Category: taxation

Support for workers

Furlough is ending on 30 October, and as a partial and we are told more targeted replacement with have a new Job Support Scheme which will be introduced from 1 November. This will apply for ‘viable’ jobs in businesses who are facing lower demand due to coronavirus. The scheme starts on 1 November 2020 and will last for 6 months..

Employers will continue to pay the wages of staff for the hours they work – but for the hours not worked, the government and the employer will each pay one third of their equivalent salary.

In order to support only viable jobs, employees must be working at least 33% of their usual hours. The level of grant will be calculated based on employee’s usual salary, capped at £697.92 per month.

This is a simplistic example based on weekly payments for a 36 hour week at £10 per hour.

Taxes, national insurance and pension costs do not seem to be included. If I find out more I will extend the example.

The scheme is designed to work alongside furlough and in particular

• The Job Support Scheme will be open to businesses across the UK even if they have not previously used the furlough schem.

• It is designed to sit alongside the Jobs Retention Bonus and could be worth over 60% of average wages of workers who have been furloughed – and are kept on until the start of February 2021. Businesses can benefit from both schemes in order to help protect jobs.

Self employed

In addition, the Government is continuing its support for millions of self-employed individuals by extending the Self Employment Income Support Scheme Grant (SEISS). An initial taxable grant will be provided to those who are currently eligible for SEISS and are continuing to actively trade but face reduced demand due to coronavirus. The initial lump sum will cover three months’ worth of profits for the period from November to the end of January next year. This is worth 20% of average monthly profits, up to a total of £1,875.

An additional second grant, which may be adjusted to respond to changing circumstances, will be available for self-employed individuals to cover the period from February 2021 to the end of April – ensuring our support continues right through to next year. This is in addition to the more than £13 billion of support already provided for over 2.6 million self-employed individuals through the first two stages of the Self Employment Income Support Scheme – one of the most generous in the world.

VAT cut and deferrals

As part of the package, the government also announced it will extend the temporary 5% VAT rate for the tourism and hospitality sectors to the end of March next year.

In addition, up to half a million business who deferred their VAT bills will be given more breathing space through the New Payment Scheme, which gives them the option to pay back in smaller instalments. Rather than paying a lump sum in full at the end March next year, they will be able to make 11 smaller interest-free payments during the 2021-22 financial year.

On top of this, around 11 million self-assessment taxpayers will be able to benefit from a separate additional 12-month extension from HMRC on the “Time to Pay” self-service facility, meaning payments deferred from July 2020, and those due in January 2021, will now not need to be paid until January 2022.

Giving businesses flexibility to pay back loans

The burden will be lifted on more than a million businesses who took out a Bounce Back Loan through a new Pay as You Grow flexible repayment system. This will provide flexibility for firms repaying a Bounce Back Loan.

This includes extending the length of the loan from six years to ten, which will cut monthly repayments by nearly half. Interest-only periods of up to six months and payment holidays will also be available to businesses. These measures will further protect jobs by helping businesses recover from the pandemic.

We also intend to give Coronavirus Business Interruption Loan Scheme lenders the ability to extend the length of loans from a maximum of six years to ten years if it will help businesses to repay the loan.

In addition, the Chancellor also announced he would be extending applications for the government’s coronavirus loan schemes that are helping over a million businesses until the end of November. As a result, more businesses will now be able to benefit from the Coronavirus Business Interruption Loan Scheme, the Coronavirus Large Business Interruption Loan Scheme, the Bounce Back Loan Scheme and the Future Fund. This change aligns all the end dates of these schemes, ensuring that there is further support in place for those firms who need it.

Comment

My fundamental problem with this is understanding why an employer would enter into the scheme. It costs them more to employ the person part time than it does to employ someone else full-time as part of the role to carry out that work. I totally except that I might be missing something, or there may be rules introduced in legislation to protect existing workers. We will have to wait and see.

The reduction in the rate of the self-employed income support scheme to 20% seems particularly severe. I am surprised that it’s gone down from 80% via 70% and now straight to 20%.

It is interesting that possibly for the first time ever and economic plan has been published with absolutely no costing at all.

And no, there was really no excuse for another red squirrel picture…

Right now squirrels across the country are collecting up nuts getting ready for winter, food that they hope will feed them into next year. We as a country I’ve had a complicated year with Coronavirus and the vast social issues that has created and there are many people now who are receiving help from the government and all of this needs to be paid for. Many of us have some money squirrelled away for many of us that amount might be reducing, And it may be with some concern that we think about what tax rises there might be in store for us.

