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

The 4^th 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.

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.

The new tax year starts soon and although keeping your accounts in order may not be your favourite job, it needs to be done.  So what can you do next year to make your job easier?

Here are my top tips to help with your bookkeeping:

1. Use accounting software – unless you only have a handful of transactions a month, I would recommend investing in some kind of software.  There are so many online options available, some of which are free (but these may have limited functionality) but otherwise costs start from around £10 per month.  The time and stress saved by using an online package such as Xero or Freeagent will be well worth the money!
2. Open a separate bank account for your business – although strictly only necessary for a limited company, having a bank account which you only use for your business will make your record keeping so much easier!  For a sole trader, just open another account in your name and only use it for your business.  Having business and personal transactions all mixed up together in one account will mean your accounts take much longer to sort out, and you may miss some transactions from your records.  Missing costs from your accounts results in a higher tax bill.
3. Transfer money out of your business account for personal use once a month – although it is not treated in your accounts as a salary – think of it like one.  An employer does not pay you 2 or 3 times a week or “sub” you for your weekly shop, so don’t keep dipping into your business bank account to pay for small personal items.
4. Keep a separate spreadsheet during the year of other costs that you incur partly for your business, but that are paid from a different bank account.  This could be, for example, because you already have the DD set up there such as your mobile phone bill, internet costs or annual subscriptions, possibly even your Amazon purchases.  I spend a lot of time asking clients what amounts paid to Amazon relate to, and whether they are for business and personal expenditure!
5. Update your records regularly!  Book out 30 minutes a week in your diary to send your invoices out, chase payments, reconcile your bank account in your online accounting package, or update your manual spreadsheet.  It’s like many things – little and often pays off!!
   .

   Treat yourself to coffee and cake either while you do it, or once it’s done  – and you never know you may start looking forward to your weekly accounts session!

   For help with setting up an accounting system that works for you, contact Rosie Forsyth at Wilkins & Co.

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

The 3rd grant for the self-employed covers the 3 months from 1 November 20 to 31 January 2021.

Originally this was to be 20% of average profits, then it was increased to 40% in early October and now to assist with lockdown, it will be 80% for November, and then 40% for December and January  – this gives you the average of 55% for the 3 months being mentioned in the press.

The grant will be paid out in a single instalment and is capped at a maximum amount of £5,160.

The claim date has been brought forward to 30 November from the middle of December, so money will be paid out sooner than originally planned.  As before HMRC will contact you if they believe you may be eligible to claim.

The criteria for claiming has not changed from that set out for the first 2 grants – so if you were not eligible then, then unfortunately you will still not be able to claim this time.

For this grant you must also declare that you intend to continue to trade and either:

• you are currently actively trading but are impacted by reduced demand due to coronavirus
• you were previously trading but are temporarily unable to do so due to coronavirus

For previous grants the criteria was that you had to have been “adversely impacted” by the virus, so the change of words is interesting!

The 4th, and final grant (at the moment) will cover the period 1 Feb 21 to 30 April 21 and the level of this will be announced nearer the time.

For those who can claim, this is obviously positive news; but for those that missed out last time, either for being newly self employed, or for having other sources of income, they will still feel that they have been overlooked by the government.

The headlines last week were all about the Job Support Scheme that is replacing the furlough scheme, but an extension to the grant scheme for the self employed was also announced, along with a couple of other changes to help businesses.

What new help was announced?

The self-employed have been able to claim 2 payments from the Government so far.

This new extension provides for 2 more claims to be made, each covering a 3 month period, and in total covering November 2020 to April 2021.

The criteria is the same as before, which is disappointing for those who did not qualify previously, as they still do not qualify.  You do not however have to made a claim before to be able to make a claim this time.

You will have to declare that you are currently trading, and that you intend to continue to trade, and also that your business has suffered as a result of Covid-19 in this claim period.

The support offered this time is also significantly reduced, in line with the support being offered to employees and in line with the stated aim of only supporting viable businesses during the Winter months.

The first grant will be paid in a single instalment and will be up to 20% of average trading profits, capped at £1,875.  This will cover November to January.  No details have yet been announced as to the level of the second grant.

What other help was announced?

The self-employed and others who submit self-assessment tax returns had already been given more time to pay taxes due, with the amount that was due by 31 July 2020 deferred until 31 January 2021.

Now the Government has extended that further and will allow the amount due in January 2021 to be paid over 12 months, (including the amount already deferred from June 2020,) meaning the bill won’t be paid in full until January 2022.

A similar scheme has been set up for VAT.  Businesses were able to defer vat due between March and June 2020 until March 2021.  They may now opt-in to a scheme which allows this bill to be paid in smaller amounts up the end of March 2022 interest free.

If you would like any more information or assistance with submitting your tax return before the deadline, then do get in touch with Rosie Forsyth at Wilkins & Co.

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.

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.

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.

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.