The way we work has changed and for many working from home has become the norm.

If you are self employed – then you will already be including in your accounts a charge for the additional costs incurred from working from home.  There are 2 ways you can calculate this charge – one is a simple flat rate method based on the hours you work from home, and the second is a more complicated calculation, based on allocating a percentage of the actual running costs of your home to your business.  Both methods are outlined in detail in my previous blogs.

Whichever method you use, the hours you work from home have probably increased significantly over the last 6 months, so you should ensure that this is reflected in the amount that you charge your business.  It may be that the second method would now give you a higher figure – you need to do the sums!

If you are an employee, and have been working from home since lockdown, there is also a small amount that you can claim.

Your employer can pay you the grand sum of £6 per week to cover the additional costs you are incurring from having to work at home.  If you don’t like to ask, or your employer is not able to pay you this, then you can instead claim tax relief on the £6 per week via HMRC.  Not a fortune, but a gain of £1.20 per week for a basic rate taxpayer, and £2.40 a week for a higher rate tax payer.

How to claim as an Employee?

Either claim on your tax return if you complete one, but if you don’t then you need to simply file a P87 form.  This can be done online if you have a government gateway set up – or by good old fashioned post otherwise.  The section to complete is the “using your home as an office” section.  Once submitted, your tax code will be amended to give you the tax relief on your claim.

Other costs

If you have had to buy other office equipment to use at home during lockdown, and your employer is paying you back for this, this would normally be taxed on you as a benefit in kind.  However, for this tax year, there is a relaxation of this rule!  With many more hours being spent in your home office, it is important to have the right equipment to enable you to work from home – a proper desk and office chair etc, to save aches and pains in the future!

If you would like any more information, then please do contact Rosie Forsyth at Wilkins & Co.

More guidance was added over the weekend to the Job Retention Scheme, in particular in relation to the issue of directors and furloughing.

The full guidance can be found here, but here is my update on what has now been added:

• Salaried company directors may be furloughed
• Once furloughed, as for other employees, they cannot do any work for the company that would make money for the company, or provide services for the company.
• They can continue to carry out their statutory obligations as a director – this would include filing accounts, opening post, paying bills etc.

  To quote the guidance “they should not do any work of a kind they would carry out in normal circumstances to generate commercial revenue or provide services to or on behalf of their company.”

• The decision to furlough a director must be formally adopted as a company decision, communicated in writing to the director and this record kept for 5 years.
• The minimum length of time you can be “furloughed” is 3 weeks. You may then return to work for a period of time, and then be “furloughed” again.
• Claims can be backdated to 1 March – but in practice you would have to have done no company work since then to claim from this date.

How much can directors claim?

As for employees, the company can claim 80% of your wages.  This relates to the amount on the payroll as salary, and does not include any dividend payments.

• For directors who pay themselves a regular monthly amount, this will be 80% of your February 2020 payroll amount.
• For directors whose pay varies, or is paid irregularly, you can claim the HIGHER of:
  • The same month’s earning from the previous year
  • Your average monthly earnings for the 19-20 tax year

Claiming in Practice

As previously announced the claims will be made via the new online portal once it is launched.  HMRC will check your claim and if you are eligible pay the amount into your company bank account.

The portal is supposed to be open by the end of April.  There is currently no new information on this apart from to say that HMRC will retain the right to audit your claim retrospectively, and have already warned that anyone submitting bogus claims, or attempts to falsify records to increase payouts will be shot.  (OK slight exaggeration, but you get my point!!)

Conclusion

Great that we finally have some clarification – but to qualify, directors really can do no normal work at all.  I have a couple of clients with employees and they have disabled their access to their work email to ensure they can’t send the odd email or do anything that would invalidate their claim.  Directors in my opinion need to follow a similar approach if they want to ensure their claim will be valid.

On and off furloughing may be an option, but potentially horribly complicated!  At the end of the day, we are talking about £500 a month, so directors will need to make personal decisions about whether they can generate more continuing to work.  Remember that £500 is also taxable income in your accounts!

