TAXANGLES- March Edition

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TAXANGLES

A newsletter for proactive planning...

Client Focus- Featuring The Jane Austen House

In this edition...

March 2021
Issue

IR35 and off-payroll working – what to do from 6 April 2021
www.compassaccountants.co.uk
Business interruption insurance – Are pay-outs taxable?
National Insurance contributions for 2021/22
Claim expenses for additional costs of working from home
Gift aid – Beware if your income falls
Client Focus- An interview with Lizzie Dunford from The Jane Austen House
10 Questions With... New Compass staff member, Sue Elliott
Tax Diary- Dates for March 2021

COMPASS ACCOUNTANTS
PAGE 2

IR35 and off-payroll working – What to do from 6 April 2021
if you provide services through an intermediary
Prior to 6 April 2021, workers who provide their
services to a private sector organisation through
an intermediary, such as a personal service
company, need to consider whether the IR35
rules apply to them. This will be the case if the
nature of the engagement is such that if they
provided their services directly to the client
rather than through their personal service
company, they would be an employee of the
client. Where an arrangement falls within the
scope of the IR35 rules, the worker’s
intermediary needs to determine the deemed
employment payment on 5 April at the end of the
tax year. The intermediary must account for tax and National Insurance (employee’s and employer’s) and pay it over to
HMRC.
Since 6 April 2017, workers providing services to a public sector body through an intermediary have not needed to
consider IR35. Instead, under the off-payroll working rules, responsibility for determining whether the worker would be
an employee if the services were supplied directly falls on the public sector body. If the worker would be classed as an
employee were this the case, tax and National Insurance must be deducted from payments to the worker’s intermediary,
and paid over to HMRC, together with the associated employer’s National Insurance.
From 6 April 2021, the off-payroll working rules, as they apply where the end client is a public sector body, are being
extended. From that date, they will also apply where the end client is a medium or large private sector organisation. The
changes will affect workers providing their services through an intermediary.
When agreeing an engagement from 6 April 2021 onwards, the worker should check the size of the end client so that they
know which set of rules are in point.

End client is a medium or large private sector organisation
Where the end client is a medium or large private sector client,
from 6 April 2021, the worker no longer needs to consider the
IR35 rules. Instead, under the extended off-payroll working
rules, the end client must determine whether the worker
would be an employee if they provided their services directly
to the end client, rather than via an intermediary.
The end client must provide the worker with a copy of the
determination (the status determination statement). The
worker should check this. If they don’t agree with it, they
should tell the end client. The client must then reassess the
status determination and let the worker know within 45 days
whether the original determination stands, or issue a new one.

If the nature of the engagement is such that the worker
would be an employee if the services were provided
directly, the fee payer will adjust the invoice from the
worker’s intermediary to exclude VAT and the cost of any
recharged materials to arrive at the deemed employment
payment, and deduct tax and National Insurance from the
payment to the worker’s intermediary. This will have a
cash flow implication – the worker’s intermediary will no
longer receive payments gross.
The worker will receive credit for the tax and National
Insurance paid against that due on payments made by the
worker’s intermediary to the worker.

Cont on pg 3

COMPASS ACCOUNTANTS
PAGE 3

End client is a small private sector organisation
The extended off-payroll working rules do not apply to small private sector organisations. Consequently, the position
is the same on or after 6 April 2021 as it is now. The worker’s intermediary must continue to consider whether the
IR35 rules apply, and operate them if they do.

End client is a public sector organisation
There is also no change from 6 April 2021 where the end client is a public sector body. As now, the public sector body
must assess whether the off-payroll working rules apply and issue a status determination to the worker. If the
engagement falls within the rules, they must deduct tax and National Insurance from payments to the worker’s
intermediary.

Business interruption insurance provides cover for losses as
a result of events that close or severely disrupt the business.
Policies may cover a loss of profits that arise as a result of the
‘interruption’. They may also meet fixed costs that the
business has to continue to meet despite being closed.
Many businesses who had been forced to close as a result of
the Covid-19 pandemic and associated lockdown measures
and who attempted to make a claim on policies that they
believed provided cover for the associated loss of profits
found that their insurers did not agree. The sticking point
was the wording of the policy where this excluded diseases
unless specifically named.
To provide clarification for policyholder and insurers, the
Financial Conduct Authority (FCA) took a test case. The high
court found mostly in favour of the policyholders. On appeal,
the Supreme Court ruling in January furthered strengthened
the policyholders’ position. As a result of the Supreme Court
ruling, around 370,000 small businesses may receive a payout.

