How can you get a Tax Refund for Trading Losses? Reply

We are facing the worst recession in 300 hundred years, according to Bank of England

Worse than the Napoleonic wars 1812 to 1821

Worse than the Great Depression of the 1930’s

Worse than the 2 World Wars

Worse than the Financial Crash of 2008

The IMF predicts the UK economy will shrink by 6.5% in 2020, compared with the IMF’s January forecast for 1.4% GDP growth.

The Office for Budget Responsibility (OBR) said unemployment could hit 3.4 million – up from 1.3 million – leaving around one in 10 of the working population without a job, while the economy may shrink by 35% between April and June.

Businesses will make losses this year!

How can those losses into cash refunds?

Carry back the losses! Reclaim tax you have previously paid

You will probably need your accountant to help you, here are the basics

Historically most businesses have simply carried forward losses but you can carry them back

Corporation Tax

 

Instead of carrying a loss forward, you can claim for the loss to be offset against profits for the earlier 12 month period (not accounting period).

You can make a claim to carry back a trading loss when you submit your Company Tax Return for the period when you made the loss.

 

Self Employed

You may use the loss against your income of 2019 to 2020 or 2018 to 2019 or both years.

You can make this claim for losses made in the first 4 years of trade. Start with 2016 to 2017 income.

If the loss is more than your income use the remaining loss against your income in 2017 to 2018 and then 2018 to 2019.

Do not make this claim if you, your spouse or civil partner first carried on the trade before 6 April 2016.

 

 

Corporation Tax – Carry a trading loss back

Instead of carrying a loss forward, you can claim for the loss to be offset against profits for the earlier 12 month period (not accounting period).

You can only do this if your company or organisation was carrying on the same trade at some point in the accounting period or periods that fall in the earlier 12 month period.

For example, if your company or organisation has a loss of £8,000 in the accounting period 1 January 2016 to 31 December 2016 and profits of £20,000 in the earlier 12 months, you can carry back the £8,000 loss to be set off against the profits for the previous accounting year, this will reduce them from £20,000 to £12,000.

If an accounting period straddles that 12 month period, the profit for that period is apportioned and the loss can only be offset against that portion of the profit that falls within the 12 month period.

For example, your company or organisation has a loss of £8,000 in the accounting period 1 January 2016 to 31 December 2016 and it’s recently changed its accounting date, so that the accounting periods and profits of the earlier periods were:

  • £2,000 for 1 July 2015 to 31 December 2015
  • £10,000 for 1 July 2014 to 31 July 2015

You can carry back £2,000 of the loss to cover the whole of the profit in the period ended 31 December 2015.

The balance of the loss of £6,000 cannot be entirely carried back as only 6 months of the profits of £10,000 fall into the earlier 12 months of the loss making period.

Only a loss of £5,000 (6/12 x £10,000) can be used, and the balance of £1,000 is available to be carried forward to the year ended 31 December 2017.

How to claim for a trading loss to be carried back, or amend a claim

You can make a claim to carry back a trading loss when you submit your Company Tax Return for the period when you made the loss.

You can make your claim in your return or in an amendment to the return, as long as you’re within the time limit to amend it. You can also make your claim in a letter.

If you’re making a claim in your return that reduces your Corporation Tax liability for an earlier period, you must make sure you have put an ‘X’ in the appropriate box on the CT600 form.

A claim should be made within 2 years of the end of the accounting period when you made the loss. Your claim should include:

  • the name of your company or organisation
  • the period when the loss is made
  • the amount of the loss
  • how the loss is to be used

If you send your claim separately, send it to HMRC.

 

https://www.gov.uk/guidance/corporation-tax-calculating-and-claiming-a-loss

Income Tax – Using losses: types of claim

Trade losses may be used in a number of ways against:

  • income or possibly against capital gains of the same year or an earlier year
  • profit of the same trade
  • income from a company to which you transferred your trade.

