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Accountants Chester | Phillips & Co | Budget 2021

Budget 2021 key points

03 March 2021

Everything you need to know as the Chancellor Rishi Sunak delivers a budget dominated by the battle to recover from the COVID-19 crisis.

The Economy

  • Rishi Sunak said Covid-19 has ‘fundamentally altered’ our way of life, telling the Commons: ‘Much has changed, but one thing has stayed the same: I said I would do whatever it takes – I have done and I will do.’
  • He told MPs that the damage coronavirus has done to the UK economy has been ‘acute’ as he began his statement.
  • The Chancellor added it will take the UK and the whole world a ‘long time to recover from this extraordinary economic situation, but we will recover.’
  • Sunak said more than 700,000 people have lost their jobs since March 2020 and the economy has shrunk by 10 per cent, the largest fall in more than 300 years.
  • The Office for Budget Responsibility is now forecasting, in their words ‘a swifter and more sustained recovery’ than expected in November.
  • The OBR forecasts that the economy will grow this year by 4 per cent, by 7.3 per cent in 2022, then 1.7 per cent, 1.6 per cent and 1.7 per cent in the last three years of the forecast.
  • Sunak said a July 2020 forecast suggested unemployment could peak at 11.9 per cent but the forecast now is for a much lower peak of 6.5 per cent.
  • He said the measures to support the economy amounted to £65billion over this year and next, taking the total Government support to £407billion.
  • The Bank of England will keep its 2 per cent inflation target but now its remit will also reflect the importance of environmental sustainability and the transition to net zero.

Furlough scheme 

  • The Chancellor confirmed the furlough scheme will be extended until the end of September, and employees will continue to receive 80 per cent of their salary for hours not worked.
  • He said the support for self-employed workers will also continue until September, with the fourth grant providing three months of support at 80 per cent of average trading profits.
  • The Chancellor said: “When the scheme was launched, the newly self-employed couldn’t qualify because they hadn’t all filed a 2019/20 tax return. But as the tax return deadline has now passed, I can announce today that, provided they filed a tax return by midnight last night, over 600,000 more people, many of whom only became self-employed last year, can now claim the fourth and fifth grants.”

Personal taxation 

  • The Chancellor said the Government will not raise the rates of income tax, national insurance, or VAT but will freeze personal tax thresholds at the current level this year.
  • The basic allowance will increase again next year to £12,570 and be held there until April 2026.
  • The higher rate threshold will y be increased next year to £50,270, and will then also remain at that level until 2026.
  • Sunak said the inheritance tax threshold, the pensions lifetime allowance and the annual exempt amount in capital gains tax will be held at current levels until April 2026.

Business taxation and support

  • The Chancellor said a ‘new restart grant’ will be provided in April to help businesses reopen.
  • He told MPs non-essential retail businesses will receive grants of up to £6,000 per premises.
  • Hospitality and leisure businesses, including personal care and gyms which open later, or be more impacted by restrictions when they do will get grants of up to £18,000. That totals £5 billion of new grants, on top of the £20 billion already provided.’
  • When the Bounce Back Loan and CBIL schemes come to an end a new recovery loan scheme starts with loans from £25,000 up to £10 million available through to the end of this year.
  • Sunak said the 100% business rates holiday in England will continue from April until June.
  • The 5% reduced rate of VAT for hospitality, holiday accommodation and attractions will be extended for six months to September 30, followed by an interim rate of 12.5% for another six months.
  • Corporation tax paid on company profits will increase to 25% in 2023.
  • Small businesses with profits of £50,000 or less will be kept on the current rate of 19%. This accounts for around 70% of companies – 1.4 million businesses.
  • A taper above £50,000 will also be introduced to ensure only businesses with profits of £250,000 or greater will be taxed at the full 25% rate.
Accountants Chester | Phillips & Co | Domestic VAT reverse charge

Domestic VAT reverse charge comes into effect on 1 March

01 March 2021

The twice-delayed introduction of the domestic VAT reverse charge for construction services will come into effect on 1 March 2021.

The change was originally scheduled to come into effect from 1 October 2019 but was deferred for 12 months after industry bodies highlighted concerns about the lack of preparation and the impact on businesses.

It was put back another five months due to the impact of the coronavirus (COVID-19) pandemic on the sector. The change will now apply from 1 March 2021 and will overhaul the way VAT is payable on building and construction invoices as part of a move to reduce fraud in the sector.

Under the domestic reverse charge, the customer receiving the service will have to pay the VAT owed straight to HMRC instead of paying the supplier if they report via the Construction Industry Scheme (CIS).

An amendment to the original legislation has made it a requirement that for businesses to be excluded from the reverse charge because they are end users or intermediary suppliers, they must inform their subcontractors, in writing, that they are end users or intermediary suppliers.

HMRC said the additional amendment is designed to make sure both parties are clear in regard to whether the supply is excluded from the reverse charge. It reflects recommended advice published in HMRC guidance and brings certainty for subcontractors as to the correct treatment for their supplies.

