Don’t miss the October 5 deadline to register for self-assessment

Anyone who has become self-employed, was in a business partnership, earned more than £100,000 or had to pay the High-Income Benefit Charge this year has until October 5 to speak to HMRC to register for self-assessment.

Millions of people each year need to do a self-assessment, and this includes anyone earning money outside of their PAYE job, including commission or tips, or you earn income from renting out a property.

What if I need to claim tax relief?

If you need to claim tax relief on anything, such as items you pay for out of your own pocket which are solely used for your PAYE employment, then you would also need to sign up for self-assessment. You may be due a tax rebate too if you have been made redundant, as you may not have been paid as much as expected across the whole year.

Other tax reliefs might come from Gift Aid donations you have made to charity, or reclaiming the additional tax relief on your pension contributions if you are a 40% or 45% taxpayer.

You can also claim tax relief on maintenance payments if you have to make them to your ex-spouse or civil partner, although this would only apply if one of you was born before April 6, 1935.

Check if you need to make a self-assessment payment by visiting the Gov.uk website.

Can I be fined if I miss this deadline?

If you fail to notify HMRC before the October 5 deadline, then you could face a penalty. If you fail to register and file your return before January 31 of the year following the tax year when the amount was due, you could face another.

The best thing to do is act now and check if you need to file a self-assessment. If so, then get your skates on and register before October 5. If you can’t, then do it as soon as you can afterwards and check if any penalties will apply.

We can help you meet your obligations

If you think you may have a self-assessment liability for 2023/24, then please get in touch and we will make sure you get everything you need in place.

New tax regime for sole traders and partnerships starts

HMRC is changing the way sole traders and partnerships need to calculate profits for their self-assessment returns. The Revenue will require the profits to be declared for the tax year in question, rather than the accounting year as is currently the case.

Any sole traders or partnerships with an accounting year ending at any point other than March 31 or April 5 will be affected by these changes and will need to amend the way they calculate and pay the tax due on their profits. These changes are not influenced by delays to the Making Tax Digital regime.

What do the changes mean?

This tax year – 2023/24 – is a transition year, so sole trader and partnership businesses must declare their profits for two accounting periods – their existing accounting period and any additional time that would take their trading activity to the end of the tax year.

HMRC states: “Businesses will need to declare the total profits from the end of the last accounting date in tax year 2022 to 2023 up to and including April 5, 2024. This means that profits generated over a longer period will be taxable in the transition year.”

However, from April 2024 to 2025 and any future years, the amount of profit made in each of the relevant periods where the accounting period may straddle the tax year will need to be allocated correctly.

Sounds complicated, how does it work?

It may be complicated initially while businesses get used to working out their profits and tax in a new way, but HMRC is working on an online form to make the returns easier. For now, sole traders and partnerships should rely on their accountant to help if they are unsure what to do.

Take an example – if your accounting date is December 31, 2023, then as a sole trader or partnership you need to declare profits from January 1, 2023, to April 5, 2024. This will give you a period for this return of 15 months rather than the usual 12 for the 2023/24 tax year. This must be filed and any tax due paid on or before January 31, 2025.

Some businesses may need to use provisional figures for this period, and they would have the usual amount of time to amend these to final figures on their tax return.

One benefit businesses will have if they need to make this change in the 2022/23 tax year is the ability to use any overlap relief due. Some may change their accounting dates to coincide with the tax year to make life easier. If this is done in the 2023/24 tax year, then the current change of accounting rules will apply.

HMRC stated: “In tax year 2023 to 2024, businesses can use any overlap relief resulting from overlap profit when the business first started. By default, any remaining additional profit can be spread over five years.”

If a business changes their accounting date from 2023/24 onwards, then these rules won’t apply. Also, any future changes can be made no matter what changes have been made in the past.

Get previous overlap relief figures from HMRC

HMRC should be able to provide you with overlap relief figures for any accounting date changes in the 2021/22 tax if you request them, provided they are recorded on its systems.

More staff are currently being trained to deal with these overlap relief queries and eventually HMRC will have a specific form to use to make these overlap relief requests more streamlined. In the meantime, if you want to get overlap relief data, HMRC is asking you to provide as much information as possible from the following list:

• Taxpayer name.
• National Insurance number or Unique Taxpayer Reference.
• Name and description of business.
• Whether the business is self-employment or part of a partnership.
• If the business is part of a partnership, the partnership’s Unique Taxpayer Reference.
• Date of commencement of the self-employment business, or date of commencement as a partner in partnership.
• The most recent period of account or basis period the business used.

Those sole traders or partnerships looking to change accounting dates in 2022/23 and 2023/24 will need to wait for additional information on the “provision of overlap relief figures for these tax years” said HMRC.

There is some additional background information in the ‘Basis period reform’ policy paper.

Contact us

These changes may create additional complications for your business in the short term, and you need to be sure you’re keeping on top of what you need to file to HMRC, and by when. If you need assistance with this, please just get in touch with us and we will support you.

MTD for ITSA delayed to April 2026 – what does this mean for you?

Making Tax Digital (MTD) has been on the cards for years now, with businesses already pushed towards dealing with their VAT this way. But plans to extend this for Income Tax Self-Assessment (ITSA) have been put on hold once again until April 6, 2026, eight years later than the original planned launch in 2018.

However, even when 2026 comes, the MTD for ITSA will be phased in rather than applying to everyone at once.

Who will have to go digital first?

The first people doing self-assessment who will need to go digital are landlords and the self-employed who are earning more than £50,000 a year. HMRC estimates that this will mean around 700,000 people are brought into the MTD regime at this point.

The next phase will kick in from April 2027, when landlords and self-employed people earning more than £30,000 a year will be expected to go digital – bringing another 900,000 people into the MTD regime according to HMRC.

What’s the plan?

Victoria Atkins, financial secretary to the Treasury, announced the delay in the House of Commons just before Christmas.

She said: “The government understands businesses and self-employed individuals are currently facing a challenging economic environment, and that the transition to MTD for ITSA represents a significant change for taxpayers, their agents, and for HMRC.

“That means it is right to take the time needed to work together to maximise those benefits of MTD for small business by implementing gradually.

“The government is therefore announcing more time to prepare, so that all businesses, self-employed individuals, and landlords within scope of MTD for Income Tax, but particularly those with the smallest incomes, can adapt to the new ways of working.”

The needs of smaller businesses are going to be put under review to see how they can be helped to “fulfil their income tax obligations” Ms Atkins said in her statement. Once this review is complete and the various stakeholders – businesses, taxpayers, and their agents among others – have been consulted, the Government will outline further plans for MTD for ITSA, said Ms Atkins.

General partnerships will not be expected to go digital in 2025 now as previously expected, but they will see these changes brought in at a later date. But anyone who wants to sign up for MTD voluntarily before they are required to, has that option.

Contact us

There may be some benefits to using MTD earlier than you need to, but there could also be drawbacks for some people and businesses. If you want to find out more about the right decision for you, then please contact us and we will give you all the help, support, and information you need.

Self-Assessment – now is the time to get your tax return sorted

Yes, here we are again, the Christmas tradition of dealing with your self-assessment tax return is back for another year, and you need to get everything sorted as soon as you can. The final deadline for filing your self-assessment is January 31, 2023, for the 2021/2022 tax year, and you are expected to both file the return and make any payment due by midnight on that day. The tax year runs from April 6 to April 5 the following year.

If you miss this deadline, you could be facing a fine which will increase over time if you continue to either not file the return, not pay the tax due, or both.

Who needs to file a tax return?

Not everyone needs to file a tax return, but if you are one of the people who does, then make sure you get to grips with what is required as soon as you can. Those who need to file a return, according to the Gov.uk website, include:

• Anyone self-employed as a sole trader who earned more than £1,000 before costs.
• Partners in a business partnership.
• Anyone earning more than £100,000.
• Anyone with untaxed income from tips and commission, rental income from property, income from savings, investments and dividends or foreign income.
• Anyone who received COVID-19 support payments or grants during the pandemic.
• If you need to claim income tax reliefs, which could include professional body memberships and other expenses you pay solely to do with your work, even if you pay PAYE.
• To prove your self-employment status to claim Tax-Free Childcare or Maternity Allowance.
• If you or your partner’s income (if you have a partner) exceeded £50,000 and you need to pay the High-Income Child Benefit Charge.

