Coronavirus: Government Support for the Self-Employed

Rishi Sunak, the UK Chancellor of the Exchequer has announced the self-employed and those who run a business as a partnership are to receive 80% of earnings, calculated from the mean average of their trading profits for the 3 previous tax returns (2016/17, 2017/18, & 2018/19).  The trading profit is the taxable profit that is calculated as part of your income tax return, from either self-employment or as part of a partnership.

The scheme is called the Self-Employment Income Support Scheme (SEISS).

The average is determined by adding the trading profits for the three years, then dividing by three (if you’ve only been trading for two years, the government will add those two years and divide by two instead).  This average can then be divided by 12 to calculate you monthly income average.  80% of this average will be what the government will offer you as a grant which is taxable (-meaning it will need to be declared in your 2020/21 tax return as income received).

The grant is capped at £2,500 p/m and last only for 3 months (although this may be extended depending on how the coronavirus pandemic plays out in the UK).

For you to be eligible, more than half of your income must come from your self-employment. In other words, you can’t claim if more than half your income come comes from another source, such as full-time employment.

Similarly, if more than 50% of your income comes from other sources usually included on your Self-Assessment tax return, such as investment or rental income, then you are not eligible.

Furthermore, you aren’t eligible for the grant if the 2018-19 trading profit is equal to or greater than £50,000, and the average profits for previous years starting in 2016-17 are equal to or greater than £50,000.

If you have not yet submitted your 2018/19 tax return (that was due 31/01/20), you will NOT be eligible for the grant.  If you were self-employed during this period (06/04/2018-05/04/2019), then you have till the 23rd of April to submit your tax return and qualify for the SEISS.  Contact us at Taxfile to help submit your 2018/19 tax return on 020 8761 8000.

Who isn’t eligible?

You are not eligible for the SEISS grant if any of the following applies:

  • Your trading profits are equal to or more than £50,000 – for both tax year 2018/19 and when averaged across the tax years you traded in during last three full tax years starting in 2016/17.
  • You aren’t self-employed or in a partnership at the moment, or don’t intend to be in the future. It’s not enough to merely be enrolled for Self Assessment and to have undertaken self-employment work or have a role in a partnership at some point in the past year. You must be trading now and intend to do so in the 2020/21 tax year too.
  • You failed to submit a Self Assessment tax return for the 2018/19 tax year before 23 April 2020.
  • You haven’t lost trading profits due to the coronavirus outbreak.
  • Less than 50% of your income comes from your self-employment or partnership.

To apply for the SEISS, the government will contact you (via post) and invite you to apply online, using details they have via your self-assessment registration.  It is estimated that the scheme will be available from June 2020, and that will be the earliest that the grant will be available to the self-employed.

Other coronavirus measures for self-employed workers

There are other coronavirus emergency measures that the government has put in place that might help you, as a self-employed individual or member of a partnership.

Deferred income tax payments

Self Assessment payments due on 31 July 2020 (that is, income tax payments on account) can be deferred until 31 January 2021.

Anybody who fills in a Self Assessment return and who is liable for payments on account can make use of this, not just the self-employed.

Time to Pay

If you’re self-employed and struggling to meet outstanding tax obligations due to financial difficulties, you can contact HMRC to see if you’re eligible for support via the existing HMRC Time to Pay Scheme.  This allows more time to settle financial obligations if you can demonstrate a reasonable ability to pay in future. Contact HMRC on the special coronavirus helpline: 0800 0159 559.

Universal Credit increases

Because of the coronavirus outbreak, the government has increased Universal Credit amounts beyond the already anticipated yearly increase as of April 2020.

The standard allowance will be £409.89 per month.

Grants for businesses that pay little or no rates

If your business operates from a property and is registered for the Small Business Rate Relief (SBRR), or Rural Rate Relief (RRR), then it will receive an automatic grant of £10,000 from your local authority.

You don’t need to do anything to receive this (note: the requirements differ depending on where in the UK your business is located).

However, if your business doesn’t pay any rates, you may need to contact your local authority to ensure it has your bank details for the payment.

Coronavirus Business Interruption Loan Scheme

Businesses can apply for a loan with approved lenders. The government will underwrite 80% of the loan, making the loan more widely available to those who might not normally be able to apply.

It will also pay the interest for the first six months.

MOTs have been suspended

Those who use a vehicle for their self-employed work will be pleased to hear that MOTs have been suspended for six months, provided the MOT falls after 30 March 2020.

The vehicle must be kept in a road-worthy condition but the exemption is automatic, so there’s no need to apply for it.

If in your self-employment business you use a lorry, bus or trailer then there are different rules – MOTs are suspended for three months as of 21 March 2020.