More info as and when we get it!!

Rosie

We have put together a summary of measures introduced over the last week aimed at helping you get through this period, and highlighted any actions that you may wish to take.

This will be updated as more information becomes available, especially in regard to any help being announced for the self-employed.

As you may expect, much of the detail has not yet been made available, but this is what we know so far…….

Coronavirus Job Retention Scheme

Under the Coronavirus Job Retention Scheme, all UK employers will be able to access support to continue paying part of their employees’ salary for those employees that would otherwise have been made redundant during this crisis.

The scheme will cover the cost of wages backdated to 1 March 2020 and funds should be available before the end of April. It will continue for at least three months, and can include workers who were in employment on 28 February.

To access the scheme:

• you need to designate affected employees as ‘furloughed workers’, and notify employees of this change. “Furloughed” means that the worker is allowed to be absent temporarily from work. Changing the status of employees remains subject to existing employment law and, depending on the employment contract, may be subject to negotiation; and
• submit information to HMRC about the employees that have been furloughed and their earnings through a new online portal. HMRC will set out further details on the information required.
• HMRC will reimburse 80% of furloughed workers wage costs, up to a cap of £2,500 per month.

It is really important to note that to qualify for this scheme the furloughed workers should not undertake ANY work for you during this period.

While HMRC is working urgently to set up a system for reimbursement, it is not ready yet, and funds will not be available until the end of April.

There are no details yet how this may apply to family members on the payroll, directors etc.

ACTION:

If you need to reduce staffing during this period, can you use the scheme? Has anyone been made redundant already that could now be furloughed? 

Statutory Sick Pay

• SSP is now available from the first day of absence from work, rather than the previous rules of day 4
• The current rules surrounding eligibility for SSP have not changed, so only workers earning on average over £118 per week are eligible
• SSP is currently £94.25 per week and can be paid for a maximum of 28 weeks
• Those who are self-isolating and who cannot work, even if they themselves are not sick, are eligible for SSP.
• Employers will be able to reclaim 2 weeks of SSP for employees who are off work or self-isolating due to COVID-19.

ACTION:

Make sure your staff are aware of your sick pay policy and what they need to do should they have to self-isolate.

VAT 

The next quarter of VAT payments can be deferred.  The deferral will apply for periods ending between 20 March 2020 until 30 June 2020.  You will have until the end of the 2020-21 tax year to get your payments up to date.  There will be no penalties etc for not paying your vat in this period.

VAT refunds will continue to be paid as normal.

The deferral is automatic and businesses do not need to apply for it.

ACTION:

Don’t pay your next VAT payment, though your return should be submitted as normal.  If payment is usually by Direct Debit, make sure you cancel this with your bank.

Income Tax payments

All income Tax payments due in July 2020 under the Self-Assessment system will be deferred to January 2021.

There is no need to apply for this deferral – it will be applied automatically. No penalties or interest for late payment will be charged in the deferral period.

ACTION:

Do not pay your self-assessment payment on account bill that was due at 31 July 2020.

Business Rates and cash grants

• No rates payable for the 2020-2021 tax year for any business in the retail, hospitality or leisure sectors.
• In those sectors, if your rateable value is between £15K and £51k, you’ll also receive a cash grant of up to £25,000 per property.
• Any business which gets small business rates relief, including those in the retail, hospitality or leisure sectors, will receive a cash grant of £10,000
• This help will be administered by local authorities and should be delivered automatically, without businesses needing to claim.

ACTION:

The rates holiday is automatic, so no action is needed from you.

 HMRC Time to Pay

HMRC’s Time to Pay scheme can enable firms and individuals in temporary financial distress as a result of Covid-19 to delay payment of outstanding tax liabilities. HMRC’s dedicated Covid-19 helpline provides practical help and advice on 0800 0159 559.

ACTION:

If you have any tax bill due that you are going to struggle to pay, call HMRC in advance.

