Lockdown – be ready for the unexpected

One of the more insidious effects of the coronavirus outbreak is its unpredictability.

Businesses need to plan. To achieve this there needs to be an underlying, stable economic platform. Lockdown – whether locally or nationally applied – removes the certainty required to achieve planned results.

For example, the recent attempts to relax distancing rules and allow hospitality businesses (pubs, restaurants, hotel etc) to reopen on a restricted basis has back-fired in certain areas and the government has created a further layer of uncertainty – regional or local lockdown.

It is self-evident why lockdown is required – to control infection – but the effects on small businesses can be catastrophic.

From green to red the issues that need to be considered might include:

  • If you are fortunate and can trade online, lockdown may actually increase your turnover. However, can you meet changes in demand?
  • By taking advantage of available grants and government backed soft loans you may have managed to keep your business hopes alive, but the evidence is that the job related, furlough grants are now being phased out and there is just so long that you can trade at a loss without becoming insolvent.
  • Lockdown has meant that you are or were effectively closed to business. If the present easing creates more infection further restrictions may be required; either locally or nationally. This may require that business owners face up to unpalatable choices.

Accordingly, we all need to plan for the unexpected, and in particular, that our business plans are flexible enough to cope with new restrictions especially if applied to our local area. 

If you need help with this planning and review process please get in touch with us.

Want to start your own business?

One of the consequences of recession, such as the present downturn in activity caused by the Coronavirus outbreak, is the likelihood that many will face redundancy as employers try to manage the process.

In the past, this shake out process seems to reawaken dreams of not placing all your income eggs in one basket and instead, dusting-off those long-desired plans to run your own business.

There are sound reasons for doing this. For example, a business with 100 customers has 100 separate sources of income. Employment usually requires that you secure all your income from one source.

However, starting a new business – even in times of buoyant economic activity – is fraught with risk. To mitigate these start-up risks we suggest that you:

  • Try and use your past experience and skills.
  • Talk to other business owners, especially those that have made a success of their business and that are willing to share about their experience of starting a new venture.
  • Take professional advice. There are probably a whole bunch of considerations that you need to work through before you open your business. It is what you do not know that will catch you unawares. Professional advice before you start will mitigate these uncertainties.

Add to these normal considerations the added uncertainties occasioned by the Coronavirus outbreak – and Brexit – and the need for cautious and thorough planning are self-evident.

If you are considering a new business start-up, please get in touch as we can help.

Reminder of who can claim SEISS

The Self-Employment Income Support Scheme (SEISS) was extended for a second and final three-month period from 1 June to 31 August 2020. The maximum grant available for the three-months is £6,570 (Previous quarter £7,500) paid in a single instalment. The application process for the SEISS extension will open from 17 August. Claims for the first quarter (1 March – 31 May 2020) closed on 13 July 2020.

The second grant will be open to self-employed individuals or members of a partnership whose business has been adversely affected by Coronavirus on or after 14 July 2020. It is possible for a qualifying self-employed person to claim for the second grant even if they had not claimed for the first grant.

The following points list some of the most important eligibility criteria for the scheme:

  • Applicants must be self-employed or a member of a trading partnership, voluntary work, or duties as an armed forces reservist.
  • Carry on a trade which has been adversely affected by COVID-19.
  • Have filed a tax return for 2018-19.
  • Have traded in 2019-20; be currently trading at the point of application (or would be except for COVID-19) and intend to continue to trade in the tax year 2020-21.
  • Have trading profits of no more than £50,000 and more than half of total income from self-employment.
  • Individuals can continue to work, start a new trade or take on other employment including voluntary work, or duties as an armed forces reservist.

After the schemes launch, the government widened the remit of the SEISS. This allowed parents, including mothers, fathers and those who have adopted, who took time out of trading to care for their children within the first 12 months of birth of the child or within 12 months of an adoption placement, to use either their 2017-18 or both their 2016-17 and 2017-18 Self-Assessment returns as the basis for their eligibility for the SEISS.

Tax and company cars

Most employers and employees are aware of the additional costs of providing company cars and the tax implications they create. However, for many employees the lure of having a company car means that this remains a very popular option. There are some circumstances where it can be possible to offer employees car benefits that are exempt from tax. 

These include:

Cars available for business journeys only

To avoid reporting for car benefit or car fuel benefit, the car should only be available to staff during working hours for employment related duties or to travel to a temporary workplace. The business must also clearly tell their employees not to use the vehicle for private journeys and check that they do not.

Cars adapted for an employee with a disability

These cars are exempt if the only private use is for journeys between home and work and for travel to work-related training.

Fuel paid for by employees
The fuel benefit is removed when an employee pays for all their private fuel use or if the employer pays and the employee reimburses the amount (during the tax year). 

'Pool' cars
Employers are not required to pay or report on 'pool' cars. These are cars that are shared by employees for business purposes only and normally kept on your premises. Employers must ensure the ‘pool’ car rules are properly adhered to. 

Privately owned cars
Employers do not have to pay anything on cars that directors or employees own privately.

Calculating Adjusted Net Income

Calculating the adjusted net income amount is necessary if any of the following apply:

  • A taxpayer is liable to an income-related reduction to the personal allowance when their adjusted net income is over £100,000 (regardless of their date of birth);
  • A taxpayer that is liable to the high income child benefit charge where they have an adjusted net income above £50,000.