My aim here is to collect together the announcements that have been made, and some thoughts about what we might be expecting when Rishi Sunak next stands up for his autumn budget, and I will update this as we get closer to the budget. As at the date of writing the budget date has not yet been announced.

Income Tax

It is very unlikely that the rate of income tax will change in the short to medium term. Indeed with the current Labour opposition there is little pressure on the government here.

It is possible that a hypothecated increase in national insurance contributions might be introduced, but this would probably be unpopular and would take money away from the very people who need to be spending it right now.

Corporation Tax

The government have let it be known that corporation taxes might float up to somewhere around 24% almost returning to the rate of 26% at which they stood when the Conservative government came to power. Labour are not currently putting any pressure on corporation tax rates.

It is very possible that corporation taxes will be restructured to take away some of the advantages to small companies of using dividends to reduce national insurance contributions. We have been waiting a long time for such changes, and this may be as simple as applying national insurance to dividends paid to directors of close companies for example.

Business reliefs

There is increasing speculation that that might be tax relief for business investment, and this may involve another yo of the capital allowances yo-yo. The annual investment allowance is currently at £1 million under a temporary measure which expires in December 2020. It might be that this gets prolonged a little bit longer.

Alternatively the Chancellor may look at shareholding beliefs such as extending the Enterprise Investment Scheme or the Seed Enterprise Investment Scheme. Both of these beliefs are aimed at investors who are investing monies into new or relatively new companies. In the situation where we as a country need investment into new companies and investors have cash in their bank accounts it would seem sensible to allow new businesses to bubble up using such a relief. Having said that the seed enterprise investment scheme is already very attractive and a little bit of tweaking to take away some of the complications and bear traps involved in this relief might be more rewarding.

Capital Taxes

There is already a review into capital gains tax which has been referred elsewhere in this page. There is current speculation that the rate of capital gains tax might be increased up to income tax rates, but this might be seen to break with an important underlying philosophy of capital gains tax that it should not tax inflationary gains. It is for this reason that in the history of capital gains tax there have been various mechanisms to relieve the inflationary gains, starting with an indexation allowance moving onto a type of relief and currently a simple rough halving of the rate. To my mind it seems fair that capital gains tax rate is half the rate of income tax if that is seen as a simplified relief for installation of the gains.

Looking more broadly, the reason we have to have a capital gains tax is that if there was not such a tax, wealthy individuals who are able to control cash flows, might arrange that all of their ‘income’ will take the nature of capital and they would thus escape taxes. There is a long history of anti-avoidance legislation targeted at treating such short-term gains as income and it may be that this is a more fertile ground for short-term capital gains. This might lead to a general rule introduced which says there are short-term capital gain, safer assets held for less than two years, might be just added in as income.

Inheritance tax is constantly under review and this might be fairly fertile ground for changes. The rate of inheritance tax at 40% for death transfers or 20% for lifetime transfers is analogous to the rate of income tax at a basic rate (20%) or the higher rate (40%).

With rules to tax non-UK domiciled individuals on UK residential property (even when held by a non UK company) for both inheritance tax and capital gains tax, it is getting more difficult to avoid inheritance taxes on property. It would not be very surprising to see the non-domicile walls swept away completely to put all individuals on an equal footing here. It would then be the case that a non-resident individual might simply be taxed on assets in the UK without the complications that we have now. It is often the complications that allow for cracks through which tax can leak.

Taking away the tax-free probate uplift on property where not subject to inheritance tax would create a nice tax take for the country. It is clearly right and proper that if the value of an asset has been subject to inheritance tax that same value should then be the base cost for a future disposal. If however the asset was exempt in the estate, by reason of nil rate band business property relief or agricultural relief for example, then it seems fair to both future capital gains on the original cost without that probate value uplift.

The idea of an annual wealth tax has been mooted, but I do not see an appetite for this at the moment. To me, a new tax on capital would be politically unacceptable to the Conservative party at this moment in time. However we will need to wait and see…

VAT

As we move away from Europe so we will be unshackled from the EU is VAT rules. This gives the Chancellor some scope for adjusting VAT rates or the commodities and services on which VAT is charged.

Businesses are now able to sign up to the Kickstart scheme under which people aged between 16 and 24 who are claiming Universal Credit can receive a six-month work placement.

Under the scheme, the Government will pay 100% of the age-relevant National Minimum Wage, National Insurance and pension contributions for 25 hours a week.

Employers will be able to top up this wage, while the Government will also pay employers £1,500 to set up support and training for people on a Kickstart placement, as well as helping pay for uniforms and other set up costs.

Further information can be found Landmark Kickstart scheme opens.

