November 2020 Tax Update

Key Points

In this article:

Furlough Extension

Brexit

The Loan Charge

Annual Investment Allowance

Self-assessment Tax Returns

So here we are at the start of another lockdown…let’s hope (for the sake of our sanity more than anything else) that it makes enough of a difference to the R rate in the next few weeks that we’re not locked up for the duration of the festive period. Although the recent announcement that the Chancellor will extend the furlough scheme to March indicates that this may be a vain hope. At least the schools are still open, for now.

If you would like to discuss any of the points raised or have other concerns, please contact us for a no obligation discussion about how we may be able to help.

Furlough

Following speculation in the press this week, Rishi Sunak announced on 5 November that the furlough scheme will be extended to the end of March (this is an update from the announcement at the beginning of the week that it would last until December).

Going back to the scheme offering from August, furloughed employees will receive 80% of their current salary for hours not worked, up to a maximum of £2,500. This maintains the flexibility in managing staff and hours that was missing from the original scheme between March and June.

Businesses will continue to be required to cover National Insurance and employer pension contributions.

In addition, to reflect the changes above, the self-employment income support scheme (SEISS) will entitle self-employed individuals to 80% of their average trading profits for November.

Brexit

Amidst the continuing raft of Coronavirus news Brexit seems to have fallen to the back of many people’s minds. With less than two months to go until the transition period ends, preparations for Brexit are becoming increasingly important.

Whilst we are yet to agree a deal with EU which will help answer many of the uncertainties, it is safe to say that the way we charge VAT will change. The charging authority is determined to use the ‘place of supply’ rules which vary depending on the nature of the supply (goods or services), the recipient (business or consumer), and the physical location (UK, EU, or the rest of the world). Since we will no longer be part of the EU from 1 January 2021 it follows that how UK businesses charge VAT will change.

Furthermore, after 31 December 2020 businesses will no longer be able to use the electronic refund system to reclaim VAT incurred in other member states. Claims will be required to be made on paper and in an official language of the relevant country. The forms need to be provided to the tax authority with accompanying documents and may take longer to process than the electronic version.

Loan Charge

Announced in 2016 in an effort to counter-act a specific type of avoidance scheme, the loan charge applied to funds received by way of ‘disguised remuneration’ and had the effect of treating the balance outstanding as taxable on 5 April 2019. Originally the loan charge applied to all loans made between 6 April 1999 and 5 April 2019 although following the loan charge review the scope was reduced to apply only to loans between 9 December 2010 and 5 April 2019.

In an effort to encourage scheme users to come forward, HMRC operated the disguised remuneration settlement opportunity by which individuals or their employers could enter a settlement contract with HMRC for the tax and, in certain circumstances, the NICs due as if the loans were taxed as income at the date of receipt.

For those not wishing to settle, the loans were reportable in the individual’s 2018/19 tax return and the tax due to be paid by 30 September 2020 (although an irrevocable election could be made to spread the loan balance over three years). The deadline for providing information to HMRC regarding loans has now passed and as such updated guidance has been published.

Broadly, for those who have:

  • either reached settlement, or reported the full amount of the loan in their 2018/19 tax return and paid in full, have nothing further to do
  • agreed settlement or reported the full loan amount, but not paid in full should approach HMRC as soon as possible to agree a time to pay arrangement
  • elected to spread the loan over three years, 2019/20 and 2020/21 tax returns should include loan amounts
  • have settled, but may be due a refund following the loan charge review should contact HMRC

Annual Investment Allowance

Capital allowances replace depreciation as the allowable deduction for certain capital items by a business. Depending on the nature of the asset this deduction is typically either 18% or 6% although the annual investment allowance (AIA) gives relief at 100% for purchases not exceeding a given threshold in the year.

For the period to 30 December 2020 this threshold is £1m. Whilst nothing has yet been published regarding a difference threshold from this date, the £1m was a temporary measure and there is speculation that the limit will reduce to £200,000.

Keeping the current business climate in mind it may be irresponsible to advocate spending all retained funds on capital items, however, if you are considering making the acquisition in any case, it may be worth doing so before the end of the year.

Self-Assessment

We end with the obligatory reminder that the deadline for submission of self-assessment tax returns is 31 January and whilst HMRC have offered favourable terms for those needing a time to pay arrangement (see last month’s newsletter) there has been no change to the deadline for filing. An automatic £100 late filing penalty will be applied if the deadline is missed, increasing to £10 per day if the return is more than three months late.

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