Basic rate taxpayers could face ‘high income’ child benefit charge

Due to a mismatch of earnings thresholds, basic rate taxpayers may unexpectedly come under the scope of the High Income Child Benefit Charge in April.

The Low Incomes Tax Reform Group (LITRG) has issued a warning to families that they may be subject to a tax charge when claiming Child Benefit due to a discrepancy between two earnings thresholds used by the Government.

This is because the High Income Child Benefit Charge (HICBC), which begins to be levied where either parent earns £50,000 or more, will no longer align with the thresholds for higher rate taxpayers later this year, which means those paying the lowest rate of tax may now face new charges.

The higher rate tax threshold continues to rise each year, and while it currently stands at £50,000, this figure will rise to £50,270 from 6 April 2021.

The HICBC, however, has remained unchanged since 2013. Those found within the charge will see one per cent of the child benefit they receive effectively withdrawn via the charge for every £100 earned above £50,000. This means that those earning £60,000 or more lose all the benefit through tax.

The Low Incomes Tax Reform Group, part of the Chartered Institute of Taxation (CIOT), has said that the policy “no longer meet its original intent to only target higher rate taxpayers”.

It has suggested that the Government should compensate for inflation and rising wages by raising the £50,000 income threshold to at least £60,000. It also believes that the point at which Child Benefit is fully recovered should increase from £60,000 to £75,000.

LITRG believes that the structure of the charge encourages those liable for the tax charge not to claim Child Benefit, which may affect a claimant’s state pension record, as they potentially miss out on National Insurance credits.

It may also mean that children of those who aren’t claiming may not automatically get a National Insurance number when they turn 16.

Link: Concern as high income child benefit charge hits basic rate taxpayers

Large and medium-sized businesses need to be ready for IR35

Large and medium-sized businesses now just have a couple of months left to prepare for the changes to the off-payroll working rules (IR35).

From 6 April 2021, in most cases, the engager (employer) will be responsible for deciding whether to deduct tax and National Insurance Contribution (NICs) from freelancers and contractors, operating via a Personal Service Company (PSC), as if they were employees.

The new IR35 rules do not affect small businesses, as defined by the Companies Act 2006, where they meet two or more of these criteria:

  • Annual turnover is no more than £10.2 million;
  • A total of fixed and current assets (before deducting current liabilities, long-term liabilities and deferred tax provisions) over £5.1 million; or
  • No more than 50 employees.

When a business grows from a small to a medium or large-sized business there is a two-year transition period before the IR35 regulations fully apply to that business.

Engagers are required to undertake this IR35 determination for every contract they agree with a worker. The official guidelines are as follows:

  • Pass your determination and the reasons for the determination to the worker and the person or organisation you contract with
  • Make sure you keep detailed records of your employment status determinations, including the reasons for the determination and fees paid
  • Have processes in place to deal with any disagreements that arise from your determination.

The Government has created an assessment tool, CEST, which can be found here. This can be used to assess whether the engagement is classed as employment or self-employment and a report can be printed out as a record of your assessment if challenged by HMRC.

If the determination results in a contractor being within the IR35 rules, you will need to deduct and pay tax and National Insurance contributions to HM Revenue & Customs via PAYE.

Where an employer fails to correctly identify a disguised employment scheme, the worker’s tax and National Insurance Contributions (NICs) become their responsibility.

Where you hire a contractor via an agency it is the responsibility of the closest intermediary to the PSC to calculate, deduct and pay tax and NICs via PAYE on the contractor’s remuneration.

It is estimated that almost a quarter of the UK’s workforce now works on a contingent basis, either in the public or private sector, and so businesses must be prepared for the changes ahead.

Here are some basic steps that all businesses can take to help them prepare:

Conduct an audit of freelancers and contractors

As it will be the responsibility of the person engaging the services of a contractor to determine whether their work falls inside the new rules, you should carry out an audit of all employees and contractors currently working within your business to determine who may be affected.