Not all losses may be claimed in all of these ways and sometimes the amount of loss you claim is restricted or limited.

https://www.gov.uk/government/publications/losses-hs227-self-assessment-helpsheet/hs227-losses-2020

Loss set-off against income or income and capital gains

You may use the loss against your income of 2019 to 2020 or 2018 to 2019 or both years. The loss you claim against income will normally be the whole of the loss. If the loss is more than your income, claim the figure of income. You may be able to use the remaining loss, or part of it, against your chargeable gains.

Loss used against income in 2016 to 2017 to 2018 to 2019: early trade losses relief

You can make this claim for losses made in the first 4 years of trade. Start with 2016 to 2017 income.

If the loss is more than your income use the remaining loss against your income in 2017 to 2018 and then 2018 to 2019.

Do not make this claim if you, your spouse or civil partner first carried on the trade before 6 April 2016.

If you make any of these claims, make sure that you include losses claimed by you other than in your tax return. The section on stand-alone claims gives more on this.

If you use the loss against earlier year’s income or capital gains you must also tell us the:

  • amount of loss used for each year in the ‘Any other information’ box on the return
  • decrease in tax due for earlier years

The amount of loss relief you claim against income or capital gains may be restricted or limited for example if you:

  • worked for less than 10 hours a week on average on commercial activities of the trade
  • are a Limited Partner or a member of a Limited Liability Partnership
  • have a trade which is carried on wholly overseas
  • have claimed certain capital allowances
  • have income from oil extraction activities or oil rights

If you need more information on any of the restrictions on relief, ask us or your tax adviser.

There’s a limit on the total amount of Income Tax reliefs that you may claim for deduction from total income for a tax year. Loss relief is one of the reliefs affected. The limit is the higher of £50,000 and 25% of the adjusted total income of the year. See Helpsheet 204 if you think you may be affected by this.

 

Example

Phil has a total income of £70,000 in 2019 to 2020 and makes a trading loss in that year on one of his businesses of £60,000.

The maximum amount of relief Phil can set against his total income for 2019 to 2020 is £50,000 as this is the greater of £50,000 and 25% of his income. The remaining £10,000 loss can be carried forward.

https://www.gov.uk/government/publications/limit-on-income-tax-reliefs-hs204-self-assessment-helpsheet/hs204-limit-on-income-tax-reliefs-2020

 

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What is the Self Employed Income Support Scheme? 2

The scheme will allow you to claim a taxable grant of 80% of your average monthly trading profits, paid out in a single instalment covering 3 months, and capped at £7,500 altogether. This is a temporary scheme, but it may be extended.

If you receive the grant you can continue to work, start a new trade or take on other employment including voluntary work, or duties as an armed forces reservist.

The grant will be subject to Income Tax and self-employed National Insurance.

There is other support available if you’re not eligible for the grant.

HMRC will work out if you’re eligible and how much grant you may get.

Last week HMRC contacted all tax agents (accountants), here is what they said….

As an agent you won’t be able to make a claim on behalf of your clients.

Designing a scheme that enabled agents to apply on behalf of clients would have taken substantially longer to deliver, at a time when speed is the priority.

Instead, we have designed the scheme to be as simple as possible for customers to use, and we will calculate the amount a customer is entitled to based on the information we already hold.

How to use the checker

To use the online checker, your client or you, on their behalf, will need their Unique Taxpayer Reference Number and their National Insurance Number.

If your client is eligible, they will be given a date, between 13 and 18‌‌ May, from which they can apply. This date is assigned randomly to help HMRC manage demand on the service, making sure that everyone who needs to make a claim can do so.

Your client will also be asked to provide their Government Gateway credentials (user ID and password) and check that their bank and contact details are up to date. This is important so that we can we can remind them by email or text message when it’s their turn to make a claim.

If your client doesn’t have Government Gateway credentials, they can set those up simply if they follow our guidance and use the SEISS eligibility checker. There will be no requirement for customers to wait for pins or codes through the post.

