Why tax planning is a sound investment

Most of us would rather avoid the word “tax” and yet tax planning offers a unique opportunity to reduce the amount of tax that you pay and make a positive contribution to your efforts to outpace the current economic downturn and emerge financially more secure.

The rest of this blog does sketch out some of the opportunities for individuals and businesses to save tax, more importantly, it also sets out the case for investing in an appropriate level of tax planning; for you or your business.

What our tax planning services do not offer

We are all entitled to use the present tax legislation to minimise our tax payments. What we are not entitled to do is evade tax by adopting strategies that stretch the credibility of laws set by parliament beyond those originally intended. Penalties for engaging in tax schemes that would be challenged by HMRC as tax evasion can be punitive and in some cases are treated as fraud.

What does tax planning achieve?

Tax planning achieves two major outcomes:

• It reveals one-off tax saving opportunities, but it also reveals ongoing tax savings; savings that you will reap for many years with no further investment in professional advice required.
• Without straying into tax evasion, tax planning will also ensure you pay the minimum tax applicable to your circumstances, and no more…
HMRC are tax collectors. They are obliged to publish details of the tax savings options open to you, but under no obligation to tell you. A review of your personal and business circumstances is required in order to do this and this is what tax planning advice will provide.

In the following three sections we outline some of the areas that we could cover as part of an annual tax planning review. But these are just the tip of the tax planning iceberg.

Personal tax planning objectives

• Take advantage of all allowances and reliefs to which you are entitled.
• Direct your income into tax-free forms – for example, tax-free benefits in kind.
• Advising on the tax benefits of certain investment opportunities; the Enterprise Investment Scheme for example.
• Consider pension payments as a way to reduce taxes, particularly higher rates of income tax.
• Share income producing assets with family members.
• Consider use of companies to shelter income from higher rates of income tax.

Company tax planning objectives

• Choosing the best tax structure for your company if incorporating a self-employed business.
• Maximise tax relief for investment in new or used vehicles, plant or other equipment.
• Formulating the best mix of profit extraction choices: salary, dividends, pension contributions, rents or interest.
• Choosing the best tax strategy when you dispose of your business.

VAT

• Deciding when to register or deregister.
• Choosing the most beneficial special scheme if available.
• Dealing with complications if your part of your business turnover is partially exempt.

There is no one-scheme-fits-all approach

Every person and company, to some extent, is unique. Good advice for one would be bad advice for another. This is why listening to banter shared in your local may not be the best place to pick up advice.

There is no substitute for discussing tax planning options with a qualified tax practitioner.

How much does tax planning cost?

Cost may not be the most appropriate word to use. This blog proclaims that tax planning is a sound investment. Accordingly, we will always strive to ensure that you secure a return on your investment. This will not always result in the tax savings we achieve exceeding the cost of our services.

For example, changes in legislation may require changes in the way you organise your financial affairs for the current tax year and in future tax years. In which case it is necessary to consider the long-term tax savings with any short-term fees payable in order to make a true comparison.

One thing is clear. We will always determine the positive benefits of our advice whether this be a reduction in taxes payable or the avoidance of penalties and interest charges that may arise if no advice is taken. We will also provide you with a quote for our fees before undertaking any planning work on your behalf.

When should you seek advice?

Change is the motivating factor; has tax legislation or your personal or business circumstances changed?

Ideally, we should discuss these changes – whenever possible – BEFORE the change occurs.

Waiting until after the event, for example, after your business year end, may be too late to take appropriate action.

Tax planning is not a formulaic exercise, at its best, it is reshaping existing strategy in order to minimise the tax effects of change on existing planning.

And so, the quick answer to this question is talk to us. If you are going to buy or sell a property, experience a change in your personal circumstance, want to buy or sell a business or consider any other options that impact your personal finances or business affairs, pick up the phone.

If your personal or business financial affairs warrant a periodic review, we would suggest that this is considered annually to ring-fence any changes in legislation or any other circumstances.

One thing is clear, being informed and taking appropriate action has never been more necessary. As the events of the last year have demonstrated.

If this is of any interest please call the team at An Accounting Gem on 01473 744700.

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Budget 2021

On 27 October 2021, Chancellor Rishi Sunak gave his second Budget speech of the year. As significant tax changes had been announced in the March Budget, this was widely expected to be more about spending than taxation. Many of these spending plans had been announced before the Budget, earning the Chancellor a rebuke from the Deputy Speaker.

