How do you account payments received under Off Payroll (IR35)? Reply

If you are a contractor working for the Public Sector or a Large Business you will be assessed against the Off Payroll rules that took effect in 6th April 2021 its a shift in the way the existing IR35 rules are applied.

Who is likely to be affected and what is it

  1. Individuals supplying their services through an intermediary, such as a personal service company (PSC), and who would be employed if engaged directly.
  2. Medium and large-sized organisations outside the public sector that engage with individuals through PSCs. Public sector organisations will also be affected by changes to improve the operation of the reform.
  3. Recruitment agencies and other intermediaries supplying staff through PSCs.

Engagements with small organisations outside the public sector are exempt, minimising administrative burdens for the vast majority of businesses.

A 5% allowance is currently available to those who apply the off-payroll working rules to reflect the costs of administering them. Because responsibility is shifting from the PSC to the engager, this allowance will be removed for those engagements with medium and large-sized organisations. It will continue to be available for engagements with small organisations.

The deemed employer is the person who is responsible for:

  • deducting Income Tax and employee National Insurance contributions and paying these to HMRC
  • paying employer National Insurance contributions and Apprenticeship Levy, if applicable, to HMRC

How is the money taxed when the contractor’s company gets it?

ESM10030 – off-payroll working legislation: Chapter 10, ITEPA 2003 (from 6 April 2021): basic principles: how the worker accounts for and reports monies drawn from their intermediary

Remuneration

Remuneration (i.e. such as a salary) drawn by the worker from their PSC will be free of PAYE tax and NICs up to the level of the deemed direct payment, where that remuneration can reasonably be taken to be for services of that worker to a public authority or medium or large-sized organisation not in the public sector. This prevents payments being subject to double taxation (see ESM10024).

Dividends

If the worker is remunerated via a dividend from their PSC, this will also be tax free up to the level of the deemed direct payment, where the dividend can reasonably be taken to be for the services of the worker to a public authority or medium or large-sized organisation not in the public sector. This only applies to dividends paid to the worker who performed the services subject to the off-payroll working rules. This dividend does not need to be returned on the worker’s self-assessment return.

ESM10035 – off-payroll working legislation: Chapter 10, ITEPA 2003 (from 6 April 2021): basic principles: CT accounting

Example – Corporation Tax

A worker offering their services through a PSC performs services for Major Retail Ltd, a large-sized business. The engagement is within scope of the off-payroll working rules and Major Retail Ltd deems the engagement would be one of employment if it were direct and deducts tax and NICs. For the twelve-month engagement the worker is paid £1,000 per month plus VAT of £200. Each month £400 is taken in tax and employee National Insurance with £600 plus the VAT of £200 paid to the worker’s PSC. The worker takes all £600 as a payroll payment (like a salary) each month without deducting anything further and submits this through payroll on a Full Payment Submission. The PSC has no other income during the year.

Turnover                                            (12 x £1,000)   =   £12,000                    (credit income)

Less Tax and NICs expense      (12 x £400)      =   £4,800                     (debit in profit and loss)

Less Payroll expense                    (12 x £600)      =   £7,200                     (debit in profit and loss)

Profit                                                                                       =   £0

If the worker instead of receiving payroll payments, takes the net amount as dividends there would be taxable profit at the end of the year:

Turnover                                            (12 x £1,000)   =   £12,000                 (credit income)

Less Tax and NICs expense      (12 x £400)      =   £4,800                  (debit in profit and loss)

Profit                                                                                   =   £7,200                  

The PSC also gets relief, this time for corporation tax, to avoid double taxation. This relief is given by s141A Corporation Tax Act 2009. This relief is used when calculating the company’s taxable profit. A deduction equal to net amount received by the PSC, here £7,200, would be made to leave taxable profit of £0. The £7,200 can then be taken as tax free dividends.

If after filing accounts the circumstances change and the engagement should not have been one to which Chapter 10, Part 2 ITEPA 2003 applied, and tax and NICs are refunded, the necessary corrections to the accounts and tax computations must be made to reflect the new position, as the relief would no longer be due.

steve@bicknells.net

Can you justify your pension contribution? Reply

The maximum pension contribution is £40k per year and if you haven’t used the allowance in previous years there is a 3 year carry forward of unused contributions.

