TAXANGLES A newsletter for proactive planning... In this edition... May 2021 Issue www.compassaccountants.co.uk Can you claim the Employment Allowance for 2021/22? Restart Grants and Recovery Loans Reporting expenses and benefits for 2020/21 Freezing of allowances and thresholds Reduced rate of VAT 10 Questions With... New staff member, Laura Puszkar
PAGE 2 Can you claim the Employment Allowance for 2021/22? The Employment Allowance is a National Insurance allowance that enables eligible employers to reduce their employers’ (secondary) Class 1 National Insurance bill by up to £4,000. However, not all employers can benefit – there are some important exclusions. Eligible employers To qualify for the Employment Allowance, the employer’s Class 1 National Insurance liabilities for 2020/21 must be less than £100,000. Where the employer is part of a group, the £100,000 limit applies to the group as a whole, not the individual group companies. The Employment Allowance is not available to companies where the sole employee is also a director. This rules out most personal companies. However, family companies with more than one employee are able to claim. There are other exclusions too, for example, employers who employ someone for personal, household and domestic work unless the worker is a care or support worker. Amount of the allowance The Employment Allowance is set at the lower of £4,000 and the employer’s secondary Class 1 National Insurance liability for the year. Once claimed it is set against the employer’s Class 1 liability until it is used up. Example A Ltd is eligible for the Employment Allowance. Its secondary Class 1 National Insurance liability is £1,500 a month. It claimed the Employment Allowance at the start of the 2021/22 tax year. The allowance is used as follows: Month 1: £1,500 of the Employment Allowance is set against the liability for the month of £1,500, leaving nothing to pay. The remaining Employment Allowance of £2,500 (£4,000 £1,500) is carried forward. Month 2: £1,500 of the Employment Allowance is set against the liability for the month of £1,500, leaving nothing to pay. The remaining Employment Allowance of £500 (£2,500 £1,500) is carried forward. Month 3: The remaining £500 of the Employment Allowance is set against the liability for the month of £1,500, leaving £1,000 to pay. The Employment Allowance has now been used in full. Months 4 to 12: The Employment Allowance has been used in full, so the employer’s Class 1 National Insurance liability for the month of £1,500 is payable in full. Claiming the allowance The Employment Allowance is not given automatically and must be claimed each year. This can be done through the payroll software, or via HMRC’s Basic PAYE Tools if the payroll software does not have an Employment Payment Summary (EPS) feature. Although claims can be made at any time in the tax year, the earlier the claim is made, the earlier the employer will start benefiting from the Employment Allowance. Claims can also be made retrospectively for the previous four tax years if the employer was eligible for the Employment Allowance, but did not claim it.
PAGE 3 As lockdown restrictions are eased, businesses may need help to re-open and to recover from the impact of the pandemic. Depending on the nature of the business, they may be eligible for a Restart Grant or a Recovery Loan. Restart Grants The Restart Grant Scheme provides support to help business that were required to close to re-open as lockdown restrictions are eased. The grants are available to businesses in non-essential retail and businesses in the hospitality, accommodation, leisure, personal care and gym sectors. The grants are available from 1 April 2021 and must be claimed from the local council. Applications can be made on the relevant council’s website. To qualify, a business must: be based in England; pay rates; and be trading on 1 April 2021. Non-essential retail business can apply for a Restart Grant of up to £6,000, whereas businesses in the hospitality, accommodation, leisure, personal care and gym sectors can apply for a Restart Grant of up to £18,000. Local councils will use their discretion to determine whether a business is eligible for a grant. Recovery Loan Scheme The Recovery Loan Scheme is designed to provide access to finance for UK businesses as they recover from the impact of the Covid-19 pandemic. Businesses of any size can apply for loans under the scheme, and can benefit from a loan or overdraft of between £25,001 and £10 million per business or asset finance of between £1,000 and £10 million per business. However, the amount offered and the terms are at the discretion of the lender. To encourage lenders to participate, the Government guarantee 80% of the finance to the lender; however, the borrower remains liable for 100% of the debt. A business can apply for a Recovery Loan if it is trading in the UK. Applicants will need to demonstrate that their business: would be viable were it not for the pandemic; has been adversely impacted by the pandemic; and is not in collective insolvency proceedings. Businesses that meet the eligibility criteria can apply for a recovery loan, regardless of whether they also have a Bounce Back loan or a Coronavirus Business Interruption Loan. Under the scheme, no personal guarantees are taken on facilities up to £250,000, and a borrower’s principal private residence cannot be taken as security. The scheme is due to run until 3 December 2021.