This again is automatic, although you may need to apply under certain conditions.

Deferral of VAT Payments

If you are a VAT registered business in the UK and have a VAT payment to make between 20/03/20 & 30/06/20, this payment can be now deferred till 31/03/2021 without any penalties or charges imposed.  If you pay via Direct debit, this needs to be cancelled with your bank for the deferment to occur.   More information can be found at deferral of VAT payments due to coronavirus (COVID-19).

Landlords & Property Investors Take Note: New Capital Gains Tax Rules for 2020

The new capital gains tax (CGT) rules will come into effect on April 2020, which will more than likely impact the sales of most additional properties in the UK.

CGT is paid on profits from the sale of investment properties that are not the sellers main place of residence. The amount of CGT paid is dependent on the annual income of the individual.  Current capital gains tax rates on property for 2019-2020 are 18% for basic rate taxpayers (£12,001-£50,000) and 28% for higher rate taxpayers (£50,001+).

The changes coming into effect in 04/2020 are threefold:

1. The timing of when you pay the CGT to HMRC
2. The amount of tax relief you can claim if you previously lived in the property
3. How the letting relief will work

Timing:
Previously a UK resident CGT has been calculated & submitted alongside their self assessment income tax irrespective of the completion date for the sale of the investment property. From April 2020, sellers will need to pay the full amount owed within 30-days of the completion of the sale and failure to pay within the 30-day limit will result in penalties.

Tax Relief:
The private residence relief (PRR) applies to landlords selling a property where in the past they have used that property as their main place of residence.

Currently, you are exempt from paying tax on the final 18-months that you owned the property, regardless of whether it was being rented. From April 2020 it is expected to be halved to 9-months.  So once you have not lived in a property that was once your main place of residence for longer than 9-months, you will probably be required to pay some CGT on the profits when it is sold.

Lettings Relief:
As a landlord, if you have qualified for PRR, then it may also be possible to claim lettings relief.

Letting relief can currently be claimed if you used to live in the property being sold, and have also let out part or all of it for residential accommodation.

You can claim the lowest of the following:
the same as the amount of PRR you will receive
£40,000
the chargeable gain you make from the period you let out the property

When the new rules come in from April 2020, you will only be able to claim this relief if you live there when it is being sold  (i.e if you share occupancy with your tenant).

Under current rules there are certain costs that can be deducted from your CGT:

  • Stamp duty paid on the purchase of the property
  • Estate agent fees
  • Solicitor fees
  • Improvement costs that added value to the property (such as extensions)
  • Qualifying buying and selling costs (such as surveyor fees)

Aside from this, capital gains tax is only payable on property that is owned by individuals. If the property is owned by a limited company, corporation tax is applied instead of CGT.

Corporation tax is currently 19%, but the current government hinted at a reduction to 17% for 20/21 but we await the confirmation from the Chancellor budget due in the Spring of 2020.

If you have any queries around CGT or need an accountant to calculate & submit your CGT, please don’t hesitate to contact us.  We offer a free 20-minute consultation.

The Spring Budget, March 2017

Spring Budget 2017: Key Changes Affecting SMEs & the Self-Employed

Philip Hammond, Chancellor of the Exchequer, delivered his Spring Budget to the House of Commons today.

If you missed it, you can watch and listen to the entire speech by clicking the video above. For those without 55 minutes to spare, we spotlight the key changes, particularly in relation to tax, National Insurance, the self-employed and small businesses.

  • For the self-employed, Class 2 National Insurance Contributions (NICs) were already set to be abolished from April 2018. Today, to the surprise of many, the Chancellor announced that Class 4 NIC rates will increase from 9% to 10% from April 2018, increasing again to 11% in April 2019. The Chancellor said that this was to more closely align self-employed NI rates with those paid by employees, particularly in view of the new State Pension to which the self-employed will now have access.
  • Tax-free dividends for those working through a limited company will also be reduced from the current £5,000 level to just £2,000 in April 2018. Corporation Tax will then be charged above that threshold. Again, the reason cited was to bring the self-employed more in line with employees in terms of tax paid overall.
  • The National Living Wage, for those over 25, will increase to £7.50 per hour from April.
  • From April this year, the personal allowance (the amount people can earn before paying income tax) will increase to £11,500 and to £12,500 by 2020. The threshold for higher rate tax will also increase from £43,000 to £45,000 this April.
  • Up to £2,000 (tax-free) will be available towards the cost of childcare for children under 12 from April this year. So for every 80 pence you pay in childcare costs up to £10,000 maximum, the government will add a further 20 pence.
  • Those lucky enough to be able to afford it will be able to save up to £20k maximum in their ISAs from this April. There will also be an NS&I bond introduced, which will pay 2.2% interest on a maximum of £3,000 per person.
  • There will be help for businesses following business rate increases, particularly pubs, which will receive a £1,000 discount if their rateable value is less than £100k (apparently that’s 90% of all English pubs). Also businesses coming out of ‘small business rate relief’ will be helped through the transition with a promise of increases no larger than £50 per month from next year.
  • There will also be an expansion of the clampdown on tax avoidance where some businesses were converting capital losses into trading losses.

