Skip to main content Skip to search

Archives for Advice

Worried about paying your tax bill at 31 January 2021?

So here we go again.

News of the latest lockdown will only have increased people’s money worries.

Self-assessment tax bills are due at the end of the month, and although in an ideal world, you have put the money to one side for this- as we know, we are in far from an ideal world at the moment.

In addition to the January 2021 normal payment, many people deferred their July 2020 payment so this is also now falling due to be paid.

So what can you do if you are concerned about paying your tax bill by the end of the month?

  1. Review your payments on account.

    Payments on account are payments due at 31 Jan 21 and 31 July 21 on account of your 20/21 tax bill, and are automatically calculated at 50% of your 19/20 tax, based on the assumption that your profit for 2021 will be similar.

    Obviously the period since April 2020 has been a very different year for many businesses, and profits may well be much lower. It could therefore be possible to reduce your payment on accounts and base them on these lower figures.

    If you can provide your accountant with an estimate of your figures for the current tax year, they will be able to advise if you can reduce your payment on account and ask HMRC to do this for you.  If you do your own tax return, you can ask HMRC to reduce your payment on account by logging into your online account.

    You do need to include any SEISS income received when reviewing your 20/21 income levels, as this income is fully taxable.

  2. Set up a payment plan with HMRC

    Self-employed taxpayers can apply to pay their tax bill in instalments. HMRC are allowing you to pay your January bill over 12 months using the Time to Pay service. This can be set up online without the need to speak to HMRC.

    You need to have submitted your tax return for year before you apply, and have no other outstanding returns, tax debts or payment plans in place with HMRC.Your debt needs to be under £30,000 and you can decide how much you want to pay now and how much you want to spread over the year.  HMRC will still add interest to the amount outstanding but this does allow to manage your cashflow over the next 12 months.

    Click here to set up your time to pay.

If you don’t agree time to pay arrangements with HMRC and fail to pay your tax on time, interest and penalties will be charged.

The first penalty is 5% of the tax due is your payment is more than 30 days late, with a further 5% if the tax is still not paid after 6 months.  HMRC have not waived penalties due to COVID-19 or provided any extension to the filing deadline as yet.

Whatever you do, don’t bury your head in the sand and do nothing.  As long as your return is filed, setting up a payment plan is simple and will enable you to manage your finances over the next 12 months.

For more information please contact rosieforsyth@wilkinsco.co.uk

Read more

Support your local business this Christmas

No large Christmas parties this year, but we may still want to tell our staff and clients that we are thinking of them at Christmas.  Tax shouldn’t be the main reason you chose your gift, but in these tough times, getting tax relief on the cost will help!

Your gifts will only get tax relief for your business, and you can only reclaim the VAT if the gift is:

  • NOT food, drink, tobacco or a voucher AND
  • Carry a conspicuous advert for your business AND
  • The cost of that gift, and any other to that person in the year is under £50

A “conspicuous advert” means that your logo etc should be on the gift itself and not just on the packaging, which also makes it harder!

Whether you can get the tax relief or not on your Christmas gifts, why not support a local business this year that really needs your help. Many local businesses are now doing vouchers if they are not currently open or delivering products if you are not able to visit in person. Your staff/clients will appreciate the thought that has gone into supporting a local business in these tough times, and local facebook groups are full of small businesses advertising some lovely festive gifts.

You could also consider a donation to a local charity or business supporting those who are really going to struggle over the festive period. Charity donations through your limited company are tax efficient and another way to help those in need this Christmas.

What about the Xmas party?

Even though large gathering are out of the question, depending what the rules are in December, it may be possible for small companies to go out for a Christmas meal to a local restaurant, and they will be in need of our support!

Most people are aware about the rules for the staff Xmas party.  For a limited company, the cost for the annual party is allowable for tax as long as it is under £150 per head (all staff have to be invited but the cost is per head – “plus ones” can also be invited.)  So if you can do this and stay within the rules, it may still be possible to spread a little Christmas cheer amongst your staff!