PAGE 4 PAGE 4 Reporting expenses and benefits for 2020/21 Employers who provided taxable expenses and benefits to employees during the 2020/21 tax year will need to report these to HMRC, on form P11D by 6 July 2021, unless the benefit or expense has been payrolled or is included within a PAYE Settlement Agreement. Benefits covered by an exemption do not need to be included. Where taxable benefits have been provided, the employer must also file a P11D(b) by 6 July 2021. This is the employer’s declaration that all required P11Ds have been filed and also the statutory Class 1A amount. Exempt benefit The tax legislation contains a number of exemptions which remove a charge to tax. These may be specific to a particular benefit, such as those for mobile phones and workplace parking, or may be more general, such as the exemption for paid and reimbursed expenses, which applies if the employee would have been entitled to a tax deduction had they met the expense directly. There are also a number of temporary Covid-19 specific exemptions that apply for the 2020/21 tax year. These include the provision or reimbursement of Covid-19 antigen tests and reimbursed homeworking equipment (such as a computer) to enable the employee to work at home during the pandemic if the equipment would be exempt if made available by the employer. Remember, exemptions are only available if the associated conditions are met. However, care must be taken here where provision is made under a salary sacrifice arrangement and the alternative valuation rules apply as this may negate the exemption. Taxable amount The amount on which the employee is taxed is usually the cash equivalent value. This is calculated in accordance with the benefit-specific rules where these exists, as is the case for company cars, vans, living accommodation and employmentrelated loans. Where there is not a benefit-specific rule, the cash equivalent is determined in accordance with the general rule. This is the cost to the employer, less any amount made good by the employee. Amounts made good are only deducted where the employee makes good by 6 July 2021. If the benefit is provided under an optional remuneration arrangement (OpRA), such as a salary sacrifice arrangement, the alternative valuation rules are used to calculate the taxable amount, unless the benefit is one which is specifically excluded from the ambit of those rules (such as childcare vouchers, pension provision and advice, employer-provided cycles and low-emission cars (l75g/km or less) or within the transitional rules for 2020/21. Under the alternative rules, the taxable amount is the salary foregone or cash alternative offered where this is more than the cash equivalent value. HMRC produce worksheets which can be used to calculate the taxable amount for some benefits. These can be found on the Gov.uk website. Reporting options There are various options for filing P11Ds and P11D(b): using a payroll software package; using HMRC’s Online End of Year Expenses and Benefits Service; using HMRC’s PAYE Online Service; or filing paper forms. Whichever method is used, the forms must be filed by 6 July 2021. Employees must be given a copy of their P11D or details of their taxable benefits by the same date. Any associated employer-only Class 1A National Insurance must be paid by 22 July 2021 if paid electronically, or by 19 July 2021 if paid by cheque.
PAGE 5 Freezing of allowances and thresholds To help meet some of the costs incurred in dealing with the Covid-19 pandemic, the Chancellor announced in his 2021 Budget that a number of allowances and thresholds will remain at their 2021/22 levels until 6 April 2026. Those affected are outlined below. Income tax bands The basic rate band was increased to £37,700 for 2021/22, from £37,500 the previous year. It will remain at this level for tax years up to and including 2025/26. With a personal allowance of £12,570, the point at which an individual in receipt of the basic personal allowance starts to pay higher rate tax is set at £50,270 until April 2026. National Insurance threshold The upper earnings limit for Class 1 National Insurance purposes and the upper profits limit for Class 4 National Insurance purposes are aligned with the point at which higher rate tax is payable. Both are set at £50,270 for 2021/22 and will remain at this level for the following four tax years, up to and including 2025/26. Other National Insurance thresholds and limits will be reviewed at the appropriate time. Capital gains tax annual exempt amount The capital gains tax annual exempt amount remains at its 2020/21 level of £12,300 for 2021/22. It will stay at this level for subsequent tax years up to and including 2025/26. Inheritance nil rate bands The inheritance tax nil rate band has been set at £325,000 since 2008/09 and was due for review in 2021. However, it will remain at this level for 2021/22 and subsequent tax years, up to and including 2025/26. The residence nil rate band (RNRB), which is available where a main residence is left to a direct descendant, remains at its 2020/21 level of £175,000 for 2021/22 and the following four tax years. Where the estate is valued at £2 million or more, the RNRB is reduced by £1 for every £2 