Category: tax tips

On 30 April the Government announced two VAT rate changes from standard rate to zero rate, for digital publications and personal protective equipment (PPE), both to take effect from 1 May 2020.

The rate change for digital publications was due to apply from 1 December 2020, as announced in the March 2020 Budget, timed so subscriptions taken out as Christmas presents would qualify for the lower rate.

However, during this coronavirus lockdown sales of physical newspapers and magazines have plummeted, while students are having to use digital materials to continue their studies. The Government has therefore decided to lower the VAT rate immediately.

Publishers may have missed this change in the middle of the other chaos, so check that your clients have changed their systems to account for the correct VAT rate from 1 May 2020. Pricing policies may also need to be reviewed.

Clubs and societies which distribute a physical magazine will also benefit as currently they need to apportion part of their membership subscriptions to the zero-rated magazine. Now they will not be penalised by switching to 100% digital publications.

The change in VAT rate for PPE is only temporary; it applies for sales made between 1 May 2020 and 31 July 2020 inclusive. Where businesses have recently started to produce say hospital gowns or face masks, check that VAT has been correctly accounted for.

The VAT due for the quarter to 31 March 2020 is payable by 7 May 2020, and where a direct debit is set up the amount due would normally be collected by 10 May. However, as 8 to 10 May is a long bank holiday weekend, the DD will be collected on 7 May 2020.

Where your client wants to take advantage of the deferral of VAT payments between 20 March and 30 June remind them to cancel their DD for paying VAT. This can be done the online VAT account or by contacting their bank. Agents can’t change banking details on behalf of a client.

HMRC has updated its guidance concerning the VAT deferral, confirming that annual account advance payments due between 20 March and 30 June can also be deferred, but not VAT MOSS payments or import VAT. Any deferred VAT will have to be paid on or before 31 March 2021.

Many businesses may be due a VAT repayment in the current VAT period as they have little or no sales, but still have bills that include VAT. To obtain these repayments quickly the business can change to monthly VAT returns by altering their VAT periods in their online VAT account.

If you have taken on a new client and you want authorisation to act for VAT, the online authorisation form asks for the box 5 figure from the “last VAT return”. However, since the VAT returns submitted under MTD enter HMRC via an API, the authorisation system can’t see them. To answer the question correctly you need to supply the box 5 figure from the last VAT submitted before MTD.

The annual tax on enveloped dwellings (ATED) is payable for UK residential properties worth over £500,000 which are owned by companies or other non-natural persons. The 2020/21 chargeable year runs from 1 April 2020, and the ATED return and payment must be received by HMRC by midnight on 30 April 2020.

You may believe that no ATED charge is due because the property is commercially let, or some other relief applies. In that case an ATED relief declaration must be filed by 30 April, but this form can cover a number of properties.

The quickest way to submit ATED returns and relief declarations is to use the ATED online service. You need to register with this service as an agent to submit your clients’ ATED forms. Each client must also be registered using their UTR number, and appoint you as their agent for ATED.

All overseas companies that let UK residential properties should now have a UTR number for corporation tax, as they need to pay corporation tax on their UK property income from 6 April 2020.

The online ATED service will calculate the ATED charge due, but you need to chose the valuation band for the property. This will be the value as at 1 April 2017 or the acquisition date if later.

If the property value is within 10% of a band boundary you can use the structured email form to ask for an ATED banding check, but it could take 30 days or more to get a reply. To avoid penalties for late ATED forms, it would be better to submit the ATED return using the valuation you have and amend it later.

HMRC is encouraging tax agents to correspond with it by email where possible and has introduced a number of temporary concessions to avoid processing paper forms.

VAT errors in excess of £10,000 normally have to be reported on form VAT652, but during the coronavirus shutdown the VAT post room is closed so you need to submit this form by email to: inbox.btcnevaterrorcorrection@hmrc.gov.uk

The IHT400 and IHT100 forms normally require a “wet” signature of the trustees or personal representatives, but where there is a professional agent acting for the estate HMRC will accept a printed signature accompanied by a statement from the agent confirming that all PRs or trustees have seen and agreed the account. All payments for IHT due should be made electronically or by phone as HMRC is not accepting payments by cheque.