 

Read more

The Revamped Job Support Scheme – “JSS Open”

The “Revamped” Job Support Scheme

So here we go again – another scheme to get our heads around!

The changes announced last week are far more generous than the first Job Support Scheme, which was of little use to many of my clients.

This one – the” Job Support Scheme Open” may well be of relevance to many small businesses and works as follows:

The JSS Open Scheme

  • The employee must work at least 20% of their usual hours
  • For the hours not worked, the employee will still earn 67% of their normal pay – this is funded 61.67% by the government (up to a max of £1541.75 per month), and only 5% by the employer.  The max salary you can base the calculations on per month is £3125.
  • The employee therefore will earn at least 73% of their normal wages (see the worked example below for the maths!!)
  • Employers claiming the JSS Open may still claim for the Job Retention Bonus (the £1,000 due in February for retaining furloughed staff) and the grant claimed under the JSS Open scheme can be used to help meet the minimum wage criteria for the bones scheme

Which Employers Can Claim?

  • Any employer, still trading, but continuing to face reduced demand for their services, with a PAYE scheme and a UK bank account

Which Employees Can You Claim for?

  • An employee had to be on the payroll between 6 April and 31 Aug (technically the RTI had to be submitted by 23 Sept) and still employed on 23 Sept
  • Employees do not need to have been furloughed before to be eligible
  • Employees must be working at least 20% of their usual hours
  • You must reach written agreement with your employee that they have been offered a temporary working agreement, which must cover at least 7 consecutive days

How do you claim?

Further details are to be announced soon but we do know the following:

  • The scheme starts on 1 November and runs until 30 April 2021
  • Money is paid in arrears once your claim has been approved
  • First claims can be made from 8 December
  • Your accountant can make your claim for you (“phew” I hear your cry!!)

A Worked Example

Helen works full time usually – and earns £1,000 a month.  She works 5 days per week

Under the JSS Open scheme, she agrees with her employer to work 1 day per week – this is 20% of her usual working hours.

Her pay:

Normal pay for 1 day per week – 20% x £1000 = £200

Time not worked – 80%

Of the time not worked – Helen will receive 66.67 of her normal pay – 66.67% x £800 = £533.36.

Helen’s total pay is therefore £733.36 in total – or 73% of her usual pay – for working only 20% of her usual hours!

The employer contribution is 100% for the day she worked – £200, plus 5% of the pay that she received for not working – 5% x £800 = £40.  Total cost of the employer £240.
The employer is also responsible for NI and pension contributions.

The government contribute 61.67% of the pay for the time she did not work – 61.67% x £800 = £493.36

The calculation for employees who are not on fixed salaries or fixed hours is hideous – and requires a spreadsheet setting up!

Is it for me?

The new scheme is far more generous than the one originally announced, which required employees to work 1/3 of their usual hours and for employers to cover 1/3 of their wages for the period not worked.

It is therefore well worth looking into and if you require any further information or advice in connection with the scheme, please do get in touch with Rosie Forsyth.

NB: There is also the “Job Support Scheme Closed” which is for businesses legally required to close, and is not covered in this blog.

Read more

Closing down a limited company – how is it done?

This second blog looks at how you can close down your limited company if you have decided that trading is no longer viable.

There are 2 ways you can close your company if the company is solvent (ie is able to pay its debts).

  • Applying to have the company struck off at Companies House
  • Member’s Voluntary Liquidation (MVL)

The preferred option will depend on how much money there is to extract from the company and whether from a tax perspective you want that money taxed as dividends or capital.

Lots of jargon there to get your head around so let’s try to explain the difference.

Dividend or Capital Treatment?

When you take money out of your limited company – you pay tax on it.  You could take the money out as dividends, as you probably have done over the years you have had a limited company, and if you do this you will be taxed as normal as having received dividends from your company.  Dividends are taxed at your highest marginal tax rate, so either at 7.5% or 32.5% depending on your other income in the year.

When you close the company though – the final payment to you can be treated as you selling your shares in the company and this is the “capital” option.  This money is still taxed, but it is taxed under capital gains tax rules rather than income tax rules and you are treated as having made a capital gain on your shares. You may have bought your 100 shares in your company when you set it up for £100, and now you are selling them for £x.  The difference is a capital gain.