Coronavirus Business Interruption Loan Scheme

• These will be available from Monday 23 March and are delivered all the major banks. The lender receives a guarantee of 80% of the loan amount from the government.
• The loan period can be for up to 10 years. The borrower remains liable for 100% of the debt.
• No interest will be charged for the first 12 months. Interest rates offered on these loans are likely to be high, as they are high -risk loans for the bank.  Overpayment will be permitted to repay the loans early if possible
• Banks will require financial statements, management accounts and cashflow forecasts as they would for any normal loan.

ACTION: 

If you think you may wish to apply for this loan, contact us so can make sure your accounts are up to date and can help you with a cashflow forecast.
We can put you in touch with a great commercial loans advisor to talk through your options if you are considering taking out a business loan.

We will update this blog as and when more information becomes available.

Please contact us if you want to discuss your accounts and finances at this difficult time.

Just a quick blog from me to let you know how we are currently working at Wilkins & Co.

Most of our work can be done remotely and I have a separate office at home, so while there is no such thing as business as normal at the moment, we are continuing as best as we can.  My kids are home like everyone else’s so I am dealing with teenagers around the house – and the girls who work with me are also working from home, juggling with their new role as teaching assistants too.

I am still on the end of the phone – if we’d normally meet up, then please do call over the phone or via a video call.  Interrupted calls to deal with children is absolutely no problem at all.  Don’t ask me too many complicated maths questions though – after about year 5!

If anyone needs to drop anything off, please give me a call and let me know you are coming.  Apart from walking the dog (who is going to be fitter than ever!) I will be here and you can drop stuff off on the doorstep.

It is obviously a worrying time and I understand that you have very serious concerns at the moment.  You can call me and chat about your business and finances any time you need to. Hopefully we will get some clarification soon from the government on help available to small businesses and I will sharing as much information as I can with you all.

Now more than ever it is important to support local businesses and we will be doing what can to buy local, support small business and help our local community.  Our social media will continue as this is a great way to stay in touch and keep connected with the outside world.

And when you really can’t think of anything else to do- why not make a start on your tax return?

With best wishes and virtual hugs

Rosie

With the tax year ending soon have you been as tax efficient as you could have been this tax year?

What can you still do before the year end to maximise your tax efficiency?

Here are a few of my tips for tax efficiency:

• Use your personal allowance – everyone has a personal allowance of £12,500 for this tax year.  Consider family members who have no other income and if their allowance can be utilised.
• If you have a new limited company, have you taken a salary this year?  Low levels of salary may be able to be processed without the need to set up a PAYE scheme with HMRC, but generally you will need to register as an employer with HMRC to be able to pay yourself a salary from the company – you just about have time to do this before 5 April.
• If you have a limited company –have you paid dividends this year?  The dividend allowance is still £2,000, so the first £2,000 of dividend received in a tax year is tax-free, and then for basic rate taxpayers, the rate of tax on dividends is 7.5%.  Dividends must be paid out of available reserves and are payable per share -so if you have more than one shareholder in the company, you need to get the maths right!
• Check you and your partner’s total income for the year if you receive child benefit payments.  If you have the ability to determine your income for the year, by varying the level of dividend paid, keeping the higher earner’s income below £50,000 will ensure you retain your child benefit.  If one of you has earned more than £50,000 this year, be aware you will need to pay back some or all of your child benefit and may need to complete a tax return to do this.
• If you are considering buying capital equipment for your business, doing if before the end of the tax year will give you the tax deduction this year rather than next
• Pension contributions – very tax efficient for the company to contribute to your personal pension.  Review any payments made in the year and take advice from an IFA.
• Also think about contributing up to £3,600 into a pension scheme for a spouse, civil partner or a child, even if they have no earnings of their own, to obtain basic rate tax relief on the contributions
• If you have taxable income over £100,000, you will start to lose your personal allowance, and will receive no personal allowance once your income is over £125,000 – this makes your marginal tax rate 60% on this part of your income.  Consider making additional pension contributions or gift aid donations which may restore your personal tax allowance
• Use your allowance for tax free ISA saving; that’s up to £20,000 in this tax year. Under 18s can save £4,386 in a Junior ISA.  Also consider LISA’s to help your children get on the housing ladder.