Accountants Chester | Phillips & Co

HMRC announces that Self Assessment customers will not be charged the initial 5% late payment penalty

19 February 2021

Today HMRC has announced that Self Assessment customers will not be charged the initial 5% late payment penalty if they pay their tax or make a Time to Pay arrangement by 1‌‌ April.

The payment deadline for Self Assessment is 31 January and interest will be charged from 1 February on any amounts outstanding. The deadline has not changed, but this year, because of the impact of COVID 19, HMRC is giving taxpayers more time to pay or set up a payment plan.

Payment plans or payments in full must be in place by midnight on 1‌‌ April to avoid a late payment penalty.

HMRC recognises the pressure affecting customers due to the pandemic, and anyone worried about paying their tax should contact HMRC for help and support on 0300‌‌ 200‌‌ 3822.

The self-serve Time to Pay facility allows customers to spread the cost of their tax liabilities into monthly instalments until January‌‌ 2022. Customers can set up a payment plan online, on GOV‌‌.UK.

Self Assessment customers who have yet to file their tax return should do so‌‌ by‌‌ 28‌‌‌‌ Fe‌bruary to avoid a late filing penalty.

Accountants Chester | Phillips & Co

Borrowers of Bounce Back loans given six more months for repayments

15 Feb 2021

Businesses that took out government-backed Bounce Back loans to get through the coronavirus (COVID-19) pandemic will now have greater flexibility to repay their loans, the government has announced.

The Pay as You Grow repayment flexibilities now include the option to delay all repayments for a further six months. This means businesses can choose to make no payments on their loans until 18 months after they originally took them out.

Pay as You Grow will also enable borrowers to extend the length of their loans from six to ten years, which reduces monthly repayments by almost half.

They can also make interest-only payments for six months to tailor their repayment schedule to suit their individual circumstances.

The Pay as You Grow options will be available to more than 1.4 million businesses which took out a total of nearly £45 billion through the Bounce Back Loan Scheme (BBLS).

The Chancellor of the Exchequer, Rishi Sunak, said: ‘Businesses are continuing to feel the impact of extended disruption from COVID-19, and we’re determined to give them the backing and confidence they need to get through the pandemic.

‘That’s why we’re giving Bounce Back loan borrowers breathing space to get back on their feet, through greater flexibility and time to repay their loans on their terms.’

Accountants Chester | Phillips & Co

Government announces £1,000 bonus to help businesses take on trainees

08 February 2021

Employers can now apply for a £1,000 cash boost to help them take on new trainees, the government has announced.

The new scheme will support young people to gain the skills and experience they need from the very start, helping them to get a job, an apprenticeship, or to pursue further study.

The cash boost – which is available until 31 July 2021 – will help businesses with the cost of providing a high-quality work placement for a trainee. This includes providing facilities, uniforms or helping with travel costs.

Businesses offering new traineeship opportunities will receive the £1,000 bonus for every trainee they take on, with up to a maximum of ten trainees.

Employers can claim the cash incentive for all work placements that have been completed since 1 September.

Gillian Keegan, Minister for Apprenticeships and Skills, said: ‘We’re pulling out all the stops to help young people get the skills and confidence they need to progress. This cash boost will help employers of all sizes provide more traineeship opportunities to invest in their workforce so they can rebuild and grow, giving young people a vital route to start their apprenticeship journey, get their first job or go on to further study.

‘I strongly encourage as many employers as possible to apply now and take advantage of this fantastic offer so more young people can gain the skills they need to progress in their careers as we build back better from the pandemic.’

Accountants Chester | Phillips & Co

Self assessment taxpayers given extra month to file returns

26 January 2021

Self Assessment customers will not receive a penalty for their late online tax return if they file by 28 February, HM Revenue and Customs’ (HMRCs’) Chief Executive Jim Harra has announced.

More than 8.9 million customers have already filed their tax return. HMRC is encouraging anyone who has not yet filed their tax return to do so by 31 January, if possible.

But anyone who cannot file their return by the 31 January deadline will not receive a late filing penalty if they file online by 28 February.

Taxpayers are still obliged to pay their bill by 31 January. Interest will be charged from 1 February on any outstanding liabilities. Customers can pay online, or via their bank, or by post before they file. More information on how to pay is at GOV.UK.

Taxpayers who cannot afford to pay their tax bill on time can apply online to spread their bill over up to 12 months. But they will need to file their 2019 to 2020 tax return before setting up a time to pay arrangement, so HMRC is encouraging everyone to do this as soon as possible.

HMRC’s Chief Executive, Jim Harra, said:

We want to encourage as many people as possible to file their return on time, so we can calculate their tax bill and help them if they can’t pay it straight away.

But we recognise the immense pressure that many people are facing in these unprecedented times and it has become increasingly clear that some people will not be able to file their return by 31 January.