Other announcements made by the Chancellor Read more

Tax Credit Cuts Blocked by the House of Lords

House of Lords vs The Chancellor

In an almost unprecedented move, the House of Lords has backed a motion asking the government to revise its proposed tax credit cuts. This is the first time in 100 years that the lords have voted down a financial package and this is an embarrassing blow to George Osborne. The Chancellor has been asked to delay his proposed tax cuts until he comes up with a way of compensating low paid workers over the course of the first three years.

At present 9 in every 10 households receive tax credits but under the Chancellor’s new proposals this would reduce to 5 out of every 10 from April 2016. This means 3 million working families would lose, on average, about £1000 if the proposed changes go through next April.

Working Tax Credit & Child Tax Credit

There are 2 types of credit; Working Tax Credit and Child Tax Credit. Under the Chancellor’s new proposals Read more

Landlords warned over tax on Income from lettings & property investments

Buy-to-let Changes Are Coming — Landlords Beware

Landlords warned over tax on Income from lettings & property investmentsA warning and reminder to landlords: the Chancellor’s Summer budget back in July will hit buy-to-let investors’ profits once the changes kick in, so now is the time to start planning ahead. Not all landlords will be affected though; if their rental property is mortgage free or if they sell within the next 2 years these changes won’t affect them. However those landlords that are Higher and Additional taxpayers will notice their tax relief reduce by 2020. Also, investors near the tax threshold could find themselves in the next tax bracket, which could have a knock-on effect and increase their tax exposure.

So what are the proposed tax changes?

There are basically two:

  1. Firstly, the amount of tax relief landlords can claim on their mortgage interest will now be capped at basic rate and;
  2. Secondly, landlords will no longer be able to subtract their mortgage interest from their rental income before they calculate their taxable profit.

One in five landlords are expected to have to pay more tax because of these changes, however the new rules will not be phased in until between 2017 and 2021 according to the latest information.

What steps can landlords take?

There are several steps that investors can take to conserve as much profit as possible and to limit the amount of any extra tax payable. For example: Read more

George Osborne

Summer Budget 2015 – Key Tax Takeaways

The Summer Budget was announced last week and in this blog post we’ll take a look at only those changes which will affect ordinary taxpayers and SMEs.

In his opening remarks, the Chancellor of the Exchequer, George Osborne, promised:

A Budget … to keep moving us from a low wage, high tax, high welfare economy; to the higher wage, lower tax, lower welfare country.

So, taking each of those goals in turn …

Higher Minimum Wages

With regard to the higher wages promise, Osborne announced that there would be a new National Living Wage of £7.20 per hour from April 2016 for those aged over 25 and over, rising to more than £9 per hour by the year 2020.

Lower Tax

With regard to the lower tax promise, the Personal Allowance (the amount people can earn before paying any tax) will increase – as anticipated – from £10,600 in the financial year 2015-16 to £11,000 in 2016-17. A longer term plan is to increase this still further to £12,500 by 2020. The ultimate ambition is pass a law to make sure that those working 30 hours a week and earning the National Minimum Wage will pay no tax whatsoever, although clearly this will need further clarification in due course.

Dividend tax will also be reformed. Here the existing dividend tax credit (this reduces tax paid on dividends from shares) will be replaced by a new £5,000 tax-free allowance on income from shares from April 2016 and this will be available to all taxpayers. To offset the cost of this to the Exchequer, those with more significant dividend income will see an increase in the tax rate they pay.

Inheritance tax will also be subject to changes from 2017-18. The idea is to allow individuals to each have a ‘family home allowance’ which they can pass on to their children or grandchildren, tax-free, when they die. This allowance will be added to the existing Inheritance Tax threshold currently set at £325k and will potentially allow property up to the value of £1m to be passed down from 2020-21 (see table below). For those with estates valued over £2m the allowance will be gradually withdrawn.

