Month: April 2021

DMS Posts

Ready for a SEISS challenge: Penalties and claims

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The Treasury has provided HMRC with substantial resources to recover wrongly claimed coronavirus support payments, expecting to recoup over a third of grants made.

HMRC has confirmed that it will involve agents when looking into clients’ SEISS claims, despite side-lining them when clients needed to claim SEISS.

Proving SEISS was validly claimed

Entitlement conditions have evolved with SEISS varying the evidential boxes to be ticked.

Conditions which must be metSEISS 1SEISS 2SEISS 3SEISS 4
The qualifying periodUp to 13 July 2020From 14 July to 19 Oct 20201 Nov 2020 to 29 Jan 20211 Feb to 30 April 2021
Intention to continue to trade in the tax year 2021/2022 (SEISS 4) and 2020/2021 (SEISS 1-3)YESYESYESYES
Business has been adversely affected by coronavirusYESYESYESYES
Reduced activity, capacity or demand or temporarily unable to trade in qualifying period, compared with what could reasonably have been expected but for the adverse effect of coronavirusn/an/aSales reduced in qualifying periodSales reduced in qualifying period
Reasonable belief that the business will suffer a significant reduction in trading profits in a basis period in which the qualifying period falls because of reduced activity, capacity or demand due to coronavirus.n/an/a Significant reduction in trading profits over at least one whole basis periodSignificant reduction in trading profits over at least one whole basis period

What is meant by… ?

Business adversely affected

This includes being unable to work because shielding, self-isolating, on sick leave or having care responsibilities because of coronavirus.

It also includes scaling down or temporarily stopping trading due to interrupted supply chains, fewer or no customers, staff unable to work or one or more contracts have been cancelled and the business tried to replace the lost work.

Isolation or caring responsibilities due to arrival in the UK are not valid adverse circumstances for SEISS, increasing the jeopardy of overseas travel this year.

Basis period in which the qualifying period falls

The qualifying period for SEISS 4 is 1 February to 30 April 2021 (and for SEISS 3 it was 1 November 2020 to 29 January 2021), but the basis period which must have a ‘significant reduction’ in trading profits depends what date accounts are made up to.

For many, the qualifying period may fall into two separate accounting years and, at the time of claiming, there must be a reasonable, honest belief that profits for at least one of those will suffer a significant reduction because of coronavirus. The significant reduction in profits must be for the basis period as a whole, not just the qualifying period, and it must be due to reduced sales – increased costs are not relevant for SEISS 3 and 4 claims.

Significant reduction

The Treasury and HMRC have declined to give any definition of “significant”, except to comment that it must be an honest assessment. It seems that a 30% reduction is definitely significant (based on the future SEISS 5 structure), but it may be argued that a smaller reduction is significant too, particularly if the claimant has no other source of income.

The percentage reduction is by comparison with what ‘would otherwise have reasonably been expected’, ie what profits were or could have been forecast to be if it were not for the pandemic.

Penalties and repayment of SEISS

HMRC has powers to assess overpaid SEISS even before 2020/21 tax returns are submitted, but otherwise SEISS wrongly claimed must be included on tax returns.

If a claimant didn’t know they were not entitled when the grant was received there will be no penalty, provided the grant has been repaid by 31 January 2022. At the other end of the scale, failure of a claimant to notify HMRC of a grant they knew they were not entitled to when received will be treated as deliberate and concealed for penalty purposes.

HMRC has a web page for anyone needing or choosing voluntarily to repay some or all of a SEISS claim.

DMS Posts, PAYE, Tax

Changes to the Coronavirus Job Retention Scheme from July 2021

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The Coronavirus Job Retention Scheme has been extended until 30 September 2021 and the level of grant available to employers under the scheme will stay the same until 30 June 2021.

1. Changes to the level of grant from 1 July 2021

From 1 July 2021, the level of grant will be reduced and you will be asked to contribute towards the cost of your furloughed employees’ wages. To be eligible for the grant you must continue to pay your furloughed employees 80% of their wages, up to a cap of £2,500 per month for the time they spend on furlough.