If you are not sure whether you need to file a return or not, you can check on the Gov.uk website, or speak to your accountant who will be able to help you.

What is the penalty for not filing a tax return on time or paying late?

If you fail to file your tax return for up to three months, you will receive a fixed penalty of £100 but it can rise if you file later than this. You will also pay a penalty for paying your tax bill late and you can also be charged interest on late payments.

If you have a reasonable excuse, such as a close relative or partner dying close to the filing deadline, a hospital stay, or a life-threatening illness, for example, then you can appeal any penalty imposed. 

Contact us

Tax returns can be complicated, especially if you are looking to maximise the tax you are reclaiming, so working with an accountant makes sense. If you need help with your self-assessment, then please contact us and we will give you all the help, support, and information you need.

Tax year end – get your accounts ready before the rush

It’s that time of year again – the shops are playing Christmas music, there are Christmas films starting to appear on the TV, and for many of us, there is a tax deadline looming, whether that is personal or for our business.

This is the busiest time of year for accountants as so many people will leave their corporate or personal tax returns until the very last minute. So, if you know your business is coming up to its accounts filing date, or you have a self-assessment tax return that needs completing and filing before January 31, you need to start thinking about it sooner rather than later.

Do what you can to help

If you are coming up to your filing deadline, then you can really help us by sending the relevant information as soon as you can. That way, if we have any queries or you find there is something you have forgotten to send, there is plenty of time to deal with any issues.

Only pay the tax you owe

The best way your accountant can help you is by ensuring you only pay the tax you owe, no more and no less. We will help you maximise any tax breaks available and help to make sure you are claiming everything you can.

We can help you meet your obligations

Speak to your accountant and ask him or her to help you get the right information together so your accounts can be prepared in good time.

Self-Assessment – it’s getting to that time again

Self-assessment is an annual event, and it is always towards the back end of the year that you need to start thinking about it. Many people will already be registered for self-assessment, but there are others who will need to register for the first time this year, either because they have set up a new business, or become self-employed for the first time.

Anyone in this position needs to get in touch with HMRC before October 5 to let the taxman know you need to do your first self-assessment tax return. For those dealing with their self-assessment on a paper return, the completed paperwork needs to be with HMRC before October 31. However, you have until January 31, 2023, to make the payment – which is also the deadline for online filing and payment.

Who needs to register?

If you are employed, you may still need to file a self-assessment return if you have income from outside of your PAYE income, for example from a property, foreign income, or you have income from dividends or savings.

Remember though, you may also need to file a self-assessment return if you need to claim money from the taxman. For example, if you are a 40% or 45% taxpayer and your employer does not claim the additional tax relief above 20% that you should receive on pension contributions up to £40,000 a year, then this can be claimed through your self-assessment form.

Claim money for expenses from your own pocket for work

If you need to pay out of your own pocket for work expenses – such as uniforms, travel and professional insurance or subscriptions, you can also claim tax relief on these via your self-assessment form.

One particularly important expense to claim if you work from home is the cost of energy used to heat the room you work in. With the average energy bill rising to £3,549 from October 1, according to the latest price cap announcement from Ofgem, this is one item that could help you deal with the rising cost-of-living expenses.

How much can you claim for your energy costs?

There is a base amount you can claim for the energy costs which is £6 per week, which in the current climate may be a lot less than it is really costing you. So, if you prefer, you can instead claim the actual amount you are having to pay for your energy while you are working from home, but you would need to keep your bills and receipts to back up your claim.

The one thing to remember though is that you cannot claim this if you choose to work from home, or if your employment contract allows you to work from home some or all of the time under HMRC rules. You can claim this if your employer does not have an office, or if your job requires you to live far away from your employer’s office.

We can help you

If you are unsure about what you can and cannot claim for expenses outside of your PAYE, speak to us and we will help you through the process, so you can claim everything you are due.

Are you claiming everything you are entitled to from the taxman?

Tax is something that is a certainty in life, as former US President Benjamin Franklin said, but there are lots of ways you can reduce the amount of tax you have to pay by claiming for expenses you may not realise you could.

Those of us who are self-employed or own businesses are more likely to claim the majority of costs and expenses against tax that we can. But what many PAYE employees do not realise is that they can also claim certain expenses if they are not covered by their employer, and they are specifically relevant to their work.

What can be claimed?

For example, let’s say you are a nurse, an engineer, a psychologist or simply an employee who happens to use their car for work purposes sometimes. In each of these cases, there are likely to be things that you are paying for that you could claim if your employer is not repaying you for them.

It could be fees you pay to be a part of a professional institution, or professional indemnity insurance, or uniforms that you need to buy yourself, shoes, books you need to study for your work, toys that you may need to use to encourage children to talk to you in the case of a child psychologist, for instance. The list would include anything and everything that you need to buy yourself that solely relates to your work.

While many of these may be relatively small amounts individually, they will soon add up, and if you consider how much they add up to over a long period of time, there is every reason to reclaim that money.

How do you claim them?

Understandably, many people are nervous about dealing with the taxman because they think automatically that it is going to end up costing them money. But that is not always the case. Reclaiming these amounts that are legitimate allowances could put a significant amount of money back into your pocket.

To claim these, you would need to do a self-assessment form. This is something many people who pay tax through PAYE would not be familiar with. You can speak to your accountant for more information if you need it, or you can ask HMRC directly about how you claim for these costs on your self-assessment.

Don’t be nervous, and go back as many years as you can

You do not need to be nervous when dealing with the tax office as you are not doing anything wrong. This is money you are owed, and you would be doing yourself a disservice by not getting this money back into your own pocket.

If you have not been claiming this money back before, then you can go back up to four previous tax years. This means you can reclaim overpaid tax from 2018/19 if you make the claim before April 5, 2023. If you had an average of £1,000 that you could have reclaimed for each of these years, then you would get a £4,000 rebate from the taxman by making the claim.

In the current economic climate, even relatively small amounts that you can reclaim will make a difference. But remember, you must have proof of the purchases you made. Usually these would need to be receipts, but if you do not have these, then you can prove any payments made using bank statements if you need to. If you bought anything online, you may have records there in your email or, say, an Amazon account.

We can help you

If you are unsure about whether you can claim some of the expenses for your work or want to know you have claimed everything that it is possible to claim, then please get in touch with us and we will help you through the process.

Last chance to make sure your business is ready for MTD

Companies and sole traders who have not yet finalised their plans to comply with Making Tax Digital are in the last chance saloon this month, and the very latest date you have to comply with MTD for paying VAT is August 7.

That is the latest date on which you will need to make your first – if you are not already doing this – MTD VAT return. So, if you have not already done so, you have very little time left to make sure you comply with this legislation.

Your responsibilities

Whether you are required to pay VAT – because your business turnover is above the £85,000 threshold at which you are required to register – or because you have voluntarily registered, you now must keep your records and file your returns electronically.

How do I file?

From April 1, you will need to have filed any VAT due through MTD-compatible software, which includes the likes of QuickBooks and Xero, among others. If you are not able to file your return this way, then HMRC can currently issue a £400 fine. But from January next year, HMRC is due to bring in a points system, which means you accrue points each time you miss a deadline. Once you hit a certain number of points, you will face a £200.

So, the best thing you can do is prepare yourself properly. If you have not sorted this out already, you really are running out of time.

We can help you meet your obligations

If you are not yet registered to deal with MTD through relevant accounting software, then we can help you. But there is no time to lose. Please get in touch with us as soon as you can, and we will do everything in our power to help you meet your filing deadlines.