Despite the huge costs of Covid, the Chancellor announced a 3.8% annual increases in spending for all government departments. He also said that he would start reducing taxes by the end of the current Parliament, due in 2024.


Basis period reform

Basis period reform is to take place from 6 April 2024. This is a radical change that will see the end of traditional basis periods for income tax. It will also end overlap relief. The new system is called “tax year basis”

At present, the self-employed pay tax in arrears under what is called the current year basis. The new provisions will see the self-employed pay tax on the profits earned during the tax year, regardless of the accounting date. It will bring the self-employed into line with employees, landlords and investors.

The change starts to take effect in the tax year from 6 April 2023 to 5 April 2024. In this year, tax will be charged on the profits under the old basis, plus profits earned from the day after the accounting date to 5 April 2024 minus overlap relief. This means that taxpayers with accounting dates early in the tax year could find themselves with very large tax bills for that year. The government is considering allowing that additional tax to be paid over five years. The tax year basis starts from 6 April 2024.

These transitional arrangements differ markedly from 1994 when the income tax system moved from previous year basis to current year basis. Then, the government dealt with taxing two years in one year by taking the average of the two years. This allowed many tax planning opportunities which the government is clearly not prepared to allow again.

The HMRC press release states that the change takes place from 2023 with 2022/23 as the transition year. It is assumed that the Budget book has given the correct dates.

Income tax rates

Income tax rates are unchanged from what has been previously announced. The individual savings account (ISA) limit remains at £20,000, and the junior ISA limit remains at £9,000.

It is reaffirmed that sole traders and landlords have an extra year to prepare for Making Tax Digital. This will now be introduced from 6 April 2024, except for general partnerships from 6 April 2025.

Health and Social Care Levy

A new levy, the Health and Social Care Levy, will apply from 6 April 2023. The funds raised for the levy will be ring fenced to meet health and adult social care costs. Payment of the levy is linked to earnings on which a qualifying National Insurance contribution is payable. This is a Class 1 (employee’s and employer’s) contribution, a Class 1A contribution, a Class 1B contribution and a Class 4 contribution. The levy is payable at the rate of 1.25% on the earnings on which a National Insurance contribution would be due.

However, unlike National Insurance contributions, an individual’s liability to pay the Health and Social Care Levy does not come to an end when the individual reaches state pension age.
Additional changes mean that from October 2023, a cap is introduced on the amount that an eligible person will have to contribute to the costs of personal care over their lifetime. This is to be set at £86,000.

An Accounting Gem can advise on the impact of the Levy and what the costs cap will mean for you.

Dividend tax increases

As part of the funding plan for health and social care, dividend tax rates are similarly increased by 1.25% from 6 April 2022.

If you operate your business through a personal or family company and you extract profits in the form of a small salary plus dividends you will typically pay little or no National Insurance. As the Health and Social Care Levy is linked to National Insurance contributions, where this low salary strategy is adopted, you will either not pay the levy or pay it at a low rate. To address this and to ensure those operating through a personal or family company contribute towards health and social care costs, dividend tax rates are being increased by the amount of the levy.

From 6 April 2022, the ordinary dividend tax rate will be 8.75% (currently 7.5%), the upper dividend tax rate will be 33.75% (currently 32.5%) and the higher dividend tax rate will be 39.35% (currently 38.1%).

The increase in the dividend tax rates will also impact on your profit extraction strategy. As the increase does not come into effect until 6 April 2022, it may be useful to review your dividend policy for 2021/22 to decide whether it is worth taking more dividends in 2021/22 to take advantage of the current, lower, rates. Whether this is beneficial will depend on your personal circumstances. An Accounting Gem can help you decide.

The increases in the dividend tax rates will also affect you if you receive dividends from investments in shares.

Capital gains tax

Capital gains tax rates are unchanged. The 30-day time limit for reporting disposals of UK property is extended to 60 days. This change applies from 27 October 2021. The 30-day limit has proved to be too short in practice.

National insurance rates for 2022/23 will be increased by 3.1%, apart from the upper earnings limit for class 1 national insurance paid by employees and their employers, and the class 2 and 3 rates. These are all unchanged.