You may prefer to take this treatment for 2 reasons:

  1. Everyone has a capital gain annual exemption (currently £12,300) so you will not pay tax on the first £12,300 of your gain. If there are 2 shareholders in the company, then each will have their own exempt amount.
  2. If your gain is more than your annual exemption, it is possibly that you will only pay tax at 10% on the rest of the gain, due to another tax break called Business Asset Disposal Relief (AKA entrepreneur’s relief)

The “capital” route is often therefore the preferred option as potentially being more tax efficient.

Striking off or MVL?

So what is the difference between the 2 options and why would I choose one over the other?

Striking off is the simplest option.

However, this option is only available if:

  • The company has not traded in the last 3 months
  • The company has not been threatened with liquidation
  • It has no formal agreements with its creditors – eg a creditors voluntary arrangement

The company will also only be able to get the “capital” treatment above, where it wants to extract funds of less than £25,000.

The striking off process itself is fairly simple – you apply to Companies House who will then publish a notice that you applied to be struck off.  After 2 months, if there have been no objections then the company will cease to exist.

You also have to inform anyone who maybe affected by the company’s closure (employees, debtors etc) within 7 days of sending the notice in.

It should also be noted that the directors can be held personally liable if they apply to strike off a company without paying off all its debts.

Members Voluntary Liquidation:

A MVL can be used where it is beneficial to have capital treatment, but you need to extract more than £25,000 on closure.

You need to appoint a formal liquidator to complete this process for you which will incur costs.  However, it may well be that the tax benefits outweigh the costs.

To complete a MVL, the directors must make a declaration of solvency, stating that the company is able to pay all its debts.

The liquidator takes control of the winding up of the company, at which point the directors cease being able to act on behalf of the company.

What if the company is Insolvent?

If the company is insolvent (eg it cannot pay all its bills) – then you cannot use the 2 options above.

You will need to appoint a liquidator to assist with closing down the company and put it into liquidation.  In this situation the interests of the creditor rank above those of the directors and shareholders – eg any money that is available will go to pay HMRC and your other creditors before repaying you any money you have put into the company.

Liquidating a company is a complex process and as such, generally is not a cheap option either, which is incredibly hard when the reason you are closing the company is that it is struggling.

It is always a good idea to take professional advice before you get to this position, who will be able to help you with any other options that may be available.

Closing a limited company is therefore more complicated and more expensive than closing a sole trader business. This blog only aims to give you an overview of the options available to you.

You need to take professional advice if you are thinking about closing your company to ensure it is done properly and in the best way to suit your individual needs.

Read more

When you have made the tough decision to shut up shop……….

The virus has adversely affected many business and sadly for some the decision may be that the business is just no longer viable.  Making the decision to close your business is an extremely tough one, as you will have poured your life and soul into making it work.  Talking through your options with someone outside the business is useful as the emotional connection is removed, but at the end of the day you may decide its time to move on and face a new challenge.

Closing down a business has tax implications so this series of 2 blogs runs through what you need to be aware of, and how to go about closing a business.

This blog relates to the self employed.

(We have assumed the business has no significant business assets and does not cover business asset disposal relief)

If your business has made a loss

It is likely if you have decided enough is enough that the accounts show that the business has been making a loss.  You may be able to get tax relief for these losses, so it is important that you don’t miss out.

If you have other income from a different source (eg a PAYE job) or your business made a profit in the previous tax year, then you can offset your trading loss against this other income in the current or previous tax year– this could generate a tax refund for you.  You need to determine the best way to use your losses to maximise any tax rebate, so you need to speak to your accountant who will be able to advise you on this.

There is also an additional relief for a loss made on the cessation of the business – called “terminal loss relief”.  This allows you to calculate the loss for the last 12 months of trading, and potentially offset this against profits of the previous 3 tax years, starting with the earliest year.  For example, if you ceased trading in Sept 2020, you could potentially offset that loss against profits made in 17/18 first, then 18/19 and finally 19/20.  Again we would recommend you take advice as to the best way to make any loss claim, as only the basic details are covered in this blog.