Change in National Insurance contribution levels in July

A change in National Insurance contribution (NICs) levels comes into force at the beginning of July, which should save around 30m people £330 each, according to the Government.

From July 6, the amount you can earn before you start paying NICs will increase, which means the amount of overall tax – since NICs is a tax in all but name – will reduce.

What are the new thresholds?

From July 6, the threshold for Class 1 NICs, which are paid by those who are employed, and Class 4 NICs, which are paid by the self-employed, rises from £9,880 to £12,570. This means you can earn an additional £2,690 before you need to start paying NICs.

The new NICs threshold is now in line with the starting point for income tax, but the NICs rate you will pay has not changed and still includes the 1.25% addition for the Health and Social Care Levy made earlier this year. So, everything you earn between £12,570 and £50,270 will be charged NICs at 13.25%. Anything above this higher threshold will be charged at 3.25%.

Part of a £15 billion package of assistance

The additional savings we will see in our pockets thanks to this change will help considerably with the cost-of-living crisis. In fact, along with the council tax rebate that has been announced, energy bills assistance worth at least £400 and support for the most vulnerable households of at least £1,200, this should go some way to easing the problems associated with the current high inflation.

Inflation reached 9.1% in May according to figures from the ONS, up from 9% in April and 7% in March. The current rate is the highest level of inflation since 1982.

BoE base rate rises to 1.25%

The Bank of England increased the base rate to 1.25% in June, taking rates to the highest level in 13 years. While this is good news for savers who are likely to see more interest being paid on their accounts, it is potentially bad news for some people with mortgages. If you are on a fixed rate mortgage that is still within the fixed-rate term, then you will not see any change in your mortgage payments. But you may find it is more expensive to borrow when you come to change your mortgage in future.

If you are on a tracker rate, then you will automatically see the interest rate you are paying rise, which could be a considerable cost depending on how much you have borrowed.

How much will you save?

However, if you want to find out how much more money you will have in your pocket thanks to the change in the NICs thresholds, the Government has created a handy calculator that you can use to determine what you will save on the Gov.uk website. But if you are self-employed, this calculator will not work for you, so you are best to contact your accountant to find out what the change means for you.

Contact us

If you are an employer, employee or self-employed, and want to know more about how the NICs changes affect you and what you can expect to pay, then contact us and we will give you the information you need.

Deal with your tax return early and help with your cashflow

There is a tendency for many of us to leave our tax returns until the last minute. It’s human nature to want to delay dealing with something we find uncomfortable.

However, if you get your tax return for the 2021/22 tax year completed sooner rather than later, you will have some benefits that could help you through the cost-of-living crisis.

Benefits

A primary benefit to dealing with your tax return early is knowing it is out of the way. For some this may be less of an issue, but as accountants get busier as the tax payment deadlines approach, it can be difficult to give a return as much attention as we could at other times.

By getting your tax return calculations done early, not only are you helping your accountant to spread his or her workload in a more manageable way, more importantly for you, you will know exactly what your bill is going to be early in the year. This may make it possible to free up some of the money you had set aside to pay the bill if it is lower than you had expected.

For businesses, this could mean having extra cash to invest in expanding the business, paying off debt, or hiring an extra full or part-time employee to move the business forwards. For individuals, this money could help offset the current cost-of-living crisis we are in by giving you extra cash to cover rising energy or food bills.

Paying tax early

Remember, just because you have had the tax return completed, it does not mean you have to file it with HMRC straightaway. If you want your accountant to hold off on this part and file it later in the year – especially if you think there may be any changes necessary to the tax return down the line – then that is not a problem.

If you prefer to pay early and get it out of the way, then that is also fine. The big benefit to you is that you have the option. It may be that you do not have enough money put aside for your tax bill when you find out what it is. So, the extra time you have built in before the tax needs to be paid means you have time to get those funds together. It could be the difference between setting aside an extra amount each month to pay the bill while storing money for the next tax year or having to saddle your company with a loan that will cost in interest payments too.

Tax reliefs

It will also ensure your accountant can maximise any tax reliefs you or your business can benefit from. This could include pension payments or offsetting costs against tax that may otherwise be difficult to include if the information is not given to him or her in a timely manner, in the last-minute rush to get the data to the accountant.

It may also mean, depending on how your accountant works, that you could benefit from having more time to pay your accountant’s bill too. Spreading this cost will also help with cashflow.

Take your time

Overall, it will mean that tax is a much more leisurely affair than it often is and that is never a bad feeling. Stress is not good for any of us and building in time to deal with something that is – for many – inherently stressful anyway is a good plan.

Contact us

If you want us to start working on your tax return now or have a question about ways in which we can make your tax less taxing, please get in touch.

Basis Period Reform – what it is and how it could affect you

Unincorporated businesses – including sole traders, trusts and those businesses working as partnerships, and anyone else that pays tax on trading income – face a major change that will affect the way and the time they are taxed on their profits.

The so-called Basis Period Reform will ultimately take effect from the 2024/25 tax year, but sole traders and other organisations need to start thinking about how this change could impact them sooner rather than later.

Transition

The 2023/24 tax year is going to be a transitional period, and the new rules will change the time that underlying profits or losses become subject to tax and bring forward when tax due on profits needs to be paid.

The aim of the rule change, which was set out initially in the Finance Bill 2022, is to remove complexity relating to basis periods and overlap profit, and make sure tax payments are made closer to when profits are generated.

Implementation has been delayed by a year

Originally, the changes were due to be made a year earlier, but after a consultation period the Government delayed the proposals to allow taxpayers to prepare for the transition to the new basis period.

New end-of-year account period

The change will move the taxation periods for all sole traders, partnerships and trusts from dealing with tax on an accounting-date basis ending in a tax year, to taxing profits on these businesses that arise in a tax year.

For the 2023/24 tax year, there will be additional tax liabilities on the additional profit to be taken into account. Any taxpayer or organisation in this position should plan ahead for these additional bills that will be coming sooner than might have been expected.

Difficult for international partnerships

There are some difficulties that remain, particularly for large international partnerships that cannot change their accounting date to match the tax year, according to the ICAEW, which is engaging with HMRC to explore the possibility of additional changes being introduced to mitigate these problems.

The details

If your business has an accounting year date ending outside of March 31 to April 5, then you need to pay attention. You will have two elements to be considered for taxable profits:

• The standard part which covers the full 12 months of trading in the transitional year based on your existing basis period.
• Plus, the transitional part of the profits which go directly from the end of the basis period end up until April 5, 2024.

Example

Source: ICAEW

If any business has overlap profits, these must be offset against the profits of the 2023/24 tax year, according to the ICAEW.

There are many other aspects to consider with this transition, including how to deal with losses in the 2023/24 tax year, and whether it will be possible to spread these transition profits across five tax years to help with cashflow, although this could impact on any credit claimed for overseas taxes.

We can help you

This is a very complex area and if you are affected by this, you should contact us so we can help you navigate this change in good time, and with the least amount of difficulty.

Taxpayers get extension to self-assessment filing dates

Millions of taxpayers who are yet to submit their completed Self-Assessment tax return which is due before January 31 are being given a grace period to file until February 28.

More than 12.2 million customers are expected to complete a tax return for the 2020/21 tax year according to HMRC, and would usually face a penalty and interest if the return and payment in full is not made by January 31.

Deadline extended but not without cost

However, HMRC has announced it will waive penalties for a month, meaning those who cannot file before January 31 will not receive a penalty if they file before February 28, and will not receive a late payment penalty if they pay their tax in full or set up a payment arrangement before April 1. But they will still face interest payments of 2.75% on outstanding balances from February 1, so where possible it is best not to delay payment.

Myrtle Lloyd, HMRC’s Director General for Customer Services, said: “We know some customers may struggle to meet the Self-Assessment deadline on 31 January which is why we have waived penalties for one month, giving them extra time to meet their obligations. And if anyone is worried about paying their tax bill, they can set up a monthly payment plan online – search ‘pay my Self-Assessment’ on GOV.UK.”

