Simplified expenses motor vehicles

There are simplified arrangements in place for the self-employed (and some partnerships) to claim a fixed rate deduction for certain expenses where there is a mix of business and private use. The simplified expenses regime is not available to limited companies or business partnerships involving a limited company.

The fixed rate deduction can be used instead of working out the actual costs of buying and running your vehicle, e.g., insurance, repairs, servicing, fuel. The use of the simplified flat rates is entirely optional. However, once a decision is made to use the simplification for a specific vehicle this must continue to be used for a vehicle as long as that vehicle is used for business purposes.

Under simplified expenses, the following flat rates per mile available.

  • Cars and goods vehicles first 10,000 miles 45p
  • Cars and goods vehicles after 10,000 miles 25p
  • Motorcycles 24p

The number of people in the vehicle does not affect the above rates. The rates are only available for journeys, or any identifiable part or proportion of a journey, that are wholly and exclusively for business purposes. For example, travel from home to work is not a qualifying journey.

The self-employed can continue to claim for other costs not covered by the flat rate for mileage such as parking, tolls, and congestion fees as well as other separate travel expenses such as train journeys.

Tax when you sell shares

Capital Gains Tax (CGT) is normally charged at a simple flat rate of 20% when you sell shares unless they are in a CGT free wrapper such as an ISA or pension. 

If you only pay basic rate tax and make a small capital gain you may only be subject to a reduced rate of 10%. Once the total of your taxable income and gains exceeds the higher rate threshold, the excess will be subject to 20% CGT. There is also an annual CGT exemption. This means that in the current tax year you can make £12,300 of gains before paying any CGT. The allowance applies to each member of a married couple or civil partnership. 

The usual due date for paying CGT you owe to HMRC on the sale of shares is the 31 January following the end of the tax year in which a capital gain was made. This means that CGT for any gains crystalised before 6 April 2021 will be due for payment on or before 31 January 2021. However, if you waited until the start of the next tax year you would have until 31 January 2022 to pay any CGT due. For example, you could benefit from this extra year to pay CGT due by waiting to crystallise a gain from the 5 April 2021 (2020-21 tax year) until the 6 April 2022 (2021-22 tax year).  

The normal way to report a gain on the sale of shares is to complete the relevant sections of your Self-Assessment tax return. When calculating your gain, you can deduct certain costs of buying or selling shares such as stockbrokers’ fees or Stamp Duty Reserve Tax.

Online tax payment plans

New figures published by HMRC have revealed that some 25,000 taxpayers have set up an online payment plan to manage their tax liabilities spreading payments of £69 million for up to 12 monthly instalments.

This follows an increase in the limit for making an online payment plan to £30,000 (previously £10,000) that took effect from 1 October 2020. Taxpayers with outstanding tax liabilities may be eligible to receive support with their tax affairs by using this service.

The deadline for submitting your 2019-20 Self-Assessment tax returns online is 31 January 2021. Once a return has been submitted you can use the self-serve facility to set up monthly direct debits and spread the cost of your tax bill. The payment plan needs to be set up no later than 60 days after the due date of the debt.

In order to use the online payment plan you must meet the following requirements:

  • Have no outstanding tax returns
  • No other tax debts
  • No other HMRC payment plans set up.

In addition, your debt needs to be between £32 and £30,000. You can choose how much to pay straight away and how much you want to pay each month. Interest will be applied to any outstanding balance from 1 February 2021.

Taxpayers with Self-Assessment tax payments of over £30,000, or who need longer than 12 months to pay in full, can still apply to set up a time to pay arrangement by calling the Self-Assessment payment helpline or the dedicated COVID-19 helpline.

Tax returns filing deadline is fast approaching

The approaching deadline for submitting 2019-20 Self-Assessment tax returns online is 23:59 on Sunday, 31 January 2021. The filing deadline is not just the final date for submission of your Self-Assessment tax return but also an important date for payment off tax due to HMRC. This includes the payment of any balance of Self-Assessment liability for the 2019-20 plus the first payment on account due for the current 2020-21 tax year. The 31 January 2021 is also the payment date for any CGT due on residential property sales made during the 2019-20 tax year before the rules changed on 6 April 2020.