Determine who falls under the rules

Last year, many businesses were considering a blanket approach to freelancers, but recent research suggests that more companies are taking a measured approach to ensure they aren’t disadvantaging contractors. You will need to determine whether each contractor falls “inside” or “outside” of the new rules.

This should be done on a case-by-case basis, as you could face serious repercussions for failing to demonstrate reasonable care to correctly classify such roles for employment tax purposes.

If the engager fails to correctly determine status, they will be held liable for any tax charges or NICs and could face a penalty from HMRC.

Communicate all changes 

Once you have determined whether a person falls within the rules or not you should communicate any changes to them. It is important to demonstrate that you are taking reasonable care to assess their status.

If you determine that a person should be within the new rules and you switch them to the PAYE system, as required, they could see their take-home pay reduced considerably. You should take the time to discuss these changes with them.

There is a disagreement procedure created by the Government to be used by the contractor and the organisation paying the fees if all parties do not agree with the determination.

Create an agreement policy

Businesses should prepare an agreement policy for any new contractors they take on from April 2021, which clearly outlines the contractor’s employment status.

Existing contractors might also need their agreements adjusted in light of the IR35 changes if they run into the new financial year.

Consider the costs

Many contractors have indicated that they intend to increase their daily or hourly rate to compensate for their income tax and NICs being deducted by employers.

You should discuss this with contractors as soon as possible so you can factor any additional costs into your employment budget.

If you rely on the services of contractors or freelancers it is important that you prepare your payroll systems and process for these changes.

Link: Understanding off-payroll working (IR35)

Voluntary and compulsory strike-off processes paused in response to national lockdown

Companies House will pause both the voluntary and compulsory strike-off processes for one month from 21 January until 21 February to support businesses affected by COVID-19, it has been announced.

The extended measure comes in response to delays to the system caused by the third national lockdown.

In a notice to customers, Companies House said reduced resources have led to delays in processing correspondence, documents and forms, which could potentially disadvantage companies during this period.

The regulator said it will continue to publish first Gazette notices for voluntary strike-off applications, but to give business owners more time to update their records, the second Gazette notice will not be published and companies will not be removed from the register during the pause.

Both the first and second Gazette notices for compulsory strike-off applications will not be published, however, and companies will not be compulsorily removed during this period.

Commenting on the changes, Companies House said: “Pausing our strike-off processes will provide companies with more time to update their records and help them avoid being struck off the register. It’ll also protect creditors and other interested parties who might have had difficulties in receiving notices or registering an objection, or whose objections have not yet been processed.

“We’ll continue to remind customers about their filing responsibilities during this period. Our digital services are available as normal, and we encourage all customers to file online if you’re able to.”

The Companies House strike-off process was also paused during the first and second national lockdown.

What is the Companies House strike-off process?

Registered businesses are removed from the official register of companies after a period of inactivity.

You can choose to close down your own limited company by getting it “struck off” voluntarily, providing it meets a strict set of requirements.

A company can also be forcibly struck off if company documents are outstanding and the regulator has received no response, or if the company has no registered directors.

Link: Companies House pauses voluntary and compulsory strike off processes

The advantages of electric vehicle salary sacrifice schemes

Businesses looking to reward and retain staff members may wish to consider offering an electric vehicle (EV) salary sacrifice scheme.

Not only are many EVs better for the environment, but they could also offer businesses considerable savings.

Businesses can use employee salary sacrifice – similar to schemes offered for pension contributions, cycle to work schemes and childcare vouchers – to fund the purchase of new EVs in a tax-efficient manner.

In principle, salary sacrifice is simple, the employee ‘sacrifices’ part of their salary and the employer invests this in a benefit – in this case, an EV. Using salary sacrifice saves the employee National Insurance Contributions (NICs) and Income Tax.

However, in recent years HM Revenue & Customs (HMRC) has taken a tougher approach to many salary sacrifice schemes, which has often made them less effective.