Not charging late filing penalties for late online tax returns submitted in February will give them the breathing space they need to complete and file their returns, without worrying about receiving a penalty.

We can reasonably assume most of these people will have a valid reason for filing late, caused by the pandemic.

Normally, late filing penalties are applied to all returns filed after the 31 January deadline. Those penalties are cancelled if the customer has a reasonable excuse for filing late. However, this year HMRC is not issuing late filing penalties for a month to help taxpayers and agents who are unable to meet the deadline. Late filing penalties will not be issued for online tax returns received by 28 February.

Accountants Chester | Phillips & Co

Self-Employment Income Support Scheme third grant open to applications until 29 January 2021

19 January 2021

The third of four taxable Government grants for self-employed individuals is now open.

It covers the period from 1 November 2020 to the end of January 2021 with a deadline to apply of 29 January 2021. This is to ensure HMRC’s systems can cope with the volume of traffic – as the deadline for filing self-assessment income tax returns is 31 January 2021.

You can get as much as £7,500. This is made up of 80% of three months’ worth of average monthly trading profits capped at £2,500 per month. To calculate this, HMRC looks at your tax returns from 2018/19, 2017/18 and 2016/17. This is exactly what the first grant was worth.

Am I eligible for the latest (third) grant? 

Broadly, eligibility for the third SEISS grant is similar to the first two, though there are some key differences. But in short, to be eligible to claim for the third SEISS grant, you’ll need to fulfil the following criteria…

Your business must have had a new or continuing impact from coronavirus between 1 November 2020 and the end of January 2021, which you believe WILL cause a “significant reduction” in trading profits in this same period. This can be for one of two reasons – either because of  “reduced demand, activity or capacity” OR you’re temporarily unable to trade. Importantly, you wouldn’t be eligible for this third grant if the impact between 1 November 2020 and the end of January 2021 was not significant, even if you suffered a significant reduction in profits due to problems over other periods in the year (however, you’d likely have been eligible for, and may well have claimed, the previous two grants).

You must intend to continue to trade. You cannot make a claim if you have plans to close your business.

You must have filed a tax return for 2018/19. This means you must have been self-employed prior to 6 April 2019. The last possible moment to file a 2018/19 tax return was 23 April 2020 (the deadline had been extended from 31 January 2020). If you only had a few months’ self-employment on your 2018/19 return, this is counted as your total profit for the year – the Government won’t pro-rata it based on your monthly profits.

You must earn at least 50% of your total income from self-employment. To check this, HMRC will first look at your 2018/19 tax return to see if it was the case then. If you’re not eligible based on 2018/19 alone, it will then look at the tax years 2016/17, 2017/18 and 2018/19 to see if the average of your trading profits across the three years were more than 50% of your total income.

Income from property, dividends, savings, pensions and taxable benefits all count as “non-trading income” and, to qualify for the SEISS, the total of these combined must NOT exceed 50% of your total income

Your average trading profit must be less than £50,000/year. This is essentially a ‘cliff-edge’ requirement – so those whose average annual trading profit is more than £50,000 (to be specific, £50,000.01 and above) won’t be able to get any support from this scheme.

Again, HMRC says it will first check your 2018/19 tax return – if you met the requirements that year, you’ll be eligible. However, if you earned more than £50,000 (or earned less than half of your income from self-employment) in 2018/19, it’ll check your 2016/17 and 2017/18 tax returns if you filed them for those years. If on average over the three years you earned less than £50,000 and made more than half your income from self-employment, you’ll be eligible.

You don’t need to have applied for an earlier grant to get it. As long as you meet the eligibility criteria, it is possible to apply for just one or any combination of the four grants.

You CAN keep working if you claim the grant. Though you need to declare your business has been impacted for the period you’re claiming for. HMRC will check for fraudulent claims.

Accountants Chester | Phillips & Co

Taxpayers using Time to Pay to spread cost of tax payments

14 January 2021

Tax payments worth over £69 million are being spread through HMRC’s Time to Pay facility, according to the tax authority.

HMRC said that nearly 25,000 self assessment taxpayers have set up an online payment plan to manage their tax liabilities in up to 12 monthly instalments.

Last October HMRC increased the threshold for self-serve Time to Pay arrangements from £10,000 to £30,000. Once self assessors have completed their 2019/20 tax return and know how much tax they owe, customers can use the self-serve facility to set up monthly direct debits and spread the cost of their tax bill.

The Time to Pay threshold was increased to help businesses and individuals who have been adversely affected by the coronavirus (COVID-19) pandemic.

Karl Khan, HMRC’s Interim Director General for Customer Services, said: ‘We know the past year has been tough for many businesses and self-employed people, which is why we’re helping them spread the cost of their tax bill into monthly payments.

‘Self assessment customers can use the self-serve Time to Pay facility for amounts up to £30,000, with almost 25,000 customers already benefiting from the service.’

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