How is your self-assessment tax affected by Coronavirus?

Due to the government’s measures to keep the economy running during the coronavirus pandemic, the 31st January 2020 is set to be a Self Assessment deadline unlike anything we've seen before. Following on from my recent blog on the subject, HMRC and HM Treasury have made unprecedented changes to the tax system to support taxpayers, but how is it likely to affect your self-assessment in the long run?

The principal effect for self-assessment taxpayers (self-employed, landlords, company directors, members of partnerships and so forth) relates to the Chancellor's announcement that if you are due to make a payment on account on the 31st July 2020, you can defer this to the 31st January 2021. You don't need to tell HMRC that you’re deferring the payment, and they will not charge any of the normal interest and penalties for late payment as long as it is made in full either on or before 31st January 2021.

However, it's worth remembering that in terms of cashflow, pushing your payment on account back to January, you will effectively have to pay what you owe HMRC all in one month, which will potentially cause greater harm to your cash flow in the long run. This can be avoided by mapping out your finances ahead of time.

Also, see my blog on how you can use lockdown to your advantage in getting your taxes sorted early this year. The earlier you file your 2019/20 Self Assessment tax return, the sooner you’ll know how much you will owe come 31st January 2021 (especially if you've deferred your July payment on account).

Finally, it's worth remembering that if lockdown means you’re now working from home, you could also stand to make further savings on your 2020/21 tax bill. Start by monitoring your utility and phone bills. You can claim a proportion of certain bills as expenses, provided they’re deemed ‘allowable’ and are for business purposes.

Lockdown got your finances down? How can tax help...

So, if 2020 and the current UK #coronavirus lockdown has given some of us anything (useful I mean), it's time. As your friendly online tax practitioner, I thought I'd share some handy tips of what you could be looking at if you have some downtime on your hands.

1. GET YOUR TAX RETURN SORTED OUT!

Whether that means doing it yourself through your HMRC personal tax account, or working with your tax practitioner to get it filed early, now is a good time to do it, and not just because it gets it out of the way. For those with payments on account to make in July (although we all know you have the ability to defer those payments until January) it could result in a reduction in that payment. Similarly, if you work in the construction industry as a self-employed contractor you're probably owed a tax rebate from your CIS deductions. Working with some clients during lockdown I've seen 4 figure sum rebates, which have been really handy.

2. SEE IF YOU CAN MAKE A MARRIAGE ALLOWANCE CLAIM

If you're married or in a civil partnership, can you answer yes to both of these questions:

• Are you a basic rate taxpayer?
• Does your spouse earn less than £12,500 a year? 

If you can, then congratulations your spouse/civil partner might be able to transfer £1,250 of their personal allowance to you resulting in a tax rebate of up to £250 every tax year (6 April to 5 April the next year). You can backdate your claim to include any tax year since 5 April 2016 that you were eligible for Marriage Allowance. This is possible whether you're an employee or self-employed, check out THIS LINK to see if you can claim.

3. SELF EMPLOYED? HAVE YOU CLAIMED SEISS?

If you were self-employed in the 2019/20 tax year, have submitted your self-assessment tax return for the 2018/19 tax year, had your self-employment affected by coronavirus, and had profits under £50,000 for the last three years then you should be eligible and HMRC should have written to you.

If they have, and you haven't got around to applying, DO IT NOW! There's a mistaken belief amongst many in the self-employed community that they can only claim if they haven't been working at all. That is simply not true, it is only necessary that the coronavirus outbreak has had a detrimental effect on your business. But remember, any payment you receive under SEISS is taxable in 2020/21, so make sure you keep some aside to cover the tax if you can. You can also check out another of my blogs about HMRC's new powers should anyone make a fraudulent claim.

Do I need a holding company?

A question I’m often asked by SME business owners is whether they should form a holding company. Simply put, placing shares in an existing company into the ownership of a holding company can offer significant tax, legal and commercial benefits.

What is a holding company you might ask? A holding company is a business that exists to deal with the assets of other businesses and to invest in and manage other businesses. They are private limited companies with their own shares, and they normally undertake activities that do not involve the sale of products or services.

So, what are the benefits of creating a holding company:

• Should the situation arise whereby you may have to settle claims or debts from uncertain times of trade, then having a holding company could protect cash and valuable assets, such as property, by ringfencing them from such future claims.
• If you’re entering into a new trading activity that carries an element of risk, then a holding company will allow you to keep this riskier activity contained and partitioned away from existing trading activity whilst still being funded by it.
• Utilising a holding company and possibly a wider group structure allows you to ringfence certain assets to protect them from tax charges. For example, it’ll allow the movement of cash, tangible assets (e.g. property), and intangible assets (e.g. intellectual property) to different entities without incurring any tax charges.

