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Work from Home rules clarified

1 April: Employees forced to work from home due to measures to control the coronavirus pandemic are covered by home-working expenses rules, HMRC has confirmed.

An HMRC update has clarified that rules governing working from home expenses cover employees working from home due to COVID-19 because:

  • their workplace has closed, or  
  • they are following advice to self-isolate. 

Workers furloughed under the coronavirus job retention scheme, however, do not come within the exemptions.

The key things that employees and employers should be aware of are: 

  • Mobile phone and SIM cards without a restriction on private use, limited to one per employee, are non-taxable.
  • If the employee already pays for broadband, no additional expenses can be claimed. But if a broadband internet connection is needed to work from home and one was not already available, then the broadband fee can be reimbursed by the employer and is non-taxable. Private use must be limited. 
  • Laptops, tablets, computers, and office supplies used mainly for business purposes and without significant private use are non-taxable.

However, if an employer reimburses expenses incurred by an employee on buying office equipment, this is taxable and should be reported on a PAYE settlement agreement.

Any expenses or benefits which are related to coronavirus can be reported on a PAYE settlement agreement.

Where employees work from home, it is good practice for the employer to ensure that there is a written homeworking agreement in place, detailing: the homeworking arrangements; the equipment and supplies to be provided by the employer; and any expenses that will be met. 

Although current circumstances may make this difficult to achieve, especially where a large number of employees who have never done so before suddenly have to start working from home, we recommend that, to avoid subsequent disagreements, employers and employees should try to ensure that they that they agree the working from home arrangements.

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Property Tax

Second home owners and buy-to-let investors face significant tax changes from the new 2020-21 tax year.

From 6 April 2020, people who sell a property, apart from their principal residence, will have to pay capital gains tax (CGT) within 30 days instead of the current 22 months.

The measures are part of a swathe of changes to property tax, particularly affecting buy-to-letters and those with more than one property, say a holiday home or investment property, which come into force from 6 April 2020, the new tax year 2020/21.

None of these measures have been deferred or affected by government announcements on covid-19 so it is important to ensure all property tax compliance rules are followed [see Capital gains tax property changes from 6 April and have not been deferred during the covid-19 pandemic.

Many were first announced by former Chancellor George Osbourne back at Summer Budget 2015, including the gradual removal of mortgage interest relief for buy-to-letters and second home owners, and there has been a long lead time to prepare for the changes.

At the time, there was huge pressure on the government to deal with escalating property prices, the reason many of the measures were taken to curb the buy-to-let market and create a fairer environment for first-time buyers struggling to get on the property ladder.

Prior to April 2017, finance costs paid on a buy-to-let mortgage were fully eligible for tax relief. Following changes introduced in 2017, tax relief for finance costs has been gradually phased out and this April will see the relief fully replaced with a 20% tax credit. This can adversely affect the profitability of many rental properties.

There is some relief for property owners during the coronavirus pandemic with a three-month mortgage payment holiday for residential and buy-to-let landlords, who were included in the scheme ‘to ease the financial burden on landlords so as to help them accommodate tenants who cannot afford their rent payments’.

Commenting on the impact of the changes to mortgage interest relief, Zena Hanks, partner at Saffery Champness, said: ‘Once the deduction for finance costs is fully replaced with a 20% tax credit on 6 April, those landlords with large mortgages will face significantly higher income tax bills.

‘If they have a variable rate mortgage with the recent decrease in interest rates, moving forward the mortgage interest costs will reduce, as will the 20% tax credit, but that won’t help the tax liability that will be due for the 2019-20 tax year.

‘Many landlords may have been relieved to hear the Chancellor’s plans for extending the so-called mortgage payment holiday to buy-to-let mortgages, however they should not let this holiday lure them into a false sense of security.

‘All holidays must end, and when the three months is over, and assuming it’s not extended any further, landlords may find the tax bills on their rental profits significantly higher than they were in 2019/20 as the April 6 changes begin to bite.

‘With the interest rate currently at a historic low of 0.1%, many landlords with a variable rate mortgage may not initially notice much of a dent in their finances from the change to the mechanics of the tax relief.

‘Much like the mortgage payment holiday, we can be sure that this unprecedentedly – low interest rate will not last, so landlords should look to pay their mortgage bills sooner rather than later to fully utilise this period where the cost of borrowing, even for a buy-to-let mortgage, is almost zero.’

30-day CGT payment deadline

The introduction of the 30-day deadline to pay capital gains tax (CGT) has already been delayed once due to various confusions. However, this will come into force from 6 April.

HMRC trials online CGT payment system for 30-day change published 13 Feb 2020

It is worth noting that the change also affects divorcing spouses giving property to each other and individuals giving property away. Under these circumstances there will be no sale proceeds to pay the CGT and it is, therefore, crucial that individuals ensure that they are in a position to pay the CGT liability prior to giving the property away.