Thankfully, a special exemption was put in place for ultra-low emission vehicles to encourage motorists to swap their petrol and diesel cars for electric and hybrid models.

When this was confirmed it was made clear that the provision of an EV via salary sacrifice would be considered a benefit-in-kind.

Initially, the benefit-in-kind, or BiK rate, on a pure electric car was 16 per cent, which in many cases meant that there was little or no benefit.

However, following changes in April last year, all pure electric cars now have a zero BiK rate and salary sacrifice benefits can be felt in full.

The zero per cent rate also applies to hybrid vehicles that are first registered from 6 April 2020 that produce between one and 50g/km of CO2 and are capable of at least 130 miles on battery power alone.

The change in rates coincided with more complex rules regarding emission and economy tests, which determine rates for vehicles including hybrids, which may have an impact on existing hybrids acquired via salary sacrifice.

The Treasury has recognised that the older tests may unfairly disadvantage some company hybrid car users and so to achieve fairness it has reduced the BiK rates used for older car models.

This reduction will fall to one per cent in the 2021/22 financial year and will disappear altogether in the following year. This means that there will be no reduction in its BiK rate for these vehicles from April 2022.

People looking to purchase a new company car in the next year should review the Government’s latest rates, which can be found here. Be aware though that these rates change annually and may differ after April 2021.

There are several other tax incentives for both company car users and the businesses that offer this benefit, especially where it is used for business purposes, including:

  • Corporation Tax relief
  • Reclaiming VAT on a vehicle purchase
  • Lower vehicle excise duty
  • Plug-in grants
  • Tax-efficient electric car charging points

It is not surprising, as technology advances, that more businesses are considering EV salary sacrifice or the purchasing of a fully electric or hybrid fleet.

Beyond the immediate tax benefits for a company, the employer should also look at the advantages that offering a company car can have on retaining staff.

Offering EV salary sacrifice is an excellent way of rewarding employees in a tax-efficient manner that doesn’t incur significant costs for the business or the employee.

Looking further ahead, the Government is now committed to a ban on the sale of new purely petrol and diesel vehicles by 2030, which is now less than a decade away.

Link: Electric Car Tax Benefits

HM Revenue & Customs increases the threshold for Self-Assessment online payment plan service to £30,000

HM Revenue & Customs (HMRC) has increased the threshold for Self-Assessment taxpayers to use its online self-service Time to Pay payment plan service from £10,000 in tax liabilities to £30,000.

The move means that more taxpayers will be able to spread the cost of their tax bills by paying in monthly instalments, without having to call HMRC.

The Chancellor announced in his Winter Economy Plan that taxpayers will be able to arrange a payment plan of up to 12 monthly instalments to cover tax payments deferred from July 2020.

HMRC now says that this also covers outstanding tax owed for 2019-20 and the first payment on account for the current tax year.

Taxpayers must set up a payment plan no later than 60 days after the due date of the tax debt to qualify for the payment plan, which, for tax payments due on 31 January 2021 is 1 April 2021.

However, setting up a payment plan more than 30 days after the due date of the tax debt will lead to late payment penalties. This means payment plans in respect of tax due on 31 January 2021 would need to be set up by 2 March 2021.

Unlike the previous Self-Assessment deferral of the second payment on account that was due on 31 July 2020, the new payment plans will be subject to interest from 1 February 2021.

To qualify for a payment plan using the online self-service Time-to-Pay system, taxpayers must:

  • Have no outstanding tax returns;
  • Have no other tax debts;
  • Have no other HMRC payment plans set up; and
  • Have a debt of between £32 and £30,000.

HMRC has also warned taxpayers against scammers claiming to be from HMRC and offering to set up payment plans. Currently, payment plans can only be set up by individual taxpayers.

HMRC says that taxpayers may have the option of using the online self-serve Time to Pay facility on GOV.UK once they have completed their 2019-20 Self-Assessment tax return.