The normal minimum pension age is to rise from 55 to 57 from 6 April 2028, as previously announced. This is the minimum age at which a pension scheme member may take benefits. The change does not affect police or other uniformed bodies. It does not change provisions allowing people to take benefits because of ill health. The age increased from 50 to 55 in 2010. The increase to 57 is in line with the increase in state pension age from 66 to 67 in 2028.

Emergency powers are to be given to ministers to allow income tax and national insurance reliefs to deal with disasters and national emergencies.

Annual investment allowance

The annual investment allowance (AIA) is a capital allowance that allows a business to deduct 100% of expenditure on most plant and machinery from its taxable profits. Since its introduction in 2008, it has applied at seven different limits ranging from £25,000 to £1 million. The limit was due to revert from £1 million to £200,000 on 1 January 2021. In March, this change was deferred by one year to 1 January 2022. It has now been deferred again to March 2023. This means that the annual investment allowance is £1 million for all periods from 1 January 2019 to 31 March 2023.

Super-Deduction

A company may claim 130% of expenditure under the new super-deduction for expenditure between 1 April 2021 and 31 March 2023. So AIA is only claimed when the super-deduction cannot be. As the super-deduction has no monetary limit, this is only likely to apply when the super-deduction cannot be claimed. This applies to expenditure by businesses that are not companies, such as partnerships and sole traders, and to company expenditure outside the two-year window for super-deduction.

Cross-border loss relief

Cross-border loss relief is abolished from 27 October 2021. This means that the limited right to claim UK tax relief for overseas losses is the same for EU countries as for non-EU countries.

Business rates

Business rates are retained despite calls for them to be replaced, particularly for shops which are disadvantaged compared to online retailers. Many shops now pay no rates because of many reliefs already announced. Several changes were announced.

First, premises will be revalued every three years rather then five years.

Second, from April 2023, businesses will have a one-year exemption for any improvements they make. So if a hotel adds bedrooms, or a shop expands its premises, it will have a year before it pays the higher rate. Third, there will be a new green investment relief such as when a business premises installs solar panels. There are some further changes such as providing transitional relief when a revaluation leads to a large increase.

Business rates are calculated by multiplying the rateable value by a “multiplier”. This is a lower figure where the rateable value is below £51,000. From 1 April 2020, the multiplier in England (outside City of London) has been 0.512, or 0.499 for small businesses (if they pay rates at all). These rates were not increased for 2021/22, and are again not increased for a further year to April 2023.

The hospitality sector, which was given a one-year holiday from business rates, will have a 50% reduction in rates for another year, 2022/23, to a maximum amount of £110,000.

Indirect tax

VAT

VAT rates are unchanged. There are some specific changes in rules. An interim second-hand margin scheme is to be introduced in Northern Ireland for used motor vehicles supplied from Great Britain. The VAT exemption for dental prostheses imports is extended to include treatment by dental technicians.

Vehicle excise duty

Vehicle excise duty rates (road tax) for heavy goods vehicles are not increased for 2022/23. Rates for cars, vans and other vehicles are increased in line with inflation.

Research and development

Research and development attracts generous tax relief. A business can claim up to 230% of the expenditure against taxable profits. For companies not yet making profits, this allowance can be exchanged for a cash payment of 13%.

The scope of research and development is widened to include data and cloud computing costs.

Despite these generous reliefs, much of this research and development is not benefiting the UK. So tax reliefs will “refocus the reliefs towards innovation in the UK”. There will also be changes to prevent abuse of the relief. Further details will be published later.

Residential property developer tax

A new residential property developer tax is introduced from April 2022, as previously announced. The tax is charged on profits that companies and corporate groups derive from UK residential property development. The tax is 4% on profits Exceeding £25 million a year. The sums raised will be applied to building safety remediation, such as removing fire-risk cladding.

Tax Evasion

HMRC is being provided with an additional £292 million over three years to tackle tax evasion. A further £55 million is allocated to tackle abuse of the coronavirus schemes. HMRC also receives additional funding to make the tax computer system more comprehensive and robust.

Non-tax matters

There were some significant announcements in non-tax matters.