Remember to include all SEISS payments in your return

Like businesses, any self-assessment taxpayer who has benefited from COVID-19 support payments will need to ensure they are also included in their tax return. Any payments made under the Self-Employment Income Support Scheme (SEISS) or any other COVID-19 support payments must be included in a self-assessment. Taxpayers who have benefited from these payments and need to file a self-assessment can check what changes might need to be made on their tax return to ensure all these payments are correctly included as income.

Which payments must be included?

The payments that need to be included in the 2020/21 tax return if they were paid before April 5, 2021, according to HMRC are:

• Self-Employment Income Support Scheme;
• Coronavirus Job Retention Scheme;
• other COVID-19 grants and support payments such as self-isolation payments, local authority grants and those for the Eat Out to Help Out scheme.

However, anyone receiving the £500 one-off payment for working households receiving tax credits does not need to report this payment.

It is particularly important for those receiving SEISS grants to make sure they are included as they were paid directly to the individual rather than to a business, so these are not included in the accounts of a sole trader or partnership. Instead, they need to be added back in as an adjustment to profits in the self-assessment tax return.

HMRC has also said it will not charge late filing penalties for paper-based SA700s, SA970s that are received in February, or for SA800s and SA900s if these are filed online before the end of February.

There are a number of online facilities that HMRC has set up for anyone who needs support in relation to filing their tax returns. You can access live webinars or recordings on GOV.UK, and HMRC has also produced resources to help customers meet their obligations including YouTube videos and Self-Assessment guidance.

We can help you

If you would prefer to let someone else take the strain of dealing with your accounts, then please get in touch with us. We will help you make sure all of the relevant information is included and work to maximise your allowances, so you only pay the tax due, no more.

Businesses helped by COVID-19 support could face unexpected tax bills

Businesses and self-assessment taxpayers are being reminded they need to include all grants paid as part of the COVID-19 support payments in their tax returns, as some may think these were non-taxable.

Have you set money aside to deal with tax on support grants?

HMRC has highlighted that all money paid for test and trace or self-isolation payments in England, Scotland or Wales are taxable, as are Coronavirus Statutory Sick Pay Rebates. The Coronavirus Business Support Grants – also known as local authority grants or business rate grants – must also be included on tax returns as these are considered income for tax purposes.

Companies that received the Coronavirus Job Retention Scheme (CJRS) grant or a payment under the Eat Out to Help Out payment scheme will need to include both as income in their CT600 tax return and reported in the relevant boxes on their Company Tax Return.

Myrtle Lloyd, HMRC’s Director General for Customer Service, said: “We want to make sure companies are getting their tax returns right first time, including any COVID-19 support payment declarations. Support and guidance is available on GOV.UK, just search ‘file my company tax return’.”

Many companies will have been communicating with their accountants throughout the year and realise these grants are taxable. But there are concerns that those who deal with their accountant less often may not realise they should have been putting some of this money aside for tax purposes. This would leave them exposed to a bill that has not been planned for.

An outline of the costs employers could face for CJRS

While the CJRS scheme helped to reduce the number of redundancies companies may otherwise have been forced to make during COVID-19 lockdowns, there were a number of hidden costs involved with these grants. These include employer’s National Insurance contributions and employer’s pension contributions.

For example, if an employee had a normal monthly salary of £2,000 and was on full furlough, then based on 80% of their salary this would have fallen to £1,600 gross. At the rates applied in the 2020/21 tax year, the costs to the employer for this CJRS grant would be:

• £119.78 of Employer’s Class 1A National Insurance;
• £32.40 of Employer’s Pension Contributions (based on the 3% minimum under auto-enrolment);
• There is also the potential cost of accrued holiday, which is £153.80 – calculated based on 4/52 weeks (this is the maximum amount of holiday that can be carried forward into the following year) x monthly salary.

Where holiday has been carried forward to the following year, businesses that are struggling to recover from the pandemic also have to contend with up to four weeks of holiday that can be passed into the following tax year. If an employee leaves the business, this could result in the employer having to find sums potentially into the thousands of pounds to account for this in the employee’s final payslip.

HMRC said to be sympathetic to companies struggling to pay tax bills

Reports suggest that HMRC is being sympathetic in relation to any tax bills that are difficult for companies to meet, with even debt collectors looking to offer solutions to deal with the debt rather than collecting it on the spot.

The deadline for customers or agents filing company tax returns (CT600) is 12 months after the end of the accounting period it covers. The deadline to pay Corporation Tax will depend on any taxable profits and when the end of the accounting period occurs. Information on which support payments need to be reported to HMRC and any that do not is available on GOV.UK.

Contact us

If you think you will struggle to meet any of your tax liabilities this year, then please contact us as soon as possible to get advice on the best course of action.

File your 2020/21 tax return by 31 January 2022

If you need to file a self-assessment tax return for the year to 5 April 2021, you have until midnight on 31 January 2022 to file your return if you have not already done so. You must also pay any tax that you owe for 2020/21 by the same date.

Do I need to file a return?

You will normally need to file a tax return if you have income in respect of which the associated tax is not collected at source. This will be the case if you are self-employed, or if you are a partner in a partnership. You will also need to file a self-assessment tax return if you have income from property, or if you have realised capital gains in the tax year, or if you have other sources of untaxed income, such as dividends, investment income or foreign income.

You can also choose to file a self-assessment tax return if you want to claim income tax reliefs.

If you or your partner received child benefit in 2020/21, check whether you fall within the scope of the high income child benefit charge. If you do, you will also need to file a return.

New source of income

If you started trading in 2020/21 or became a landlord, you should have registered for self-assessment by 5 October 2021. If you have not done so, you should register as soon as possible so that you can file your return without delay.

COVID-19 support payments

If you received COVID-19 support payments in 2020/21, for example, grants under the Self-Employment Income Support Scheme (SEISS) or hospitality and leisure grants, you will need to report these on your 2020/21 tax return. The support payments are taxable. Grants received under the SEISS should be entered in the dedicated box in your self-assessment tax return, while any other taxable COVID-19 payments should be entered in the ‘any other business income’ box. Remember, to enter the amount that you received between 6 April 2020 and 5 April 2021, regardless of the date to which you prepare your accounts.

If you are employed and received grant payments under the Coronavirus Job Retention Scheme (CJRS), you do not need to enter these payments separately on your return – they are included in the figures on your P60.

Later deadline where notice to file received after 31 October 2021

The tax return filing deadline is the later of 31 January after the end of the tax year and three months from the date on which the notice to file a return was issued by HMRC. Where this is after 31 October 2021, the filing deadline will be later than 31 January 2022. For example, if the notice to file a return was issued on 1 December 2021, the return must be filed by 1 March 2022.

File online

The deadline for filing a paper tax return was 31 October 2021 (or three months from the date of the notice to file where this was received after 31 July 2021). If a paper return is filed after that date, even if it is filed before 31 January 2022, it will be deemed to be filed late and a late filing penalty will be charged. Consequently, if you are filing your return to meet the 31 January 2022 deadline you must file it online. Remember that you must be registered with the Government Gateway and will need your details to login – make sure that you have these available in good time.

Late returns

If you file your tax return online after midnight on 31 January 2022 (unless an extended deadline applies because the notice to file was issued after 31 October 2021) you will receive an automatic penalty of £100, even if you have no tax to pay. If you think you have a reasonable excuse for filing late, you can appeal against the penalty. However, HMRC usually take a harsh line on what they consider a reasonable excuse. Further penalties are triggered if your return remains outstanding three months, six months and 12 months after the deadline.

Contact us

If you need help in filing your 2020/21 tax return, please get in touch. However, we suggest that you do not leave it until just before the filing deadline.

Basis period reform

HMRC have been consulting on the reform of the basis period rules in preparation for the introduction of Making Tax Digital for Income Tax Self-Assessment (MTD ITSA), which comes into effect from April 2023. A consultation paper was published in July 2021, which sets out new simplified basis period rules. Comments were sought by 31 August 2021 on how best to implement the reforms.

