The Chancellor, Rishi Sunak, presented his 2021 Budget on 3rd March 2021. The extent to which the measures will affect you will depend on your personal circumstances. We’ve divided this report for your convenience into a total of three sections:

1. Impact on individuals
2. Impact on the self-employed
3. Impact on small company owners

Impact on individuals

Personal allowance and income tax thresholds frozen

The personal allowance has been increased in line with inflation to £12,570 for 2021/22. However, it will remain at this level for the next five years, until April 2026. The basic rate band will also stay at £37,700 for the next five years, freezing the starting point for paying a higher rate at £50,270 until April 2026. 

Suppose your income increases during this period. For example, your pay rises in line with inflation. In that case, you may find that you move into the higher rate band, paying tax on some of your income at 40% where previously you were a basic rate taxpayer.

The basic tax rate will remain at 20%, the higher rate at 40%, and the additional rate at 45%.

Covid support continues

The Coronavirus Job Retention Scheme has been extended until 30th September 2021. This means that if you have been furloughed or flexibly furloughed, you will continue to be paid 80% of your regular wages for your unworked hours, subject to the cap of £2,500 per month.

If your company has been affected by Coronavirus and you’re self-employed, you will be able to claim two further grants under the Self-Employment Income Support Scheme.

Pension lifetime allowance frozen

The pension lifetime allowance will not be increased in line with inflation over the next five years. Instead, it will remain at its current level of £1,073,100 for 2021/22 to 2025/26. This may affect you if you already have pension savings at or near this level. If this is the case, you should review your pension pot’s amount before making further tax-relieved contributions. Pension savings more than the lifetime allowance are taxed at 25% if the excess is taken as a pension and 55% if taken as a lump sum.

SDLT threshold to remain at £500,000 until 30th June 2021

The SDLT threshold has been increased to £500,000 temporarily and will remain in place until 30th June 2021. It will then fall to £250,000 until 30th September 2021, returning to the standard amount of £125,000 from 1st October 2021.

Martin Swann and Barry Scott of Try Financial in Ipswich said the following;

“We welcome very much the extension of the current holiday to 30th June. It gives a very good chance to deals already in the pipeline, along with some new ones, to receive the full benefit from the move made by the Chancellor. The increase of the nil rate band up to £250,000 until 30th September, while not expected perhaps, is also very welcome.

The news on tax is both good for residential purchasers and buy to let investors alike. It looks like it’s going to be a busy summer! Even the increase in Corporation Tax from April 2023 will not hit as many buy to let investors with limited companies, given that the threshold for the Small Profits Rate is set to stay the same at £50,000.

Do we think the market will be much quieter after the SDLT holiday ends? While we think there will be a period of adjustment with prices levelling off as activity may slow, the medium and long-term outlook has, for some considerable time, featured too many people chasing too few dwellings. The country has never hit its 250,000 new homes target, and until the laws of supply and demand say otherwise, prices will, along with the attractiveness of property in general, we think, continue to grow.”

If you are looking to move to a new house or buy an investment property, there is still time to benefit from the higher threshold. These comments refer to rates in England and Northern Ireland. The devolved administrations of Wales and Scotland may set alternative rates.

Try Financial Ltd. trading as Try Financial is an owner-managed business that offers independent mortgage and protection advice to consumers, property investors and business owners.  If you need help in assessing your next steps, please contact Try Financial today on 01473 462288, visit tryfinancial.co.uk or send an email to enquries@tryfinancial.co.uk

Inheritance tax nil rate band will stay at £325,000

The inheritance tax nil rate band will remain at its current level of £325,000 until April 2026. The residence nil rate band, available where your primary home is left to a direct descendant, also remains at its current level of £175,000 until April 2026. This should be considered when undertaking inheritance tax planning.

Impact on the self-employed

Two further grants available under the SEISS

If you are self-employed and you continue to be adversely affected by the Covid-19 pandemic, you will be able to claim two further grants under the Self-Employment Income Support Scheme (SEISS). The fourth grant under the scheme covers February to April 2021. It is worth three months’ average profits capped at £7,500. It can be claimed from late April.

The fifth and final grant covers the period from May to September 2021. The total amount of the grant will depend on the impact that Covid-19 has had on your profits. If your turnover has fallen by 30% or more because of Covid-19, you will 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 £2,880. The final grant can be claimed from late July. With this in mind make sure you file your accounts early, please let us have your paperwork after the 5th April 2021.

Remember, the grant can only be claimed if you have been adversely affected by the pandemic. Grants received under the scheme are taxable and must be considered in working out your profits.