Most business owners pay this as a company contribution, that should save corporation tax as its a tax deductible expense.

However, does the contribution comply with

BIM46035 – Specific deductions: pension schemes: wholly & exclusively: controlling directors & shareholders

S34 Income Tax (Trading and Other Income) Act 2005, S54 Corporation Tax Act 2009

A pension contribution by an employer to a registered pension scheme in respect of any director or employee will be an allowable expense unless there is a non-trade purpose for the payment.

One situation where all or part of a contribution may not have been paid wholly and exclusively for the purposes of the trade is where the level of the remuneration package is excessive for the value of the work undertaken by that individual for the employer. In this situation, you should consider whether the amount of the overall remuneration package, not simply the amount of the pension contribution, was paid wholly and exclusively for the purposes of the employer’s trade.

steve@bicknells.net

Payroll Year End Dates Reply

Its Payroll Year End time

Important deadlines

  • 5 April 2021 – You must have sent your final FPS for the tax year 2020-21 by this date (although you should of course still submit FPS returns on or before the final pay date of the year, as per HMRC rules, which may be before 5 April 2021)
  • 14 April 2021 – last date for March CJRS claims
  • 19 April 2021 – You must have sent your final EPS submission for the year by the year – which serves as your ‘Final Submission’ to HMRC for 2020-21.
  • 31 May 2021 – You need to provide a form P60 (either paper or electronic) to each employee on the payroll who was working for you on the last day of the tax year (5 April). You must do this by no later than 31 May. Make sure that you have the payroll file open for 2020-21, then click ‘Forms – End of Year P60’ to produce these.
  • 6 July 2021 – Expenses and benefits annual returns – If you provide employees with expenses and benefits then P11D and P11d(b) are still sent as a separate submission to HMRC and should be sent by 6 July 2021 where applicable.

contact us if you need help

steve@bicknells.net

45p for 10,000 miles – not if Associated Businesses Reply

Mileage Allowance Payments (MAPs) are what you pay your employee for using their own vehicle for business journeys.

You’re allowed to pay your employee a certain amount of MAPs each year without having to report them to HMRC. This is called an ‘approved amount’.

Most people are familiar with the approved mileage rates of 45p for the first 10,000 miles then 25p per mile but can you claim 10,000 in multiple businesses? not if they are associated

ITEPA 2003, s230 (4)

(4)One employment is associated with another if—

(a)the employer is the same;

(b)the employers are partnerships or bodies and an individual or another partnership or body has control over both of them; or

(c)the employers are associated companies within the meaning of section 416 of ICTA.

For associated businesses its one lot of 10,000 over all the associated businesses

steve@bicknells.net

Let’s have a Virtual Tax Free Party Reply

HMRC have now agreed you can have a Virtual Staff Party tax free

So you could organise a Virtual online event, have a hamper delivered to your staff and that would count.

Virtual functions

Where an annual function is provided virtually using IT then the exemption is capable of being met provided all other conditions are also satisfied as the exemption applies to allow for costs of provision which are generally incurred for the purposes of the event itself.

EIM21690 – Employment Income Manual – HMRC internal manual – GOV.UK (www.gov.uk)

Exemption not allowance

The figure of £150 is not an allowance. For functions that are outside the scope of the exemption (see example at EIM21691) directors and employees, are chargeable on the full cost per head, not just the excess over £150, in respect of:

  • themselves and
  • any members of their family and household who attend as guests.

The cost of the function includes VAT and the cost of transport and/or overnight accommodation if these are provided to enable employees to attend. Divide the total cost of each function by the total number of people (including non-employees) who attend in order to arrive at the cost per head.

steve@bicknells.net

How Boost your finances ahead of the Year End Reply

With the end of the tax year fast approaching, now is a good time to review your business and personal finances to ensure that they are as tax-efficient as possible.

We can help make sure that you don’t miss out on any money-saving opportunities.

Please take some time to read through our 2020/21 Year End Strategies Guide, which contains practical guidance and ideas to implement before 5 April 2021.