How do I close my business down?

You need to tell HMRC when you stop trading and cease being self-employed – by completing this form.

https://www.tax.service.gov.uk/shortforms/form/CeaseTrading

You will also need to file a tax return for the year in which you ceased trading.  Eg if you cease trading in Sept 20, you will still need to complete a tax return for 20/21 which needs to be filed by 31 January 2022.

You will no longer need to pay class 2 NIC once you stop being self employed, but this is due for the weeks up to the date you tell HMRC that you have ceased trading.

If you were registered for VAT, you must cancel this and submit a final vat return up your final day of trading.  If you had deferred any vat payment under the Covid-19 help scheme, this must still be paid!

If you receive any money in after the business has officially ceased trading (eg old invoices are paid) or you incur expenses, then these need to be taken into account, either by showing them separately on your tax return, or by increasing the loss already calculated for the year.

Not fully closed down?

You can earn income of up to £1,000 from self-employment in a tax year without having to declare this to HMRC.  This is covered by the “trading allowance”.  You do still need to keep records of your income and expenses for your business and there are situations when you would still need to declare this income as detailed here

https://www.gov.uk/guidance/tax-free-allowances-on-property-and-trading-income

It is worth bearing in mind though that this allowance does exist, so you can still earn small amounts of income from a business without the need to declare it to HMRC.

Closing down a self-employed business therefore is relatively straightforward from an accounting and tax perspective.  If you do have trading losses, it is important to take advice to ensure these are utilised in the best way for you.

Ceasing trading as a limited company owner is, as you would expect, more complicated and will be covered in our next blog.

If we can help you in determining the future of your self-employed business then do get in touch.

 

 

Read more

Are you ready to make your second claim for self-employed support?

For the self-employed you can make a claim for your second, and final grant from HMRC from 17 August.

Here is everything that you need to know about it:

The Second Grant

If you were eligible to claim first time round, then you can claim again, and HMRC will use the same basis for calculating the amount due to you this time.

The scheme this time allows you to claim a grant worth 70% of your average monthly trading profits, paid out in a single instalment covering 3 months’ worth of profits, and capped at £6,570 in total.  The first grant was based on 80%, subject to a cap of £7,500.

As before HMRC will contact you if they believe are eligible to claim the second grant.

Claims have to be made by 19 October 2020, and HMRC aim to send you the money within 6 working days of your claim.  In most cases grants were received quickly last time.

You don’t have to have made a claim for the first grant, to be able to claim the second.  It could be that your business was not initially affected by the virus, but has been since 14 July.

Also a reminder that the grant does not need to be repaid, but it is subject to income tax and self-employed National Insurance.

The grants will need to be reported on your 20/21 tax return, and also disclosed as self-employed income for any Universal Credits or tax credits claim.

 

Record Keeping:

Information has also been released about the records that you need to keep in relation to the grant.

You must keep:

  • Details of the amount claimed
  • The grant claim reference
  • Evidence that your business has been adversely affected by the coronavirus at the time you made your claim. This could be:
    • Business accounts showing a reduction in turnover
    • Dates you had to close due to lock-down restrictions
    • Dates you were unable to work due to coronavirus symptoms, shielding or caring responsibilities
    • Evidence of a contract being cancelled
    • Confirmation of any coronavirus related business loans received

Errors:

New provisions have also been introduced to tell you what to do if you believe the last claim that you made to be incorrect, or you believe HMRC made an error.

If you received a grant, and now do not think you were actually eligible, or you were overpaid, then if you received the grant:

  • before 22 July 2020 you must tell HMRC on or before 20 October 2020
  • on or after 22 July 2020 you must tell us within 90 days of receiving the grant

If you do not you may have to pay a penalty, which could be up to 100% of the grant!

As with the last grant, it is the individual that needs to make the claim with HMRC – their agent/accountant is not able to do this for their clients.  But if you do need help with working out what you can claim, or what records you may need to keep, then please get in touch with Rosie Forsyth of Wilkins & Co.

