Following the introduction of the Health and Social Welfare Levy (An increase in the rate of National Insurance to you and me), it is now confirmed that the dividend trust rate will also increase from 38.1% to 39.35%. The change also applies for charging tax under Corporation Tax Act 2010, s 455 on loans to participators in close companies.
Current HMRC interest rates
The current late payment and repayment interest rates applied to the main taxes and duties that HMRC currently charges and pays interest on are:
- late payment interest rate — 3.75% from 5 July 2022
- repayment interest rate — 0.5% from 29 September 2009
HMRC interest rates are set in legislation being linked to the Bank of England base rate. There are 2 rates:
- late payment interest, set at base rate plus 2.5% (the current base rate is 1.25%)
- repayment interest, set at base rate minus 1%, with a lower limit of 0.5% (known as the ‘minimum floor’) – until the base rate exceeds 1.5% this rate will remain unchanged and has been since September 2009
Many of the accounting packages available to businesses are of US origin so a lot of the terminology is US oriented – much to my irritation. So we have “Aged Receivables” rather than “Trade Debtors”, “Aged Payables” instead of “Trade Creditors”. Not the end of the world I agree but you will often find in the chart of accounts “Entertaining – 100% Business” and “Entertaining – 0%” or something similar. Clients often use 100% business for client entertaining as, as far as they are concerned, the payment is solely for the business but this is the opposite of the UK rules for income tax and VAT. Claims of error-checking within the software are unlikely to pick this up.
Income Tax / Corporation Tax
In the UK we generally differentiate entertaining between client/customers and staff. Within client entertaining there are also potential benefit in kind implications if that is purely for social reasons rather than for a genuine business purpose. To make things clearer in the chart of accounts, I would often edit the description to reflect the UK rules.
With certain exceptions, expenditure on business entertainment or gifts is not allowable as a deduction against taxable profits, even if it is a genuine expense of the trade or business. One of the exceptions to the entertaining rule concerns the entertainment of employees. Staff entertaining is allowable so long as it is wholly and exclusively for the purposes of the trade and is not merely incidental to entertainment provided for customers – hence the reason why I would recommend amending the chart of account descriptions.
Gifts, which contain a conspicuous advertisement for the trader are generally allowed however, expenditure of this kind is not allowable if:
- the gift is food, drink, tobacco or a token or voucher exchangeable for goods, or
- the cost of the gift, together with the cost of any other gifts (except food, drink, tobacco or a token or voucher exchangeable for goods) to the same recipient in the relevant tax period, exceeds £50.
This is a complex area and some of the application of the rules subjective as can be seen from the Business Income Manual
Again with certain exceptions, you cannot recover input tax incurred on the provision of business entertainment expenses. This is important because software of US origin will typically default to standard rate VAT on “Entertainment – 100% business”. So these also need adjusting to avoid claiming input tax that is not allowable.
Where an employer provides entertainment for the benefit of employees for example, to reward them for good work or to maintain and improve staff morale, it does so wholly for business purposes. Thus the VAT incurred on entertainment for employees for example staff parties, team building exercises, staff outings and similar events is input tax and is not blocked from recovery under the business entertainment rules.
From the foregoing care needs to be taken as the rules for income tax / Corporation Tax and VAT are slightly different – nothing is straight forward and relying on the claims of the software provider that what you produce will be error-checked is very much dependent on transactions being recorded accurately so it would be risky to rely upon such claims.
Here are the main provisions
Personal Allowances to increase to £12,570 and the basic rate threshold to £50,270
Rates and allowances will remain the same until 2026
The scheme is to be extended to 30th Sep 21 with no change to employees – Employers will have to contribute top ups of 10% in July and 20% in August and September
Main rate to increase to 25% in 2023 with a small profits rate of 19% for profits up to £50k and taper relief up to £250k
Loss relief to be carried back 3 years
Grants 4 and 5 announced covering Feb-Apr 21 of 80% of average profits; 5- May to Jul. Self Employed individuals who have filed a return by midnight of 2nd March will eligible for the grants
5% reduced rate for the hospitality sector to continue until 30th Jun then a staged return to the full rate in April 2022 by increasing the rate to 12.5% for the period 01/10/2021 to 31/03/2022
Registration limit of £85k to remain unchanged until 2024
£500k nil rate band to continue until 30th June then £250k to 30th September returning to the original £125k on 1st October
Capital allowances for investments in innovation up to £10m will be given relief of 130%
www.gov.uk/helptogrow register for productivity grants
Green Gilts / Bonds – new products to be available in the summer
Annual allowances remain unchanged until 2025/26 – no mention of a rate hike!