The national living wage rate increases by 6.6% to £9.50 an hour. This is paid to all workers aged 23 and above. Other national minimum wage rates are:

• 21 to 22 years old: from £8.36 to £9.18
• 18 to 20 years old: from £6.56 to £6.83
• 16 to 17 years old: from £4.62 to £4.81
• apprentice rate: from £4.30 to £4.81

The recovery loan scheme is extended to 30 June 2022 to ensure that lenders continue to support small and medium-sized businesses.

Spending commitments include £5.9 billion of capital expenditure for the National Health Service, although this includes money already announced. There are also large commitments for education, justice, defence, housing, local government, energy, employment, environment and transport. Many spending plans are given in detail such as better roadside toilets for lorry drivers and a new Beatles centre in Liverpool.

If you need any information or advice on any of the announcements please call An Accounting Gem on 01473 744700

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Making Tax Digital for Income Tax Self-Assessment

HMRC have delayed the implementation of MTD for Income Tax Self Assessment by a further year.

You will now need to be ready to make your first quarterly uploads to HMRC from April 2024.

It may seem that we have plenty of time to achieve readiness, but experience has shown that getting from point A to point B can be challenging, especially if you add COVID issues into the mix.

Who will be affected?

If you are a sole traders or owner of a buy-to-let property with turnover from these combined sources of more than £10,000.

The quarterly reporting dates are fixed. The first tax year affected is 2024-25 and assuming that clients’ accounting period are coterminous that means:

1. The first report will be due in August 2024.
2. The second report will be due in November 2024.
3. Self-Assessment tax return for 2023-24 (the previous tax year) will be due by 31 January 2025.
4. The third report will be due in February 2025.
5. The fourth report will be due in May 2025.
6. The fifth and final year-end report will be January 2026.

HMRC are expecting that tax payers will want to match their accounting periods to 6 April or 31 March. Otherwise, the reporting needs will need to be time apportioned for MTD for ITSA.

If it is thought that changes to year-ends are appropriate, then this is going to change basis periods for tax and may bring in overlap profit calculations.

The MTD Reports need to be made to HMRC by 7 August, 7 November, 7 February and 7 May.

Other considerations

Partnerships will not be integrated with MTD for Income Tax until April 2025.

Tax payments

• Any tax liability will need to be paid by 31 January of the next year (as is currently the case).
• You will be allowed to voluntarily pay taxes as you go: the detail is still being decided and subject to change…..
• Eventually, it is possible you will be required to make four payments per year on account of tax.

Penalties

• Before the recent announced implementation delay (from April 2023 to April 2024) it was intended that there would be no late filing penalties for at least a year while the new system beds in. According to the new information released, implementation and late filing penalties will now both apply from April 2024.
• Penalties already apply for errors in returns or documents.
• Late payment interest already applies.
• HMRC say there may be in year nudges to tax payers

MTD for Corporation Tax is due to start in April 2026, which gives companies time to bed in the ITSA changes and get the systems and work flows correct before the next big change. So, it is imperative to start thinking about these issues now.

The first step

At An Accounting Gem we are digital experts and aim to support all sole traders and landlords that will be required to use the MTD, a filing platform to convert from manual to digital accounting software as soon as possible.

If you need to know more about MTD or any other accounting or tax issues please call us on 01473 744700

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30 days to pay capital gains tax

Since April 2020, all UK residential properties disposed of by UK resident taxpayers – that create a taxable gain for Capital Gains Tax (CGT) purposes – will have to be reported to HMRC within 30-days of the disposal. Any CGT payable will have to be paid over to HMRC in the same 30-day window. Generally, this will include sales of second homes and buy-to-let property.

What if I sell a property and don’t make a taxable profit?

The new 30-day disclosure deadline only applies, in practice, to property disposals that create a taxable gain. For example, if you sell a buy-to-let property and make a loss on the sale, you will not have to make a return within the 30-day window.

Does this mean I have to submit a tax return every time I sell a property?

Effectively, yes, it does, although restricted to details of any property disposal that creates a chargeable gain. Penalties may apply if you file outside the 30-day window.

How do I work out how much tax is payable?

As part of the 30-day submission to HMRC, you are required to estimate the amount of CGT payable based on your present understanding of the factors that affect this liability. As your other earnings will determine if the CGT you pay is at 18% or 28% – or a mix of the two – estimating these other earnings and getting the number-crunching right will be no mean feat.

During the 30-day window, you will need to: prepare a formal computation and a calculation of the CGT due, submit both to HMRC and pay any CGT this computation reveals.

