from A newsletter for proactive planning... In this edition... Filing 2021/22 expenses and benefits returns MTD for VAT for all Identifying NIC increases on the payslip Claiming NIC veterans’ relief from April 2022 Plastic packaging tax – who is liable? Tax Diary Kerry celebrates the arrival of twins! CLIENT FOCUS- Army Flying Museum May 2022 Issue www.compassaccountants.co.uk
PAGE 4 2 If you are an employee and you personally incur expenses in carrying out your job, you may be able to claim tax relief for those expenses. Relief is only available for expenses that you must incur, rather than those that you choose to incur, and the expenses must be incurred wholly, necessarily and exclusively in performing the duties of your job. involve more work. In the event that you have to stay away overnight, you can claim the cost of any overnight accommodation and food and drink. Relief is not available for expenses that you incur to enable you to be able to do your job, such as childcare costs, nor it is available for private costs. Separate tests apply to travel expenses – relief is available for business travel but not private travel, which includes the ordinary commute. Typical expenses Although the expenses that an employee may incur will vary depending on the nature of their job, popular expenses for which claims may be made include travel costs, additional costs of working from home, professional fees and subscriptions, work clothing and tools and equipment. Travel expenses If you have to travel for your job and your employer does not meet the cost of the associated travel expenses, you may be able to claim a deduction. Typical travel expenses include public transport costs, parking fees, congestion charges and tolls and, where you travel by car, mileage costs. For most expenses the deduction is the amount that you spent. If you use your own car, you can claim a mileage allowance of 45p per mile for the first 10,000 business miles in the tax year, and 25p per mile thereafter. If your employees pays you an allowance, but it less than the approved rates, you can claim a deduction for the difference. If you have a company car, you can claim a deduction for fuel based on HMRC’s advisory fuel costs. If you do not want to use the flat rates, you can instead claim a deduction based on the actual costs, but this will Working from home If you are required to work from home, you can claim a fixed rate deduction of £6 per week (£26 per month) for additional household costs incurred as a result of working from home. If preferred, you can claim the actual amount of extra costs that you have incurred from working from home, but you will need bills and receipts to support your claim. Professional fees and subscriptions If you have to pay a professional fee to be able to do your job and you meet the cost yourself, you can claim a deduction. You can also claim a deduction for any subscriptions that you pay to approved professional bodies or learned societies that are on HMRC’s list. Work clothing and tools If you are required to wear specialist clothing to do your job, you may be able to claim the cost of cleaning, repairing or replacing that clothing. However, you are not allowed a deduction for the initial cost. CONTINUED ON PAGE 3
PAGE 4 3 Similarly, you can claim a deduction for the cost of replacing or repairing any small tools that you need to do your job and which you provide yourself, but not the initial cost of those tools. Making the claim If you need to complete a self-assessment tax return (which may be the case if you also have income from employment or investment income), you can make the claim in your tax return. If you do not need to complete a tax return, you can either make the claim online or by post on form P87. Online claims can be made using the online service on the Gov.uk website. You will need to sign in using your Government ID and password. You can make a claim for multiple tax years, and also for up to five different jobs. It is advisable to make sure that you have all the information that you need before starting the claim. Once you have made the claim, you will be given a reference number which you can use to track the progress of the claim. You can also make a claim by post on form P87, which is available on the Gov.uk website. Again claims can be made for multiple tax years and also for up to five jobs. From 7 May 2022, HMRC will only accept postal claims on form P87; previously claims could be made by letter. Use simplified expenses to save work A lot of time and paperwork can be saved by claiming expenses using the simplified rates, rather than recording and deducting actual costs. However, if the deduction is considerably higher using actual costs, the additional time investment may be worthwhile. Given current high cost of fuel, where mileage is high, a deduction based on actual costs may be preferable. Use of the simplified rates is optional and is available to sole traders and partnerships that do not have any corporate partners. Motor vehicles Businesses can claim a fixed rate per business mile deduction for the vehicle expenses. The fixed rate deduction covers the cost of buying, running and maintaining the vehicle (including the cost of fuel, oil, servicing, repairs, insurance, VED and MOT). The fixed rates per mile are as follows: CONTINUED ON PAGE 4
PAGE 4 Type of vehicle Cars and goods vehicles: First 10,000 miles Subsequent business miles Motorcycles Flat rate per business mile 45p per mile 25p per mile 24p per mile Once a business elects to use the flat rates, they must continue to do so while the vehicle remains in the business. Capital allowances cannot be claimed where the simplified rates are used and if capital allowances have been claimed in respect of the vehicle in question, it is not possible to use the flat rates. Once a business elects to use the flat rates, they must continue to do so while the vehicle remains in the business. Capital allowances cannot be claimed where the simplified rates are used and if capital allowances have been claimed in respect of the vehicle in question, it is not possible to use the flat rates. Use of home It is also possible to claim a fixed rate deduction for the use of home for the purposes of the business. The flat rate provides an allowance for additional household running incurred as a result, and covers the additional costs of cleaning, heat, light, power, telephone, broadband etc. The deduction is based on the total number of business hours spent working in the home on core business activities in the month and is as follows: Flat rate per month Number of hours spent on core business activities 25 or more £10 51 or more £18 101 or more £26 Core business activities are providing goods or services, maintaining business records, marketing and obtaining new business. Case study Betty is a dog groomer. She provides a mobile service and also works from home. In 2022/23 she spent 60 hours a month working in her home on core business activities and she drove 15,000 business miles. To save the work involved in determining the actual additional costs, she claims flat rate deductions in respect of the use of her car and her business use of home. For the car she claims a deduction of £5,750 being 10,000 miles at 45p per mile (£4,500) plus 5,000 miles at 25p per mile (£1,250). For use of her home she claims a deduction of £18 per month – an annual deduction of £216. Claiming fixed rate deductions saves the time and effort of keeping records of actual costs and calculating the deductible amount.