With our useful tips and expert assistance, we can help you and your business to increase your profitability and minimise the tax burden.

steve@bicknells.net

Is my business still viable? you could get up to £5000 to help your business recover Reply

Wrongful Trading

Some directors will have big decisions to make, both immediately and in the coming weeks and months as the various government initiatives begin to unwind. Such decisions may include which creditors should be paid,
whether the losses currently being incurred are sustainable and if the company can continue to trade in its present format.

The current Coronavirus Job Retention Scheme comes to an end on 31 October which means for those businesses with 20-99 employees, any employers looking to make redundancies will hopefully have provided
the requisite 30 days’ notice to employees. On 30 September the Government lifted the temporary suspension on personal liability on directors for wrongful or insolvent trading.


In brief, wrongful trading occurs when directors have continued to trade when they knew, or ought to have known, there was no reasonable prospect of the business avoiding insolvency and the directors did not take
every step to minimise the potential loss to the company’s creditors. In the event that wrongful trading occurs and the company enters insolvency, the directors could be held liable for the company’s debts from the point
they knew or ought to have known the company was insolvent.

The above was an extract from a newsletter from RSM http://www.rsmuk.com

The Government will Support Viable Jobs

The Coronavirus Job Retention Scheme (CJRS) known as Furlough ends tomorrow 31st October 2020 and on the 1st November 2020 the Job Support Scheme (JSS) starts.

When JSS was announced in September, Rishi Sunak, said the scheme would directly support ‘VIABLE’ jobs.

The implication is that if the jobs aren’t viable and the business can’t continue that the business should not claim JSS.

JSS is complicated, take a look at this example from HMRC for an employee on fixed salary

Calculation example 1: fixed hours and fixed salary employee

An employee has worked full time, from Monday to Friday, for A Ltd since 2011, and is paid £2,250 gross at the end of every calendar month. The employee has always been contracted to work 37.5 hours per week. A Coronavirus Job Retention Scheme grant was not claimed for the employee.

A Ltd is a small employer and meets all the eligibility criteria to qualify for Job Support Scheme.

The employee enters into a JSS Open temporary working agreement with A Ltd on 2 November 2020 to work Mondays and Tuesdays (7.5 hours each day, equating to 15 hours per week) from 2 November 2020 to 31 December 2020, at which point the position will be reviewed. The employee’s pay for the working hours in November is £945.

A Ltd calculates the amount of the JSS Open grant for the pay period 1 November 2020 to 30 November 2020 (one calendar month).

The employee’s usual hours are calculated for the days on which the employee is on a JSS Open temporary working agreement within the pay period (2 November 2020 to 30 November 2020). The employee’s usual hours are calculated by A Ltd to be 155 hours:

The steps to calculate the fixed employee’s usual hours are:

  1. The greater of the number of hours contracted for at the end of the last pay period before 23 September 2020 (37.5) and the number of hours contracted for at the end of the last pay period before 19 March 2020 (37.5): 37.5
  2. Divide by the number of calendar days in the repeating working pattern, including non-working days: 7 37.5÷7=5.36
  3. Multiply by the number of days which the employee is eligible to be claimed for under JSS Open: 29 days x 5.36 = 155.44 rounded to 155 usual hours.

The employee did not take any time off in November, so the actual hours worked in November are 67.5 hours. A Ltd calculates that the employee didn’t work for 87.5 hours of their usual hours for November.

To calculate the percentage of hours worked: (67.5÷155) x 100 = 43.55%

A Ltd checks that the employee can be claimed for under Job Support Scheme. In November, the employee worked for 43.55% of their calculated 155 usual hours for November. Because the employee is working at least 20% of their calculated usual hours for November, providing other Job Support Scheme conditions are met, a claim can be made for the employee.

A Ltd calculates the employee’s Reference Salary as £2,250 for the pay period. The maximum Reference Salary that can be covered under the scheme is £3,125 per calendar month. The cap does not affect the calculation here because the Reference Salary is less than £3,125.