Tom Gilman, private client partner at law firm Royds Withy King, said: ‘From 6 April, all CGT liabilities will need to be settled in just 30 days of completion of a sale. That leaves very little time to calculate the tax to be paid, report the gain, and pay tax. It is likely to catch many second homeowners and investors short.’

 ‘The CGT rates for property will remain the same at 18% for basic rate taxpayers and 28% for higher rate taxpayers.

‘Individuals will need to determine which threshold they fall under at the point that the CGT liability arises and make adjustments by self assessment, the following January, if necessary.’

The CGT allowance will increase from £12,000 to £12,300 for individuals and representatives, and from £6,000 to £6,150 for trustees of settlements.

‘Late payment of CGT will leave individuals facing an immediate £100 fine from HMRC, plus an additional £10 a day up to £900. If still unpaid after six months, the liability increases to 5% of the tax due or £300, which is ever the greater,’ Gilman added.

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DBEIS

COVID 19: Changes to Insolvency

Covid-19: Changes to insolvency rules announced

The government has announced changes to insolvency rules during the coronavirus pandemic.

Under the new measures there will be a temporary suspension of the wrongful trading provisions for company directors to remove the threat of personal liability during the pandemic.

Business Secretary Alok Sharma said “These measures will give those firms extra time and space to weather the storm and be ready when the crisis ends whilst ensuring creditors get the best return possible in the circumstances.”

Further guidance can be found here https://www.gov.uk/government/news/regulations-temporarily-suspended-to-fast-track-supplies-of-ppe-to-nhs-staff-and-protect-companies-hit-by-covid-19

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Rishi Sunak Official Image

Self-Employed income support scheme

Self-Employed income support scheme 

The government have announced they will pay a taxable grant to self-employed individuals, which will run for a minimum of three months. The grant will be the lower of:

  • 80% of average monthly trading profits over the past three years and
  • £2,500 per month

Unlike the employee scheme, the self-employed can continue to work as they receive support.

Who is eligible?

Self-employed individuals or a member of a partnership who have:

  • trading profits of less than £50,000 in 2018-19 or an average trading profit of less than £50,000 from 2016-17, 2017-18 and 2018-19 and
  • whose majority (i.e. more than 50%) of income comes from being self-employed and 
  • have filed a 2019 tax return (those that have yet to file have four weeks to do so). 

The scheme does not cover those that have become self-employed very recently.

How to claim

  • HMRC will contact eligible individuals directly and invite you to apply online.
  • It will be paid straight into your bank account.
  • Payments will be backdated to March and paid in a lump sum in June.

Further details can be found here 

https://www.gov.uk/guidance/claim-a-grant-through-the-coronavirus-covid-19-self-employment-income-support-scheme
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Corona Virus Update

CORONAVIRUS UPDATE

The Chancellor’s announcement on Friday night of a far-reaching package of measures allows businesses in this country to stand by their employees at a time of national emergency. Such direct action by Government to keep people in employment is a really good start. It should make a difference to how people feel and keep them working and spending. The real battle now is for public confidence: if we can sustain that, the economics will follow.
Much of the detail is still being worked on and we expect more information to follow (for example on the self-employed). As soon as we can, Roger Lugg & Co will provide you with more in-depth comments to help you navigate the support now on offer. Please do call us if you need any help and advice in this difficult time. We are here to help and whilst working conditions are continually evolving, we will be available. In the unlikely event that the office phone-line is unanswered, please use the caterham@rogerlugg.co.uk or lingfield@rogerlugg.co.uk email and a member of the team will come back to you. In addition to this, we will constantly be updating our social pages on facebook @rogerluggco and twitter @rogerluggandco to keep you updated with regulation and procedural changes during these unprecedented times. We urge you, if you are a social media user, to follow us during this time.

The current package of measures to support businesses includes:

  • a Coronavirus Job Retention Scheme
  • deferring VAT and Income Tax payments
  • a Statutory Sick Pay (SSP) relief package for SMEs
  • a 12-month business rates holiday for all retail, hospitality and leisure businesses in England
  • small business grant funding of £10,000 for all business in receipt of small business rate relief or rural rate relief
  • grant funding of £25,000 for retail, hospitality and leisure businesses with property with a rateable value between £15,000 and £51,000
  • the Coronavirus Business Interruption Loan Scheme offering loans of up to £5 million for SMEs through the British Business Bank
  • a new lending facility from the Bank of England to help support liquidity among larger firms, helping them bridge coronavirus disruption to their cash flows through loans
  • the HMRC Time To Pay Scheme
  • self-employed help – details of which we hope will soon be available

Coronavirus Job Retention Scheme
Under the new Coronavirus Job Retention scheme, government grants will cover 80% of the salary of PAYE employees who would otherwise have been laid off during this crisis. The scheme, open to any employer in the country, will cover the cost of wages backdated to 1 March 2020 and will be open before the end of April. It will continue for at least three months and can include workers who were in employment on 28 February 2020. We await further details on exactly how the scheme will operate in terms of part-time employees and those with reduced levels of work.