At the end of the tax year during which you made the disposal, you will also need to include the computation again as part of your actual return. This annual confirmation of the gain may result in an over or underpayment of tax. The annual return will be based on actual data and not the estimated data used to comply with the 30-day rule.

We can help. Read the section that follows.

Advise us in advance if you intend to sell a chargeable property 

We can only help you meet the 30-day deadline if we have the required information about the disposal on the day you sell. The stepped approach set out below is our suggested timeline for gathering and reporting each gain:

  1. Before the completion date, advise us which property is to be sold and the estimated selling price and sales costs.
  2. We will immediately draw together the data we have about the property and confirm that this is correct. This will not only include the purchase price but also improvements made since you bought the property.
  3. We will use this information to prepare a draft computation (based on our prior knowledge of your tax affairs) and advise you of the possible CGT payable 30-days after the sale completes.
  4. When the sale does complete, we can adjust the numbers for any final changes in the sale particulars and agree the computation with you.
  5. Once agreed, we can file the CGT computation with HMRC and advise you when and where you should pay any tax due.

To meet these relatively new reporting regulations, we will need to move quickly to meet the 30-day deadline. We would request that you contact us immediately if you are planning to sell by calling 01473 744700, or by sending an email to contactus@accountinggem.co.uk.

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Customer Spotlight: Spartan IT Systems

This month, we’re excited to shine a spotlight on: James Spencer, Owner of Spartan IT Systems

Tell us a little about Spartan and what they do?
Spartan IT Systems was started at the very beginning of the pandemic. What began as a need to keep myself working while businesses were no longer hiring IT contractors – turned into an enterprise I have become very passionate about and devoted myself to. We can manage any IT requirement a small or medium business might require. From expanding or maintaining the network infrastructure to desktop and server support. Our services and contracts are designed to remove the element of IT from your day-to-day worries and responsibilities. No more time spent trying to fix the printer or search for a new one – you just give us a call. No more time spent trying to set up a new desk and login information for a new staff member – just email us the details. No more worrying that your company data is backed up and secure in the event of a disaster – we will be watching over it. Almost any IT-related job you can think of, we can support and maintain.

Where are you based?
We are based in Ipswich but provide support to the entirety of Suffolk. Remote support or one-off projects are available further afield, but our locality is greatly responsible for our fast response times.

Tell us a little bit about yourself and your role at Spartan
I have been working in the IT sector professionally for almost 15 years. I grew up to boxes of floppy disks and the sound of dial-up modems – me and technology have grown together ever since. I have worked for multiple IT support companies and contracted for many big businesses such as Greene King and Co-Op. This has allowed me to see the gaps in service and quality many companies receive from their current IT support. As I have a direct say in how Spartan operates, I can ensure these instances are addressed straight away, ensuring the customer is informed, confident, and assured. Your business’s IT infrastructure is our only priority.

What does an average day look like for you?
An average day for me at present can vary depending on the latest government announcements on lock-downs. However, by and large, it will consist of a morning spent remotely checking backups/servers and compiling reports, including any remote desktop support required (installing printers, resolving PC issues, etc). In the afternoon, I tend to focus on all the physical jobs – site security camera installs, building or repairing hardware, quotation visits, network expansions. As our services are so inclusive, no two days are the same.

Any spare time I have that isn’t spent responding to emails is used to learn about smart and automated homes. From my blinds and curtains closing automatically when the sun sets, office and conservatory lights turning on and off based on motion and the time of day, the robovac scheduling to vacuum during the night, and being able to turn off every light in the house when I go to sleep by saying three words. The irony being that I don’t believe all the time I have saved from automating my household covers the time I have spent researching and learning about it. But at the very least, I can save many others their time.

What motivates you to wake up and go to work?
My motivation is simple – I get to do something I am interested in and passionate about, which I am very thankful for. Every day is a learning experience which means I am never drawn down by the monotony of repetitive tasks. While some may count sheep to drift off, I will be mentally mapping out a project I am either working on or plan to start. I will wake up to my alarm in the morning and before I have even left the bedroom, I have drawn together all the mentally scattered pieces of my plan from the night before, ready for action.