Often simple steps can be taken to minimise your tax bill.  You should always however take professional advice to ensure the best tax saving strategy for you and your business.

Please contact us at Wilkins & Co if we can help you ensure that you and your business and operating as tax efficiently as possible.

Although IR35 is the hot topic – IR35 itself is not new – it has been around since 2000.  It is a piece of legislation that allows HMRC to collect additional payment from a contractor, where in reality the contractor is effectively an employee of their client – but is just choosing to operate through a limited company.

So why is everyone talking about it now?

New rules are coming in from April 2020, which are shifting the emphasis of deciding whether your working relationship is caught by IR35, from the worker to the end user in some circumstances.  If that end user determines that you are caught by the rules, they either need to take you onto the payroll or deduct PAYE and NI from your invoice.

This blog aims to demystify the new rules so you can determine if it will affect you.

Off-Payroll Working – What is it?

Off-payroll working is a term used by HMRC to describe the situation where:

A worker/freelancer provides a service (eg themselves) to an end client, and invoices that client via their own limited company and CRUCIALLY – if that worker was providing that service directly to the end client (eg NOT via ABC Limited) then that worker would meet the employment test status (see below) to make them an actual employee of the client.

If off-payroll working applies:

• The end client is required to deduct PAYE and NI from your invoice, BUT
• You do not acquire any employment rights under the rules – so you have no right to SSP, SMP, holiday pay,pension etc

so not a great position to be in!

The Changes from April 2020

From April 2020 if your end user is a large or medium sized company, then it becomes their responsibility to assess whether you have the employment status of a “worker”.  If they determine that you do, then the off-payroll working rules kick in.

Prior to April 2020 it was your responsibility to determine your status, and to deal with the IR35 legislation yourself.

(A medium company is one that meets 2 out of 3 of these criteria:

• turnover over £10.2m,
• over 50 employees
• balance sheet total of over £5.1m)

It is important to note that if your end user is a small company, the changes do not apply to them at all.

If it is a medium/large company then the following will happen:

• The end client must tell you that they are a large or medium size company
• The end client must assess your employment status and tell you what they have decided
• The end client will then deduct PAYE and NI from your invoice if they have concluded the off-payroll working rules apply

How will they assess my employment status?

The end client should start by using HMRC’s Check Employment Status Tool “CEST” which will give an assessment at the end of the questions.

It asks a number of questions about your working arrangements, such as “could you send a substitute to perform the task” and “does the end client have the right to determine your working hours”

If the questions are answered accurately and honestly, HMRC will accept the results of this test.

Once they have determined your status, they need to inform you of their decision by providing you with a Status Determination Statement.  If you disagree, you can challenge the result, and they will need to come back to you within 45 days.

What is likely to happen?

These rules came into force for the public sector last year, and the outcome was for many organisations, they just decided to take everyone onto the payroll and to no longer engage freelancers, as the risk of getting it wrong was just too high.  We are seeing the same already from some of the banks in advance of these changes.

Obviously, having PAYE and NI deducted from your invoice is going to affect your take-home pay, and if you are affected then there should be some negotiation about your future invoices!

It is important to note that the changes do not affect everyone, but there is, as is to be expected, currently widespread panic in the freelance world!

If your end client is a small company, there is no change.

However you are still responsible for determining your employment status, and I would highly recommend running through the CEST questionnaire to see how HMRC would assess your status, and if you should be applying the IR35 rules yourself.

If you have any questions, then as usual – get in touch!

Recent statistics show that the take-up of the new scheme has been low, not helped by widely-reported technical issues soon after the scheme was launched.

So what does the scheme offer – and can you take advantage of it?

Under the Tax-Free Childcare scheme, for every 80p you put into your online account, the government will add 20p.

In total you can use the scheme to help pay for up to £10,000 of childcare per child each year – giving you an extra £2,000 per child (up to £4,000 if your child has disabilities).