National Living Wage
This is to rise to £8.91 in April
£3k grants for new apprenticeship
Business Rates Holiday
Extended to the end of June
Non-essential retail to receive grants of up to £6,000 and up to £18,000
Likely provisions on today’s budget:
Covid relief measures – Job retention scheme to be extended until September with increased employer contributions from July onward.
CGT – Looks like the rates will be gradually increased to match income tax. This is an obvious choice for the Chancellor.
Income tax personal allowances currently £12,500 and the income tax thresholds to be frozen
The main rate of Corporation Tax to rise to 23% or possibly the a split between the main rate and the small companies rate depending on profits.
Abolishment of higher rate income tax relief on pension contributions limiting relief to 20%.
Extension of the reduced rate of VAT for the hospitality sector.
Stamp Duty – perhaps an extension to the SDLT holiday for properties up to £600k.
There have been a number of updates recently regarding various provisions that the Government have put in place to help businesses.
Coronavirus Job Retention Scheme (CJRS)
For those of you that have employees (including sole directors) who are or have been furloughed, the CJRS portal for claims will be open as of Monday 20th April.
A Step-By-Step guide is available for making claims. If you have employees being furloughed, please read the guide even if we will be making the claim on your behalf. There are HR procedures (Not Accounting) that must be followed and that you must have in place for each employee being furloughed.
The latest guidance on the scheme can be found on the Government website at https://www.gov.uk/guidance/work-out-80-of-your-employees-wages-to-claim-through-the-coronavirus-job-retention-scheme
How to calculate the amount you can claim is set out in detail at https://www.gov.uk/guidance/work-out-80-of-your-employees-wages-to-claim-through-the-coronavirus-job-retention-scheme
Small Business Grants
This scheme is now open and many local authorities have written to eligible rate payers with details of how to access the scheme. This has typically been done through providing details to your local authority by means of a portal on their respective websites. If you have not yet received any communication from your local authority and you believe you are eligible for the grant, please check their website and contact them directly.
For Deferred VAT and self assessment payments in July you do not need to do anything to communicate to HYMRC that you are deferring the payment but you must still submit your returns on time. Please remember though to cancel any direct debit mandate you may have in place otherwise payment will be taken.
For time to pay for other taxes, you must agree these directly with HMRC. It is important to do this rather than just not pay. You could incur penalties.
Self Employment Scheme
This scheme is not yet open for claims but the latest details of how the scheme will work can be found on the Government website
These are very challenging times for everyone. We hope you are all keeping safe and well and are coping with your new routines.
Remember the budget? It was only three weeks ago but feels like a lifetime! We’ll be updating the rates and allowances on the website as soon as possible with adjustments for Coronavirus provisions.
Guidance has just been published with answers to many of the questions surrounding this scheme. There will not be a portal open for claims until late April so you can’t access it yet.
The Government website has been updated and provides answers to questions raised such as what constitutes wages. This is particularly important for those paid irregular amounts and commissions.
Many local authorities are writing to the registered ratepayers now for small business premises to advise them of their eligibility for the grants.
They are requesting that you go to their respective websites to provide bank details with some looking to make payment this month.
Please be mindful of scams. Check the sources of any communication and who you are providing bank details to!
The Chancellor announced a VAT payments deferral on 20 March to support businesses with cash flow during the COVID-19 pandemic.
This means that all businesses with a UK VAT registration have the option to defer VAT payments due between 20 March and 30 June.
You therefore have until 31 March 2021 to pay any VAT deferred as a result of this announcement.
You do not need to inform HMRC if you wish to defer payment. You can opt in to the deferral simply by not making VAT payments due in this period. If you pay by Direct Debit you should cancel this with your bank. You should do so in sufficient time so that HMRC does not attempt to automatically collect on receipt of their VAT return.
Should you wish, you can continue to make payments as normal during the deferral period. HMRC will also continue to pay repayment claims as normal. You must continue to submit VAT returns as normal.