HMRC has published a press release to remind taxpayers to submit their tax return as soon as possible and also shared the following little-known facts about Self-Assessment tax returns:

  • 96,519 people filed their tax return on 6 April 2020 (first day of the tax year)
  • it’s the 20th anniversary of Self-Assessment internet filing, the service began on 3 July 2000 – with 38,000 individuals successfully sending their digital tax return by 31 January 2001.
  • in January 2011, 3.4 million taxpayers completed a Self-Assessment tax return online – this has increased to an estimated 5 million in January 2021.
  • this year’s deadline (31 January 2021) is on a Sunday. The last time the deadline was on a Sunday was in 2016.
  • last year, the busiest filing day was 31 January with 702,171 returns completed.
  • the peak hour for filing last year was between 16:00 to 16:59 on 31 January when 56,969 customers filed.
  • HMRC has increased the self-serve Time to Pay threshold to £30,000 to help Self-Assessment customers spread the cost of their tax bill.

If you miss the filing deadline then you will usually be charged a £100 fixed penalty although pandemic-related issues may count as a ‘reasonable excuse’ for late filing. 

There are also options to defer payments due on 31 January 2021 and pay by instalments over 12 months. This includes a self-serve Time to Pay facility online for debts up to £30,000 or by making an arrangement with HMRC. You will be required to pay interest on any outstanding balance from 1 February 2021.

Striking companies from Companies Register

There are a limited range of circumstances when a company can request to be removed from the register (known as being struck off). For example, a voluntary strike off can be requested by a dormant or non-trading company.

A limited company can be closed down by getting it 'struck off' the Companies Register, but only if it:

  • hasn't traded or sold off any stock in the last 3 months. For example, a company in business to sell apples could not continue selling apples during that 3 month period but it could sell the truck it once used to deliver the apples or the warehouse where they were stored.
  • hasn't changed names in the last 3 months
  • isn't threatened with liquidation
  • has no agreements with creditors, e.g. a Company Voluntary Arrangement (CVA)

If the company does not meet these conditions, then the company will need to be liquidated (also known as a 'winding up').

Before applying for a strike off, the company must be legally closed down. This involves:

  • announcing plans to interested parties and HMRC
  • making sure employees are treated according to the rules
  • dealing with business assets and accounts.

Government help for people in debt

New government proposals have been published that look at further extending debt solutions to help more people suffering from problem debts. The proposals specifically look at increasing the financial eligibility criteria for debt relief orders (DROs), helping more people deal with financial difficulties to get a fresh start.

A DRO is a special way of dealing with debts aimed at those with minimal assets and low income. If an application for a DRO is accepted, the claimant will usually make payments over a specified period (usually 12 months) after which any remaining debts will be written off. An application for a DRO must be made using an authorised debt adviser.

Research has shown that demand for debt advice could increase by up to 60% by the end of 2021.

The government is publicly consulting on changing the eligibility criteria to enter a DRO to:

  • increase the total amount of debt allowable to £30,000 (from £20,000)
  • increase the value of assets owned by the individual to £2,000 (from £1,000)
  • increase the level of surplus income to £100 (from £50) per month

The consultation will run for 6 weeks and, subject to the consultation, any changes are anticipated to be put in place in Spring 2021.

Those who currently meet the conditions can apply for a DRO through an authorised debt adviser, from organisations such as Citizens Advice and StepChange who submit applications on-line to the Official Receiver on their client’s behalf.

Basics of CGT Rollover Relief

Business Asset Rollover Relief is a valuable relief that allows you to defer payment of CGT on gains made when you sell or dispose of certain assets and use all or part of the proceeds to buy new assets. The relief means that the tax on the gain of the old asset is postponed. The amount of the gain is effectively rolled over into the cost of the new asset and any CGT liability is deferred until the new asset is sold. 

Where only part of the proceeds from the sale of the old asset is used to buy a new asset a partial rollover claim can be made. It is also possible to claim for provisional rollover relief where you expect to buy new assets but haven’t done so yet. Interestingly, rollover relief can also be claimed if you use the proceeds from the sale of the old asset to improve assets you already own. The total amount of rollover relief is dependent on the total amount reinvested to purchase new assets.

HMRC’s internal manual lists the following key conditions for the relief:

  1. The old assets are within one of the classes listed in CG60280 and have been used solely for the purposes of the trade throughout the period of ownership, and
  2. the whole of the consideration obtained for the disposal is applied in acquiring new assets within one of the classes listed in CG60280 which are, on the acquisition taken into use wholly for the purposes of the trade.

