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Archives for March 2021

Tax year end – use or lose your allowances!

Just a couple of weeks to go before we say goodbye to the 20/21 tax year.  Many allowances will roll over on 6 April 2021 and if you have not used them in this tax year, the opportunity will be lost.  Noted below are some of the key areas for you to review to ensure you have been tax efficient in the year. Taking action now will allow you to take advantage of any exemptions, remaining reliefs and allowances before they are lost for the year.

Income tax

Ensure if possible you have sufficient income to use your personal allowance. The allowance is £12,500 for 2020/21. If a family member has unused allowance consider if there are ways for this to be utilised.

If you have a limited company, ensure the £2,000 tax free dividend allowance has been utilised – assuming you have sufficient distributable profits to be able to declare a dividend.  Also remember that dividends are paid “per share” so have to be paid to everyone holding that class of share in accordance with their shareholding.

For married couples/civil partners that are eligible for the Married Couples Allowance, ensure this has been claimed.  If one partner has not used all their personal allowance, and the other is a basic rate taxpayer, then up to £1,250 of the personal allowance can be transferred, saving £250 as a couple.  This can also be backdated to tax years since 5 April 2016 if not claimed previously. The claim is simple and can be done here .

Consider ways to reduce your taxable income if you are within the £100,000 to £125,000 group to prevent a 60% effective charge. Pension contributions and charitable donations are two ways you can reduce your taxable income.

If your income will be over £50,000 also consider ways to reduce this if you have children and are claiming child benefit.  This is clawed back if the higher earning partner’s income is over £50,000, on a sliding scale, and all has to be paid back if your income is over £60,000 in a tax year.

Annual ISA subscriptions should be maximised. The limit for 2020/21 remains at £20,000. The investment return from ISAs is free from income tax and capital gains tax. Talk to an IFA to get advice on utilising your ISA allowance.

Pensions 

Most individuals can make contributions of up to 100% of their earnings, capped at £40,000 each tax year. Pension contributions are tax effective as tax relief is given at source for a personal contribution, but the contribution needs to be made before the end of the tax year for it to qualify.  Very high earners may be limited on the amount they can contribute and need to take individual advice.

If you do not use all your allowance in one year, you can carry it forward for up to three years. Any unused allowance for 2017/18 will be lost after 5 April 2021.

Even if you have no income, you can still make a net pension contribution of up to £2,880 and the government will add £720 basic rate tax relief, which can be a significant benefit.

Again take advice from an IFA as to your personal pension situation.

Inheritance Tax

Everyone has a £3,000 annual exemption to use each year. This is the amount individuals can give away without any inheritance tax implications.  Any unused exemption can be carried forward for one tax year only. This may be of use to the older generation wanting to help their families in these difficult times.

Small gifts of up to £250 made to an individual are also exempt each tax year.

If you would like any advice about your personal tax position then please do get in touch with Rosie Forsyth@wilkinsco.co.uk

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The 4th SEISS grant – look out for pre-verification checks

The Budget announced that there would be 4th and 5th grants available to help the self-employed that have been impacted by Covid.

The 4th grant enables the newly self-employed to potentially claim the grant, as long as they had filed their 19/20 tax return by 2 March 2021.

Other than this the criteria remains the same as for the previous grants:

  • You must have traded in 19/20 and 20/21 and intend to continue to trade. You cannot claim if you plan to close your business
  • Your business must have suffered “a significant reduction in profits” in this claim period ( February to April 2021) and you need to make a declaration that this is the case.
  • More than 50% of your income must come from self employment
  • Average trading profit must be under £50,000
    For these 2 criteria, HMRC will look at your 19/20 return first to see if you qualify. If you don’t meet the criteria in this year, then they will look back at your average income from 16/17 – 19/20 to see if you then qualify

To make the declaration that your business has suffered, you need to be able to prove that you have had a significant reduction in profit in this claim period due to:

  1. Reduced demand, activity or capacity – this could be fewer customers or activity due to covid restrictions, contracts being cancelled or a supply chain shortage
    or
  2. Being unable to trade – either because you have had to close due to lockdown, have tested positive and been unable to work, or parental responsibilities have meant that you could not work

You are not able to claim it if the only reason your profits have fallen is due to increased costs ( eg additional PPE costs) – you need to be able to show that one of the two reasons above apply as well – and keep evidence of the fact.

The fall in profit must been in this claim period – if your business suffered last year but has not been impacted in this 3 month time frame then you can’t claim this time round.

As usual HMRC will contact you if they believe you may be able to claim -applications cannot be made until late April which has annoyed many, but as HMRC are including the 19/20 tax return info this time, they do need time to process the information they have been sent.

Pre-Verification Checks for the Newly -self employed:

This time, to protect the scheme from fraud, HMRC are writing to some taxpayers who became newly self-employed in 2019/20, asking them to complete pre-verification checks.

This will be a letter from HMRC, notifying you that HMRC will be calling you within 10 working days.  On that call HMRC will ask you to provide an email address and for you to agree to them sending you a link to a secure dropbox.  You then have 2 days to upload ID and 3 months worth of bank statements to confirm your business activities.  You need to be quick – the link will expire after 2 days.

They will try 3 times to call you, and then send a further letter if they cannot contact you.

If you receive the letter but do not complete the checks, you won’t be able to claim the grant!

You must therefore make sure that HMRC have the right phone number for you, and not just your agent’s number!  If you think this may need updating, contact HMRC on 0800 024 1222 ( this number is just for updating phone numbers!)

There is obvious concern that people may think this call is a scam, especially if the letter forewarning you of the call has been delayed in the post.  If you need to call HMRC only use the official numbers listed on their website, and take the necessary precautions about giving out any personal information over the phone.

For any further information then please get in touch with Rosie Forsyth.

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The Budget 2021

The Budget yesterday was full of announcements and there was a lot to take in.

The furlough scheme was extended and Restart Grants announced for retail businesses as well as hospitality, leisure and personal care businesses.

Although the self employed support scheme was extended to include those newly self-employed who filed a 19/20 tax return, there are still large groups of people who are not able to benefit from the scheme, and there was no help announced for limited company directors who pay themselves predominantly in dividends.

Freezing the personal allowances until 2025/26 will bring many more people into the tax paying regime over time, and more people will start to pay tax at the higher rate of 40%.

The hike in corporation tax to 25% from 1 April 2023 will hit companies with profits over £250,000.  The rate remains at 19% for small companies with profits under £50,000, and companies with profits in between the 2 thresholds will gain marginal relief so will end up with a tax rate somewhere in between 19% and 25%.

The temporary extension for loss relief may be a slightly technical point but means that for businesses that have made a loss, there is more scope to get a tax rebate on tax paid in the past.

So in conclusion – a real mixed bag!

For a detailed summary of what was announced please read my Budget report here:

Budget Summary 2021

As ever if you would like more detailed advice on any of the issues raised in the Budget then please do get in touch with Rosie Forsyth.

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