What has been your favourite project so far?
I often confuse favourite with frustrating when it comes to IT. One of the main joys of this job is resolving a particularly difficult issue. A customer will often apologise for approaching me with a task that isn’t straight forward, but unaware that I will be just as satisfied as them, if not more so, when I provide a resolution. 

With this in mind – I think my favourite project so far was installing multiple security cameras on a barn situated 100 yards from the property. The challenge here was to get internet access to an outbuilding located so far from the main property and router. After a bit of experimentation and research, we overcame that hurdle. Getting that follow-up thank you email from the customer saying everything is working better than they imagined makes my day.

I would say as much as the projects themselves are the customers and companies, I get to meet. From Catteries, Kennels, and stables where I am surrounded by animals, to soap manufacturers and stately homes where I see places normally closed off from the public.

What’s the biggest challenge your customers face and how do you help them fix it?
I think the main challenge for my customers is understanding their own infrastructure and IT resources. When a computer crashes with a blue screen and a jargon error message whenever you turn it on – the customer doesn’t have the time or knowledge to know how to fix it. If their internet speed has suddenly ground to a halt, the customer might not know where to start to speed it up again. Many times, there are services and resources they have access to but never utilize to their full potential. Like subscribing to an Office 356 platform and not using the free cloud storage, or not using the built-in wi-fi performance enhancements of a router to stabilize connections. 

Understanding all this and trying to operate a business can understandably be too much for many individuals. We help by not only being there to resolve any issues but also to suggest performance and efficiency solutions. All with updates, reports, and full visibility, so the business is in complete control.

What’s something most people don’t know about you?
I believe that many people have a certain stereotype in mind when they think of the IT guy, and I completely agree with that stereotype. By and large, we are generally reclusive and not very socially adaptive, an unfortunate cost of spending years in front of computer screens. 

I was fortunate to grow up around a family of pub owners. I spent a lot of my early years working in various pubs, restaurants, and catering industries. This gave me an early education in interacting and relating to people from all warps of life. As I grew with the rise of technology, those lessons stayed with me. They allowed me to provide a service based on years of experience and allow me to sympathise and communicate with a customer effectively.

Website: https://spartanitsystems.co.uk/
Email: Support@SpartanITSystems.co.uk
Telephone: 0785 4479 528

Would you like to be featured in our next spotlight? Feel free to get in touch with Blue Rhino Marketing or send an email to contact@brmarketing.co.uk.

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Filing deadlines and tax saving tips for 2020-21

Benefits and the tax consequences

At the end of each tax year, you will usually need to submit a P11D form to the tax office for each employee you have provided with expenses or benefits, for example, a company car.

The total taxable benefits you provide to all employees will also create a Class 1A employer’s NIC charge. This will need to be reported to HMRC by filing a further return, P11D(b). 

Note: If HMRC has asked you to submit a P11D(b), but you have no taxable benefits to report, you can tell them you do not owe Class 1A NIC by completing a formal declaration via your online government gateway account.

What are the filing deadlines for 2020-21?

What you need to do Deadline
Submit your P11D forms online to HMRC 6 July 2021
Give your employees a copy of the information on your forms 6 July 2021
Tell HMRC the total amount of Class 1A National Insurance you owe on form P11D(b) 6 July 2021
Pay any Class 1A National Insurance owed on expenses or benefits Must reach HMRC by 22 July 2021 (19 July 2021 if you pay by cheque)

Note: You will be charged a penalty of £100 per 50 employees for each month or part month your P11D(b) is late. You will also be charged penalties and interest if you are late paying HMRC.

Talk to us before you file your P11D returns

There may be tax-saving opportunities you could discuss with employees that would save them income tax and you the additional NIC charge. We have outlined two ideas for company car drivers you could consider below.

Avoiding the car fuel benefit charge

Employees not only pay additional tax for the use of a company car, but they also pay a hefty additional tax charge if their employer pays for private fuel. The car fuel benefit charge can be avoided if the employee records actual private mileage and repays their employer based on an agreed rate per mile.

Were company car drivers furloughed during 2020-21?

If any of your employees that had the use of a company car were furloughed during 2020-21, and the car was not made available for private use during this period, you can advise HMRC of the “not available” period when you complete their P11D. This will reduce any benefit charges for 2020-21.