With regard to accumulated cash deposits and investment property, a holding company can be created, and a group formed to allow assets to move within the group.

As for tax, when you exchange shares in your trading company for shares in the new holding company this will avoid a capital gains tax charge. Once the holding group has been formed; group relief and the taxation of dividends received by companies means the movement of the property and cash is achieved without a charge to tax between the holding company and its subsidiaries.

Taxation of UK Coronavirus Support Payments

There is new draft UK legislation for addition to FA 2020 for the taxation of coronavirus support payments:

https://www.gov.uk/government/consultations/draft-legislation-taxation-of-coronavirus-covid-19-support-payments

It applies to individuals, businesses, partnership members, and employers. The legislation confirms the taxability to Income Tax or Corporation Tax of all such receipts subject to business profits on normal principles.

The legislation also provides for Income Tax assessments at 100% of any amount to which the recipient was not entitled and gives HMRC the power to levy penalties upon any deliberately incorrect claims – subject to a 30-day self-reporting window. Furthermore, the legislation will make culpable company officers jointly and severally liable to Income Tax for deliberate false claims where the company could not pay the assessment.

What they giveth with one hand...

Well, here goes nothing...

For anyone who's been following this blog for a while you'll have noticed some changes today, they are driven by some exciting news!

Yes, during the current health and economic climate I've relocated me and my business to a new firm, Edwards Chartered Accountants in Aldridge, Walsall. Whilst it's a challenging time for business (I'll admit, starting with a new team whilst all working from home is a new one on me) it has already proven to be the right decision. I can't say how much I'm looking forward to working with Adrian, David, Neil, Paul and the rest of the team at Edwards, new challenges are always fun.

So, I just thought I'd share their press release with my followers...

Edwards Accountants expands & diversifies its tax services

with exciting appointment

Midlands firm, Edwards Accountants, has appointed a new Tax Director as it looks to expand and diversify its offering to clients across the UK.

Experienced tax specialist Steven Holden joins the fast-growing firm as it looks to deliver a wider range of services and advice to clients.

Steven has spent more than two decades advising clients on taxation, having previously worked at some of the UK’s leading accountancy and legal firms.

With a strong background in the taxation and administration of trust and estates, Steve brings with him a wealth of experience in both corporate and personal tax planning and compliance.

Speaking about his appointment, Steven said: “The Midlands may be a powerhouse for manufacturing, technology and industry in general but it is underserved when it comes to high-level tax advice for individuals, particularly support with complex trusts and estates.  “I hope that my appointment at Edwards Accountants rectifies this and we can enhance the existing tax offering to attract clients from across the UK to this fantastic, proactive practice.”

As well as bringing significant knowledge of personal taxation to the firm, Steven is also an expert in corporate re-organisations, employee incentive schemes and R&D credits.

May you live in interesting times...

...is both the title of a favourite book of mine and also an ancient curse (think about it). We're certainly living through uncertain times for families and businesses around the world, not just in the UK. To paraphrase a line from another book "people think they want good government and justice for all, yet what is it they really crave, deep in their hearts? Only that things go on as normal and tomorrow is pretty much like today." I think never has that sentiment felt truer than it does at the moment.

For all those of us out there working from home, or who have been furloughed from work (or worse still those unlucky ones who've been made redundant), or those who are supporting the rest of us in key roles we are certainly living in "interesting times" right now.

I know this is primarily a "tax blog", but just occasionally I do like to share my musings on the wider political and economic situation. I understand that there is a great deal of negative news and rhetoric out there at the moment, and I don't want to focus on that (and I'm not trying to discount it), what I want to think about are the positives that could yet come out of this in relation to the way its affected our working lives.

The biggest positive impact (for business and employees, and probably the environment) of course has to be the proof positive that remote working, in some capacity at least, does work. This is something that some of us have known for years, indeed I've often said I can get three days of "office" work done in a single day working from home. So, perhaps we'll see some of this start to creep back in when we get back to "normal", whatever that might look like. Another that is also pretty obvious, is that it has forced almost all of us to use virtual/video meeting software. Whether that's just to call up Mum and Dad because you miss seeing their faces, or to have a meeting with a client on the other side of an ocean, more and more of us are getting comfortable with it. For business, this just makes the world smaller and therefore easier to do business in. What was usually the domain of large multinational businesses should now be able to be accessed by everyone (I do it from my small back bedroom home office all the time!).