Help for the newly self-employed

Support under the SEISS was not available to traders who commenced self-employment in 2019/20 – to qualify, a tax return had to be filed for 2018/19. However, as the deadline for filing the 2019/20 tax return has now passed, you may be eligible for the additional grants if your 2019/20 tax return was filed by midnight on 2nd March 2021. To qualify, your business must be adversely affected by the pandemic, and your profits from self-employment must be at least 50% of your income and less than £50,000. 

The carry-back period for losses extended

The period for which losses may be carried back is temporarily extended from one year to three years. For unincorporated businesses, the extended carry-back will apply to losses made in 2020/21 and 2021/22. Losses must be set against a later period before an earlier period.

If you have suffered losses due to Covid-19, carrying back losses for up to three years may generate a most welcome tax repayment.

Impact on small companies

Tax-efficient extraction of profits

For 2021/22, the primary threshold for Class 1 National Insurance purposes increases to £9,568, the second threshold to £8,840, and the personal allowance to £12,570.

If you extract profits by taking a mix of salary and dividends, the optimal salary level for 2021/22 (assuming you have not used your allowance elsewhere) will be equal to the primary threshold of £9,568 (equivalent to £797 a month) if you are not entitled to the employment allowance. This will be the case if you are a personal company with only one employee who is also a director. At this level, you will have a little bit of employer’s National Insurance to pay. Still, the associated corporation tax deduction will outweigh this.

If you can claim the employment allowance, for example, if your company is a family company with at least two employees, the optimal salary for 2021/22 is equal to the personal allowance of £12,570.

Any further profits can be extracted as dividends but remember you can only pay dividends if you have sufficient retained profits to pay them from. Dividend tax rates remain at 7.5%, 32.5% and 38.1% for 2021/22.

Three-year carry back for losses

Companies, like unincorporated businesses, can benefit from a measure allowing losses to be carried back for three years rather than for one year. For companies, this applies to losses incurred in accounting periods ending between 1st April 2020 and 31st March 2021 and to losses for accounting periods ending between 1st April 2021 and 30th March 2022. Losses carried back must be used against a later period before an earlier period.

This measure may provide you with earlier relief for losses suffered because of the Covid-19 pandemic and generate a useful tax repayment at a time where cash flow is tight. 

Super-deduction for investment expenditure

If your business invested in plant and machinery from 1st April 2021 to 31st March 2023 will benefit from enhanced capital allowances. Investments in assets that qualify for the main rate of capital allowances of 18% will benefit from a 130% first-year allowance. For every £100 that you spend, you can deduct £130 in computing your taxable profits. This is equivalent to a tax saving of 24.7%. Investments in assets qualifying for special rate capital allowances benefit from a 50% first-year allowance (although claiming the annual investment allowance instead where this is available will be more beneficial).

If you are looking to invest in plant and machinery, it can be advantageous to do so within this window to benefit from the super-deduction. However, it is not available where contracts were agreed before Budget day.

Future increases in corporation tax

To help meet some of the pandemic costs, companies with profits of £250,000 or more will now pay corporation tax at a 25% rate from 1st April 2023. A lower rate of 19% will apply to companies with profits of £50,000 or less. Companies with profits of between £50,000 and £250,000 will pay corporation tax at 25% but will be able to claim marginal relief. The thresholds will be proportionately reduced to take account of associated companies and short accounting periods.

Extension of the Coronavirus job Retention Scheme

If you have furloughed or flexibly furloughed employees, you will be able to continue to claim grant support under the Coronavirus Job Retention Scheme until the end of September. 

Until the end of June 2021, you’ll be able to claim 80% of your employee’s normal pay for their unworked hours, subject to the cap of £2,500. However, while your employees must continue to receive 80% of their normal pay for their furloughed hours, you can only claim 70% from the Government in July and 60% in August and September. You must pay the remaining 10% in July and the remaining 20% in August and September. As of now, you must meet the employer’s National Insurance and employer pension contributions on all payments to employees.

The scheme now ends on 30th September 2021.

If you need help or advice on any of the new announcements and want to discuss how best to move your business forward, call An Accounting Gem today on 01473 744 700, take a look at our website aag-accountants.co.uk or email contactus@accountinggem.co.uk. We’re to help every step of the way.

A reminder that from 1st March 2021, the long-awaited VAT changes for CIS registered contractors, who register for VAT, will apply.

What will happen on 1st March 2021?

At the moment, when you receive an invoice from a subcontractor for construction services and the subcontractor is registered for VAT, you will pay the VAT inclusive amount to them and claim back when submitting your VAT return. 