In order to work out adjusted net income, you need to look at a taxpayer’s total taxable income before personal allowances and then deduct any trading losses, gift aid donations, gross pension contributions and pension contributions where the pension provider has already provided tax relief at the basic rate. To complete the calculation for adjusted net income, tax relief of up to £100 is available for payments to trade unions or police organisations and can be added back.

Taxpayers should be aware that there is no automatic entitlement to the Income Tax personal allowance.

Why make voluntary NIC contributions

In many circumstances it can be beneficial for taxpayers to make voluntary Class 2 National Insurance Contributions (NICs) to increase their entitlement to benefits, including the State or New State Pension if they are self-employed.

Taxpayers might want to consider making voluntary NICs because:

  • They are close to State Pension age and do not have enough qualifying years to get the full State Pension
  • They know they will not be able to get the qualifying years they need to qualify for the full State Pension during their working life
  • They are self-employed and do not have to pay Class 2 contributions because they have low profits or live outside the UK, but want to qualify for some benefits

There is also a specific list of jobs where Class 2 NICs are not payable. These are:

  • examiners, moderators, invigilators and people who set exam questions
  • people who run businesses involving land or property
  • ministers of religion who do not receive a salary or stipend
  • people who make investments for themselves or others – but not as a business and without getting a fee or commission

If you know any taxpayers that fall within any of these categories it may be beneficial to get a State Pension forecast and examine whether they should make voluntary Class 2 NICs to make up missing years.

Reporting gains on residential property

The Capital Gains Tax (CGT) reporting and payment date for UK residents that sell certain residential property changed from 6 April 2020. This change meant that any CGT due on the sale of a residential property needs to be reported and a payment on account of any CGT due made within 30 days of the completion of the transaction.

In practice, this change will only apply to the sale of a residential property that does not qualify for Private Residence Relief (PRR). The PRR relief applies to qualifying residential properly used wholly as a main family residence.

HMRC had announced that as a result of the Coronavirus pandemic they would adopt a light touch approach and there would be no late filing penalty for any transactions completed on or after 6 April 2020 to 1 July 2020 and reported up to 31 July 2020. However, interest continued to be charged if the tax remained unpaid after 30 days for all transactions from 6 April 2020.

This grace-period has now ended and landlords and second-home owners amongst others will receive a late filing penalty if capital gains are not reported within 30 calendar days of completion of the transaction. Taxpayers that fail to meet the deadline, will be subject to a £100 fine, rising to £300 or 5% of any tax due (whichever is greater) the longer the payment is outstanding.

Note, the payment date for any CGT due on residential property sales made before 6 April 2020 will be 31 January 2021.

Why use the VAT Cash Accounting Scheme

Under standard VAT accounting, you pay VAT on your sales regardless of whether your customer has paid you. Under the Cash Accounting Scheme, VAT does not need to be paid over until your customer has paid your invoice.

Your business can enter this scheme provided your estimated VAT taxable turnover for the next VAT year is not more than £1.35 million. You can continue to use the scheme until the VAT taxable turnover exceeds £1.6 million.

Using cash accounting may help your cash flow, especially if your customers are slow payers. If a customer never pays you, you do not have to pay VAT on that bad debt as long as you continue to use the Cash Accounting Scheme.

However, there are downsides to the use of this scheme. For example, you cannot reclaim VAT on your purchases until you have paid your suppliers. This can be a disadvantage if you buy most of your goods and services on credit. The scheme is also not advised if you regularly reclaim more VAT than you pay. You will usually receive your repayment later under cash accounting than under standard VAT accounting unless you pay for everything at the time of purchase.

If you are interested in using the scheme we can help you crunch the numbers to see if this is a viable option for your company.

HMRC credit card fees

New credit card fees for paying HMRC are to be introduced from 1 November 2020. These changes will mean that HMRC will be able to charge anyone using a business debit card a fee for making certain payments.

The fee for using a business debit card from 1 November 2020 is difficult to calculate but is essentially comprised of three elements. These are the merchant acquirer fee, the interchange fee and the scheme fee. The charge is designed to cover the costs incurred by HMRC in accepting payment by a business debit card. 

There are already rules in place where charges are levied for payment by corporate, business and commercial credit cards. HMRC has not accepted personal credit cards since January 2018 when credit card surcharges on personal credit cards were banned. Payment by personal debit card is currently fee-free. There is also no charge for payment by Direct Debit, bank transfer or cheque.
 

Tax consequences if income exceeds £100,000

If your income is expected to exceed £100,000 for the first time, we would like to remind you of the effect this can have on your personal allowance and marginal tax rate.

If you earn over £100,000 in any tax year your personal allowance is gradually reduced by £1 for every £2 of adjusted net income over £100,000 irrespective of age. This means that any taxable receipt that takes your income over £100,000 will result in a reduction in personal tax allowance. Your adjusted net income is your total taxable income before any personal allowances, less certain tax reliefs such as trading losses and certain charitable donations and pension contributions.

For the current 2020-21 tax year if your adjusted net income is likely to fall between £100,000 and £125,000 you would pay an effective marginal rate of tax of 60%. This 60% rate arises as your £12,500 tax-free personal allowance is gradually reduced. If your income sits within this band you should consider what financial planning opportunities are available to avoid this personal allowance trap by trying to reduce your income below to £100,000. This can include giving gifts to charity, increasing pension contributions and participating in certain investment schemes.

There is also an option for higher rate or additional rate taxpayers, who wanted to reduce their tax bill, to make a gift to charity in the current tax year and then elect to carry back the contribution to 2019-20. A request to carry back the donation must be made before or at the same time as the 2019-20 Self-Assessment return is completed i.e. by 31 January 2021.