How about the economics of our interesting times? Well, I hear a lot of talk about the world economy being put on pause, and that is really how it feels. If you read such things as the Times rich list (oh my god why?!?), or look at the stock markets, then yes, the world did take a hit, but financial markets have always gone down as well as up, what's new? Taking that into account, the markets were due a correction, and have now recovered to much more sensible levels from the original 25%+ drop in March and early April. Consider as well that the whole world has been affected, this isn't just a country or event continent isolated event, everyone really is in the same boat this time.

Times are hard, for some of us they always are, but sometimes in the darkest of times can the greatest opportunity be found...

Budget 2020: The REAL News (well, my quick thoughts)

As always, a lot of the tax detail gets buried in the Chancellor's budget day speech, we get lots of little sound bites about tax on beer and such, but little detail on the big movements.

So, what devil has our new Chancellor, Rishi Sunak, left in the detail for us to extract...

We have of course seen the MASSIVE shift in entrepreneurs relief. Now, I'm not claiming any Nostrodamus level foresight here, as I think most of the profession guessed the most likely movement here would be a reduction in the lifetime allowance rather than a full abolition of the relief. This will see the government will introduce legislation in Finance Bill 2020 reducing the lifetime limit on gains eligible for Entrepreneurs’ Relief from £10 million to £1 million for qualifying disposals made on or after 11 March 2020.

We also saw the MONUMENTAL give away of £104.16 per annum as a result of the National Insurance limit increase. Yes, I am being sarcastic, as I do get annoyed by things like this when politicians crow about it as if giving people an extra £2 a week is like them winning the lottery!

Something many might have missed will be the change to the tapered annual allowance for pensions . The two tapered annual allowance thresholds (currently £110,000 and £150,000) will each be raised by £90,000, and the minimum tapered annual allowance will be decreased from £10,000 to £4,000 from 6 April 2020. So, from 2020 to 2021 and subsequent years the threshold income limit, the point at which an individual is assessed for the taper, will be £200,000, and the adjusted income limit, the point at which the annual allowance begins to reduce will be £240,000. Many business owners (and government employees no doubt) will welcome these changes following recent difficulties after the tapering rules were brought in.

There's a load of other stuff in the OOTLAR - Overview of Tax Legislation and Rates, which can be found here (https://bit.ly/2U0OqGQ), happy reading!

Loan Charge - Where are we?

A lot of what I will post here is direct from HMRC's recently published guidance last week (it's here if you really want to read all of it)on the upcoming changes to the loan charge following the review by Sir Amyas Morse late last year. The review was published on 20 December 2019 along with the government’s response to it. The government announced that it would accept all but one of the review’s recommendations. The measures announced will include the following changes to the loan charge:

• it will only apply to outstanding balances of disguised remuneration loans made between 9 December 2010 and 5 April 2019 inclusive;
• it will not apply to loans made in tax years before 2016 to 2017 where a reasonable disclosure of the use of a disguised remuneration tax avoidance scheme was made within the relevant tax return or, where appropriate, associated documents, and HMRC failed to take any action (for example by opening an enquiry);
• those affected by the loan charge will be able to elect to split their loan balance over 3 consecutive years - 2018 to 2019, 2019 to 2020 and 2020 to 2021;
• late payment interest will not be payable for the period 1 February 2020 to 30 September 2020 on any Self Assessment liability as long as a return is filed and the tax paid, or an arrangement made with HMRC to do so, by 30 September 2020;
• moving the date by which the additional information form must be returned to HMRC from 1 October 2019 to 1 October 2020 - the form requires customers to provide full information to HMRC relating to any outstanding disguised remuneration loans which they will need to make tax payments for.

It is important to note that these measures will have effect retrospectively to 5 April 2019, which is the relevant date for the purposes of applying the loan charge.

If you have any questions about these changes please contact HMRC's loan charge review team by email:  loanchargeconsultationresponses@hmrc.gov.uk.

Income Tax - How it works (a users guide)

In the run-up to the upcoming UK general election, I have had quite a few interactions on social media with people discussing the various tax policies of the main parties. It has been quite clear to me, and on more than one occasion directly pointed out to me, that most people really don't understand how our current Income Tax system works, let alone the proposals in the manifestos. So, as ever I'm here to help (and also to hopefully help as many people as possible without having a million-and-one Twitter conversations to achieve it!).