Tax implications
HMRC’s general stance is that if the premium was tax
deductible, any insurance receipts are taxable. Businesses
would have been able to deduct the cost of business
interruption insurance premiums as long as the cost was
incurred wholly and exclusively for the purposes of the
business. Where a policy pays out an amount to cover the
loss of profits during the period when the business was shut,
the receipt is treated as trading income. Payments to cover
costs are also taxable if a deduction is allowable for the cost.

Where accounts are prepared on the cash basis, the
insurance receipt is taken into account in the accounting
period in which it is received.
However, if the accounts are prepared on the accruals
basis (as would be the case for a company), the receipt
should be matched to the period to which it relates, for
example, the accounting period in which the lockdown
giving rise to claim fell. However, where there was doubt
as to whether a payment would be made, as was often the
case in relation to Covid-19 claims, the critical time would
be the time when it became clear that a payment would be
made. This may be the period in which the date of the
Supreme Court ruling occurred.

COMPASS ACCOUNTANTS
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PAGE 3

National Insurance contributions for 2021/22
The 2020/21 tax year starts on 6 April 2021. From that date,
new thresholds apply for National Insurance purposes.

Employees and Employers
Employees pay primary Class 1 National Insurance
contributions on their earnings, while secondary Class 1
contributions are payable by their employees.
Employees come within the ambit of Class 1 National
Insurance contributions once their earnings reach the lower
earnings threshold. This remains at £120 per week for
2021/22 (£520 per month; £6,240 per year). However,
contributions are paid at a notional zero rate between the
lower earnings limit and the primary threshold. While this
does not cost the employee anything, it ensures that the year
is a qualifying year for state pension and contributory benefit
purposes.
Once an employee’s earnings reach the primary threshold,
they must start paying employee Class 1 National Insurance
contributions. For 2021/22, the primary threshold is set at
£184 per week (£797 per month; £9,568 a year).
Contributions are payable on earnings between the primary
threshold and the upper earnings limit at the main primary
rate of 12%. For 2021/22, the upper earnings limit is set at
£967 per week (£4,189 per month; £50,270 per year).
Contributions on earnings above the upper earnings limit are
payable at the additional rate of 2%.
Employer contributions are payable at the secondary rate of
13.8% on all earnings above the secondary threshold. There
are three thresholds. The main threshold is the secondary
threshold, which applies to employees aged 21 and over who
are not apprentices under the age of 25. As for 2020/21, the
secondary threshold and the primary threshold are not
aligned – for 2021/22 the secondary threshold is set at £170
per week (£737 per month; £8,840 per year).
A higher secondary threshold applies to employees under
the age of 21 and apprentices under the age of 25, and
secondary contributions are only payable on earnings in
excess of the threshold. For 2021/22 both thresholds are set
at £967 per week (£4,189 per month; £50,270 per year) –
the same as the upper earnings limit applying for employee
contributions.

Employees and apprentices in these categories pay
employee contributions on earnings above the primary
threshold, as for other employees. The rate of
employer only Class 1A contributions (on benefits in
kind and taxable termination payments and sporting
testimonials) and Class 1B contributions (on items
included within a PAYE Settlement Agreement)
remains at 13.8% for 2021/22.

Self-employed
The self-employed pay two classes of contributions –
Class 2 and Class 4 – if their profits exceed the
relevant thresholds.
Class 2 contributions are payable at £3.05 per week
for 2021/22 (unchanged from 2020/21) on earnings in
excess of the small profits threshold, set at £6,515 for
2021/22. Where earnings are below the small profits
threshold, Class 2 contributions can be paid voluntarily
to maintain the earner’s contribution record.
Class 4 contributions are payable at the main rate of
9% on profits between the lower profits limit, set at
£9,568 for 2021/22, and the upper profits limit, set at
£50,270 for 2021, and at the additional rate of 2% on
earnings in excess of the upper profits threshold.

Voluntary contributions
Individuals can make voluntary contributions Class 3
to maintain their contributions record. These are
payable at a weekly rate of £15.40 for 2021/22. Where
the option is available to pay Class 2 voluntarily, this is
a much cheaper option.

COMPASS ACCOUNTANTS
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Claim expenses for additional costs of
working from home
As the 2020/21 tax year draws to a close, many employees will have spent much if not all of the last year working from
home.
While the tax system enables employers to pay employees a tax-free allowance of £6
per week (£26 per month) to cover the additional household costs of working from
home, employees with less generous employers can also benefit to a degree by
claiming tax relief for the extra household costs that they incur as a result of working
from home.

