Tax – Page 2 – Debonair Management Services Limited

In July, the UK Government will pay 70% of employees’ usual wages for the hours not worked, up to a cap of £2,187.50. In August and September, this will reduce to 60% of employees’ usual wages up to a cap of £1,875.

You will need to pay the 10% difference in July, and 20% in August and September, so that you continue to pay your furloughed employees at least 80% of their usual wages for the hours they do not work during this time, up to a cap of £2,500 per month.

You can still choose to top up your employees’ wages above the 80% level or cap for each month if you wish, at your own expense.

To help you plan ahead for future claim periods, the CJRS calculator is available to help you work out how much you can claim for employees up to the end of September. To find this and everything you need to know about the CJRS, search ‘Job Retention Scheme’ on GOV‌‌.UK.

DMS Posts

Ready for a SEISS challenge: Penalties and claims

April 28, 2021 Debonair Management Services Limted

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 met	SEISS 1	SEISS 2	SEISS 3	SEISS 4
The qualifying period	Up to 13 July 2020	From 14 July to 19 Oct 2020	1 Nov 2020 to 29 Jan 2021	1 Feb to 30 April 2021
Intention to continue to trade in the tax year 2021/2022 (SEISS 4) and 2020/2021 (SEISS 1-3)	YES	YES	YES	YES
Business has been adversely affected by coronavirus	YES	YES	YES	YES
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 coronavirus	n/a	n/a	Sales reduced in qualifying period	Sales 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/a	n/a	Significant reduction in trading profits over at least one whole basis period	Significant 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, Tax

SEISS 4

April 21, 2021 Debonair Management Services Limted

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:

Traded as self-employed in 2020/2021 and intending to continue to trade in 2021/2022
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.

Budget, DMS Posts, Tax

What’s changing for small businesses in the 2020/2021 tax year?

April 3, 2020 Debonair Management Services Limted

A new tax year is starting on April 6th, which will mean many of the changes announced in recent Budgets will come into effect. Before the 2020/2021 tax year kicks off, here’s a roundup of some of the key changes small business.

Changes to some tax and National Insurance rates and bands

Some of the rates and bands have been frozen, while others have increased. Here are the rates and bands that will come into effect on 6th April:

England, Northern Ireland and Wales

	2020/21	2019/20
Personal allowance	£12,500	£12,500
Employee’s NI becomes due at	£9,500	£8,632
Employer’s NI becomes due at	£8,788	£8,632
Higher rate tax becomes due at	£50,000	£50,000
Class 2 NI becomes due when profits exceed	£6,475	£6,365
Class 2 NI per week	£3.05	£3.00
Class 4 NI becomes due when profits exceed	£9,500	£8,632

Scottish Tax Rates and Bands

The Scottish rates of income tax will change to the below on 11th May 2020.

	2020/21	2019/20
Personal allowance	£0 – £12,500	£0 – £12,500
Starter rate 19%	£12,501 – £14,585	£12,501 – £14,549
Basic rate 20%	£14,586 – £25,158	£14,550 – £24,944
Intermediate rate 21%	£25,159 – £43,430	£24,945 – £43,430
Higher rate 41%	£43,431 – £150,000	£43,431 – £150,000
Top rate 46%	Over £150,000	Over £150,000

Employment Allowance Increased

The Employment Allowance will increase from £3,000 to £4,000 on 6th April but from this date, only businesses with an employer’s NI liability of under £100,000 a year will be eligible to claim the allowance.

National Minimum Wage / National Living Wage rates per hour increased

The following rates will all increase on 6th April:

	2020/21	2019/20
Employees aged 25 and over: NLW	£8.72	£8.21
Employees aged under 18: NMW	£4.55	£4.35
Employees aged 18-20: NMW	£6.45	£6.15
Employees aged 21-24: NMW	£8.20	£7.70

Student Loan Income thresholds

The levels of income above which student loan repayments are due will change on 6th April as follows:

	2020/21	2019/20
Undergraduate loan: plan 1	£19,390	£18,935
Undergraduate loan: plan 2	£26,575	£25,725
Postgraduate loan	£21,000	£21,000

Working from home rate for employees increased

If any of your clients operate their own limited company and claim costs for working from home, HMRC will ask them for proof of any working from home costs of over £6 (rather than £4) from 6th April 2020.

Delays and cancellations to planned changes

Corporation Tax rate holds steady

The rate at which limited companies pay Corporation Tax was originally planned to decrease from 19% to 17% on 1st April but these plans have now been cancelled. The rate of Corporation Tax will now remain at 19%.

IR35 changes delayed

Changes to the operation of IR35 legislation in the private sector that were due to take effect on 6th April 2020 have now been delayed until April 2021.