This is coming at an interesting time: Rishi Sunak has called for a review of capital gains tax. The review will consider Capital Gains Tax and the taxation of chargeable gains in relation to individuals and smaller businesses and develop recommendations for simplification including reducing distortions from both an administrative and technical standpoint.

This will include consideration of general areas such as:

• the overall scope of the tax and the various rates which can apply
• the reliefs, exemptions and allowances which can apply, and the treatment of losses
• the annual exempt amount and its interactions with other reliefs
• the position of individuals, partnerships and estates in administration
• the position of unincorporated businesses and stand-alone owner-managed trading or
• investment companies, including the setting up, selling or winding up of such businesses or
• companies
• any distortions to taxpayers’ personal or business investment decisions
• interactions with other parts of the tax system such as Income Tax, Capital Allowances,
• Stamp Taxes and Inheritance Tax, including potentially different definitions for similar
• transactions/events.

This is an area that has changed many times over the years, and it almost feels that each Chancellor wants to carve his or her own identity into the capital gains tax system. Let’s wait to see whether Rishi Sunak can make capital gains tax sit alongside all other taxes comfortably, most especially income tax. We wait with bated breath.

Details are available here

Reference

Capital Gains Tax Simplification Review: Scoping Document

8 July 2020

A personal view from Stephen Poole

It is fair to say there was a heavy burden of expectation on Rishi Sunak when he stood up today, so it is worth having a calm look at what he has announced, what he hasn’t and to give a little comment.

We have had a week of announcements of spending to support the country out of the covid crisis, with welcome monies earmarked towards museums and galleries and for a green recovery. So now was the time to pull this all together into a coherent scheme.

The announcements

Job Retention Bonus

This will be a one-off payment of £1,000 to UK employers for every furloughed employee who remains continuously employed through to the end of January 2021. Employees must earn above the Lower Earnings Limit (£520 per month) on average between the end of the Coronavirus Job Retention Scheme and the end of January 2021. Payments will be made from February 2021. Further detail about the scheme will be announced by the end of July.

Kickstart Scheme

The government will introduce a new Kickstart Scheme very similar to Gordon Browns Future Jobs Fund from 2008. This £2 billion fund is designed to create hundreds of thousands of high quality 6-month work placements aimed at those aged 16-24 who are on Universal Credit and are deemed to be at risk of long-term unemployment. Funding will be available to cover 100% of the relevant National Minimum Wage for 25 hours a week for each job, plus the associated employer National Insurance contributions and employer minimum automatic enrolment contributions.

It is worth pointing out that the rates of minimum wage for those under 25 are quite low as follows:

Traineeships for young people

The government will provide an additional £111 million this year for traineeships in England, to fund high quality work placements and training for 16-24 year olds. This funding is enough to triple participation in traineeships. For the first time ever, the government will fund employers who provide trainees with work experience, at a rate of £1,000 per trainee. The government will improve provision and expand eligibility for traineeships to those with Level 3 qualifications and below, to ensure that more young people have access to high quality training.

Payments for employers who hire new apprentices

The government will introduce a new payment of £2,000 to employers in England for each new apprentice they hire aged under 25, and a £1,500 payment for each new apprentice they hire aged 25 and over, from 1st August 2020 to 31st January 2021. These payments will be in addition to the existing £1,000 payment the government already provides for new 16-18 year-old apprentices, and those aged under 25 with an Education, Health and Care Plan – where that applies.

Eat Out to Help Out

The new Eat Out to Help Out scheme is to encourage people to return to eating out. This will entitle every diner to a 50% discount of up to £10 per head on their meal, at any participating restaurant, café, pub or other eligible food service establishment. The discount can be used unlimited times and will be valid Monday to Wednesday on any eat-in meal (including on non-alcoholic drinks) for the entire month of August 2020 across the UK. Participating establishments will be fully reimbursed for the 50% discount.

VAT – the reduced rate expanded

One advantage of being outside the EU is that we have more freedom to tinker with VAT rates. Mr Sunak has decided to make more use of the 5% reduced rate.

From 15 July 2020 to 12 January 2021, to support businesses and jobs in the hospitality sector, the reduced (5%) rate of VAT will apply to supplies of food and non-alcoholic drinks from restaurants, pubs, bars, cafés and similar premises across the UK. Further guidance on the scope of this relief will be published by HMRC in the coming days.

In addition, from 15 July 2020 to 12 January 2021, to support businesses and jobs, the reduced (5%) rate of VAT will apply to supplies of accommodation and admission to attractions across the UK. Further guidance on the scope of this relief will be published by HMRC in the coming days.