All work on tax enquiries has been paused so HMRC will not press you for replies to queries or ask for new information or documents until the coronavirus lock down is lifted.

The First Tier Tax Tribunals have not been sitting since 24 March, and are due to resume again on 21 April, but that shutdown period is likely to be extended. If you want to appeal to the tax tribunal against a HMRC decision you should do so within the normal 30 days, but use the online appeals service, or email.

The Government has urged everyone to work from home if they can. This allows millions of people to stay at home, protect the NHS and save lives.

Working at home will increase the running costs of the property slightly as more energy and water is used. The employer can help the employee with these costs by paying them an allowance of £6 per week (£26 per month) from 6 April 2020.

This is allowance was increased from £4 per week in the Spring budget, and is tax free when the employee is working at home under homeworking arrangements. HMRC has indicated that home working arrangements will exist where the employee’s workplace has closed or the employee is following advice to self-isolate.

Where the employer pays for the necessary equipment needed to work from home such as; laptop, monitor, keyboard, desk and chair, no taxable benefit arises. However, if the employee buys those items personally and the employer reimburses the cost, that reimbursed amount will be taxable as it is difficult for the employee to prove the items are “necessarily” required for their work. The employer could pick up the extra tax due in a PAYE settlement agreement.

HMRC will pay a taxable grant to self-employed individuals and partners equivalent to 80% their average trading profits for three months, capped at £2,500 per month.

However, the grant will not be payable to anyone who:

has average profits of £50,000 or more per year – they will get nothing;
has not submitted a tax return for 2018/19, taxpayers have until 23 April 2020 to submit this return in order to qualify;
receive less than half of their annual taxable income from self-employed profits.
It is difficult to determine the income of self-employed individuals in real time, so the Government has chosen to base the amount of grant available on the average of reported profits in the last three tax returns: 2015/16 to 2018/19. If the taxpayer started trading in this period the monthly average of profits will be drawn from the periods in which they were trading.

Those who started trading on or after 6 April 2019 are not eligible for this grant. It is also likely, but not confirmed, that people who earn the majority of their income from furnished holiday lettings will not qualify for this grant.

HMRC will contact those taxpayers who are eligible for this grant and will invite them to apply for the payment online. It is not clear not how this contact will be made, possibly by letter, but certainly not by email or text message. Warn your clients to be aware of scams offering money from HMRC and asking for bank details to be confirmed by clicking a link in an email or replying to a text.

To obtain the grant taxpayer will probably have to pass through the normal two step security process used to access their online personal or business tax account on gov.uk. If your clients haven’t yet used this online account to view their personal tax details, encourage them to do so.

The taxpayer may also have to confirm that they were trading in 2019/20 and expect to continue to trade in 2020/21 once the shutdown has been lifted.

The grant for three months will be payable in one lump sum into the taxpayer’s bank account, but the money will not be available until June.

All VAT registered businesses have an automatic VAT payment holiday for the period from 20 March to 30 June. The VAT due between those dates does not have to be paid until around 31 March 2021, but exactly when the deferred payment will become due is to be clarified.

Where the business pays VAT by direct debit (DD), it must cancel its DD to take advantage of the VAT deferment. This needs to be done at least 5 working days before the payment is due to be taken. HMRC cannot cancel the DD from their end, and the VAT reported on the VAT return will be taken automatically if the DD is not cancelled.

Businesses who pay the VAT by electronic transfer can simply not make the payment due in the period. They do not have to inform HMRC why the payment is not made.

HMRC’s systems should be adjusted so that default surcharges are not trigged by payments not arriving in the 20 March to 30 June period. We understand that HMRC will not charge interest on the deferred VAT payments, but that is to be clarified.

The VAT return must still be submitted on time. Where the business is due a VAT repayment it is even more important to get the return in on time, as the repayment will be accelerated to business.

Self-employed individuals and partners will have a payment on account (POA) to make on 31 July 2020, for the tax year 2020/21. This POA can be reduced by the taxpayer making an adjustment in their personal tax account, or by using form SA303. However, this is not necessary for the POA due on 31 July 2020, as HMRC is providing an automatic payment holiday.

As with VAT, where the income tax is normally paid by direct debit that DD must be cancelled or the tax will be taken.