Existing rules – the current year basis

Once an unincorporated business is established, it is taxed on the current year basis. Special rules apply in the opening and closing years of the business. Under the current year basis, the profits that are taxed for a particular tax year are those for the accounting period that ends in that tax year. Consequently, if the business prepares its accounts to 30 June each year, for the 2021/22 tax year, it will be taxed on its profits for the year to 30 June 2021, as this is the year that ends between 6 April 2021 and 5 April 2022.

Under the existing rules, some of the profits of the business may be taxed twice in the opening years. These profits are known as ‘overlap’ profits. Relief for the double taxation of these profits, known as ‘overlap relief’, is given when the business ceases, or earlier if there is a change of accounting date.

New rules – tax year basis

The reforms will mean that unincorporated businesses will be taxed on the profits arising in the tax year – i.e., the profits for the period from 6 April to the following 5 April. Where the business prepares accounts to 31 March, these will be deemed to correspond to the tax year (as will the preparation of accounts to any date between 31 March and 5 April).

If you prepare accounts to a date other than 31 March/5 April, you will need to apportion your profits so that they correspond to the tax year. For example, if you prepare your accounts to 30 June, for 2023/24, you will be taxed on 3/12^th of the profit for the year to 30 June 2023 (covering the period from 6 April 2023 to 30 June 2023) plus 9/12^th of the profit for the year to 30 June 2024 (covering the period from 1 July 2023 to 5 April 2024).

The tax year basis will apply from 2023/24, with 2022/23 being a transitional year.

Estimation of profits

If you have an accounting date late in the tax year and prepare accounts other than to 31 March/5 April, you may not have the second set of accounts available when you come to complete your tax return. For example, if you prepare your accounts to 28 February, for 2023/24 you will be taxed on 11/12^th of your profit for the year to 28 February 2024 and 1/12^th of your profit for the year to 28 February 2025. The accounts to 28 February 2025 will not be available by 31 January 2025, and you would be expected to file a provisional return, which would be amended later when the information is available.

This will create extra work, and HMRC are looking at alternative estimation approaches, such as making an estimate based on the profits for the quarterly updates submitted under MTD ITSA, extrapolating the profits for the ‘known’ part of the tax year, and allowing the final figures to be provided as part of the following year’s return.

To overcome this, you may prefer to change your accounting date and prepare accounts to 31 March/5 April. This will avoid the need for an apportionment calculation and reduce your workload.

Transitional rules

Transitional rules are needed to move from the current year basis to the tax year basis. The transition year is 2022/23.

For the transition year, the taxable profits for a business that does not have a 31 March/5 April year end will comprise the sum of:

• the standard component (which is the profit assessable in 2022/23 under the current year basis); and
• the transition component (which is the profit for the period from the end of the current year basis period to the end of the 2022/23 tax year).

Any historic overlap relief can be claimed in the transition year by deducting overlap profits from the result of the above calculation.

For example, if you prepare accounts to 30 June each year, for 2022/2023, you will be taxed on the profits for the year to 30 June 2022 (the basis period for 2022/23 under the current year basis) plus profits for the period from 1 July 2022 to 5 April 2023 (the transition component), less any overlap profits. The overlap relief will cover the period from the date on which the business started to the following 5 April.  

Spreading excess profits

In the transition year, your profits may be higher than normal. This will be the case if your transition component is more than your overlap relief. If you started your business some time ago, the impact of inflation may mean that your overlap profits are considerably less than the profits of the transition component, even if they both cover the same number of months. If your profits are higher than normal, your tax bill will also be higher, and you may pay tax at a higher marginal rate as a result.

To mitigate the effect of the transition year on cash flow, HMRC plan to allow businesses to elect to spread any excess profits in the transition year over five years.

Equivalence rules

As part of the simplification reforms, HMRC propose that the statutory rule which deems 31 March to be equivalent to 5 April in the first three years of a trade is extended so that it applies to all the years of the trade. This will mean that where accounts are prepared to 31 March, the business would not need to make small adjustments for the profits of the business to correspond to the tax year, which runs to 5 April. The consultation sought views on whether this equivalence rule should be extended to property businesses.  

We can help

Please talk to us about what the reforms will mean for your business, and what you need to do to prepare for the introduction of MTD ITSA.

Reporting SEISS payments on your tax return

If you have received one or more grants under the Self-Employment Income Support Scheme (SEISS), it is important that you report the payments correctly on your tax return.

2020/21 self-assessment tax return

SEISS grants that were received in the 2020/21 tax year (i.e., between 6 April 2020 and 5 April 2021) should be reported on your 2020/21 self-assessment tax return, regardless of the date to which you prepare your accounts. The return must be filed online by midnight on 31 January 2022 (or by 31 October 2021 if you file a paper return). The first three grants under the scheme were paid in the 2020/21 tax year.

If you have already filed your 2020/21 tax return, HMRC may adjust your return if the information that they hold on the SEISS payments that have been made to you does not match what is shown on your return.

How to report SEISS payments

Grant payments received under the SEISS should not be included in turnover. Instead, they should be reported separately on the 2020/21 tax return in the box for Self-Employment Income Support Scheme grants. The location of the box depends on which self-assessment tax return is completed. It can be found:

• on page 2 of the ‘other tax adjustments’ section on the self-employment pages (SA103F) of the full return;
• in the ‘other tax adjustments’ section of the self-employment (short) page (SA103S);
• on page 2 of the ‘trading or professional profits’ section of the partnership return; and
• in section 3.10A of the SA200 short tax return.

HMRC corrections

HMRC will check the SEISS grants payments reported in the return against their records of the grants that have been paid to you.

If you have already submitted your 2020/21 tax return, and the amount of the SEISS payments that you reported on your return did not tally with HMRC’s records, HMRC will adjust your return to match their records and they will send you a revised tax calculation.

It is advisable that you check the figures on HMRC’s revised calculation against your records of the grants received. You can check the amounts that you have received either by logging into the SEISS claims service or against your bank statements for the account into which the payments were made.

If you do not agree with HMRC’s revised figures, you should contact their Coronavirus (COVID-19) helpline for businesses and self-employed people.

Failure to report SEISS payments

If you received one or more grants under the SEISS in 2020/21 and do not include them on your self-assessment tax return for that year, HMRC will adjust your return to reflect the payments and send you a revised tax calculation. As a result, you may find that you owe more tax than you expected, have an unexpected tax bill, or that the tax repayment you were expecting is reduced.

SEISS payments reported in the wrong box

If you included SEISS payments in your 2020/21 tax return, but did not enter the amount that you received in the designated box, for example, because you included it in turnover or entered it in one of the ‘other income’ boxes, you will need to amend your self-assessment tax return so that the grants are entered in the correct box and removed from the wrong box. If you do not do this, the grant income will be assessed twice, as HMRC will adjust the return to enter details of grants received in the correct box (but will not remove the income from elsewhere in the return). 

Failure to complete a self-employment or partnership page

To qualify for the SEISS grants for 2020/21, you had to be trading in that tax year. If you have not completed a self-assessment or partnership page, HMRC will assume that you were not trading, and therefore ineligible for the grants. Consequently, they will seek to recover any grants that were paid to you.  

If you were trading, but omitted to complete the relevant pages, you should amend your tax return to reflect this.  

Appeal if you disagree with HMRC’s adjustments

If you do not agree with the changes that HMRC have made to your tax return in respect of your SEISS grant payments, you can appeal. However, you must do this within 30 days of the date on the SA302 letter advising you of the changes that they have made to your return.

HMRC have not yet taken account of changes that were made to 2020/21 tax returns before 19 June 2021. If you corrected your return before that date, you do not need to contact HMRC as they will process the amendments separately.

Speak to us

Contact us if HMRC have adjusted the SEISS payments reported in your 2020/21 tax return. We can help you check whether the figures are correct, and take action if they are not.