 

Read more

The Summer Statement

Loads of announcements yesterday and lots to take in.

Here is my summary of how this will affect my clients – and what we still need some guidance on:

Job Retention Scheme:

We have final confirmation that this will end in October 2020 with the gradual wind down already announced.
However, the Job Retention Bonus has been announced.

Under this, the government will pay a £1,000 bonus to employers for each furloughed employee that they retain until January 2021.  The employee must earn at least £520 per month between November and January 2021.  The bonus will be paid in February.

More detail on this is due to be announced soon and clarification is needed around directors.  There is nothing at the moment to say that a furloughed director returning to work is excluded, but we will need to wait and see.

KickStart Scheme

This scheme is to encourage employers to take on 16-24 year olds.

To qualify, it must be a new job, paying national minimum wage and be for at least 25 hours per week. If these are met, the government will pay these employees wages for 6 months.  It does appear that they will only pay the relevant NMW for these employees, so if you pay these new employees above the NMW, this may not be covered.  Again, we need more details to be announced to confirm.

Trainees and Apprenticeships

From August, £1,000 is to be paid for new trainees and £2000 for employers who create new apprenticeships for the under 25’s.  And additional £1,500 will be paid for taking on apprenticeships aged over 25.

VAT

The VAT on food and accommodation is being cut from 20% to 5% for the next 6 months starting on 15 July.

The reduced rate will apply to supplies of food and non-alcoholic drinks from restaurants, pubs and cafes.

Further guidance on the full scope of this relief will be published in the next few days.  Accounting for this one is going to be fun!!

Eat out to Help out

This one really wasn’t expected and aims to encourage us to go back out to our local restaurants.

Every diner will get 50% of their meal and non-alcoholic drinks, up to £10 per head, from any participating establishment for the month of August.

The discount has unlimited use and can be used on Monday – Wednesdays.  The restaurant will then reclaim the money from the government which it can do weekly.  More accounting fun!!

Stamp Duty Cut

The current threshold of £125,000 will rise to £500,000 from 8 July 2020 to 31 March 2021 so there will be no stamp duty on the first £500,000 of the purchase price (for your sole property.)  Above this rate, the percentages remain unchanged, but this potentially saves £15,000 on a property over £500,000.

All these measures are designed to get the economy moving again, in the face of the massive predicted economic recession.

The next budget is in the Autumn, when no doubt we will find out, how we are all going to pay for this!

If you have any queries, then please contact Rosie Forsyth at Wilkins & Co.

 

 

Read more

Payments on account of tax due now can be deferred, but what are they in the first place?

If you have received your self assessment statement this month from HMRC, you may be confused by the amount that it is telling you is due.

Payments on account of tax are part of self-assessment and never easy to get your head around.

Keeping things simple, you usually pay 2 payments “on account” of your 19/20 tax bill during the year, one in Jan 2020 and one in July 2020.  The amount you pay is based on your last submitted tax return, and HMRC assumes you will have exactly the same income again in the next tax year.

So if your tax liability under self assessment last year was £2,000, HMRC will ask you to pay £1,000 in Jan 2020 and £1,000 in July 2020 as an upfront payment on account of your 19/20 tax.

Obviously, it is extremely unlikely that you tax bill will be exactly the same each year, so once you have submitted your 19/20 tax return, HMRC will work out the actual amount that is due for the year.  In our example, say your final actual tax bill is £2,400.  You will have already paid £2,000 on account of this, so you will owe £400 at 31 January 2021.

The cycle then starts again though, so at 31 January 2021 you will also pay your first payment on account of your 20/21 tax, which HMRC will calculate as £1,200, so the total amount they ask you in Jan 2021, will be the £400 plus the £1,200, making £1,600 in total.

There are situations where a payment on account is not required but these are not covered here.

Payment on Account Deferral

Under the Gov help offered for Coronavirus, the payment on account that was due at 31 July 2020 has been deferred by HMRC -and this seems to have been done automatically.  Therefore if you receive a statement from HMRC this month, you will see that the due date for this second payment on account is 31 Jan 2021, and not 31 July 2020.