How much?
Employees can make a claim for £6 per week (£26 per month) without the
need to provide evidence to prove that they have incurred additional costs of
working at home. However, if the actual additional household costs are
higher (and the employee is able to provide evidence to substantiate this if
asked), they can claim the higher actual amount.
Relief is given at the taxpayer’s marginal rate of tax. Thus, an employee
making a claim for a full year of £312 (12 x £26) will receive tax relief of
£62.40 if they are a basic rate taxpayer, £124.80 if they are a higher rate
taxpayer and £140.40 if they are an additional rate taxpayer.

How to claim
There are various ways in which a claim can be made.
If the taxpayer completes a self-assessment tax return, a claim can
be made in their tax return.
HMRC have also set up an online claim site, which is available on
the Gov.uk website.
Claims can also be made on form P87. This too is available
on the Gov.uk website.

PAGE 6

Gift aid – Beware if your income falls
Where a Gift Aid declaration is made, the recipient charity or community amateur sports club
can claim back basic rate tax on the donation. The donation is treated as made net of basic rate tax,
meaning that for every £1 donated, the charity can claim back 25p, or to put it another way, a
donation of £80 is worth £100 to the charity.
There is good news for higher and additional rate taxpayers too – they can claim the difference
between the rate at which they pay tax and the basic rate of tax, either through their
self-assessment tax return, or if they do not complete a tax return, by asking HMRC to
amend their tax code. For example, if a higher rate taxpayer made a donation of £100,
the charity will claim back £25 – so the donation is worth £125 to the charity. The
taxpayer receives relief at 40% on the gross donation of £125, i.e. £50, of which £25
is given at source (the taxpayer pays £100 for a £125 donation).
The remaining £25 is claimed back by the taxpayer.

Funded by tax paid
The tax that is claimed back by the charity is funded by the tax paid by the donor.
This is fine where the donor has paid more tax in the year than is claimed back
by charities and community amateur sports clubs on donations.
However, a problem can arise if the donor’s income falls, such that they are not a taxpayer or pay less tax than is
claimed back on the donation. Where this is the case, HMRC can seek to recover the tax reclaimed by the charity from
the donor.

Example
Amy is self-employed hairdresser. She makes a donation of £20 each month to an animal rescue charity. She makes a
Gift Aid declaration so the charity can reclaim tax at the basic rate on the donation. Due to the Covid-19 pandemic,
Amy was unable to work for much of 2020/21. She was unable to claim support under the SEIS scheme as she only
started her business in January 2020. Her earnings for 2020/21 fell to £8,000. Previously, she had always earned
around £20,000.
As her earnings for 2020/21 are less than the personal allowance of £12,500, she does not pay any tax for 2020/21.
Therefore, there is no tax to fund the tax claimed back by the charity of £60 (25% (£20 x 12). HMRC could seek to
recover this from Amy.

Tip:
Where regular donations are covered by a Gift
Aid declaration review these and cancel the Gift
Aid declaration if it looks as if income may fall
below the personal allowance. For one-off
donations, only complete the Gift aid declaration
if income is such that sufficient tax will be paid to
cover that claimed on the donation.

COMPASS ACCOUNTANTS
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Client Focus : Jane Austen’s House
In this Month’s ‘Client Focus’ we chat to Lizzie Dunford, Director of Jane Austen’s House- a Compass client- and
learn about the impact Covid-19 has had on one of the most important literary heritage sites in the world…
It was within the walls of the Grade I listed building in
Chawton, that Jane Austen wrote and revised all of her
highly acclaimed novels, Sense and Sensibility, Pride and
Prejudice, Mansfield Park, Emma, Northanger Abbey
and Persuasion.
Since 1949, the 17th century Hampshire building has
been open to the public, offering visitors the opportunity
to see the collection of objects associated with Jane
Austen, including her letters, jewellery, first editions of
her books, furniture, textiles and the table at which she
wrote her much loved novels.