Tax-Free Childcare is open to all qualifying parents, unlike the old Childcare Vouchers scheme offered by some companies.  It is open to all working parents, including those who are self-employed, with children up to the age of 11 (or 17 if your children have disabilities)

You can get Tax-Free Childcare at the same time as 30 hours free childcare if you are eligible for both.  However, you won’t be able to get the tax-free childcare if you already get Universal Credits.

To qualify, you and your partner, need to be working and earning a minimum of £131 a week, and a maximum of £100,000 a year.  If one of you does not work, then you are not able to claim.

Tax-Free Childcare can be used to pay for activities by any regulated childcare provider who has registered with the Scheme, and this may include holiday and after-school clubs as well as the more obvious nurseries etc, so it is worth checking who is covered in your local area.

If you are eligible for the scheme, then you need to create an online childcare account via the Government Tax-Free Childcare site. You then pay the money into this account, and transfer funds from there to pay your childcare provider.

So even if you do not regularly use childcare, it is worth checking if any provider that you do use is signed up to the scheme, and if you could be saving money by setting up an account.

For more information, please contact Rosie Forsyth at Wilkins & Co.

As we approach the Christmas period, the question is always – what can we claim for a staff Christmas party?

Christmas Party

If you have a limited company, you can claim your festive or annual party as a deductible expense, subject to the limits below. As long as all of your employees are invited to attend, the whole event will not be taxable, even if you are the sole director/staff member. You cannot claim annual event expenses if you also entertain clients and associates.

You have £150 (including VAT) to spend per head, and you can also spend this on your “plus ones”. The £150 is an all-inclusive figure, so you need to add up the total costs of the evening (incl transport, accommodation, drinks) and divide it by the number of attendees. The total cost has to be under £150, – if it comes out to be £151 per head, the whole lot is taxable, so be careful!

An exemption, not an allowance

The £150 spend is an exemption, not an allowance. You will have to actually spend the money in order to claim the deduction.
If it is not used, the exemption will be lost.

Gifting employees/directors

Small gifts given to employees (and directors) can be exempt from tax as trivial benefits providing the following conditions are met:

• The cost of providing the benefit does not exceed £50 (including VAT).
• The benefit is not cash or a voucher that can be exchanged for cash
• The employee is not entitled to the benefit as part of any contractual obligation.
• The benefit is not provided in recognition of a particular service.

However, if the cost of providing the benefit exceeds £50, the full amount is taxable, not just the excess over £50.

Gifts to Clients?

Your gifts will only get tax relief, and you can only reclaim the VAT if they are:

• 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

So no excuses not to have that Christmas party!

Please note that these rules are for limited companies – unfortunately sole traders do not benefit from the same exemptions!

For more information please contact Rosie Forsyth at Wilkins & Co.

We can’t run our businesses without our mobile phones, but are you claiming the right amount from your business?

The rules for claiming the cost of your mobile phone from your business are different depending on whether you are a sole trader or a limited company.

For a sole trader – it’s relatively straight forward.

You can claim a percentage of your phone bill, or new phone, depending on the percentage that you use it for your business.  You don’t need to analyse all your calls, but it is a good idea to keep track of your business usage for 2-3 months, and then apply that percentage to the full year.  HMRC may ask you one day how you came to the percentage that you did, and you may find it hard to justify that you use your phone 90% for business, when you actually only work one day a week -so just be sensible!

For a limited company, as with most things, it’s more complicated.

If your phone contract is in your personal name, and the company pays the bill, or reimburses you for it, you have a benefit-in-kind – and this should be disclosed on a form called a P11D at the end of each tax year.  Both you and the company will have tax to pay on this amount.

The logic behind this, is that with contracts nowadays, we all get so many free minutes and texts etc, that there is actually no additional cost to you for using your phone for business.  You would be paying your phone bill anyway, and so getting the company to pay it, is really the same as paying yourself additional money from the company.  If you can separate additional business calls, eg they are overseas calls, then you can claim these from the business as a legitimate expense.