So it vitally important that you get a Gateway account with HMRC if you are self employed.

steve@bicknells.net

A Masterclass in Making Tax Digital Reply

Yesterday I presented a 2 hour Masterclass in Making Tax Digital at Scottish Public Sector Taxation Conference, we covered

  • What is MTD and Why is it being introduced
  • What will it cost
  • When are Digital Links needed
  • What are Digital Links
  • How is MTD going so far
  • Problem areas
  • Why has GIANT been delayed
  • What are the 2 main types of Bridging Software
  • Scenarios

160 delegates from the Scottish Government, Scottish Council, Scottish NHS and HMRC attended.

What is happening to the employment allowance in 2020? Reply

In April 2020, the government are planning to make changes to the employment allowance. Since 2014 many businesses have been able to claim £3,000  per year as a deduction against Class 1 NI, but from April things are changing!

Here is a quick summary

  1. Employers won’t automatically qualify for the EA (Employment Allowance) and must claim it each year. This will mean submitting a declaration confirming that you’ve checked and qualify by meeting the eligibility conditions.
  2. Employer with more than £100k of Class 1 NI won’t qualify
  3. Connected employers won’t qualify – sharing staff, premises or other resources
  4. EA will be counted as State Aid and the maximum state aid allowed is 200,000 euros

So even if items 2 to 4 don’t apply, item 1 will apply to every business wanting to make a claim.

steve@bicknells.net

A bit more Goodwill Tax Relief Reply

What has changed

You can now get relief on purchases made on or after 1 April 2019 if the:

  • goodwill and relevant assets are purchased when you buy a business with qualifying intellectual property (IP)
  • business is liable to Corporation Tax
  • relevant assets (including goodwill) are included in the company accounts

Find a full definition of goodwill and relevant assets on GOV.UK in the Corporate Intangibles Research and Development Manual CIRD44060.

Relief you can get

Relief is a fixed rate of 6.5% a year on the lower of the cost of the relevant asset or 6 times the cost of any qualifying IP assets in the business purchased.

Relief is given yearly until the limit is reached. More information about how to work out the relief can be found on GOV.UK in the Corporate Intangibles Research and Development Manual CIRD44093.

How to claim

You must complete a Company Tax Return and include the relief. This will reduce both:

  • your company or organisation’s taxable profit
  • the amount of Corporation Tax you have to pay

https://www.gov.uk/guidance/corporation-tax-relief-on-goodwill-and-relevant-assets

steve@bicknells.net

Factsheet – Construction Industry VAT – Reverse Charge Reply

 

Reverse Charge for the Construction Industry starts in October 2019, its complicated and will be confusing!

Read our 2 page fact sheet to understand how you need to account for VAT.

The new rules will affect Subcontractors and Contractors.

Click here to get the factsheet

steve@bicknells.net

Budget Update 2018 Reply

 

How will yesterday’s budget affect you?

Download our report to find out Click Here

Budget Highlights 2018

Income Tax
• The personal allowance threshold, the rate at which people start paying income tax at 20%, to rise from £11,850 to £12,500 in April – a year earlier than planned
• The higher rate income tax threshold, the point at which people start paying tax at 40%, to rise from £46,350 to £50,000 in April
• After that, the two rates will rise in line with inflation
• National Living Wage increasing by 4.9%, from £7.83 to £8.21 an hour, from April 2019.

Off Payroll IR35
• The employer will be responsible for deduction of tax and NI for personal service companies
• Small organisations will be exempt
• The crackdown is the biggest revenue-raising measure in this year’s Budget

Support for the High Street
• Small retail businesses will see their business rates bills cut by a third for two years from April 2019, saving them £900 million.
• Local high streets will benefit from £675 million to improve transport links, re-develop empty shops as homes and offices and restore and re-use old and historic properties.
• Public lavatories will receive 100% business rates relief.
• This adds to previous reductions in business rates since Budget 2016 which will save firms over £12 billion over the next five years.