You can read our previous blog post by clicking here to find out more. But in the meantime, below, you will find a full list of services that will and will not be affected by the pending changes.

The domestic reverse charge will be applied if you are the supplier of any of the below services:

• altering, constructing, extending, repairing, dismantling buildings or demolishing structures (whether permanent or not), this includes any off-shore installation services
• altering, constructing, extending, repairing, demolishing of any works planned to form or forming, part of the land, including (in particular) roadworks, walls, electronic communications equipment, power lines, railways, inland waterways, docks, harbours, and aircraft runways
• water mains, wells, sewers, pipelines, reservoirs, installations for purposes of land drainage, coast protection, or defence and industrial plants
• installing air-conditioning, ventilation, power supply, heating, lighting, sanitation, water supply, drainage, or fire protection systems in any structure or building
• internal cleaning of structures and buildings, restoration, alteration, repair, or extension
• decorating or painting internally or any external surfaces of any structure or building
• any service that forms any or is part of the completition or preparation of any services described above – which includes the laying of foundations, erection of scaffolding, site restoration, site clearance, earth-moving, excavation, the provision of roadways and other access works, tunnelling, boring, and landscaping

Below, the list of services that are not subject to the upcoming reverse charge:

• extracting, or drilling for natural gas or oils
• mineral extraction (using surface or underground work) and construction of underground works, tunnelling, or boring
• engineering components or equipment, manufacturing building, materials, machinery or plant, or delivering these to site
• manufacturing components for air-conditioning, ventilation, lighting, heating, power supply, fire protection systems, drainage, sanitation, water supply or delivering these to site
• the professional work of surveyors, architects, or interior or exterior decoration, and landscape consultants
• making, installing, and repairing artworks such as murals, sculptures, and other purely artistic items
• signwriting and erecting, installing, or repairing advertisement and signboards
• installing blinds, shutters, and seating
• installing security systems, including closed-circuit television, public address systems, and burglar alarms

An Accounting Gem can help with the upcoming changes in legislation. Call today on 01473 744700, email contactus@accountinggem.co.uk, or visit our website www.aag-accountants.co.uk. We’re here to help you every step of the way.

This year landlords have seen significant reductions in rental income. Those who have substantial loan commitments have been faced with selling a property to reduce their exposure.

Below, you’ll find a list highlighting some potential tax planning opportunities that you could take advantage of before the end of the current tax year, which ends 5th April 2021.

• Finance charges and mortgage interest are no longer treated as a deduction for tax purposes – they now qualify for a basic rate tax credit – and now, because of COVID-19 disruption, this could be the perfect time to look at reducing finance costs, mainly if your income coming in from rent is subject to income tax at the higher rates.
• If you buy a buy-to-let residential property, consider allocating a nominal amount in the contract for any second-hand furniture still at your property. If you ever have to replace the furniture, doing this will allow you to write off all the expenditure under the RFR. If you don’t allocate sums in the initial contract, you’ll have no legal claim to the furniture. You won’t be able to claim RFR when it is subsequently replaced. This will also save you stamp duty as this is not applied to the cost of furniture.
• Consider a joint property election with your spouse – if you jointly own the let property – to divide the split of any rental income in a way that’s not 50:50. This will allow you to allocate income to the spouse with spare allowances, or that is taxed at lower income tax rates.
• If you have disposed of or acquired rental properties since you last reviewed your Will, ensure your Will is amended to reflect this.
• Is it viable to employ family members to help with managing the interests of your property? If there are viable commercial reasons for you doing this, it’s possible to make a successful claim against your tax. Doing this provides your family with additional income subject to tax deduction at lower rates. It reduces your exposure to higher rates of tax.
• Transferring part interest or an entire property between spouses are usually free of IHT and CGT charges. This enables you to direct your rental profits into the hands of your spouse, who is taxed at lower rates. Planning is crucial, as you could trigger a stamp duty charge in certain circumstances.
• Suppose you’re declaring rental profits on your self-assessment tax return. In that case, you will be subject to income tax on any profits declared. You would have made your first payment on account for 2020-21, which was due 31st January 2021. This payment would have been estimated based on your profits earned in 2019-20 on the property. In the current tax year, 2020-21, the majority of landlords will have suffered a reduction, allowing them to reduce the payments on their account for that year. Payments are due 31st January and 31st July 2021. If your rental profits have decreased this year compared against 2019-20, you should contact An Accounting Gem today. We will then make a formal application on your behalf to reduce the payments on your account for 2020-21. To apply, we will need to provide any costs associated with the property, and a realistic estimate of rents received.
  