To claim under the scheme employers will need to:

  • designate affected employees as ‘furloughed workers’ and notify employees of this change. 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. However, we advise you proactively ensure your employees understand that this will take time to become live online.
  • HMRC will reimburse 80% of furloughed workers wage costs, up to a cap of £2,500 per month. We understand that these grants will be available by the end of April 2020.
  • To qualify for the scheme the ‘furloughed worker’ should not undertake work for the employer whilst they are furloughed. We do not believe that this should stop anyone from assisting with other services for the community and the emergency services.

While HMRC is working urgently to set up a system for reimbursement, we understand existing systems are not set up to facilitate payments to employers. Businesses that need short-term cash flow support, may benefit from the VAT deferral announced below and may also be eligible to apply for a Coronavirus Business Interruption Loan.

VAT and Income Tax payments
The next quarter of VAT payments will be deferred, meaning businesses will not need to make VAT payments until the end of June 2020. Businesses will then have until the end of the 2020-21 tax year to settle any liabilities that have accumulated during the deferral period.

The deferral applies automatically, and businesses do not need to apply for it. VAT refunds and reclaims will be paid by the government as normal.

Income Tax Self-Assessment payments due on the 31 July 2020 will be deferred until the 31 January 2021. This is an automatic offer with no applications required. No penalties or interest for late payment will be charged in the deferral period.

Statutory Sick Pay relief package

  • If you’re a director of a limited company with less than 250 employees, you can pay yourself two weeks of SSP if you need to self-isolate subject to meeting the minimum payroll requirement for SSP.
  • The government will refund £94 per week, maximum £188, to your company.
  • It will also refund SSP for staff of businesses with less than 250 employees for up to two weeks.

It is therefore incredibly important that you record details of staff who are not at work. We would recommend that you keep a record of the names and dates of staff who are home sick, staff who are self-isolating and staff that are having to be at home to look after their children, now the schools have closed.

12-month business rates holiday & 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 (increased from £3,000 announced in the 11 March Budget).
  • The rates holiday and cash grants will be administered by local authorities and should be delivered automatically, without businesses needing to claim.

Coronavirus Business Interruption Loan Scheme

  • These should be available from Monday 23 March and are delivered by lenders that partner with the British Business Bank, including all the major banks. The lender receives a guarantee of 80% of the loan amount from the government.
  • They are available for UK-based businesses with turnover of no more than £45 million and can provide for a facility up to £5 million. The borrower remains liable for 100% of the debt.
  • No interest will be charged for the first 12 months.

HMRC Time To Pay Scheme

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.Self-employedIf you are not eligible for SSP – for example if you are self-employed or earning below the Lower Earnings Limit of £118 per week – and you have COVID-19 or are advised to stay at home, you can now more easily make a claim for Universal Credit or new style Employment and Support Allowance.
If you are eligible for new style Employment and Support Allowance, it will now be payable from day 1 of sickness, rather than day 8, if you have COVID-19 or are advised to stay at home.

If you are self-employed and out of work, or on a low income and affected by the economic impacts of COVID-19, you will be able to access the full range of the welfare system. You are able to claim Universal Credit, providing you meet the usual eligibility criteria.

Summary

If you would like to read the current HMRC guidance this is available here:

COVID-19: Support for businesses   COVID-19: support for businesses  https://www.gov.uk/government/publications/guidance-to-employers-and-businesses-about-covid-19/covid-19-support-for-businesses

COVID-19: Guidance for employees  COVID-19: guidance for employees  https://www.gov.uk/government/publications/guidance-to-employers-and-businesses-about-covid-19/covid-19-guidance-for-employees

IR35 for the private sector

Changes to the off-payroll working rules in the private sector have been delayed by 12 months to April 2021.Please do not hesitate to contact us if you have any questions onthe above or any other matter.

Yours sincerely

Roger Lugg& Co

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Xero on the Digitisation of Tax

Starting as soon as 2019, UK businesses will have to start transitioning to a digital tax system – where tax is filed online every quarter. It’s a big change all. Here are Xero’s tips to help you prepare.

What does it mean to you?

You will need to use some form of software to keep your VAT records and file your VAT returns.