The table below shows the level of government contribution available in the coming months, the required employer contribution and the amount that the employee receives per month where the employee is furloughed 100% of the time.

Wage caps are proportional to the hours not worked.

MayJuneJulyAugustSeptember
Government contribution: wages for hours not worked80% up to £2,50080% up to £2,50070% up to £2,187.5060% up to £1,87560% up to £1,875
Employer contribution: employer National Insurance contributions and pension contributionsYesYesYesYesYes
Employer contribution wages for hours not workedNoNo10% up to £312.5020% up to £62520% up to £625
For hours not worked employee receives80% up to £2,500 per month80% up to £2,500 per month80% up to £2,500 per month80% up to £2,500 per month80% up to £2,500 per month

You can continue to choose to top up your employees’ wages above the 80% total and £2,500 cap for the hours not worked at your own expense.

DMS Posts, Tax

SEISS 4

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Almost five months after the last round of the Self-Employment Income Support Scheme (SEISS), HMRC is now sending emails, letters or messages within its online service advising those whose tax returns show they may be entitled to claim the fourth SEISS grant when their April when their personal claims window opens.

The window will open in “late April” according to HMRC and will close for all SEISS 4 claims on 1 June 2021.

SEISS has evolved

Coronavirus isn’t alone in having spawned variants. The newest SEISS variant, SEISS 4, covers the period from 1 February 2021 to 30 April 2021 and brings 2019/20 tax returns into account, both for eligibility and in calculation of the amount of the grant. This will open the scheme to some new applicants who started up in 2019/20; it excludes not only those who are no longer trading but also some who had little or no profit relative to other income in 2019/20.

Eligibility is determined by HMRC and only applies to those whose 2019/20 tax returns were submitted before 3 March 2021.

HMRC will test eligibility for 2019/20 in isolation to see if profits are under £50,000 and at least half the relevant income. For those who don’t qualify based on 2019/20 alone, HMRC will then evaluate the four tax years 2016/17, 2017/18, 2018/19 and 2019/20 combined to test if average profits across the four years are under £50,000 and at least half of relevant income.

If trading hasn’t continued through all four tax years, only the most recent continuous two or three tax years with trading income are used in determining both eligibility and amount.

Amount is also determined by HMRC, and SEISS 4 will again be 80% of three months’ average profits, but it is likely to be different to SEISS 3. The amount of SEISS 4 could be higher or lower than SEISS 3 because 2019/20 profits will be included for the first time in working out average profits.

There is no mechanism to claim a smaller amount – the only option would be to make the claim and voluntarily repay part of it.

Entitlement

Just because HMRC’s historical records may show eligibility does not mean that someone is necessarily entitled to claim. There are two important declarations required:

  1. Traded as self-employed in 2020/2021 and intending to continue to trade in 2021/2022
  2. Must have reasonable belief there will be a significant reduction in trading profits due to reduced self-employed income (not just increased costs) because of reduced business activity, capacity, demand or inability to trade due to coronavirus. There are several key terms in this declaration which will be discussed in more detail in a follow-on article next week.

Having a new child affected the 2019/20 tax year?

It may be possible in some limited circumstances for someone to make a claim even if having a new child means they do not meet the eligibility tests based on their 2019/20 tax return. They must have submitted a 2018/19 tax return and meet all other eligibility and entitlement criteria. HMRC advises: “Before making a claim, you must contact us to verify that having a new child has affected your eligibility.”

For these purposes “having a new child” includes being pregnant, giving birth (including a stillbirth after more than 24 weeks of pregnancy) and relates to the six months after giving birth, and caring for a child within 12 months of birth or adoption placement for a claimant who has parental responsibility.

Tax on SEISS payments

All SEISS variants are taxable and class 4 NICable and for SEISS 4 this will be in 2021/22, the year in which the grant is made, even though most of the qualifying three months are not in 2021/22.

SEISS grants received must be declared on self-assessment returns separately from normal business turnover.