Those with Self-Assessment debts of more than £30,000 or who need more than 12 months to pay the tax they owe may be able to set up a Time to Pay arrangement via the Self-Assessment Payment Helpline on 0300 200 3822.

Link: If you cannot pay your tax bill on time

Could the Government be about to launch a new permanent state-backed small business loan scheme?

According to reports in the Financial Times, the Government is considering launching a new loan scheme, where businesses could borrow anything up to £10 million through an 80 per cent state-guaranteed bank loan.

The new scheme, which could be a successor to the existing Coronavirus Business Interruption Loan Scheme (CBILS), would provide a permanent state-backed small business loan to eligible companies.

Under the plans, the Government would guarantee loans to small businesses ranging from a few thousand pounds up to £10 million over a six-year lending period.

This would effectively extend the CBILS, but with a lower threshold once applications for the existing loan scheme ends on 31 March this year.

The Financial Times reports that participating banks could set their own interest rate for their loans, capped at around 15 per cent. Research by GrowthBusiness found that lenders are charging anything between three per cent and 15 per cent for current CBILS loans.

As yet, no official announcement has been made on such a scheme, but it is understood that the Chancellor is looking to announce a range of options to support jobs and businesses in his upcoming Budget on 3 March 2021.

Douglas Grant, Director of CBILS lender Conister, said: “We fully support the UK Government’s plans to launch a permanent replacement for the £65 billion Covid loans programme to support SMEs.

“This more permanent financial support from the Government will be welcome news to those resilient SMEs that have already shown extraordinary levels of adaptability and strength in the face of changing consumer behaviour.”

Link: Government plans permanent state-backed small business loan scheme

FSB proposes move to turn Covid emergency debt into shared ownership schemes

The Federation of Small Businesses (FSB) is calling on the Government to introduce new measures to help companies struggling with COVID-related debt, including employee shared ownership.

The FSB has said that businesses are facing “unmanageable” levels of Coronavirus debt – with four out of 10 small businesses describing their indebtedness in this way.

Already nearly half of those surveyed in the FSB’s latest study had used personal finance products, such as personal credit cards, overdrafts and loans, to keep their businesses going.

Instead, the small business organisation is suggesting that a system of shared ownership is introduced under which emergency debt could be assigned to an employee ownership trust in return for the trust getting preference shares in the business of the same value, plus an option to acquire 10 per cent of the business when there is a future change of control.

Preference shares, also referred to as preferred stock, are shares of a company’s stock with dividends that are paid out to shareholders before common stock dividends are issued.

This move would take the debt off the company’s balance sheet, according to the FSB and help businesses manage their debts.

As well as suggesting the new system of ownership, the FSB has also called for the Government to turn Coronavirus emergency loan repayments into tax owing – effectively nationalising a portion of small business debt.

Another proposal is to extend the existing Bounce Back Loan Scheme Pay As You Grow model – which allows borrowers to extend the length of the loans, make interest-only payments and request repayment holidays – to all commercial small business lending.

Martin McTeague, National Vice-Chair of the FSB, said: “Implementing a model whereby firms start repaying debt when they’re making a profit again could mark a positive way forward, as could getting employees more involved in the ownership and running of firms.

“Hundreds of thousands of viable small businesses have taken on sizeable debts to see them through to the other side of the COVID crisis. With emergency loan repayments fast approaching, and festive trade hugely disrupted, we need the Government to intervene swiftly to avoid a small business credit crunch in the spring.”

Link: Turn Covid emergency debt into shared ownership, urges small business

Scammers are targeting Self-Assessment taxpayers, says HMRC

HM Revenue & Customs (HMRC) is calling on Self-Assessment taxpayers to keep a look out for scammers posing as the tax authority.

HMRC has said that scammers are using calls, emails and texts to contact individuals in the run-up to the tax return deadline on 31 January 2021.

During the last year, HMRC responded to more than 846,000 reports of suspicious HMRC contact from the public and uncovered 15,500 malicious webpages.