For other forms of tax, businesses will likely be required to submit their accounts every quarter, so they’ll need to use the services of your firm more often. Some clients may feel it’s a burden. In reality, frequent interactions should be a lot more efficient because there won’t be big backlogs of work to get through.

More frequent submissions will also help your clients avoid nasty surprises. Big tax bills can accumulate over the course of a year but when tax is calculated quarterly, things are far less likely to get out of hand. The new system will also create more opportunities for advisors to help with tax planning.

If your clients choose to use accounting software, they should make sure it has online capabilities. Desktop accounting software hasn’t traditionally been able to submit tax online.

As a bonus, online accounting software also allows you and your client to:

  • access the business’s accounts from anywhere there’s internet
  • create ‘bank feeds’ so transaction data flows straight into the ledger
  • collaborate online by leaving and receiving messages within the software

Online accounting software can also sync with other online services such as POS software, inventory management software, or time-recording apps.

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Paying National Insurance at State Pension Age?

The State Pension age has been increasing since April 2010. The changes will see the State pension age gradually rise to 65 for women between 2010 and 2018, and then to 66, 67 and 68 for both men and women by 2039.

There are now many taxpayers that have reached the State Pension age and continue to work. In most cases they no longer need to pay any National Insurance Contributions (NICs).

At State Pension age, the requirement to pay Class 1 and Class 2 NICs ceases. However, you will remain liable to pay any NICs due to be paid to you before reaching the State Pension age. If you continue working, you need to provide your employer with proof of your age.

Your employer remains liable to pay secondary Class 1 employer NICs. If you would rather not provide proof of age to your employer you can request a letter (known as an age exception certificate) from HMRC confirming, you have reached State Pension age and are no longer required to pay NICs.

Planning note if self-employed

If you are self-employed you will need to pay Class 4 NICs for the remainder of the year in which you reach State Pension age but will be exempt from the following year. We can help you check if you think you may have overpaid NICs and arrange for a refund of any overpaid NICs.

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Tax on property, money and shares you inherit

As a general rule, someone who inherits property, money or shares is not liable to pay tax on the inheritance. This is because any Inheritance Tax (IHT) due should be paid out of the deceased’s estate before any cash or assets are distributed to the heirs. However, the recipient is liable to income tax on any profit earned after the inheritance, such as dividends from shares and to capital gains tax on the increase in value on assets after the date of inheritance.

The main exception is if you received a gift during a person’s lifetime. These lifetime transfers are known as Potentially Exempt Transfers (PETs). These gifts or transfers achieve their potential of becoming exempt from IHT if the taxpayer survives for more than seven years after making the gift. If the taxpayer dies within 3 years of making the gift, then the IHT position is as if the gift was made on death.

Planning notes

A tapered relief is available if death occurs between three and seven years after the gift is made. There are insurance products such as a seven-year term assurance policy that can be used to reduce the amount of IHT due should the taxpayer pass away within seven years of making a gift.

The situation is more complicated if the person giving the gift does not fully give up control over the assets concerned. A common example is a person giving their house away but continuing to live in it rent-free. Such gifts are known as ‘gifts with a reservation of benefit’. These gifts can remain subject to IHT even if the taxpayer dies more than 7 years later.

A liability to IHT can also arise if an inheritance you receive is placed into a trust and the trust can’t or doesn’t pay any IHT due.

If you have concerns regarding any past gifts or inherited items you may have received, please call for more detailed advice.

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Born before 6 April 1935?

The married couple’s allowance (MCA) is available to elderly married couples or those in a civil partnership where at least one member of the couple were born before 6 April 1935. The allowance provides for tax relief by deducting 10% of the allowance from the amount of tax due on taxable income. The MCA can reduce a tax bill to zero but cannot result in a refund of tax.

For the current tax year, the maximum amount of allowance is £8,445. This means that qualifying claimants can receive a maximum deduction of £844.50 from their income tax bill. The allowance will increase to £8,695 in 2018-19.

The MCA should not be confused with the Marriage Allowance (MA) which came into force on 6 April 2015 and allows lower earning couples (of any age) to share part of their personal tax-free allowance. The MA allows the lower earning partner to transfer up to £1,150 (2017-18) of their personal tax-free allowance to a spouse or civil partner.

Planning note

There is also an allowance, known as the maintenance payments relief (MPR) which reduces a taxpayers’ income tax bill for maintenance payments made to an ex-spouse or civil partner. Again, this relief is only available where at least one of the ex-spouses or partners were born before 6 April 1935. There are certain conditions that must be met in order to claim this relief. For example, that the ex-partner can’t have re-married or formed a new civil partnership. The MPR works in the same way as the MCA with a maximum deduction of 10% of £3,260 i.e. £326 in the current tax year.

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