Temporary Stamp Duty Land Tax (SDLT) cut

The government will temporarily increase the Nil Rate Band of Residential SDLT, in England and Northern Ireland, from £125,000 to £500,000. This will apply from 8 July 2020 until 31 March 2021 and cut the tax due for everyone who would have paid SDLT. Nearly nine out of ten people getting on or moving up the property ladder will pay no SDLT at all.

Green Homes Grant

Something dear to my heart, the government will introduce a £2 billion Green Homes Grant, providing at least £2 for every £1 homeowners and landlords spend to make their homes more energy efficient, up to £5,000 per household. For those on the lowest incomes, the scheme will fully fund energy efficiency measures of up to £10,000 per household. In total this could support over 100,000 green jobs and help strengthen a supply chain that will be vital for meeting our target of net zero greenhouse gas emissions by 2050. The scheme aims to upgrade over 600,000 homes across England, saving households hundreds of pounds per year on their energy bills.

My thoughts

A lot of the measures are welcome, especially those aimed at getting young people into jobs. However it feels to me that a lot of the effort here it’s in trying to put the clock back to where it was before Covid has struck rather than trying to reimagine the way the economy works.

Putting money directly into local economies is a good move at this stage so I welcome the efforts to get people eating out and I think it’s a very good move to give grants to people to insulate their homes. This should hopefully get money very quickly into local traders pockets, who will then spend it, taking on apprentices, and supporting the local economy. This is a good way of getting money flowing out to all regions. I did notice before anyone point it out that the eat out to help out scheme applies to food and drinks but, sadly, only to non alcoholic drinks.

As far as the environment is concerned, and farming in particular, I feel that, as long as Brexit can be managed well, in the agriculture bill and environment bill we have enough to work with in re-shaping the future of farming towards a green future. If ELMS (speaking from England) gets off to a good start with serious intent I think the future is very bright for agriculture. We have the tools we need as long as we have the will to use them, and therefore it is leadership that’s going to be needed over the next decade or two.

As a parting shot I notice there is no voucher for haircuts, so I guess my hair will just keep on getting longer . . .

This covers disposals of UK property and applies where exchange of contracts on or after 6 April 2020. There is a requirement to file a return and pay estimate within 30 days of completion of disposal.

There has been an announcement of a soft landing, so no automatic penalties for late filing for returns as long as they are in fact filed by 31 July 2020

Late payment interest will still run from the statutory date of 30 days after exchange of contracts

Note that this does not cover most property transactions as there is no requirement to make return if not tax payable. This would be the case where

• the gain is exempt, for example for a main residence
• the gain falls within the annual exemption
• the gain is covered by losses
• etc

Updated 9 June: Self Employed Income Support Scheme and temporary zero rating of PPE

A summary of where we are

These notes apply to England, some of the rules are devolved to other parts of the UK.

Job retention scheme (‘furlough’)

A payment of 80% of salary originally for 3 months. This only relates to the current crisis. Start date is 1 March 2020. See update below for claims from July.

• Government pay a taxable grant
• must have been in employment on 28 February 2020
• if acted early and already made some redundant can reverse and furlough
• if off under SSP can leave them on SSP and when this ends can furlough
• for zero hour contracts –
  • if has been for 12 months take higher of some month and average over a whole year
  • if not 12 months then average
  • if only a few days then pro rate
  • bonuses etc not included
• Must pay at least the 80% but employers can decide to pay more
• for the first period of claim the government will pay lower of
  • £2,500
  • 80% of pay plus employer responsibilities (employer NIC and minimum auto enrolment pension). If 80% is lower than minimum wage that is not changed as not actually working
• that employee cannot do any work other than some training
• If the employee has two jobs, one can be under furlough with the other unaffected. Therefore people can have income from other sources
• Minimum period is 3 weeks
• Directors cannot technically be furloughed because of duties under Company Law, but it appears that this should not cause a problem if the company is stopping, but further advice may be needed on this
• Dividends do not count towards the 80% test

Amounts paid under these arrangements do not count as state aid for the purpose of restricting the employment allowance

Update 29 May 2020:

From 1 July 2020, businesses will be given the flexibility to bring furloughed employees back part time. This is a month earlier than previously announced to help support people back to work. Individual firms will decide the hours and shift patterns their employees will work on their return, so that they can decide on the best approach for them – and will be responsible for paying their wages while in work.

From August 2020, the level of government grant provided through the job retention scheme will be slowly tapered to reflect that people will be returning to work. That means that for June and July the government will continue to pay 80% of people’s salaries. In the following months, businesses will be asked to contribute a modest share, but crucially individuals will continue to receive that 80% of salary covering the time they are unable to work.