In many cases, fraudsters offer a fake ‘tax rebate’ or ‘tax refund’ to individuals, often using language and content designed to convince taxpayers to hand over personal information, including bank details, to claim the ‘refund’. Almost 500,000 of the referrals from the public offered bogus tax rebates.

The imposters use this information to access a person’s bank account, trick them into paying fictitious tax bills or sell on their personal information to other criminals, HMRC has warned.

Taxpayers are encouraged to report suspicious activity to HMRC at phishing@hmrc.gov.uk and texts to 60599. They can also report phone scams online on GOV.UK.

Alongside its warning, HMRC has said that taxpayers can usually spot a scam if the communication:

  • is unexpected
  • offers a refund, tax rebate or grant
  • asks for personal information, such as bank details
  • is threatening
  • tells you to transfer money.

Further details regarding scams and HMRC’s policies can be found by clicking here.

Link: Self-Assessment customers warned about scammers posing as HMRC

Businesses face legal action over unpaid business rates

Local authorities have begun to take legal action against businesses that fail to pay their business rates bills.

A new report from property consultancy Colliers has shown that an increasing number of businesses have begun to receive letters demanding payment and/or a court summons.

In response, many businesses have started to appeal their business rates assessments on the grounds of a Material Change of Circumstance (MCC) to their business operations as a result of the Coronavirus crisis.

Data shows that around 183,000 businesses began the appeal process in the six months between 1 April and 30 September 2020. That is equivalent to 1,000 appeals per day.

John Webber, Head of Business Rates at Colliers, said: “It is ironic that the Government is preventing private landlords from taking recovery action against tenants not paying rent, while at the same time turning a blind eye to billing authorities acting on recovery action as if COVID-19 didn’t exist!”

Although businesses operating in the retail and leisure sectors were granted a business rates holiday during lockdown, office occupiers and some other businesses have not been given the same support.

John Webber added: “We appealed to the Government to introduce a business rates holiday for the period of lockdown and to introduce some reliefs for the disruption to businesses seen since.

“In the meantime, we have been negotiating on our client’s behalf with local billing authorities requesting them to show leniency to businesses that are struggling to pay their bills. We are finding that attitudes vary greatly depending on where businesses are based and the attitudes of the individual billing authority.

“There is a total lack of consistency – some clients for example with properties across boundaries find they are granted reliefs for some of their properties by certain local billing authorities but not from others.

“And recently there has certainly been a step-up of enforcement activity via the courts. We believe we’ll see more court summonses and enforcements as we go forward.”

Link: Councils pile pressure on firms over unpaid business rates during pandemic

HM Revenue & Customs issues Capital Gains Tax reminder

HM Revenue & Customs (HMRC) has issued a reminder of recent changes to Capital Gains Tax (CGT) to taxpayers and the impending deadline for reporting profits from sales of residential property in the 2019-20 tax year.

Various changes to how CGT is reported and paid came into effect at the start of the current tax year on 6 April 2020. The changes mean that UK residents disposing of UK residential property that is not their main home and where there is tax to pay should use the online service to declare gains to HMRC and pay the tax within 30 days of completion.

Gains should also be included on a Self-Assessment tax return, but where the tax has already been paid, it will not count towards the Self-Assessment tax liability.

Meanwhile, HMRC is reminding people who made taxable gains in 2019-20 that these must be declared on a Self-Assessment tax return by 31 January 2021.

Karl Khan, Interim Director General for Customer Services at HMRC, said: “The 2019-20 tax year is the last year UK residents will be required to pay the CGT for the sale of properties as part of the Self-Assessment process and we want to make sure they are aware of the new requirements.

“We’re making it easier for customers to pay any tax that is owed. UK residents, including property developers and landlords, should now use the online service to make any CGT declarations immediately after selling a residential property.”

Link: Capital Gains Tax changes that Self-Assessment customs need to know about