code notification for an employee, you will need to update their 2020/21 tax code to reflect the increase in the personal allowance to £12,570 for 2021/22. To do this, you should:

  • add 7 to any tax code ending in L;
  • add 8 to any tax code ending in M; and
  • add 6 to any tax code ending in N.

For example, 1250L will become 1257L.

You should not carry over any ‘week 1’ or ‘month 1’ markings.

Scottish and Welsh taxpayers

Scottish taxpayers are identified with an ‘S’ prefix and Welsh taxpayers are identified with a ‘C’ prefix. Check any Scottish or Welsh employees (those living, respectively, in Scotland or in Wales) have the correct tax codes, including the prefix.

More information

You can find more information on tax codes to use from 6 April 2021 in HMRC’s P9X(2021) guidance.

Get in touch

Please get in touch if you need assistance in updating your employees’ tax codes for the 2021/22 tax year.

February 10, 2021

Business interruption insurance pay-outs

Business interruption insurance pay-outs

Business interruption insurance policies provide cover for losses that arise if a business is severely disrupted or is forced to close. The policy will cover losses that arise as a result, and also fixed costs that the business has to continue to pay while shut.

Many businesses that expected their policies to pay out when they were forced to close as a result of the COVID-19 pandemic found that their insurers did not agree. A sticking point for many was the policy wording, which often excluded diseases unless the disease was named.

FCA test case

To provide some clarity as to whether closures due to COVID-19 were covered, the Financial Conduct Authority (FCA) took forward a test case. A ruling in the Supreme Court found predominantly in favour of the policyholders, paving the way for compensation payments to be made.

Tax implications

The tax treatment of any receipts received under a business interruption insurance policy will depend on the nature of those receipts, and also whether the associated insurance premiums were deductible.

Deductibility of premiums

As a general rule, insurance premiums will be deductible in calculating the profits of the business if the premiums are incurred wholly and exclusively for the purposes of the business. If you have taken out business interruption insurance, it is likely that this test is met and you can deduct the cost of the premiums when working out your taxable profits.

Taxability of receipts

HMRC have confirmed that in most situations, where the premium is deductible, any receipts paid out under the policy will be taxable. If you have received a pay-out to compensate you for profits lost as a result of having to close your business during the COVID-19 pandemic, you should include the receipt as a trading receipt when working out your taxable profits.

If you prepare accounts using the cash basis, the receipt should be taken into account in the period in which you received it. However, if you use the accruals basis, the usual rule is that the receipt should be taken into account in the period to which it relates. This would normally be when the business was closed, but where it was not certain that the payment would be made, it should be reflected in the accounts from the date that this became clear, if later.

Can we help?

If you have received a pay-out under a business interruption insurance policy and are unsure how it should be treated for tax purposes, please get in touch.

February 3, 2021