Where grants claimed under the self-employment income support scheme (SEISS) do not correspond with records held by HM Revenue & Customs (HMRC), it will auto-correct 2020-21 tax returns and issue a new SA302 calculation to both taxpayer and acting agent.

Corrections may be necessitated if:

• The grant amount was omitted;
• The amount received appears in the wrong box on the return; or
• Where HMRC believes a taxpayer was not eligible for the SEISS because of missing self-employment or partnership pages.

If your return is auto-corrected to include details of an SEISS grant, but you did not receive a grant, you should speak with your agent or HMRC immediately as this could point to fraudulent activity.

2020-21 self-assessment tax returns should accurately report the first three SEISS grants, as the grants are taxable in the tax year that they are received.

HMRC has only been auto-correcting returns since 19 June, meaning that any received before this date will still require manual input and so the wait time for processing these may be longer.

If you receive notification that your tax return has been auto-corrected, you may choose to either accept the correction and amend the return, if appropriate, or dispute it.

If you intend to dispute a correction, you should ensure this is notified to HMRC within 30 days of the correction notice and in writing, where possible.

A careful review of your records, and the right professional advice where necessary, should enable you to determine the applicable response.

Where you have received any SEISS or other taxable grants, your accountant or adviser should be made aware of these to enable them to accurately prepare your tax returns.

Link: Tax returns auto-corrected for SEISS grants

With predictions that the UK economy is set to grow at its fastest pace in 80 years and could recover to its pre-pandemic size by the end of this year, SME owners are feeling more optimistic and are keen to invest in growth.

However, they are also frustrated by the mix of financial options open to them, according to a survey from the Association of Chartered Certified Accountants (ACCA) and The Corporate Finance Network (CFN).

A total of 89 per cent of owners are reporting that they were trading at or above the expected levels in July, which is a big increase from the previous month’s figure of just 60 per cent.

They have also shown a surge in confidence over the last few weeks, with almost 90 per cent expecting to return to pre-COVID levels of turnover and productivity within two years –  40 per cent more than thought this was possible in June.

That is why more than 28 per cent of SMEs have brought forward plans to obtain additional finance to invest in their business.

However, this positive energy and ambition is being held back by struggles to find the right mix of financing for success. Two-thirds of business leaders (67 per cent) have found it more difficult to obtain even an overdraft from their bank in recent weeks.

Meanwhile, one-third have also struggled to finance their growth for the next year with other traditional options, including mortgages or finance leases.

The difficulties SMEs are facing come at a time when they are desperate to re-establish their businesses and put themselves on a solid financial footing for growth.

Around one-third have forecast their financial requirements for the next 12 months, but they are having problems accessing commercial finance facilities, following the closure of many of the Government-backed support schemes and the slow rollout of the Recovery Loan Scheme launched in early April.

Link: SMEs feel confident but frustrated by lack of financial backing

HM Revenue & Customs (HMRC) has warned that debt collection will resume as the UK emerges from the pandemic and it will be contacting taxpayers who have fallen behind with their taxes.

During the Coronavirus crisis, HMRC tax debt collection was paused as businesses grappled with the disruption caused by the pandemic.

However, on 30 June 2021, HMRC published a policy paper to note that it is restarting its debt collection work as economic activity resumed.

In its latest announcement, HMRC stated: “If you can pay your taxes then you should do so – but if you are struggling, we want to work with you to agree a plan based on your financial position.”

As a first step HMRC will be contacting all taxpayers with outstanding debts to discuss payment options. You must ensure you respond to these notifications as soon as possible if you are contacted by HMRC.

HMRC will aim to arrange for payment as quickly as possible. Where taxpayers still cannot afford to settle their outstanding tax debts HMRC aims to agree affordable payment options, such as a ‘Time to Pay’ (TTP) arrangement where tax can be paid in agreed instalments.

Alternatively, HMRC notes that it may be able to offer a short-term deferral and is willing to discuss other forms of support, including Government-backed loans and repayment holidays.

HMRC added that it will take an understanding and supportive approach to dealing with those who have tax debts or are concerned about their ability to pay their tax.

It also warned that it will do everything to help businesses with temporary cash-flow issues to survive as the economy grows, but where businesses have little chance of recovery, it has a responsibility to act – not least to protect viable businesses in their supply chains.

Link: Debts owed to HMRC due to COVID-19

As the UK economy gets back to full speed and confidence grows amongst small businesses, the impact of the ‘super-deduction’ and the ‘special rate allowance (SRA)’ should encourage even stronger growth.

The super-deduction will allow companies to cut their tax bill by up to 25p for every £1 they invest, ensuring the UK capital allowances regime is amongst the world’s most competitive.

Both allowances offer businesses investing in qualifying equipment a higher tax deduction for the year of purchase (a first-year allowance, or FYA).

These benefits apply to capital investments made between 1 April 2021 and 31 March 2023. They work alongside the Annual Investment Allowance (AIA), whose limit was extended to £1 million until the end of 2021.

Capital allowances allow companies to write off the costs of specific capital assets instead of accounting for depreciation, which is not tax-deductible.

When calculating taxable profits, companies are required to ‘add back’ depreciation before deducting capital allowances. Once taxable profits have been determined, then businesses can apply the appropriate tax rate.

