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.

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.

I know – doing your tax return doesn’t fill you with enthusiasm but we all know it has to be done.

This year, more than ever, it is a good idea to get your tax return completed and filed early. Here are a few reasons why:

1. Budgeting
   You will know now what your tax bill is going to be at 31 January 2021 and you can start budgeting to be able to pay this on time. Submitting your return now does not mean the tax is due any earlier
2. Tax refunds
   If you are due a refund of tax, this will be repaid to you as soon as your return is submitted – you do not need to wait until 31 Jan for this
3. Availability of Information
   You will have the information to hand. P60’s should have been received recently and other financial information that you may receive in relation to your income is normally sent to you in April or May, so put it altogether now, before you have a chance to lose it!
4. Accounts
   If you are a sole trader, you will need to prepare your accounts to 5 April 2020 (usually) and again this may require you finding information and answering queries from your accountant. Not only may this information still be fresh in your mind, but if you are not working at the moment, you may have some more time to be able to complete this task now.
5. Tax Credits
   The tax credits renewals form has to be completed by 31 July, and being able to produce accurate figures will ensure your claim is accurate for the year, and you won’t end up having to repay amounts you were not entitled to.
6. Tax Code
   If you have your tax collected via an adjustment to your tax code, submitting this early will help ensure that your tax code is accurate, and you are not over or under-paying tax during the year.
7. Relief
   Finally and possibly most importantly- its done! One less thing to worry about towards the end of the year.

Don’t forget that any payment that you were due to make on account of your 19/20 tax bill at 31 July 2020 can be deferred.  You don’t need to request a deferral with HMRC, it will be done automatically if you do not make the July payment.

So although it may not be your favourite job, there are lots of good reasons to get it out of the way now.  Call it a project to do alongside your kids doing their school work and set yourself a deadline.  Then give yourself a large gold star when it is done!

Here is our summary of all the information currently available about this scheme to help the self-employed.

Who qualifies:

You can apply if you are self-employed or in a partnership.

Directors of limited companies, even if you are the only person in the company, are not self-employed, and you do not qualify for this support.

To qualify, you must meet ALL the following criteria:

• Have traded in the 2019-20 tax year
• Still be trading when you apply (or would be, if it were not for CV-19) and intending to continue to trade in 2020-21
• Have suffered a reduction in profit due to CV-19
• Have submitted your 2018-19 tax return. This was due to be filed by 31 January 2020.  If for some reason, you have not yet done so, you have 4 weeks now to get it in – before 23 April 2020.

What income do I need to have had to qualify?

Your self-employed trading profit must be less that £50,000 and more than HALF of your total income must come from your self-employment.

This is worked out by at least one of the following 2 conditions being true:

• Your trading profit in 2018-19 was less than £50,000, and these profits were more than half your total taxable income in 2018-19
• Your AVERAGE trading profits in 2016-17, 2017-18 and 2018-19 were less than £50,000, and these profit were more than half your average total income in the same period. (If you have been trading for less than 3 years, you use the length of time you have been trading instead)

It is presumed that HMRC will take the figures from your previously submitted tax returns to work our your eligibility, so you can check your SA302’s if you need to check your eligibility.
(SA302 is the tax calculation sent to you with your tax return)

How much will I get?

You will get a taxable grant which will be 80% of the average profit for the tax years:

• 2016-17
• 2017-18
• 2018-19

HMRC will add up the trading profit for 3 years, divide by 3 and use this to calculate a monthly amount.  The maximum will be £2,500 for 3 months.

It will be paid into your bank account in one instalment.

It is important to note that this is a taxable grant, so although it does not need to repaid, it will go as income on your 2020-21 tax return.  If you claim tax credits, you’ll need to include the grant in your claim as income.

When Will I Get It?

This is the contentious issue at the moment.  HMRC have said the money should be available in early June.

This is not HMRC being difficult or delaying on purpose.  It would normally take months of planning, if not years, to set up this system, and HMRC are trying to do it a few weeks.

How do I Apply?

YOU DON’T.

HMRC already have your tax returns and they will contact you if you are eligible for the scheme.  You will then complete some details online and subject to final checks, the money will be paid into your bank account.

Summary

This is a massive help for 95% of the self-employed.  As with all schemes, it doesn’t work for everyone.  Anyone starting self-employment since 6 April 2019 is not covered, nor is anyone who has been self-employed, but now made the transition to a limited company.
Businesses that have grown in 2019-20 will not have these increased profits taken into account when calculating the payments due.  But for many, it is the help that was being requested.

If you require any more information about the scheme, or other help that may be available to you in these difficult times, then please get in touch with Rosie Forsyth at Wilkins & Co.

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!

If you have yet to file your personal tax return, you probably have a rising sense of panic as you now have less than 3 weeks to get it in!

There is an automatic £100 fine for your return being late, whether you owe any tax or not, and although you can appeal with the fine with an excuse, you are very unlikely to get it overturned!

I have put together a summary of blogs I have done over the last year to hopefully help you with the most frequently asked questions for a sole trader trying to prepare their accounts and tax return.  I hope you may find them useful.

1. Who needs to file a tax return?
2. How you work out the amount you can claim for working from home
3. What you can claim for using your personal mobile phone for work
4. The rules around working in coffee shops!
5. Payments on account – this was written in the Summer for the July payment on account, but the explanation of payments on account applies to January as well!

I’ll leave my blog about being organised and getting it done early in the year for another time!!

Good luck, and if you decide its all too much and this is the year you are going to do it differently and be organised – you know where I am (next year!)

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.