PAGE 5 To help companies realising losses as a result of the Covid-19 pandemic, the loss relief rules were amended to provide for an extended carry-back window. Where companies are making a claim for relief under the extended carry-back rules, the claim can be made online rather than waiting until the company tax return is filed. Extended relief Under the normal rules, a company that incurs a trading loss can set that loss against total profits of the same accounting period. Where the loss is not relieved in this way, it can either be carried back and set against total profits of the previous 12 month period, as long as the company was carrying on a trade in that period, or carried forward and set against future profits of the company. If the company ceases trading, a claim for terminal loss relief can be made, allowing the loss to be set against profits of the previous three years. The 12-month carry-back window was extended to three years in respect of losses for accounting periods ending between 1 April 2020 and 31 March 2022. Where a loss is carried back under the extended rules, it must first be set against profits of a more recent year before it is set against profits of an earlier year. The amount that can be relieved under the carry-back provisions is capped at £2,000,000 for all accounting periods ending in the period from 1 April 2020 to 31 March 2021. A separate cap of £2,000,000 applies to losses of accounting periods ending between 1 April 2021 and 31 March 2022. The claim is limited to trading losses (and excludes capital losses). Losses which are carried back one year under the usual rules are not subject to the £2,000,000 cap – it only applies to losses carried back two or three years. Making a claim under the extended carry back rules can be very beneficial and may generate a much-needed tax repayment for companies facing cash flow difficulties as a result of the impact of the Covid-19 pandemic. Making the claim As with the usual carry back claim, the claim can be made in the company tax return. This must be filed no later than 12 months from the date on which the accounting period ends. However, there is also an option to make a claim for extended loss relief online. This can be done on the Gov.uk website. Making an online claim can be advantageous as it can speed up the repayment. The claim can be made as soon as the loss-making accounting period has ended – there is no need to wait until the company tax return is filed. CONTINUED ON PAGE 6
PAGE 6 Case Study Food Ltd runs a small restaurant and bar. The company prepares accounts to 31 March each year. It was badly affected by the pandemic, realising a loss of £60,000 for the year to 31 March 2021 and a loss of £35,000 for the year to 31 March 2022. Prior to the pandemic, it had made profits as follows: ·Year to 31 March 2020: profit £50,000. ·Year to 31 March 2019: profit £80,000 ·Year to 31 March 2018: profit £40,000 The company makes a claim under the normal rules to carry back £50,000 of the loss of the year to 31 March 2021 to the previous year (the year to 31 March 2020), and makes a claim under the extended rules to carry the remaining loss of £10,000 back against the profits of the year to 31 March 2019, reducing them to £70,000. The combined claims generate a tax repayment of £11,400 (£60,000 @ 19%). The company cannot carry the loss of £35,000 for the year to 31 March 2022 back one year -as there are no profits for the year to 31 March 2021. It makes a claim under the extended carry-back rules. As the profits for the year to 31 March 2020 have been eliminated by a previous claim, the company can carry the loss of £35,000 and set it against the remaining profits of £70,000 for the year to 31 March 2019 (the earliest year to which the loss can be carried back). This reduces the profits of that year to £35,000, and generates a repayment of £6,650 (£35,000 @ 19%). The claim can be made online from 1 April 2022 onwards. National Insurance changes from July 2022 Although the National Insurance rates and thresholds for 2022/23 had already been set, at the time of the Spring Statement in March 2022, the Chancellor announced increases in the primary threshold which would align the starting point for National Insurance with the personal allowance from 6 July 2022. However, as the increase does not take effect until part way through the 2022/23 tax year, the two are not fully aligned until 2023/24. The lower profit limit for Class 4 contributions was also increased. Employees Employees pay primary Class 1 National Insurance contributions on their earnings to the extent that these exceed the primary threshold. For 2022/23, contributions are payable at the main rate of 13.25% on earnings between the primary threshold and the upper earnings limit, and at the additional rate of 3.25% on earnings in excess of the upper earnings limit. Employees are treated as having paid contributions at a notional zero rate on earnings between the lower earnings limit and the primary threshold. This has the effect of ensuring that the year is a qualifying year for state pension purpose if the employee has earnings at least equal to 52 times the weekly lower earnings limit. CONTINUED ON PAGE 7