The super-deduction offers a capital allowance rate of 130 per cent and the SRA has a rate of 50 per cent for plant and machinery purchases. Both allow companies to lower their Corporation Tax bills following eligible investments.

Plant and machinery expenditure which normally qualifies for the 18 per cent main pool when written down as a Writing Down Allowance (WDA) can now qualify for the super-deduction at 130 per cent.

The same expenditure which would normally qualify for the six per cent special rate pool (like integral building features and long-life assets) can now be claimed under the SRA at 50 per cent instead.

The super-deduction and SRA are only available to incorporated companies, who have qualifying expenditures. Sole traders, partnerships and LLPs will not be eligible. Furthermore, only contracts entered into after 3 March 2021 and expenditure incurred after 1 April 2021 will qualify.

Link: Super-deduction

Taxation and other measures to be included in the Finance Bill for 2021-22 have now been announced.

The draft legislation largely covers pre-announced policy changes, along with accompanying explanatory notes, tax information and impact notes, as well as responses to consultations and other supporting documents.

In addition to previously announced measures that include changes to Corporation Tax, Income Tax and proposals for tackling promoters of tax avoidance schemes, the Government has also revealed three new policies that it will legislate for in the autumn:

• A Capital Gains Tax (CGT) exemption for London Capital & Finance compensation payments. Compensation in the form of a subscription to an ISA to return the money to an ISA will not contribute to the annual ISA subscription limit.
• An Income Tax exemption for the Child Winter Heating Assistance and the Short-Term Assistance social security payments in Scotland.
• An Income Tax exemption for local authority COVID grant scheme payments, including the COVID Winter Grant Scheme and COVID Local Grant Scheme, and similar schemes operated by the devolved administrations.

Pensions

It is confirmed that the normal minimum pension age at which pension benefits can be taken without incurring an unauthorised payment charge will increase from 55 to 57 from April 2028.

Corporation Tax

HMRC published a summary of responses to the second consultation on its proposals for the notification by large businesses of uncertain tax treatments, alongside draft legislation for comments.

The draft legislation reflects a number of changes compared to the proposals consulted on earlier this year.

In particular, the number of triggers that would cause a tax treatment to be considered “uncertain” has been reduced from seven to three.

Allowance has been made for increased penalties where a business repeatedly fails to notify uncertain tax treatments.

Notification will be required at the same date as the relevant tax return is due and will apply to returns required to be made on or after 1 April 2022.

This means that the regime will apply to some transactions and arrangements that have already taken place.

In addition, the following draft clauses and documents were published:

• Taxation of asset holding companies in alternative fund structures
• The tax treatment of asset-holding companies in alternative fund structures: Government response to second stage consultation – consultation outcome
• Real estate investment trusts: amendments
• Corporation Tax: amendments to the hybrid and other mismatches rules
• Capital allowances: amendment to allowance statement for structures and buildings allowance

Tackling tax avoidance

HMRC published a summary of responses to its proposals made earlier this year for measures to clamp down on promoters of tax avoidance. Four new measures are being introduced as follows:

• New powers for HMRC to seek freezing orders that would prevent promoters from dissipating or hiding their assets before paying the penalties that are charged as a result of breaching anti-avoidance obligations.
• New rules that would enable HMRC to make a UK entity that facilitates the promotion of tax avoidance by offshore promoters subject to a significant additional penalty.
• A new power to enable HMRC to present winding-up petitions to the courts for companies operating against the public interest.
• New legislation that would enable HMRC to name promoters, details of the way they promote tax avoidance and the schemes they promote, to warn taxpayers of the risks and help those already involved.

Link: Finance Bill 2021-22

Thousands of people who put money into their pension each year are inadvertently failing to declare pension tax charges, according to HM Revenue & Customs (HMRC).

This can lead to an unexpected and costly tax bill.

Most taxpayers can save up to £40,000 in pension contributions tax-free each tax year, a limit that is set to remain in place until 2026. Any contributions above this amount are subject to Income Tax and must be included in the Self-Assessment Tax Return.

However, the highest earners, with annual incomes of more than £240,000, can see their pension annual allowances taper down to as little as £4,000, largely wiping out the tax benefits of putting money aside for retirement.

The annual allowance tapers away by £1 for every £2 of income over £240,000. Someone with an income of £270,000 for example would be £30,000 over the threshold and so lose £15,000 of the allowance, leaving a limit of £25,000 to put into their pension tax-free.

Meanwhile, those with an income of £312,000 or more, will benefit from an annual allowance of just £4,000, which is the lowest level it can fall to.

Similarly, people who are drawing down their pensions flexibly must pay Income Tax on any contributions above the £4,000 Money Purchase Annual Allowance.

Yet, because pension scheme are only obliged to alert people who exceed the usual £40,000 limit, many affected individuals seem to be unaware of the prospect of a substantial tax bill on everything over and above as little as £4,000.

This is something that has hit the headlines in recent years for its effect on doctors in the NHS, although fewer should now be effected as the earnings threshold has risen by £90,000 from £150,000.

Your annual allowance applies to all of your private pensions if you have more than one.

 This includes:

• The total amount paid into a defined contribution scheme in a tax year by you or anyone else (for example, your employer)
• Any increase in a defined benefit scheme in a tax year
• If you use all of your annual allowance for the current tax year.

You might be able to carry over any annual allowance you did not use from the previous three tax years.

Link: Annual Pension Allowance