Annual Investment Allowance
• The government will increase the Annual Investment Allowance five-fold from £200,000 to £1 million to help businesses to invest and grow.
• Also, from October 2018, businesses will be able to deduct 2% of the cost of any new non-residential structures and buildings off their profits before they pay tax.

The 2019 Loan Charge for disguised remuneration Reply

HMRC are getting tough on those who seek ways to avoid tax and the schemes are often treated as Tax Fraud.

The Finance (No. 2) Act 2017 contains some of the most significant changes to tax legislation in recent memory (the 2019 Loan Charge).

The legislation which is retrospective targets Employee Benefit Trusts, Employer Financed Retirement Benefit Schemes, Contractor Loans and many others where an employee was rewarded with a loan from the employer or a trust, but in realty the employee was never going to repay the loan and just wanted tax free money.

The 5th April 2019 Loan charge will require Income Tax and National Insurance to be paid on the balance outstanding, as most of the loans will be high value that probably means 40%/45% income tax and Employee NI at 2% and Employers NI at 13.8%, so that could be 45% + 2% +13.8% = 60.8% tax on the loan, plus possible interest and penalties

How re-describing loans is claimed to work

Scheme users are being told they can sign documents saying that the sums they’ve received from their disguised remuneration scheme under loan agreements are not loans at all. Instead, these sums of money are merely held by them in a ‘fiduciary capacity’ – for example, an individual acts in a fiduciary capacity if they hold money, or assets, for the benefit of someone else, not themselves.
It’s wrong to claim that the loan charge won’t apply because the sums received aren’t loans.

Why you shouldn’t use this scheme

Renaming something now doesn’t change what happened in the past. Attempting to describe a loan as something else doesn’t mean it’s not a loan.
The loan charge will apply to more than just loans, including any form of credit or other right to a payment regardless of what it’s called. If you adopt this approach and choose not to reflect the loan charge on your tax return you may face a significant penalty in addition to the tax charge.
Deliberately misleading, or concealing information from HM Revenue and Customs (HMRC) may result in criminal prosecution.

https://www.gov.uk/guidance/disguised-remuneration-re-describing-loans-spotlight-39

The Options

  1. Repay in full before the 5th April 2019 – but be aware that if the company distributes money to you it may be taxable
  2. Settle with HMRC

Doing nothing is not an option, its likely you lead to bigger penalties and possible legal action.

The Advice from HMRC

Any arrangements to avoid the loan charge, which seek to deceive HMRC as to what is really happening, may be fraudulent.

A number of previous cases promoted as being compliant and legal have resulted in criminal convictions for the key people involved and extensive investigation of several hundred users. HMRC will investigate all of these arrangements and is likely to take similar action if it finds any that are seeking to deceive. At the very least, anyone who takes part in an offensive arrangement is likely to face penalty sums, chargeable along with any tax and interest that will be due.

Tax avoidance doesn’t pay. Most arrangements simply don’t work and people can end up paying more than they were trying to avoid. Users may have a long-term requirement to deal with the cost, commercial and tax fallout from these transactions with no support from the promoter of the original arrangement. If users are worried about their financial position, it is better to contact HMRC rather than risk more investigation and what is likely to be a larger bill.

steve@bicknells.net

Now HMRC are stopping Post Office tax payments! Reply

On the 15th December 2017 you will no longer be able to pay tax at any Post Office Branch, fantastic timing! just in time for the January self assessment payment rush

The contract with Santander which allowed this method of payment expires on that date and Santander and HMRC have not reached agreement on a new contract.

To make things worse from the 13th January 2018 you won’t be able to pay by Credit Card either!

So your options will be

  • Debit card
  • Online Banking
  • Cheque in the Post
  • Direct Debit

These changes are likely to come as shock to many taxpayers and any reduction in ways to pay can only be bad news for taxpayers!

steve@bicknells.net