If you can put your phone contract in the company name, then HMRC will accept that private use of your “company” phone is minor, and the company can pay the whole bill, without any personal tax problems.

The same rules will apply for broadband costs in your home.

So if you have a limited company, you basically have a choice:

• If your phone contract is in your personal name,  don’t put any of the cost through the business (unless you have costs over and above your standard package cost that you can identify as relating to the business – such as overseas calls.)
• Put your contract into the limited company name – and then you can claim the full cost of your monthly bill ( but no prizes for guessing that a business contract is usually more expensive than a private one)

It’s a really common mistake to think that the company can just pay your personal mobile phone bill, as you use it for business, but get it wrong and you could land yourself and the company further unexpected tax bills!

For any further information, please contact Rosie Forsyth at Wilkins & Co.

The personal allowance for 2019/20 has increased to £12,500 and the basic rate threshold to £50,000.  This means you start paying higher rate tax only on income up over £50,000.

The dividend allowance remains at £2,000.

So for a limited company director, what is the most tax efficient pay strategy this year and why?

Most owner managed businesses take a low salary and a higher dividend to be tax efficient.  Why is this the case?  (Prepare for some number crunching!)

• You take a salary from the company because this triggers a national insurance record for your state pension. To trigger this for the year, you need to pay yourself a minimum of £6,136 in salary.  You can pay up to £8,632 and still pay no NI for the year
• Your company can claim the cost of your salary when it calculates its corporation tax.  As a result it will save corporation tax at 19% on any salary taken.
• You take any further money from the company as dividends.  Dividends are paid out of post tax profits from the company so you don’t save corporation tax on this payment. But NI is not paid on dividends and the rate of personal tax you pay on dividends is only 7.5% up to the £50k basic rate threshold.

So what amounts should you pay yourself to minimise your tax liabilities?

There are 2 options:

1. Paying a basic salary at the NI threshold.

This option is simplest and means you pay no NI for the year (but it does still count as a qualifying year for your state pension)

• Basic pay of £8,632 per year – or £719.33 per month.
• You then utilise the rest of your personal allowance and pay this in dividends ( £12500-£8632) = £3868
• You then utilise all your basic rate band and pay this in dividends – £37500
• Total dividends for the year are therefore £41,368.
• At this level, you will not pay any higher rate tax on your dividends. You will pay personal tax of £2,663 on these dividends which you will pay via self assessment.  (7.5% x (41,368-3,868-2,000) for those who like the maths!!)
• The company will save corporation tax on the salary paid of £1,640.

Note that you will need to set up a payroll for the company and file RTI returns paying this salary, and you will need to file a personal tax return.

2. Paying salary up the personal allowance threshold

This is more tax effective if you have more than one person on the payroll and can claim the NIC Employment Allowance. If you are a sole director, you cannot claim this and should stick to option 1.

• Basic pay of £12,500 per year – or £1041.66 per month.
• You then utilise all your basic rate band and pay this in dividends – £37500
• Total dividends for the year are therefore £37,500.
• At this level, as before you will pay personal tax of £2663 on these dividends
• However, you also pay employees NIC of £464 on your salary. This is deducted at source when you run the payroll and the company will pay it over to HMRC for you.  Your net pay in the months when NIC is due will therefore be lower.
• The company will save corporation tax on the higher salary paid of £2,375.

So which option?

Keeping it simple or for sole directors with no-one else on the payroll – option 1.  There is no NI to pay and you have a fixed salary each month of the year.

If you have more than one person on the payroll, can benefit from the Employers Allowance, and will remember to pay over the NIC when it is due, then option 2 will save you £271 overall in tax for the year and is therefore more tax-efficient.

Do remember that to pay these salaries from your limited company, you need to have an official payroll set up with HMRC and to file RTI returns.  The above illustrations are also for general guidance only, and are based on a UK taxpayer with no other income for the year. For help with this, or further advice on tax efficient pay, please contact Rosie Forsyth of Wilkins & Co