by which the value of the estate exceeds £2 million. It is not available where the value of the estate is £2.35 million or above. Pension lifetime allowance The pension lifetime allowance limits the amount of tax-relieved pension savings that an individual can build up. The lifetime allowance remains at £1,073,100 for 2021/22 and for the next four tax years. Impact of freezing allowances and thresholds By freezing allowances and thresholds, the tax take will rise as incomes and assets rise with inflation. More people will pay tax and more people will pay tax at higher rates as a result, and more estates will be liable for inheritance tax. It may be prudent to plan ahead. For example, review the value of the pensions fund before making any further tax-relieved contributions – where the value of the fund exceeds the lifetime allowance, a tax charge is levied on the excess, at 25% where the excess is taken as a pension and at 55% where it is taken as a lump sum. Cont on pg 4
PAGE 6 To help the hospitality and leisure industry recover from the impact of the first national lockdown, a reduced rate of VAT of 5% was introduced for a limited period from 15 July 2020. The reduced rate of VAT was originally to apply until 12 January 2021. However, in September last year, the Chancellor announced that it would remain at 5% until 30 March 2021. By the time of the Spring 2021 Budget on 3 March 2021, the hospitality and leisure sectors were suffering the effects of further lockdowns. To provide more help to this sector, the period for which the reduced the temporary 5% rate of VAT will apply has been further extended until 30 September 2021. From 1 October 2021, a new reduced rate of VAT of 12.5% will apply until 31 March 2022. The rate will revert to the standard rate of 20% from 1 April 2022. Affected supplies The following supplies will benefit from the reduced rate of 5% until 30 September 2021 and the new reduced rate of 12.5% from 1 October 2021 to 31 March 2022. 1. Food and non-alcoholic beverages sold for on-premises consumption, for example, in restaurants, cafes and pubs. 2. Hot takeaway food and hot takeaway non-alcoholic beverages. 3. Sleeping accommodation in hotels or similar establishments, holiday accommodation, pitch fees for caravans and tents, and associated facilities. 4. Admission to cultural attractions that do not already benefit from the cultural VAT exemption, such as theatres, circuses, fairs, amusement parks, concerts, museums, zoos, cinemas, exhibitions and other similar cultural events and facilities. Where an admission to an attraction is within the existing cultural VAT exemption, this takes precedence over the reduced rate.
PAGE 7 10 Questions with... We are very pleased to welcome new Trainee Accountant, Laura Puszkar to the Compass team! Here are Laura's answers to the Compass '10 Questions with...' feature: 1.What is the first thing you would buy if you won the lottery? A new house and then I would take my family on holiday 2.How did you get into accounting? I got made redundant from my job and decided to try something new. I have always liked numbers and puzzles so it seemed like the logical choice! 3.What is your favourite film? Hard to choose. Gladiator or Phantom of the Opera 4.What was your first ever job? I can’t really remember but I think it was delivering leaflets 5.If you could invite anyone (dead or alive) to your dinner party who would you invite? Kimi Raikkonen – He always makes me laugh 6.What do you like most about working for Compass Accountants? It’s such a lovely atmosphere and everyone is so friendly. I already feel very welcomed into the team. 7.Which super power would you most like to have and why? The ability to speak all languages. Going abroad would be a breeze as I wouldn’t have to use google translate to know what I am looking at! 8. What is your favourite place in the world that you have been? Orlando to all the theme parks with my family when I was young 9. What did you want to be when you were growing up? A vet – but I decided I wouldn’t be able to handle the sad side of the job 10. Tell us one strange or unique fact about yourself! I can’t stand the oven timer flashing so I have to press the button to make it stop!
PAGE 8 TAX DIARY MAY 2021 31st May Automatic exchange of information: returns due for calendar year 2020 in respect of United States Foreign Account Tax Compliance, Crown Dependencies and Overseas Territories and the Common Reporting Standard. PAYE: last date for giving a form P60 for 2020/21 to each relevant employee who was working for you on 5 April 2021, together with details of payrolled benefits-in-kind. CTSA: deadline for returns for accounting periods ended 31 May 2020 to reach HMRC For further information on any of the stories in this month’s newsletter, or for any other matter that Compass Accountants can assist you with, please contact us on 01329 844145 or contact@compassaccountants.co.uk To subscribe to the newsletter, so that each edition is delivered to your inbox, go to www.compassaccountants.co.uk and add your contact details. Compass Accountants, Venture House, The Tanneries, East Street, Titchfield Hampshire. PO14 4AR
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