Voluntary Class 2 NICs where 2019/20 tax return filed after 31 January 2021

If you are self-employed, you will pay Class 2 and Class 4 National Insurance contributions if your profits exceed the relevant thresholds. Class 2 National Insurance contributions are the mechanism by which you build up qualifying years to earn entitlement to the state pension and certain contributory benefits. If your profits are below the small profits threshold, you can opt to pay Class 2 National Insurance contributions voluntarily to maintain your National Insurance record.

Extended deadline for filing 2019/20 tax return

The normal filing deadline for the 2019/20 self-assessment tax return was 31 January 2021. However, to help taxpayers affected by the COVID-19 pandemic, HMRC waived the late filing penalty that would usually apply where a return was filed after 31 January, as long as the return was filed by midnight on 28 February 2021. This effectively extended the filing window by one month.

This had unintended consequences for self-employed taxpayers who opted to file their 2019/20 tax return in February 2021, and who chose to pay Class 2 National Insurance contributions voluntarily where their profits for 2019/20 were below the small profits threshold for that year of £6,365.

Nature of the problem

HMRC’s systems were unable to deal with the payment of voluntary Class 2 contributions where the 2019/20 tax return was filed after 31 January 2021. They did not have time to implement alternative procedures either.

The normal deadline for paying Class 2 National Insurance contributions for 2019/20 was 31 January 2021.

If you opted to pay Class 2 National Insurance Contributions voluntarily and paid by this date but before the return was filed, they could not be processed as HMRC were unaware of what the payment related to. This may be the case if you made the payment before the 31 January 2021 deadline, but filed your tax return in February 2021.

If you filed your return in February 2021 and paid your voluntary Class 2 National Insurance contributions when you filed your return, the contributions were paid late as they were paid after 31 January 2021. In this situation, HMRC corrected your return to remove the voluntary contributions.

Payments made in respect of voluntary Class 2 contributions in these circumstances were allocated elsewhere, held on account or refunded.

The solution

If you have been affected by this issue, you should contact HMRC on 0300 200 3500 as soon as you become aware that this is the case, for example, when you receive a refund, or see from your personal tax account that your contributions have been allocated against another payment.

If you have already received a refund, HMRC will let you know how you can pay Class 2 contributions voluntarily. If you have not already received a refund, they will ensure that the payment is correctly recorded as Class 2 National Insurance contributions.

Check your National Insurance record

It is advisable to check your National Insurance record to see if you have any gaps. Failure to contact HMRC if you have been affected by the above issue may mean that you do not receive a credit for 2019/20, resulting in a gap in your contributions record.

Contact us

Contact us if you paid voluntary Class 2 National Insurance for 2019/20 and filed your return in February 2021 to check that your contributions have been credited to your account.

Extended carry-back for losses

To help businesses which have suffered losses as a result of the COVID-19 pandemic, the period for which certain trading losses can be carried back is extended from one year to three years. The extended carry-back period applies for both income tax and corporation tax purposes. If you have made losses as a result of the impact of the pandemic, you may be able to take advantage of the extended carry-back period to generate a welcome tax repayment. Guidance on the rules can be found on the Gov.uk website.

Income tax

Where a trading loss is made by an unincorporated business, there are a number of options available to relieve that loss. The options open to a particular business depend on when in the business lifecycle the loss is incurred, and also whether the business prepares its accounts using the cash basis or the accrual basis. The loss can be set against general income of the current and/or previous year, and also against future trading profits of the same trade, with special rules applying to relieve losses incurred in the early years of the trade, and in the final year.

One option for obtaining relief for a trading loss is to set the loss against general income of the year of the loss and/or the previous year. However, where accounts are prepared using the cash basis, sideways loss relief against other income or relief against capital gains is not permitted – the loss can only be set against trading profits of the same trade.

The temporary extension to the carry-back rules extends the period for which the loss can be carried back from one year to three years. Where a claim is made under the new rules, losses are set against the trading profits of a later year before those of an early year. Any loss carried back under the temporary carry-back rules can only be set against previous trading profits of the same trade – there is no extension to other income.

Relief for a 2020/21 loss

Unless the business is a new business to which the opening year basis period rules apply, a loss for the 2020/21 tax year will be a loss for an accounting period ending in that year, i.e., between 6 April 2020 and 5 April 2021.

The extended carry back is available where a claim is made to relieve the loss against general income of 2020/21 and/or 2019/20 and income in these years is insufficient to utilise the full loss. The unrelieved loss can be carried back and set against trading profits of 2018/19 and, to the extent that any of the loss remains unrelieved, against trading profits of 2017/18. It is not possible to tailor the loss to preserve personal allowances — it must be set in full against the available trading profits.

To the extent that the loss remains unrelieved after making a claim under the extended carry-back rules, it can be carried forward for relief against future profits of the same trade.

Relief for a 2021/22 loss

The extended carry-back period is also available for a 2021/22 loss. For an established business, this will be a loss for an accounting period which ends between 6 April 2021 and 5 April 2022.

As with a loss for 2020/21, the temporary rules allow a loss for 2021/22 which cannot be fully relieved against income of 2021/22 and 2020/21 to be carried back. The unrelieved loss can be set first against trading profits of the same trade for 2019/20 and, to the extent that any of the loss remains unrelieved, against trading profits of 2018/19.

If a claim has been made to relieve a 2020/21 loss against general income of 2019/20, this takes precedence over a claim to carry back a 2021/22 loss against trading profits of 2019/20 under the new rules.

Cap on loss relief

The normal cap on loss relief of £50,000 or, where higher, 25% of adjusted net income, does not apply to losses relieved under the extended carry-back rules. Instead, the loss that can be carried back for each year is capped at £2 million.

Corporation tax

For corporation tax purposes, a loss can be carried back and set against profits from the same trade for the previous accounting period or carried forward and set against future profits of the same trade. The period for which losses can be carried back is extended from one year to three years for a limited period.

The extended carry-back period applies to losses for accounting periods ending between 1 April 2020 and 31 March 2022. For each accounting period, the loss that can be carried back under the new rules is capped at £2 million. Where a company is part of a group, the cap applies to the group as a whole. Losses carried back must be set against the profits of a later period before those of an earlier period.

Benefits of carrying a loss back

The ability to carry a loss back can be beneficial where this generates a repayment of tax already paid for a previous year. This will be particularly true for companies within the charge for corporation tax.

For unincorporated businesses the position is more complex where carrying back a loss results in personal allowances being wasted. Where this is the case, and the trader expects to return to profit, it may be preferable to carry the loss forward for use against future trading profits of the same trade. The best result will depend on individual circumstances and priorities, and there is no substitute for doing the sums.

Speak to us

If you have realised a loss, or expect to, as a result of the impact of the COVID-19 pandemic, speak to us to find out how best to obtain relief for that loss.

Further grants available under the SEISS

The Self-Employment Income Support Scheme (SEISS) provides grant support to eligible self-employed taxpayers who have been adversely affected by the COVID-19 pandemic. A further two grants are to be paid under the scheme. In addition, the scheme has been expanded to include those who commenced self-employment in 2019/20. Guidance on the grants can be found on the Gov.uk website.

Fourth grant

The fourth grant covers February, March and April 2021 and is worth 80% of average profits for three months, capped at £7,500. The grant can be claimed from late April 2021, and will be paid in a single instalment. The claim window will run until 31 May 2021.

A trader will be eligible to claim if they have been adversely affected by the COVID-19 pandemic. This test will be met if the trader is currently trading but has suffered reduced demand as a result of the pandemic, or if they have been trading but are unable to do so temporarily due to Coronavirus. Suffering additional costs where demand has not fallen does not qualify the trader for the grant.

As previously, a trader can only benefit from the scheme if their trading profits are no more than £50,000 and comprise at least 50% of the trader’s total income. HMRC will look first at the trader’s profits as returned on their tax return for 2019/20. Where these are more than £50,000, HMRC will look at average profits over 2016/17 to 2019/20. The rules are modified if the trader did not trade in all of those years.