There are also other qualifying conditions to be met to ensure entitlement to any relief. For example, you should purchase the new assets within 3 years of selling or disposing of the old ones (or up to one year before). Under certain circumstances, HMRC has the discretion to extend these time limits. In addition, both the old and new assets must be used by your business and the business must be trading when you sell the old assets and buy the new ones. You must claim relief within 4 years of the end of the tax year when you bought the new asset (or sold the old one, if that happened after).

Government tackles late payment to small firms

The Government has announced an overhaul of the Prompt Payment Code (PPC).

Under the new reforms, companies that have signed up to the PPC will be obliged to pay small businesses within 30 days – half the time outlined in the current Code.

Despite almost 3,000 companies signing the Code, poor payment practices are still rife, with many payments delayed well beyond the current 60-day target required for 95% of invoices. Currently, £23.4 billion worth of late invoices are owed to firms across Britain, impacting on businesses’ cash flow and ultimate survival.

To help tackle the problem, business owners, Finance Directors or CEOs will be required to take personal responsibility by signing the Code, acknowledging that suppliers can charge interest on late invoices under the Code and that breaches will be investigated. Those signed up to the Code will redouble their efforts to ensure payments are made on time and breaches will continue to be publicised by the Government in order to encourage compliance.

The move comes as the Government seeks to strengthen the powers of the Small Business Commissioner (SBC) to ensure larger companies pay their smaller partners on time. New powers proposed in a recently closed consultation include legally binding payment orders, launching investigations and levying fines.

If these new regulations are observed they will make “financial bullying” by larger firms less prevalent and help to improve the cashflow prospects of smaller suppliers as they grapple with COVID disruption and EU exit changes.

Rights to regenerate

We will soon have the rights to turn derelict buildings into homes and community assets. In a recent press release the Ministry of Housing said:

The public will be able to convert vacant plots of land and derelict buildings into new homes or community spaces, under plans announced 16 January 2021 by the Housing Secretary, Robert Jenrick MP.

The ‘Right to Regenerate’ proposals would make it easier to challenge councils and other public organisations to release land for redevelopment – helping communities make better use of public land and give a new lease of life to unloved buildings.

Underused public land could be sold to individuals or communities by default, unless there is a compelling reason the owner should hold onto it.

Under the proposals, public bodies would need to have clear plans for land in the near future, even if only a temporary use before later development – if the land is kept for too long without being used, they would be required to sell it.

These measures provide an opportunity for the public and local communities to redevelop and transform eyesores, taking control of unused local land or buildings and transforming them into something they want in their area.

This builds on the Government’s drive to encourage development on brownfield land and more beautiful buildings that are in line with local preferences.

The strengthened rights would also apply to unused publicly owned social housing and garages providing opportunities to transform the local housing stock.

Latest figures show there were over 25,000 vacant council owned homes and according to recent FOI data over 100,000 empty council-owned garages last year. The new process will be fast and simple, and the Secretary of State will act as an arbiter to ensure fairness and speedy outcomes in all cases.

IHT Main Residence Nil Rate Band

The Inheritance Tax residence nil-rate band (RNRB) is a transferable allowance for married couples and civil partners (per person) when their main residence is passed down to a direct descendent such as children or grandchildren after their death. 

The RNRB came into effect on 6 April 2017 and was introduced in stages. The allowance increased to the present maximum level of £175,000 from 6 April 2020. Going forward, the allowance is set to increase in line with the Consumer Price Index. The allowance is available to the deceased person’s children or grandchildren. Any unused portion of the RNRB can be transferred to a surviving spouse or partner. The RNRB is on top of the existing £325,000 Inheritance Tax nil-rate band.

The allowance is available to the deceased person's children or grandchildren. Taken together with the current Inheritance Tax limit of £325,000 this means that married couples and civil partners can pass on property worth up to £1 million free of Inheritance Tax to their direct descendants. 

There is a tapering of the RNRB for estates worth more than £2 million even where the family home is left to direct descendants. The additional threshold will be reduced by £1 for every £2 that the estate is worth more than the £2 million taper threshold. This can result in the full amount of the RNRB being tapered away.