This is how the effective Inheritance Tax thresholds will look in 2020-21: Read more

George Osborne

Highlights from the Chancellor’s Budget, 18 March 2015

Along with some encouraging news about the UK economy, some interesting new measures were announced in the Chancellor’s Budget yesterday and below we highlight those which we feel will directly impact the majority of UK taxpayers:

  • As widely forecast, the tax-free allowance will increase. The amount people can earn before paying tax will rise to £10,800 from 2016-17 and then to £11,000 from 2017-18. At the same points in time, higher earners will also receive a two stage increase to the threshold at which they start to pay a 40% rate of tax, with the threshold increasing to £43,300 by 2017-18.
  • The Chancellor also announced a brand new Personal Savings Allowance whereby the first £1,000 of interest (£500 for higher rate taxpayers) will be tax tree. This new allowance will kick in from April 2016 and will take 95% of taxpayers out of savings tax completely. (Fact Sheet available here).
  • Another new scheme announced was the introduction of a new ‘Help to Buy ISA’ aimed at prospective first time buyers. This fairly generous scheme means that the Government will chip in up to £50 extra per month (up to a ceiling of £3,000) when an eligible saver saves up to £200 per month towards their first home. (Fact Sheet available here).
  • In another ISA reform, savers will now be able to withdraw money from a new Flexible ISA and deposit it back later in the same financial year without losing any of their usual ISA tax benefits. £15,240 will be able to be put into this re-styled savings vehicle. Read more
George Osborne

How the Chancellor’s 2014 Autumn Statement affects YOU!

George Osborne, the Chancellor of the Exchequer, announced his Autumn Statement on Wednesday (3 Dec 2014) in what could be seen as a mini budget. Here we focus on the key announcements, concentrating on those relating purely to taxation, as it is those which affect you, our customers, most directly.

1). First some good news: The UK is seeing the fastest growth out of all the G7 countries, and the number of people employed is at its highest point ever. This is good for all of us because it restores optimism in the UK economy, higher employment speaking for itself.

2). As we announced in a separate blog post, Stamp Duty (Land Tax) has been given a major shake-up and, for anyone buying a house for £935,000 or less, the amount of Stamp Duty which they’ll have to pay will be less, and sometimes very significant. See our separate blog post and infographic for more detail.

3). In the financial year 2015-16, the tax-free personal allowance (which is the amount you can earn before you start to pay any tax) will increase to 10,600 which is an increase of £600. So … more tax-free money in your pocket, which is good.

4). Economy flights will become cheaper for under 12s from 1 May 2015 and under 16s from 1 March 2016, because their tickets will become exempt from tax on those dates. So … a small concession, but another welcome one. Average 4-person families will save £26 for flights within Europe and £142 on flights to the U.S.

5). From 3 December 2014, spouses will be able to inherit their partner’s ISA benefits should their partner pass away. Currently this is not the case and the change will mean that, from 6 April 2015, the surviving spouse or civil partner will be able to Read more

Infographic: Stamp Duty Changes: Good News for Most!

In what, for most of us, is very welcome news, the Chancellor announced a significant tidy-up of Stamp Duty in his Autumn Statement yesterday. The changes will mean that 98% of those who pay Stamp Duty will save money — and potentially a significant amount. We believe that this is a fairer system, with the richest contributing the most and, in effect, counterbalancing the savings which will be made by those buying any property for less than £937,500.

So how will this affect you?

HM Treasury have released a rather useful infographic which, with the aid of examples, gives you a good idea of the savings you will make if the property you are buying costs less than £937,500 … or for richer people the extra you’ll pay if the property price is above that threshold.

Stamp Duty changes and their affects

So how does it work?

In the old Stamp Duty rules you had to pay a single Stamp Duty rate based on the entire value of the property being purchased. This meant sometimes hugely differing amounts of Stamp Duty being levied for sometimes similar property prices (depending on which side of the tax band threshold an individual house price fell). With the new tax bands, however, buyers will pay Stamp Duty at a rates applied to only the part of the property price falling within each tax band, rather like happens with income tax.

Here are the tax bands and the rates which apply:

Stamp Duty tax bands

You can also try the Read more

Record haul by HMRC in tax avoidance crackdown

Record anti-avoidance tax haul by HMRCBack in January we reported that HMRC had raised an extra £20.7 billion in additional revenue for the financial year 2012-13 as a result of it’s drive on tax compliance and a massive crackdown on tax avoidance by organisations and individuals alike. Now we can confirm that the financial year 2013-14 figures are in and HMRC has increased their haul to £23.9 billion in additional tax for the year – an all time record and one which represents 5% of the total tax yield for the year. This is an increase of £3.9 billion on the year before and it’s up a whopping £9 billion compared to 3 years ago. George Osborne will be doubly pleased because this year’s figure also beats the target he set in his Autumn Statement by £1 billion clear.

Of the £23.9 billion raised in these latest figures, £8 billion is derived from large businesses, £1 billion from criminals and a further £2.7 billion is the result of successfully tackling tax avoidance schemes in the courts. That leaves £12.2 billion which we Read more