However, like many museums and heritage sites, Jane
Austen’s House faced a challenging and worrying year
following the outbreak of Covid 19 in the early months of
2020. Lizzie Dunford, the Director of Jane Austen’s House
explains, “As a charity, up until the pandemic, we were
almost entirely dependent on footfall revenue, so when
that income stream suddenly stopped it was extremely
worrying.”
Jane Austen’s House received an emergency grant from the
National Lottery Heritage Fund, which was vitalCont on pg 8

PAGE 8

following its temporary closure, but even after the first
lockdown when some restrictions were dropped, social
distancing measures meant visitor numbers were reduced
significantly. The charity was, therefore, reliant on its own
crowd funding campaigns.
“We were very lucky to have received an astonishing response
in the form of donations, both nationally and globally.” adds
Lizzie. “We saw donations come in from South America, Europe,
China, Japan and Scandinavia. We were able to raise over
£100k through crowd fundraising. These donations and the
National Lottery Heritage Fund have been at the core of our
resilience. If it wasn’t for those, we would be in a very different
position today.”

Adapting to change
The difficulties of the pandemic forced the team at Jane
Austen’s House to reconsider new ways of making the house
accessible to visitors, during a time that imposed difficult and
unusual restrictions.
“2020 was a challenge, but it was also a time of opportunity and
so we fast-tracked a lot of our ambitions.” said Lizzie. “For
example, in June we launched an online shop and in November,
during the second lockdown, we introduced virtual guided
tours, which gave us a new way of interacting with visitors
remotely, showing them around the house, whilst also enabling
us to generate a new stream of income. We have since provided
virtual tours in Spain, tours for libraries in the United States, and
we now have tours lined up in Brazil and South America.
Through this virtual offering, we now plan to maintain global
engagement and interaction post- pandemic.”

The years ahead
Whilst in the third national lockdown, planning for the next few years is always a challenge, although Lizzie believes
it will be a while before the footfall of Jane Austen’s House returns to the numbers it was used to. She said, “We
expect that we won’t be back to our pre-pandemic levels of visitors for quite some time – so our development of the
virtual aspect of the house will really help.
We have budgeted cautiously to protect the financial entity of the charity and have adapted our business model. We
will also continue to be as innovative as we can.”
“Whilst it will take a few years to recover, there are positive and negative aspects of the pandemic. For example, we
have an augmented reality app coming out soon, and we are further investing in our virtual tours and we will reap
the rewards for those.

Cont on pg 9

COMPASS ACCOUNTANTS
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We are also continuing with our campaign to fix the roof of the house - which we have already had a
fantastic public response to.”
Lizzie concludes, “Despite having a tough year and having more grey hairs that I had one year agoit’s still a great privilege to be involved with an author so revered, so beloved and so funny. Working
for Jane Austen’s House is always a joy. My team have also been incredible, I am very lucky to have
such an innovative, driven, passionate and skilled group, who have adapted and excelled. They have
been extraordinary.”

You can support Jane Austen’s House in many ways, from sharing its social media content, to
browsing the website, visiting the online shop, booking a virtual tour or simply reading a Jane
Austen book. If you would like to sponsor a roof tile to help save the roof, or you would like to
consider a corporate sponsorship or business partnership- head to the website:
www.janeaustens.house

COMPASS ACCOUNTANTS
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10 Questions with...
We are very pleased to welcome Sue Elliott, to the Compass team! Sue joins us as a Payroll Administrator
with 15 years of payroll experience . Sue said, “I'm very pleased to be a part of team! Compass has a friendly,
welcoming atmosphere combined with a high standard of professionalism and determination to provide a
first-class service to clients.”

Here are Sue's answers to the Compass '10 Questions with...' feature:
1.What is the first thing you would buy if you won the lottery?
If I won the lottery the first thing I think I would buy is a holiday home in northern Italy.
2. How did you get into accounting?
I got into payroll when I worked in Personnel.
3. What is your favourite film?
My favourite film is Educating Rita
4. What was your first ever job?
My first job was as a night club receptionist when I was in sixth form.
5. If you could invite anyone (dead or alive) to your dinner party who
would you invite?
I would love to invite Nelson Mandela to a dinner party.
6. What do you like most about working for Compass Accountants?
What I like best about Compass is the friendly atmosphere.
7. Which super power would you most like to have and why?
The superpower I would love to have is the ability to not need
sleep.
8. What is your favourite place in the world that you have been?
Northern Italy and the Italian lakes are my favourite place
that I have been so far.
9. What did you want to be when you were growing up?
I wanted to be an air hostess which is quite funny as now
I really don’t enjoy flying!
10. Tell us one strange or unique fact about yourself!
I love curry but I hate chilli.

COMPASS ACCOUNTANTS
PAGE 11

TAX DIARY
MARCH 2021
31st - Closing date to claim for the Winter Fuel Benefit for this year.
March - Last minute tax planning. Double check you have availed of all relevant allowances/ exemptions
for capital gains tax, inheritance tax, ISA's and pension.

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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