Let us help you crunch the numbers

Please call An Accounting Gem on 01473 744700 if you would like to discuss options to reduce BiK tax charges for your employees or prepare and file the necessary returns. And do not forget, if you can reduce income tax charges for employees, you will not only boost their morale, but you will also lower the amount of Class 1A NIC that you will have to pay as their employer. Alternatively, visit our website www.aag-accountants.co.uk or send an email to contactus@accountinggem.co.uk.

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What are the new National Minimum Wage rates?

The Government has approved the Low Pay Commission’s recommendations for the new National Minimum Wage to be increased 2.2% from £8.72 to £8.91. The new wage rates take effect on the 1st April 2021 and if you’re aged 23 years and over, you will soon be entitled to the National Living Wage of £8.91 per hour, the previous age threshold was 25 years and older.

By law, employers must pay the National Minimum Wage (NMW) as a minimum. The rate will be dependent on the age of the employee, or if they’re an apprentice.

  • The apprentice rate applies to people who are under 19 years of age and those aged 19 or over when undertaking the first year of their apprenticeship
  • An employee is entitled to National Minimum Wage if they are under or over the age of 23

As of 1st April 2021 the following rates will apply:

Category of worker Hourly rate
Aged 23 and above (national living wage rate) £8.91
Aged 21 to 22 inclusive £8.36
Aged 18 to 20 inclusive £6.56
Aged under 18 (but above compulsory school leaving age) £4.62
Apprentices aged under 19 £4.30
Apprentices aged 19 and over, but in the first year of their apprenticeship £4.30

If you’d like to discuss new National Minimum Wage rates and they mean for your business, call An Accounting Gem today on 01473 744 700, send an email to contactus@accountinggem.co.uk, or visit our website at aag-accountants.co.uk. and we’ll be able to assist in any way that we can.

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Will HMRC contact me about SEISS payments?

If you commenced self-employment after 5th April 2019

If you started your self-employment after 5th April 2019, you were initially denied support under the Self-Employed Income Support Scheme (SEISS) and the first three quarterly payouts to 31st January 2021. 

Thanks to a change in the recent Budget, you may be eligible – for the first time – for grants that will be made available for the quarter-end 30th April 2021 and a final period to 30th September 2021.

HMRC are adding a further security check

To counter fraudulent use of the SEISS scheme, HMRC has decided to contact taxpayers who became self-employed during 2019-20 and who submitted a self-assessment return for that period.

What will the letter say?

The letter will tell you to expect a telephone call on the number provided on your tax return. If our contact details were added to your return, HMRC will ask us to pass on your contact number. 

On this occasion, we cannot deal directly with HMRC. They will need to speak with you to obtain proof of identity and evidence of trade in the form of bank statements.

Why a letter and then a phone call?

Here’s what HMRC said:

We are aware of increased scam activity related to HMRC’s coronavirus support schemes. The purpose of the letter is to explain to you that this is a genuine call and to give customers details on how to recognise it as such.

Are you worried about HMRC calling you?

HMRC’s reason for this added layer of security seems to be to exclude fraudsters from making claims. But if you have any concerns regarding this process, please call an Accounting Gem today on 01473 744 700. Alternatively, you can email contactus@accountinggem.co.uk or visit our website at aag-accountants.co.uk

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Can I claim the fourth and fifth SEISS payouts during 2021?

If you commenced self-employment after 5th April 2019

If you started your self-employment after 5th April 2019, you were denied support under this scheme from the first three quarterly payouts to 31st January 2021.

The good news is that due to lobbying by tax professionals and self-employed support groups, the SEISS is being opened to traders who commenced after 5th April 2019. However, there is an additional hurdle to jump before you can make a claim; your tax return for 2019-20 needs to have been filed by midnight 2nd March 2021. 

Additionally, your business must be adversely affected by the Coronavirus pandemic. All of your profits from self-employment must be less than £50,000 and at least 50% of your income. 

If you commenced self-employment on or before 5th April 2019

If you qualified for the first three grants, you should be eligible for the further grants due this year unless your circumstances have changed, for example, if you are no longer adversely affected by COVID disruption.

For those of you who may be claiming for the first time, you will need to claim using your online tax account. HMRC should advise you when the claims process is open for business.

If claiming the fourth grant – 1st February 2021 to 30th April 2021

The fourth SEISS grant covers February 2021 to April 2021. It’s worth three months’ average profits capped at £7,500 and can be claimed from late April.