To work out the overall amount that A Ltd must pay the employee for their non-working hours in each pay period:

  1. Start with £2,250 (the reference salary for the pay period)
  2. Divide by 30 (the number of calendar days in the pay period)
  3. Multiply by 29 (the number of days subject to a Temporary Working Agreement in the pay period)
  4. Divide by 155 (the number of usual hours for the JSS Open days in the pay period
  5. Multiply by 87.5 (the number of non-working hours for the JSS Open days)
  6. Multiply by 66.67% = £818.59

This is made up of a 5% employer contribution, and a 61.67% government contribution which A Ltd can reclaim.

To work out the government contribution to the employee’s pay for the non-working hours: 1. Start with £818.59 (the total pay for the non-working hours) 2. Divide by 66.67 3. Multiply by 61.67 = £757.20

The employee’s total gross pay for November will be £1,763.59 (£945 + £818.59).

https://www.gov.uk/government/publications/the-job-support-scheme/the-job-support-scheme

Going Concern Accounting

If the business is about to go into liquidation or the directors plan to end the business then the accounts can’t prepared on a going concern basis.

The basis used for businesses which aren’t a going concern would generally be the break up value.

Directors may also include notes in the accounts to explain the status of the company.

In order to prove that business is not insolvent it will need need cashflow projections, budget and business plans, otherwise the directors risk being personally liable if the business fails.

We have lots of templates to help in preparing what is needed and can also assist in the preparing them. https://www.bicknells.net/client-resources

Government Recovery Grant of up to £5000

You can now apply for the amount of £1,000 – £3,000 or £5,000 in exceptional circumstances

Dorset LEP – The closing date for applications is the 31st January 2021 or when the total budget of £550,000 is allocated, whichever is first. We advise you to apply as soon as possible as we expect there to be a huge demand.

Dorset SME recovery grant can be used for eligible project costs, which may typically be:


# 1-2-1 specialist advice which SMEs could call on to address their immediate needs in response to the
impact of COVID-19 e.g. HR, accountants, legal, financial, H&S, IT / digital or sector specialists etc.


# For the visitor economy, this could also include productivity improvements such as enhanced use of digital
tools such as yield management software, mentoring, networking or other measures.

# It could also support to develop innovative delivery in a socially distanced economy – for example, new ways of delivering cultural events and festivals that are so critical to the visitor experience; and / or


# Purchase of minor equipment to adapt or adopt new technology in order to continue to deliver business activity or diversify in response to COVID-19.

https://www.dorsetgrowthhub.co.uk/recovery-grant

steve@bicknells.net

How can you get tax relief on a payment of £500k to a SSAS Reply

Small Self Administered Pensions (SSAS) are common for owner managed businesses.

In general a company can pay up to £40k per year into a SSAS for a employee and if the allowances haven’t been used there is 3 year carry forward option, which could mean up to £120k.

However, where a SSAS has multiple members a company could contribute £500k and get full tax relief. This known as an indirect payment.

Corporation Tax relief on the indirect contribution is available in the year it’s made.  It needs to meet the “wholly and exclusively for the purpose of trade” test. 

If the contribution exceeds £500,000 (up to a maximum of £2 million), the relief must be spread over future years.

Here are the HMRC rules https://www.gov.uk/hmrc-internal-manuals/pensions-tax-manual/ptm043400

Speak to you SSAS provider for advice and further details

steve@bicknells.net

How do you make a claim for the Job Support Scheme (JSS)? Reply

www.bicknells.net

The Job Support Scheme is designed to protect viable jobs in businesses who are facing lower demand over the winter months due to Covid-19, to help keep their employees attached to the workforce. The company will continue to pay its employee for time worked, but the burden of hours not worked will be split between the employer and the Government (through wage support) and the employee (through a wage reduction), and the employee will keep their job.