Be prepared for HMRC checks

HMRC has repeatedly said all SEISS claims will be checked. The focus of checks will principally be the entitlement declarations claimants make, since HMRC itself is determining eligibility and amount. HMRC can be expected to automate checks to some extent by comparing SEISS claims with turnover and profits on self-assessment tax returns for 2020/21 and eventually with 2021/22 tax returns.

DMS Posts, PAYE, Tax

Tax and National Insurance rates and bands

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Here are the changes that will come into effect in April 2021:

National Minimum Wage and National Living Wage

Changes will come into effect on 1st April. Note the different age bands for rates in 2021/22.

2021/222020/21
Employees aged under 18: NMW£4.62£4.55
Employees aged 18-20: NMW£6.56£6.45
Employees aged 23 and over: NLW£8.91N/A
Employees aged 25 and over: NLWN/A£8.72
Employees aged 21-24: NMWN/A£8.20
Employees aged 21-22: NMW£8.36N/A

England, Northern Ireland and Wales

Changes will come into effect on 6th April 2021.

2021/222020/21
Personal allowance£12,570£12,500
Employee’s NI becomes due at£9,568£9,500
Employer’s NI becomes due at£8,840£8,788
Higher rate tax becomes due at£50,270£50,000
Class 2 NI becomes due when profits exceed£6,515£6,475
Class 2 NI per week£3.05£3.05
Class 4 NI becomes due when profits exceed£9,568£9,500

Scottish tax rates and bands

Changes will come into effect on 6th April 2021.

2021/222020/21
Personal allowance£0 – £12,570£0 – £12,500
Starter rate 19%£12,571 – £14,667£12,501 – £14,585
Basic rate 20%£14,668 – £25,296£14,586 – £25,158
Intermediate rate 21%£25,297 – £43,662£25,159 – £43,430
Higher rate 41%£43,663 – £150,000£43,431 – £150,000
Top rate 46%Over £150,000Over £150,000

Student Loan repayment thresholds and new Scottish student loan plan

Changes will come into effect on 6th April 2021.

2021/222020/21
Undergraduate loan: plan 1£19,895£19,390
Undergraduate loan: plan 2£27,295£26,575
Scottish student loan: plan 4£25,000N/A
Postgraduate loan£21,000£21,000
DMS Posts, Tax

What is IR35?

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Definition of IR35

IR35 is a piece of legislation that allows HMRC to collect additional payment where a contractor is an employee in all but name.

If a contractor is operating through an intermediary, such as a limited company, and, but for that intermediary, they would be an employee of their client, IR35 kicks in.

If the contractor’s contract is in the public sector, it’s up to the engager (the contractor’s client) to determine whether IR35 applies. If it does, the engager will place the contractor onto their payroll and will deduct income tax and National Insurance before paying the contractor.

If the contractor’s contract is in the private sector, IR35 requires the intermediary to make an extra payment to compensate for the additional tax and NI that HMRC would have received on an equivalent employee’s wages.

From April 2021, the rules are due to change for contractors working with medium to large sized clients in the private sector. Like the public sector, these clients will have to determine whether the contractor falls inside or outside IR35.

When IR35 legislation applies, a contract may be described as ‘within IR35’ or ‘caught by IR35’.

Determining IR35

Whether a contractor is an employee in all but name may vary from client to client and from project to project. When determining this HMRC will look at the whole picture, but key factors are:

  • Does the contractor have to carry out the work personally, rather than being able to send a substitute?
  • Does the client have to provide the contractor with work, and/or does the contractor have to carry out any work that the client requests?
  • Does the client have control over how, when and where the contractor carries out the work?

Answers of yes to these questions will indicate a quasi-employment relationship. You can also use CEST, which is HMRC’s online tool to help determine IR35.

Note that HMRC will look at what actually happens (or would happen) in practice, rather than the terms of the contract. HMRC will also look at other factors, such as whether the contractor has an office at the client’s site, an email address and/or job title indicating that they are part of the client’s business, and so forth.