The scheme updates mean that the following will apply for the period people are furloughed:

• June and July: The government will pay 80% of wages up to a cap of £2,500 as well as employer National Insurance (ER NICS) and pension contributions. Employers are not required to pay anything.
• August: The government will pay 80% of wages up to a cap of £2,500. Employers will pay ER NICs and pension contributions – for the average claim, this represents 5% of the gross employment costs the employer would have incurred had the employee not been furloughed.
• September: The government will pay 70% of wages up to a cap of £2,187.50. Employers will pay ER NICs and pension contributions and 10% of wages to make up 80% total up to a cap of £2,500. For the average claim, this represents 14% of the gross employment costs the employer would have incurred had the employee not been furloughed.
• October: The government will pay 60% of wages up to a cap of £1,875. Employers will pay ER NICs and pension contributions and 20% of wages to make up 80% total up to a cap of £2,500. For the average claim, this represents 23% of the gross employment costs the employer would have incurred had the employee not been furloughed.

Self employed

For self employed a first taxable grant will be made of up to 80% of profits for each months or £2,500 lower. This will be based on normal profits from 3 year period 2016/17, 2017/18 and 2018/19. If less then use the years available.

A second grant will be available for the following three months, see update below.

• It is only open to these self employed where more then half of income from self employment profits not over £50,000
• The first scheme will cover March April and May, with payment probably in June. Business loan should apply in the meantime
• Must have filed 2018/19 tax return and if not already done will allow another 4 weeks. But note penalties in bringing it up to date.
• Must still be trading and intend to carry on into 2021
• Do not contact HMRC as they will calculate and contact you.

Amounts paid under these arrangements will count as de minimis state aid for the purposes of employment allowance.

Update 29 May 2020: Those eligible under the Self-Employment Income Support Scheme (SEISS), which has so far seen 2.3 million claims worth £6.8 billion will be able to claim a second and final grant in August. The grant will be worth 70% of their average monthly trading profits, paid out in a single instalment covering three months’ worth of profits, and capped at £6,570 in total.

Update 9 June 2020: no payments on account needed on 31 July 2020, so the claim to reduce payment is not needed. Direct debits will still be taken by HMRC so these may need to be cancelled where in place. This means that the payment due on January 2021 could become quite large for some people and provision should be made for this.

Self employed income support scheme receipts are now being received and this seems to be going smoothly. These amounts are taxable and subject to class 4 NIC on a receipts basis.

On the tests, every claimant needs to be able to demonstrate that they have been affected by COVID which is probably possible for most self employed, but all.

It is a requirement of the scheme that the trader intends to continue trading in the same form. For example, in the case of a sole trader was trading in 18/19 but who has incorporated, that company would not be able to make the claim.

Check if you are eligible using HMRC tool

VAT

No payments required between 20 March 2020 and 30 June 2020. Still need to file the VAT returns . Payment deferred until end of 20202/21 tax year – auto

Repayments can still be made and can voluntarily pay. Note that you need to cancel direct debit arrangements. This will need to be set up again when payments resume.

Update 9 June 2020: Sales of PPE are zero rated temporarily between 1 May 2020 and 31 July 2020. This needs to be watch where temporarily producing PPE during the current crisis.

Income tax

Income tax 31 July payment can be deferred until 31 January 2021. automatic offer. Originally only applied to self employed, but extended to all taxpayers

Time to pay arrangement still available – talk. Current debts be potentially be included = HMRC number 0800 0159559

Statutory Sick Pay

HMRC to refund 2 weeks of SSP for the two weeks of being self isolated. Applies to employers of up to 250 employees. Test date is 28 February 2020. Can qualify for up to £94.25 from day 1 (not day 4) with effect from 13 March 2020

directors of small companies who meet the requirements can also claim SSP if earning enough (£118 per week)

self employed can claim employment and support allowance

Business Rates.

Retail hospitality and leisure (see detailed list) no business rates in 2020/21. England only other countries devolved.

cash grants of up to £25,000 relating to trading from buildings per property. Retail and hospitality grant scheme – automatic. Let them do their jobs

if not paying business rates, small or rural will get one off £10,000 grant. Local councils will deal with this also

these amounts do count as de minimis state aid for the purposes of state aid.

Loans

from Monday 23 March gov guaranteed loans 12 month interest free

larger business will get debt factoring in short term

Insurance may be worth looking at

Further information

The following groups provide further information

Low Income Tax Reform Group

HMRC