This tax payment holiday only applies to anyone who has to make a POA on 31 July 2020, including employed taxpayers who may be making a POA because of tax due on dividends or other income.

After much speculation that it would be abolished in the Budget, entrepreneurs’ relief remains available, but with a significantly lower lifetime allowance. For qualifying disposals on or after Budget day (11 March 2020), the lifetime limit is £1 million – reduced from £10 million.

Where clients took protective action prior to Budget day in an attempt to secure availability of the relief, it should be noted that anti-forestalling provisions apply.

Where a contract was entered into prior to 11 March 2020 in respect of a disposal that would be a qualifying disposal for entrepreneurs’ relief purposes, the new £1 million lifetime limit will apply rather than former £10 million lifetime limit unless the parties to the contract are able to demonstrate that they did not enter into the contract to take advantage of the timing rules in TCGA 1992 whereby the date of the disposal is set as the time at which the contract was made. Further, where the parties to the contract are connected, they must also demonstrate that the contract was entered into wholly for commercial reasons to benefit from the £10 million lifetime limit.

Anti-forestalling measures also apply in certain circumstances where shares are exchanged for those in another company in the period from 6 April 2019 to 11 March 2020 and both companies are controlled or owned by substantially the same person.

It should be noted that disposals qualifying for entrepreneurs’ relief prior to 11 March 2020 count towards the new £1 million limit and clients who have already benefitted from entrepreneurs’ relief on qualifying disposals of more than £1 million will not be able to benefit from the relief on further disposals. Spouses and civil partners have their own lifetime limits allowing some planning to maximise the relief available, but each must meet the qualifying conditions for the requisite two-year period.

Doctors have been retiring early and turning down extra shifts because the extra earnings pushes their pension contributions over the permitted level of annual allowance, leading to penal tax charges. The Budget has gone some way to solve this problem for high earning medics from 2020/21.

“High earning” in this context means having adjusted net income of over £150,000 AND threshold income of over £110,000. These thresholds will increase to £240,000 and £200,000 respectively from 6 April 2020.

“Net income” is basically income from all sources including the value of pension contributions, “threshold income” is net income less all pension contributions (see link below).

These higher earners currently have their pensions annual allowance tapered down by £1 for every £2 over the threshold to a minimum of £10,000 per year. From 2020/21 this minimum will be £4,000 in line with the MPAA.

However, unlike those subject to the MPAA, taxpayers with a tapered annual allowance canuse up any unused annual allowance brought forward from the three immediately preceding tax years (ie 2016/17, 2017/18 and 2018/19). The unused allowance from 2016/17 will drop out of the calculation for contributions made on and after 6 April 2020.

When the value of pension contributions exceeds the available annual allowance, the taxpayer must pay an annual allowance charge. Where this charge is more than £2,000 they can ask the pension scheme to pay under the “scheme pays” rules. The detailed rules are complex, so take advice from a qualified IFA.

Contractors who are winding down their companies, as they will be caught by the off-payroll rules from 6 April 2020, may want to extract the maximum cash as pension contributions before that date.

You will need to work closely with their IFA to ensure that the company has sufficient available profits and the individual has the available annual allowance. A pension contribution paid after the company has ceased trading, and has no income, will not get tax relief on that contribution.

Remember you should not recommend that a payment should be made into a specific pension scheme unless you are authorised to give financial advice and registered with the Financial Conduct Authority (FCA).

HMRC are sending out P9 Notice of Coding notifications during the period 10 February 2020 to 10 March 2020. The P9 notices tell employers the code that they need to use for the employee in question for the 2020/21 tax year. They can be accessed electronically from the employer’s PAYE online account. Employers should receive paper P9 notices by 21 March 2020.

Although it is expected, as announced at the time of the 2018 Budget, that the personal allowance for 2020/21 will remain at £12,500, this will not be finalised until the Budget on 11 March 2020. In light of this, HMRC have issued codes for 2020/21 based on 2019/20 rates and allowances. In the event that changes are announced in the Budget, HMRC will undertake a recoding exercise and will issue revised codes on form P6b. Should this happen, employers should note that they should only start using the code shown on the P6b from the date shown on that notice.