You can of course make the payment now, but if it helps cashflow, the payment can be deferred.

If you have lower profit for 19/20 than you did the year before, then it is well worth getting your tax return completed for the year and submitted, as if you are due a repayment, this will be issued as soon as your return is submitted – you won’t have to wait until 31 Jan 2021 for this!

For more information or assistance with personal tax returns, please contact Rosie Forsyth at Wilkins & Co.

Read more

The Fundamental Facts of Flexi-Furloughing

From 1 July, the new flexi-furlough scheme opens.

Under the scheme, employees can come back to work for any amount of time, and employers can still claim the furlough grant for the time they do not work, and pay staff 80% of their wages for this time.

How does this work in practice?

From 1 July, employees can do any number of hours under flexible working.  Their pay for this will be based on their hourly rate.  Where employees have a fixed salary, this will be calculated by dividing their annual salary by their contracted hours.

The employer will pay their staff 100% for the hours worked, and for furloughed hours – they will pay a minimum of 80% of their hourly rate, subject to a daily maximum.  The maximum amount is the £2500 cap per month as before, divided by the number of calendar days in the month (so £80.65 for July, Aug and Oct – and £83.34 per day for Sept!)

The employers will then claim back the 80% from HMRC as before, though there is a requirement to put different information onto the claim form as we are now looking at hours worked/not worked per month per employee.

No claims can be made for this until 1 July, and claims have to be made covering at least a week at a time.  In practice, this will still be done (by me anyway) monthly, the week before payrolls are due to be done to ensure funds are received in time to pay staff.

What are the other changes to the Furlough scheme?

The scheme will close on 31 October and is being phased out over 3 months.

For June and July – there are no changes to the grant levels

For August – HMRC will cover 80% of the gross wage only and employers will be responsible for the employers NIC and any employer pension contributions.  For a lot of small businesses, they will not have any employers NIC or pension contributions due in August, so they will see no difference in the amount they can claim.

For September – the amount the government will cover reduces to 70% of wages up to a cap of £2,187.50.  The employee will need to top up wages to ensure that the employee still receives at least 80% of their salary whilst on furlough.

For October – the government contribution reduces to 60% (up to the cap of £1,875), with the employer contributing 20%

Other Points to Note

31 July is the last day that you can claim for periods ending on or before 30 June.

Only employees who had been furloughed for any 3 weeks in the period ended 30 June are eligible for flexi-furlough, so you can’t put an employee on flexi-furlough who has previously been working their normal hours throughout the lockdown period.

The flexi-furlough work patterns will again need to be discussed and agreed with employees, and a written agreement that confirms the furlough agreement should be signed by both parties and kept on file.

 

If you need help dealing with the HR side of furloughing/flexi-furloughing/bringing staff back to work or even making redundancies, then we would recommend that you contact Louise Lithgow-Dicker at Go HR for tailored advice.

For any queries on the new rules, or the government business support packages in place, then please contact Rosie at rosie@wilkinsco.co.uk  

Read more

Extension to the Self-Employment Support Scheme

I’m sure we all saw in the news on Friday that this has been extended for 3 months, but here is just a quick summary of the main points:

  • the scheme will run for another 3 months, covering June, July and August
  • the second grant will be paid in one lump sum in August
  • this time the grant is worth 70% of average monthly trading profits, capped at £6,570
  • all the same criteria to qualify as for the first grant, so if you qualified and received that, you will qualify for this payment
  • applications for the grant will open in August so you cannot do anything until then to receive the money
  • you can still apply for the first grant until 13 July if you have not yet done so
  • you DON’T have to claimed for the first grant to apply for the second.  One of the criteria is that your business has been adversely affected by COVID-19, so it may be the case that it has only been affected in the later phase, in which case you would only apply for the second grant

This is all the information currently available: further guidance will be published on June 12 so we will bring you this when we have it.

As usual, if you have any questions, please do not hesitate to get in touch with Rosie Forsyth at Wilkins & Co.

rosie@wilkinsco.co.uk.

 

Read more