Fifth grant

The fifth and final grant covers the period from May to September 2021. Unlike the previous grants, the amount of the fifth grant depends on the extent to which turnover has fallen as a result of the COVID-19 pandemic. Traders will be able to claim the fifth grant from late July.

Turnover has fallen by at least 30%

Where the trader’s turnover has fallen as a result of the COVID-19 pandemic by at least 30%, the fifth grant will be worth 80% of three months’ average profits capped at £7,500.

Turnover has fallen by less than 30%

Traders who have been less severely affected by the pandemic will receive a lower grant. Where turnover has fallen by less than 30%, the fifth grant will be worth 30% of three months’ average trading profits, capped at £2,850.

The Government will publish further details on the fifth grant in due course.

Newly self-employed

When initially launched, the scheme was only available to traders who had filed their 2018/19 self-assessment tax return by 23 April 2020. However, as the deadline for filing the 2019/20 tax return has now passed, taxpayers who commenced self-employment in 2019/20 are able to claim the fourth and fifth grants, as long as they meet the usual eligibility criteria and they traded in both 2019/20 and 2020/21 and submitted their 2019/20 tax return by midnight on 2 March 2021.

Contact us

Contact us to find out whether you are eligible for the fourth and fifth grants under the SEISS, and what the grant is worth to you.

SEISS grant increased

The Self-Employment Income Support Scheme (SEIS) will now run until 30 April 2021, providing two further grants – one for the three months from 1 November 2020 to 31 January 2021 and one for the three months from 1 February 2021 to 30 April 2021. Since the extension to the scheme was originally announced, the amount of the first of these grants has been increased several times. The amount of the final grant has yet to be set.

Amount of the third grant

The third grant payable under the SEISS will now be set at 80% of three months’ average trading profits, capped at £7,500.

As for the first two grants, the amount of the third grant is calculated by reference to average profits over the 2016/17, 2017/18 and 2018/19 tax years, with the calculation modified if you did not trade in all three of these years.

Claiming the grant

The qualifying conditions for the scheme remain the same. You can claim the third grant if you are currently actively trading but demand has fallen as a result of Coronavirus, or if you were trading previously, but are unable to do so as a result of Coronavirus. You do not need to have made a previous claim.

You can claim the third grant from 30 November 2020.

How we can help

Although we cannot make the claim on your behalf, we can help you work out whether you are eligible for the third grant and the amount to which you are entitled. Get in touch to find out more.

Further extension to the SEISS

To help self-employed individuals who continue to be affected by the COVID-19 pandemic, the Self-Employment Income Support Scheme (SEISS) has been extended for a further six months, from November 2020 to April 2021.

Grants payable under the extended scheme

The extended scheme will provide two taxable grants for the self-employed. Availability of the grants is limited to those who meet the eligibility conditions for the scheme and who are actively continuing to trade, but are facing reduced demand as a result of COVID-19.

The first grant covers the three-month period from 1 November 2020 to 31 January 2021. It will be based on 40% (rather than 20%, as originally announced) of average monthly profits for a period of three months, capped at £3,750 in total.

The second grant will cover the three-month period from 1 February 2020 to 30 April 2021. The level of the second grant has yet to be set.

As with the earlier grants, any grant that you receive under the extended scheme is taxable and subject to National Insurance.

HMRC are to provide details in due course on claiming the grants.

Talk to us

Contact us to find out whether you are eligible for a grant under the extended SEISS scheme.

Final SEISS grant

The Self Employment Income Support Scheme (SEISS) provides grants to self-employed taxpayers whose business has been adversely affected by the Coronavirus pandemic. Eligible taxpayers can now claim the second and final grant under the scheme. Grants paid out under the scheme are taxable.

Eligibility

To qualify for the second grant, you must be a sole trader or a partner in a partnership and your business must have been ‘adversely affected’ by the Coronavirus pandemic on or after 14 July 2020. As for the first grant, you must have:

• traded in the 2018/19 tax year and submitted your self-assessment tax return for that year no later than 23 April 2020;
• traded in the 2019/20 tax year; and
• traded in the 2020/21 tax year or intend to do so.

The scheme is only open to self-employed taxpayers whose income from self-employment comprises at least 50% of their total income and is not more than £50,000. The £50,000 limit is initially applied for 2018/19 and the test is met if profits for that year are £50,000 or below. However, where profits for 2018/19 are more than £50,000, average profits for 2016/17, 2017/18 and 2018/19 are considered. You will qualify if the average profits for these years do not exceed the £50,000 threshold.

If you meet the eligibility conditions for the second grant, you can make a claim, even if you did not claim for the first grant.

Meaning of ‘adversely affected’

The second grant is only available to businesses that have been ‘adversely affected’ by the Coronavirus pandemic on or after 14 July 2020. HMRC have published guidance, together with examples, setting out the circumstances in which they consider a business to have been ‘adversely affected’ by the pandemic.

As a general guide, a business will be ‘adversely affected’ if it has experienced lower turnover or higher costs as a result of Coronavirus. This may be because you were unable to work because you were sick, self-isolating, shielding or caring for someone because of the virus. The business may also suffer a reduction in trade or an increase in costs because of interruptions to the supply change, a reduction in customers or the need to incur additional costs to make the business COVID-secure or to meet social distancing requirements.

Need to keep records

To support a claim for the second grant under the SEISS, you should keep evidence to show how and when the business was ‘adversely affected’ by Coronavirus. This may include:

• business accounts showing a reduction in turnover or an increase in expenditure;
• confirmation of any Coronavirus-related loans that the business has received;
• any dates that the business had to close as a result of lockdown restrictions; and
• any dates that the staff were unable to work because they had Coronavirus symptoms, were self-isolating, shielding, or had caring responsibilities as a result of the virus.

How much is the second grant?

As with the first grant, the second grant is based on average profits over the three tax years 2016/17, 2017/18 and 2018/19. If you did not trade in 2016/17 or file a return for that year, the grant is based on average profits for 2017/18 and 2018/19; if you did not trade in 2017/18 or file a tax return for 2017/18, the grant is only based on profits for 2018/19, regardless of whether you traded in 2016/17.

The second grant is worth 70% of three months’ average profits, to a maximum of £6,570.

Claim online

HMRC have written to all traders who they believe to be eligible to make a second claim under the scheme, telling them the date from which they can make their claim. Claims can be made online via the claim portal, which opened on 17 August 2020. The last date on which a claim can be made under the scheme is 19 October 2020.

As with the first claim, you must make the claim yourself; claims by agents are not permitted. However, we can advise you on how to make the claim, whether you qualify and what records you need to keep.

Bonus for employers who retain furloughed staff

The Chancellor, Rishi Sunak, presented A Plan for Jobs at the time of the Summer Economic Update on 8 July 2020. This included incentives for employers who retain furloughed staff and who offer training and apprenticeships.

Job Retention Bonus

The Coronavirus Job Retention Scheme (CJRS) is now in its final phase. Government support under the scheme is withdrawn gradually from August and the scheme comes to an end on 31 October 2020. Where staff are still furloughed in October, employers will need to decide whether they can bring their furloughed employees back to work.

To encourage employers to retain furloughed staff, a bonus – the Job Retention Bonus – of £1,000 will be paid to the employer for each furloughed employee who is employed continuously from the end of the CJRS until 31 January 2021. However, to qualify for the bonus, the employer must pay the employee, on average, earnings that are at least equal to the lower earnings limit for Class 1 National Insurance purposes, set at £120 per week (£520 per month) for 2020/21.

The Government will pay the bonuses from February 2021.

The scheme is not without its critics, with Jim Harra, Chief Executive of HMRC, questioning whether it offers value for money. Some employers, including Primark and Rightmove, have stated that they will not claim the bonus.