How can I claim?
• The scheme will be open from 1 November 2020 to the end of April 2021.
Employers will be able to make a claim online through Gov.uk from December 2020. They will be paid on a monthly basis.
• Grants will be payable in arrears meaning that a claim can only be submitted in respect of a given pay period, after payment to the employee has been made and that payment has been reported to HMRC via an RTI return

Examples
• Beth normally works 5 days a week and earns £350 a week. Her company is suffering reduced sales due to coronavirus. Rather than making Beth redundant, the company puts Beth on the Job Support Scheme, working 2 days a week (40% of her usual hours).
• Her employer pays Beth £140 for the days she works.
• And for the time she is not working (3 days or 60%, worth £210), she will also earn 2/3, or £140, bringing her total earnings to £280, 80% of her normal wage.
• The Government will give a grant worth £70 (1/3 of hours not worked, equivalent to 20% of her normal wages) to Beth’s employer to support them in keeping Beth’s job.

https://www.gov.uk/government/publications/job-support-scheme

steve@bicknells.net

Winter 2020 – Job Support Scheme, SEISS, Tax Deferral and Bounce Back Loans (pay as you grow) Reply

NEW JOB SUPPORT SCHEME ANNOUNCED

 

Today Chancellor Rishi Sunak announced a new job scheme starting 1 November 2020 to replace the current Job retention (“furlough”) scheme which ends 31 October 2020.

 

All small and medium-sized businesses are eligible, larger businesses must show their turnover has fallen during the pandemic. Employers can use the new scheme even if they have not previously used the furlough scheme.

 

The new Government scheme will last for six months to 30 April 2021 and to be eligible employees will need to be working a minimum of 33% of their hours. For the remaining hours not worked the Government and employer will pay one third. of wages each. This means:

Employers will continue to pay the wages of staff for the hours they work – but for the hours not worked, the government and the employer will each pay one third of their equivalent salary.

 

Employees who can only go back to work on shorter time will still be paid two thirds of the hours for those hours they can’t work.

 

The level of grant will be calculated based on employee’s usual salary, capped at £697.92 per month.

 

By way of an example an employee working 33% of their hours will receive at least 77% of their pay, 22% paid by the Government and 55% paid by their employer (the “worked” 33% plus 22%).

 

SELF-EMPLOYED INCOME SUPPORT SCHEME

 

The existing self-employed grant (SEISS) will also be extended on the same basis as the job support scheme.

 

An initial taxable grant will be provided to those who are currently eligible for SEISS and are continuing to actively trade but face reduced demand due to coronavirus. The initial lump sum will cover three months’ worth of profits for the period from November to the end of January next year. This is worth 20% of average monthly profits, up to a total of £1,875.

An additional second grant, which may be adjusted to respond to changing circumstances, will be available for self-employed individuals to cover the period from February 2021 to the end of April.

 

 

VAT CUT FOR HOSPITALITY SECTOR CONTINUES

 

The reduction in VAT to 5% for the hospitality and tourism sector will be extended until 31 March 2021.

 

DEFERRAL OF VAT BILLS

 

Up to half a million businesses who deferred their VAT bills will be given more breathing space through the New Payment Scheme, which gives them the option to pay back in smaller instalments. Rather than paying a lump sum in full at the end March next year, they will be able to make 11 smaller interest-free payments during the 2021-22 financial year.

 

SELF-ASSESSMENT TAXPAYERS – TIME TO PAY EXTENSION

 

Approximately 11 million self-assessment taxpayers will be able to benefit from a separate additional 12-month extension from HMRC on the “Time to Pay” self-service facility, meaning payments deferred from July 2020, and those due in January 2021, will now not need to be paid until January 2022.

 

BOUNCE BACK LOANS – FLEXIBILITY GIVEN TO PAY BACK AMOUNTS BORROWED

 

More than a million businesses who took out a Bounce Back Loan will get more repayment time through a new Pay as You Grow flexible repayment system.

This includes extending the length of the loan from six years to ten, which will cut monthly repayments by nearly half. Interest-only periods of up to six months and payment holidays will also be available to businesses.

 

The Government also intends to give Coronavirus Business Interruption Loan Scheme lenders the ability to extend the length of loans from a maximum of six years to ten years if it will help businesses to repay the loan.

 

The chancellor also announced an extension in applications for the government’s coronavirus loan schemes until the end of November.

 

Further guidance will be issued in due course.

See: https://www.gov.uk/government/news/chancellor-outlines-winter-economy-plan

steve@bicknells.net