PAGE 7 The primary threshold was initially set at £190 per week (£823 per month; £9,880 per year). These thresholds now only apply from 6 April 2022 to 5 July 2022. From 6 July 2022, the primary threshold is aligned with the personal allowance, and from 6 July 2022 to 5 April 2023 is set at £242 per week (£1,048 per month; £12,570 per year). As the increase takes effect three months after the start of the 2022/23 tax year, the annual primary threshold for 2022/23 is £11,908. This will be of relevance to directors with an annual earnings period. The increase in the thresholds does not affect any liability for primary contributions for any tax week commencing before 6 July 2022. As a result of the increase in the primary threshold, employees will pay less National Insurance from July onwards. There is no change to the secondary thresholds. Case study Imogen is paid £2,000 per month. For April to June 2022 inclusive, she pays primary contributions of £155.95 per month (13.25% (£2,000 £823)). However, from July 2022, her monthly primary contributions fall to £126.14 (13.25% (£2,000 - £1,048)). The increase in the primary threshold means that from July she is £29.81 better off each month. Employment allowance The employment allowance reduces the secondary contributions payable by the employer. The allowance is set at £5,000 for 2022/23, having been increased by £1,000 following the Spring Statement. Eligible employers should remember to claim the allowance. The self-employed The starting point for Class 4 contributions is aligned with the primary threshold for Class 1 purposes. To keep the alignment in light of the increase to the primary threshold from July 2022, the lower profits limit for 2022/23 has been increased from £9,880 to £11,908. The increase applies from 6 April 2022.
PAGE 6 Relief for pre-trading expenses When you start a business, you will need to incur costs commencement will form opening stock, and relief before you are able to start trading. Did you know that you are able to claim tax relief for these? Relief is available for unincorporated businesses for income tax purposes and also for companies for corporation tax purposes. against profits will be given for stock sold in the first accounting period. Typically, you may need to incur expenses securing business premises and kitting them out, on buying stock, on recruiting staff, on setting up a website, on IT and on marketing the business. In the same way that relief is given for business expenses incurred once the business is up and running, relief is also available for those incurred before the business commenced. The relief The general rule is that relief is available for business expenses that are incurred wholly and exclusively for the purposes of the business. Relief is available for revenue expenses regardless of whether the cash basis or the accruals basis is used. However, the way in which the relief is given for capital expenditure depends on the way in which the accounts are prepared – where the cash basis is used, capital expenditure can be deducted in accordance with the cash basis capital expenditure rules. Otherwise, relief may be available in the form of capital allowances. Where the expenditure is capital in nature and qualifies for capital allowances, allowances are given as if the expenditure was incurred on the first day of trading. Case Study Tilly opens a tea shop and starts trading on 1 May 2022. She operates as an unincorporated business. In the nine months prior to opening the business, she incurs the following expenses: The pre-trading relief rules allow relief for expenses that were incurred in the seven years prior to the commencement of the trade to the extent that the expenses would have been deductible had the expenditure been incurred once the business was up and running. Pre-trading expenses are treated as if they were incurred on the day on the first day of trading, and are deducted in computing the profits for the first period of account. ·rent -- £1,000; ·staff costs -- £2,000; ·stock -- £4,000; ·travel expenses -- £850; ·advertising -- £3,000 ·website -- £1,200 ·shop fittings -- £12,000 ·laptop -- £500. No deduction is given for the cost of stock under the pre-trading expenses rules. Stock purchased prior to Under the pre-trading rules, the rent, staff costs, travel expenses, website, and advertising costs are treated as if they were incurred on 1 May 2022. CONTINUED ON PAGE 9
PAGE 9 They are deducted in calculating her profits for her first accounting period. If she prepares her accounts under the cash basis, she can also claim a deduction for the laptop. If the accruals basis is used, she can claim capital allowances (including the annual investment allowance): the expenditure is treated as incurred on 1 May 2022. Relief for the cost of the stock is given in the first accounting period. Kerry celebrates the arrival of twins Compass team member Kerry SweenyCunningham is celebrating the recent birth of twins. The babies joined the Compass family earlier this year, on 17th February. Emma- (on the left and dressed in pink) was born at 7.57pm, and weighed 6lb 3oz. Max - (on the right and dressed in in blue)was born 11 minutes later and weighed 5lb 2oz. Congratulations Kerry from the Compass team!
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