Income Tax

• At the moment you all get a £12,500 personal allowance before you pay any Income Tax;
• After that, the next £37,500 is taxed at 20%. So, your maximum Income Tax bill is £7,500 if you earn £50,000 a year (we'll come on to National Insurance later);
• Above £50,000 (that's your £12,500 personal allowance and £37,500 20% band), you'll pay Income Tax at 40% (but only on everything above that figure);
• If you're fortunate (or unfortunate in tax terms) to earn above £100,000 a year, then you lose your personal allowance by £1 for every £2 you earn above £100,000. This creates an effective 60% Income Tax rate between £100,00 and £125,000;
• Between £125,000 and £150,000 you're back to paying just 40% Income Tax on that slice of income; and finally
• Above £150,000 you will pay 45% Income Tax.

Footnote: there are different rates of tax for dividends (7.5%, 32.5%, and 38.1%), and there are other Income Tax reliefs.

So, as you can see our current Income Tax system is about as clear as mud, and that's before we've even got on to National Insurance...

National Insurance

Unfortunately, despite many promises, the National Insurance (NI) system has never quite been aligned to Income Tax. However, it is somewhat simpler than Income Tax:

• On your first £8,632 you pay no NI;
• Between £8,632.52 and £50,024 you pay NI at 12%; and
• Over £50,025 you pay NI at 2%

Footnote: there are different rates for the self-employed, and if you take your remuneration from your business as a dividend there is no NI on that.

So, assuming you're an employee (things are a little for the self-employed/company owner) that's how tax works. Unfortunately, there seem to be a lot of people out there who think when you breach a certain tax band you pay that rate on all your income, not so my friends...

Finally, Labour's 45% above £80,000. How much difference will it make? Well, for every £1,000 over the threshold you earn you'll pay an extra £50 a year, or 96p a week. Doesn't even buy a cup of coffee does it? If you're lucky enough to earn £100,000, then it'll cost you £1,000 a year, or £19.23 a week (about the cost of a McDonalds for a family of four). Not as horrendous as it sounds when you think about it...

Who can you Trust?

You want to give someone a gift, let's say its for their birthday. After considering what to get them you grab your electronic device of choice, mine would be my iPhone (other mobile devices are available), and log in to your favourite online retailer "wesellstuff.com". After making your selection you pop in the recipient's address and pay for your gift. Usually, within 24 hours it's delivered to the intended recipient and you get a little notification to say it has arrived.

A normal commonplace transaction and series of events yes? Now, I hope you'll bear with me as I haven't taken leave of my senses (yes I know this is a "tax" blog), but there is a reason for my little story above, and it relates to the use of trusts...

You have trusted "wesellstuff.com" to take your money and send your purchase to the chosen recipient. However, because they're on holiday it got delivered to the neighbour, who then forgot about it. Or, the delivery driver left it behind the bushes by the front door and a passerby decided to help themselves to it. What I'm trying to illustrate is that your intended gift could have ended up in the wrong hands, or have disappeared altogether.

So, let me get back onto the subject of tax planning and the use of trusts. My little story hopefully illustrates why people use trusts. When we're helping clients with inheritance tax planning we're not talking about a £10 book or DVD, we are talking about gifts of tens sometimes hundreds of thousands of pounds. Imagine that ended up in the wrong hands or being lost because of circumstances outside of your control!

Now some will say that I am being sensationalist, but I really am not:

• Let's say you gift £50,000 to your daughter for her and her boyfriend to buy their first house. Like most people, they choose the cheapest option for their legal work and they end up buying it as joint tenants. Tragically your daughter passes away, and because she bought the property with her boyfriend as joint tenants he inherits her half share, which by the way includes your £50,000 gift. 
• Alternatively, you make a gift of £50,000 to your son to help him set up his own business. After a couple of years, it turns out not to be the roaring success that he hoped it would and he files for bankruptcy. Again, your £50,000 is gone and there's nothing you can do to get it back.
• Finally, as in my first example, you gift £50,000 to your child (who is married), and within a couple of years they divorce and their ex-spouse takes half of the gift you made as part of the legal settlement.

All of these are very real examples that I have come across in practice that leave the donor (i.e. YOU) with absolutely no control or recourse regarding the gift they made to help their child. I could tell many more involving people going off the rails, developing drink and/or drug problems, suffering from life-changing illnesses. In every single one of these instances, the position could have been very different if the parent in question had made the gift to their child by using a trust because a trust creates a sort of legal limbo between the person making the gift and the one receiving it. The effect of this is to create a situation where your intended beneficiary can have the use and enjoyment of the trust assets, but they do not legally own them in their personal capacity.

I really do wish that our current lawmakers and media would understand why trusts are used. These days they have almost become a byword for tax avoidance and corruption. Anyone with a trust is viewed suspiciously by the collective. Why is this I ask myself, and I can only conclude because it furthers a political narrative. The vast majority of people use trusts to PROTECT not to AVOID!