If claiming the fifth and final grant – 1st May 2021 to 30th September 2021

The fifth and final grant will cover the period from May 2021 to September 2021. The SEISS grant will be dependant on the impact that Covid-19 disruption has had on profits. 

  • If your turnover has fallen by 30% or more (because of Covid-19), you’ll be able to claim a grant equal to 80% of your average profits for three months, capped at £7,500. 
  • However, if your turnover has dropped by less than 30%, you will be entitled to a reduced grant of 30% of three months’ average profits, capped at £2,850. 

The final grant will be available from late July of this year.

There is a potential misfit in this fifth grant. Although it covers a five-month period (May – September 2021), the actual payout for this period is based on three months. What about the other two months?

We can help

You’ll only be able to claim the grant if you have been adversely affected by the pandemic, and grants received under the scheme are taxable and must be considered in working out your profits. If you’re unsure how to proceed, call An Accounting Gem today on 01473 744 700 or visit our website at aag-accountants.co.uk, and we’ll be able to assist in any way that we can.

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How do I move my business forward after lockdown?

From June 21st, 2021, the government has now declared its intention to have all UK businesses back up and running and free of lockdown restrictions. 

As with all of these announcements, it’s worth noting this date depends on the continuation of the reduction in COVID-19 infection rates. If the measures put in place and the vaccine cannot control the virus’s spread, a return to lockdown seems likely.

But with the information we have so far, you may be wondering about the challenges your business may face as we emerge from the enforced hibernation of nearly a solid year?

How have you and your business done during lockdown?

Companies have almost nearly all fallen into one of the below two categories:

  1. Unable to trade.
  2. Limited ability to trade.

For example, the entertainment and hospitality sector has been hit badly – the financial costs have been dire. Companies have little choice but to go into liquidation or have used savings to fund their losses. Those that remain in this group have a hard road ahead.

Some companies have managed to maintain some semblance of trade and may have even sustained profitability – likely at a reduced level – but are still solvent and in control of cash flow.

In both categories, limited ability to trade and unable to trade, business owners have probably availed themselves of government grants. They may have taken out Bounce-Back or similar loans with their bank.

Each group faces different challenges as we approach June 21st and head back to ‘normality.’ Below, we’ve sketched out some possible challenges and how An Accounting Gem can help you get your business back on track.

Unable to trade during lockdown

If you fall into this group and cannot see a way forwards, please call An Accounting Gem as a matter of urgency, and we’ll help you look at different options. In the worst-case scenario, even the liquidation process needs to be appropriately planned. An Accounting Gem could be able to help you keep some of the personal investments you’ve made in the business. In some cases, we could see a way forward for the company that you’ve not seen as yet, and be able to assist you in continuing trading.

If you have some of your reserves and savings left, planning your business’s reopening will be imperative. Of critical importance will be your cash flow, and you manage it. Companies that sell goods on credit but must buy from suppliers on less attractive payment terms could find that there are periods where cash reserves run out. Producing and looking at realistic estimates of expenditure and income for, say, the next year will highlight these dips in cash flow and allow you to plug the gaps from other sources or overdraft funding.

Limited trade during lockdown

The restricted trade period would have probably reduced your cash reserves, especially if this has involved funding losses. Ironically, suppose the end of lockdown increases the demand for your products or services. In that case, the increase in turnover will not immediately impact your cash flow if you’re offering less generous payment terms of suppliers and more generous payment terms to your customers. It’s worth remembering too, you’ll have some taxes and fixed costs that need to be accounted for.

Dealing with a reduction in trade is challenging, but planning for an expansion of activity can be just as tricky. We can help you create realistic budgets, all integrated into your accounting software, thus providing an invaluable business tool.

Planning is key

We should all step into this changing marketplace well aware of the pitfalls and opportunities that wait for us. We should have financial considerations and a robust plan of action.

Whatever the current circumstances of your business, contact An Accounting Gem to help maximise the possible boost to trade following lockdown easing.

Come June, you should be more than ready to meet the challenges it will present. We will be working hard with many of our clients to ensure they have the best possible resources to meet these obstacles.

Call us today on 01473 744 700, visit our website aag-accountants.co.uk or email contactus@accountinggem.co.uk. We’re to help every step of the way.

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