• If you do decide to sell a residential property that forms part of your portfolio and by doing so, you make a chargeable gain, this will be subject to a capital gains tax charge in the tax year you make the disposal. Usually, the gains form part of your self-assessment. But, disposal of any residential property which isn’t your private residence is subject to newly enforced rules. It is now a requirement to declare any disposal of property online within 30 days of the sale completion. You must also pay any capital gains tax in the same period. These rules start after the 5th April 2020.

If you’re a landlord and need to discuss any of the points raised in this blog, call An Accounting Gem today on 01473 744 700, send an email to contactus@accountinggem.co.uk, or visit our website www.aag-accountants.co.uk. We’re here to help you every step of the way.

As part of the on-going government response and financial support to businesses affected by COVID-19 last year, VAT-registered firms were allowed to defer VAT payment due between 20th March 2020 and 30th June.

When do you need to pay your deferred VAT?

At first, the government requested that any deferred VAT payment be made on or before 31st March of this year (2021).

For VAT registered businesses affected by the pandemic disruption, settlement of any outstanding VAT by the 31st March 2021 date may still not be possible due to current circumstances.

Is it possible for you to take advantage of the new payment scheme?

Recognising this difficulty, the government has now created a new payment scheme that will allow you to further delay repayments on an instalment basis such that any VAT owing is settled in full by 31st March 2022.

To use this scheme, you must:

· Still have deferred VAT to pay

· Your VAT returns must be up to date

· Opt-in prior to 31st March 2021

· The first instalment must be paid before the end of March 2021

· Ensure you can make payment of your deferred VAT by Direct Debit

If you opt into the scheme, you can still have a “time to pay arrangement” for other HMRC debts and outstanding tax.

Taking advantage of this new scheme

HMRC is now in the process of setting up an online application process. At this time, however, it is still not available. When applications start to be taken, we will let you know as a matter of urgency. However, for you to be considered for this scheme, you must ensure that you:

· Sign up for your own Government Gateway account (if you don’t have one already).

· Submit any unresolved VAT returns from the last four years. You’ll not be able to sign up for the scheme if you haven’t done this.

· Make right any errors on your previous VAT returns as soon as possible.

· Make sure you know the amount of money you owe. This includes the amount you deferred initially and what you may have already paid.

You should also:

· Make a payment on what you can as soon as possible to show the correct deferred VAT balance.

· Look at the number of equal instalments you’ll need, from two to 11 months.

An Accounting Gem can help

If you would like a hand in taking advantage of this new payment scheme, call us on 01473 744700, contactus@accountinggem.co.uk, or visit our website www.aag-accountants.co.uk.

New VAT rules for sub-contractors and building contractors will soon take effect. From 1st March 2021, the VAT reverse charge will change how you have typically been accounting for VAT. How you layout information on your invoices to clients and prepare your VAT returns may change.

The VAT reverse charge – what is it?

It is where the supplier of construction services does not account for VAT, but the end-client does. The reverse charge means the customer receiving construction services has to pay the VAT to HMRC, opposed to the company supplying the service. The end-user will have to recover VAT subject to the standard HMRC procedures.

How will the new rules be applied?

From 1st March 2021, these new rules apply to standard rate VAT or reduced-rate construction services provided by VAT registered companies. If the supplies of service are zero-rated, the reverse charge will not apply. Suppose you or your business don’t make an onward supply of construction services. In that case, you are the end customer, and standard VAT rules are applicable.

If your invoices have CIS and non-CIS registered materials, the new reverse charge will apply to the entire invoice total.

What do you do if you are a sub-contractor?

If you’re invoicing a customer (or contractor) in a supply chain. In that case, you’ll either have to apply the reverse charge or charge VAT as usual. If it’s the reverse charge, the total of your invoice will not include VAT.

The invoice has to state to your contractor or customer that the reverse charge rules have been applied, showing the total amount of output VAT applied (20% if it’s the standard rate of VAT). Your contractor or customer will then need to include that amount on their VAT return. You don’t have to include the reverse charge on your VAT return.

What do you do if you are the main contractor?

If you are the main contractor receiving a VAT reverse charge invoice from a sub-contractor, you should continue to record it as an ordinary expenses invoice and include the input VAT on your next VAT return.

You’ll also have to account for the reverse charge VAT that your sub-contractor has informed you about. The overall effect on your VAT liability will be neutral as the input VAT covers the output VAT.

If you believe the new reverse charge VAT rules apply to your business, contact An Accounting Gem today, we’re here to help you every step of the way. Email us at contactus@accountinggem.co.uk, visit our website www.aag-accountants.co.uk or call us on 01473 744 700.