Kickstart Scheme

The Chancellor also unveiled plans to fund a new Kickstart Scheme providing £2 billion of funding to create high-quality work placements aimed at young people between the ages of 16 and 24 who are on Universal Credit and who are deemed to be at risk of long-term unemployment. Funding for each job will cover 100% of the relevant National Minimum Wage for 25 hours a week, plus the associated employer’s National Insurance contributions and employer pension contributions under auto-enrolment (where relevant).

Traineeships

Funding of £111 million is to be made available to fund work placements and training for 16 to 24 year olds. The Government will pay employers who provide trainees with work experience £1,000 per trainee. The funding will expand the provision of and eligibility for traineeships for those with Level 3 qualifications and below.

Apprenticeships

Employers who hire new apprentices will also receive funding from the Government. Where employers take on a new apprentice between 1 August 2020 and 31 January 2021, they will receive a payment of £2,000 for each new apprentice under the age of 25 that they hire and £1,500 for each new apprentice aged 25 and over. These payments are in addition to the existing £1,000 provided by the Government for apprentices aged 16 to 18 and to those aged under 25 with an Education, Health and Care Plan.

Contact us

Contact us to find out how you can benefit from the incentives on offer.

NIC implications of COVID-19 support payments

Various support payments have been made to help those affected by the COVID-19 pandemic. How are those payments treated for National Insurance purposes?

Grant payments under the CJRS

Where an employer claims a grant payment under the Coronavirus Job Retention Scheme (CJRS), the full amount of the grant (topped up to 80% of wages in the last two months of the scheme) must be paid over to the employee. As far as the employee is concerned, this is treated in the same way as a normal salary payment. The employer deducts Class 1 National Insurance and pays it over to HMRC.

The payment is also liable to employer’s Class 1 National Insurance to the extent that it is not covered by the employment allowance. For pay periods prior to 1 August 2020, the employer can reclaim the associated employer’s National Insurance on grant payments from the Government under the CJRS. The employer’s National Insurance must be paid over to HMRC in the usual way.

Grants under the SEISS

Grants under the Self-Employment Income Support Scheme (SEISS) should be taken into account in computing profits for 2020/21. Where those profits exceed £9,500, Class 4 National Insurance contributions will be payable. If the profits for 2020/21 are more than £6,475, you must pay Class 2 contributions.

As a result of the pandemic, profits may be lower in 2020/21 than previously. If profits are below the small profits threshold, set at £6,475 for 2020/21, there is no obligation to pay Class 2 contributions. However, it may be worthwhile to do so voluntarily to ensure that 2020/21 remains a qualifying year for state pension and contributory benefit purposes. This is much cheaper than paying Class 3 contributions to make up a shortfall.

Other grants

Businesses may also receive other grants, such as those payable to businesses qualifying for small business rate relief or payable to specific sectors, such as the hospitality and leisure sector. For self-employed taxpayers, these are taken into account in calculating profits, which in turn will determine whether a liability to Class 2 and Class 4 National Insurance contributions arise.

Talk to us

Speak to us to ascertain the effect of grant payments on your National Insurance bill.

Claim SSP for Coronavirus-related absences

Smaller employers who have paid statutory sick pay (SSP) to employees who were absent from work due to a Coronavirus-related absence can now claim a rebate from the Government. The claim portal went live on 26 May 2020.

Who can claim?

Employers are eligible to make a claim if they have a payroll scheme that was created on or before 28 February 2020 and had fewer than 250 employees on the payroll at that date. They can claim back up to two weeks’ SSP paid to an employee who was absent from work due to Coronavirus.

What can you claim?

An absence counts as a Coronavirus-related absence if the employee is unable to work for one of the following reasons:

• they had Coronavirus (COVID-19) symptoms;
• they were self-isolating because someone in their household had Coronavirus symptoms; or
• they were shielding and have a letter from either the NHS or their GP telling them to stay at home for at least 12 weeks.

Claims are capped at two weeks’ SSP per employee, even if the employee is absent for work and receiving SSP for longer than this, for example, because they are shielding. Claims can be made for periods of sickness starting on or after 13 March 2020 where the employee either had Coronavirus symptoms themselves or were self-isolating because someone in their household had symptoms, and in relation to periods of absence starting on or after 16 April 2020 where the employee is shielding. If you have paid more than the weekly SSP rate (for example if you pay employees their full pay while sick), the claim is limited to the SSP rate, set at £95.85 per week from 6 April 2020 and at £94.25 before that date. For Coronavirus-related absences, SSP can be paid from the first qualifying day once a period of incapacity for work has been established – the usual three waiting days do not need to be served.

Where SSP is paid for an absence which is not a Coronavirus-related absence, the employer cannot claim it back under the rebate scheme. Normal rules apply in relation to absences that are not related to Coronavirus and the employer must meet the cost of any SSP paid to employees who are absent other than for one of the reasons listed above. Claims can be made for employees in respect of whom a grant has been claimed under the Coronavirus Job Retention Scheme; although a claim for a grant and an SSP rebate cannot be made for the same period.

How do we claim?

Claims can be made via the online portal. To claim, you will need:

• your Government Gateway User ID;
• employer PAYE scheme reference number;
• UK bank or building society details for the account into which the rebate is to be paid;
• the total amount of SSP paid to employees for Coronavirus-related absences;
• the number of employees in respect of whom a claim is being made; and
• the start and end date of the claim period.

When claiming, you will also need to provide a contact name and telephone number. Claims can be made at the same time for multiple pay periods and multiple employees.

HMRC will check claims and if satisfied pay the money into the designated account within six working days of the date on which the claim was made.

Do we need records to support the claim?

You do not need to provide evidence when making the claim. However, you do need to keep records of:

• the dates on which the employees were absent from work;
• which of those dates were qualifying dates;
• the reason for their absence, i.e. whether they had symptoms or were shielding; and
• the National Insurance numbers of the employees in respect of whom a claim is being made.

You do not need to obtain a Fit Note for Coronavirus-related absences.

Records should be kept for three years from the date on which you received the rebate.

Further help

The good news is that HMRC has confirmed that if you have authorised us to do PAYE online for you, we can complete the claim on your behalf. Alternatively, if you prefer, we advise if you are able to make a claim and how to go about it.

National Insurance contributions for 2020/21

The starting point for paying National Insurance is to increase to £9,500 for 2020/21 for employees and for Class 4 contributions payable by the self-employed. This is in line with a Government commitment to increase the starting threshold to £12,500 – the level of the personal allowance for tax purposes.

Employees and Employers

Class 1 National Insurance contributions are payable on an employee’s earnings by the employee (primary contributions) and by the employer (secondary contributions). The rates and thresholds applying for 2020/21 are shown in the table below.

For 2020/21, the primary and secondary thresholds are no longer aligned. This means that the point at which employer contributions for employees over the age 21 kicks in is £169 per week (£732 per month), while employee contributions are not payable until earnings reach £183 per week (£792 per month). On earnings between these limits, employer contributions are payable but not employee contributions.

The rate of Class 1A contributions (payable on benefits in kind) and Class 1B contributions (payable on items included in a PAYE settlement agreement) remains at 13.8%.

The self employed

The self-employed pay flat-rate Class 2 contributions and also Class 4 contributions on their profits.

For 2020/21, Class 2 contributions increase by 5p per week to £3.05 per week. Contributions are only mandatory if profits exceed the small profits threshold. This is set at £6,475 for 2020/21. However, they can be paid voluntarily where profits are less than this level.

As with employees, the starting point at which Class 4 contributions become payable on the profits of the self-employed – the lower profits limit – increases to £9,500 for 2020/21. Contributions are payable at the main rate of 9% on profits between this level and the upper profits limit, which remains at £50,000 for 2020/21. Above this, contributions are payable at the rate of 2%.

Voluntary contributions

Voluntary (Class 3) contributions can be paid to make up a shortfall in your contributions record and preserve your entitlement to the state pension. Class 3 contributions rise to £15.30 per week for 2020/21.

Check your contributions record

Speak to us about whether you need to pay additional contributions to ensure that you will qualify for the full state pension when you reach state pension age. You can obtain a pension forecast online.