Coronavirus advice

Acas has published new guidance for employers and employees on the coronavirus. The guidance covers:

  • what to do if employees do not want to go to work
  • sick pay
  • what to do if employers need to close the workplace
  • other steps for employers to take. 
     

New advisory fuel rates published

Advisory fuel rates are intended to reflect actual average fuel costs and are updated quarterly. The rates can be used by employers who reimburse employees for business travel in their company cars or where employees are required to repay the cost of fuel used for private travel. HMRC accepts there is no taxable profit and no Class 1A National Insurance on reimbursed travel expenses where employers pay a rate per mile for business travel no higher than the published advisory fuel rates.

Employees can also use the advisory fuel rates to repay the cost of fuel used for private travel. In this case, HMRC will accept there’s no fuel benefit charge. The advisory rates are not binding if the employer can demonstrate that employees cover the full cost of private fuel by repaying at a lower rate per mile.

The latest advisory fuel rates become effective on 1 March 2020. Fuel rates are reviewed four times a year with changes taking effect on 1 March, 1 June, 1 September and 1 December. You can use the previous rates for up to 1 month from the date the new rates apply.

The new rates are as follows:

 

Engine size    Petrol – amount per mile  LPG – amount per mile
1400cc or less     12p 8p
1401cc to 2000cc      14p 10p
Over 2000cc      20p 14p

 

Engine size     Diesel – amount per mile
1600cc or smaller  9p
1601cc to 2000cc    11p
Over 2000cc  13p

 

Hybrid cars are treated as either petrol or diesel cars for this purpose.

Advisory Electricity Rate

HMRC accepts that if you pay up to 4p per mile when reimbursing your employees for business travel in a fully electric company car there is no profit. While electricity is not considered a fuel for tax and NICs purposes, the Advisory Electricity Rate is now published quarterly alongside the other advisory fuel rates.

Meaning of goodwill for CGT purposes

Goodwill is a subject we hear about often but interestingly is rarely mentioned in legislation. In fact, the term 'goodwill' is not defined for the purposes of the Capital Gains legislation in TCGA 1992.

Most definitions of goodwill are derived from case law. At its simplest you could describe goodwill as the 'extra' value of a business over and above its tangible assets.

In the vast majority of cases, when a business is sold a significant proportion of the sale price will be for the intangible assets or goodwill of the company. This is essentially a way of placing a monetary value on the business's reputation and customer relationships. Valuing goodwill is complex and there are many different methods which are used and that vary from industry to industry.

HMRC’s internal manual states that:

'Most businesses can be expected to have goodwill even though its value is likely to fluctuate from time to time. The fact that goodwill may not be reflected in the balance sheet of a business does not mean that it does not exist. In the same way, the writing off of purchased goodwill in the accounts of a business does not mean that its value has decreased or that it has ceased to exist.'

VAT – the concept of business

The VAT system is policed by HMRC and there are penalties for breaches of the legislation.

There are four conditions that must be satisfied in order for an activity to be within the scope of UK VAT.

These conditions are that the activity:

  1. Is a supply of goods or services
  2. That the supply takes place in the UK
  3. Is made by a taxable person
  4. Is made in the course or furtherance of any business carried on or to be carried on by that person

The fourth point above is a condition that needs to be carefully considered when deciding if an activity is within the scope of VAT. This concept of 'business' is one of the less well-known rules. However, this is an important condition that drives the liability of a business to charge VAT on their sales, known as output VAT, and on its ability to recover VAT, known as input tax.

The VAT concept of business is currently taken to be the same as the concept of 'economic activity' set out in European legislation. Therefore, if an activity falls within EU definition of economic activity, it must be business in the UK. Both of these definitions are wide and, in some cases, have needed to be interpreted by the courts.

Property rental income and bad debt

In most cases, property rental income must be brought into account in the year in which the income was earned, even if the invoice has not yet been paid. However, a deduction is allowed in respect of bad & doubtful debts.

These are debts which are either clearly irrecoverable (a bad debt) or a doubtful debt to the extent it is estimated to be irrecoverable. The deduction allowable for a doubtful debt is the full amount of the debt, less than any amount the taxpayer expects to recover.

Whilst HMRC does not usually seek proof of each bad debt for which a claim is made, it is clear that a deduction can only be made where a taxpayer has taken all reasonable steps to recover the debt and proper evidence should be held to demonstrate this.

If the debt is later recovered the taxpayer should account for the recovery as a receipt of their rental business in the year the debt is paid. Similarly, if a doubtful debt later looks as if it will be paid at some future date, the taxpayer should bring the debt back in as a receipt when prospects change.

No deduction is allowable if a debt is waived for reasons other than the financial position of the debtor, for example between connected parties or merely because the tenant is a habitual slow payer.

P9 Notice of Coding form

The P9 Notice of Coding form is used to notify employers of the tax codes to use for employees. HMRC has begun to send email notifications to employers advising that the coding for the tax year starting 6 April 2020 can be viewed online. The emails are being sent up until 10 March 2020. HMRC has also advised that the paper P9 coding notices should arrive with employers on or around 21 March 2020.

If an employer does not receive their paper P9 notices in time for the first pay period on or after 6 April 2020, they can request a duplicate from the Employer Helpline on 0300 200 3200. A request for a duplicate can only be made in respect of a full employer scheme and is not available for individual tax codes.

HMRC has stated that as Income Tax thresholds and rates for the UK Government and devolved administrations will not be finalised until March, tax codes are calculated using 2019-2020 rates and thresholds for all parts of the UK.

After the Budget announcements, HMRC may need to carry out a re-coding exercise to include changes to rates or thresholds. If this is the case, any changes will be issued to employers on a P6b. These codes should only be operated on or after the date shown on the P6b.

New £20 note launched

The new £20 note entered into circulation on 20 February 2020 and features the image of the artist JMW Turner. It will take a few weeks for the notes to become commonplace across the country. The new £20 note includes a number of new security features including two windows and a two-colour foil, making it very difficult to counterfeit.

The new £20 note joins the current £5 and £10 notes in being printed on polymer, a thin flexible plastic. It has already been confirmed that a new £50 note will be issued in 2021 featuring Alan Turing, completing the updating of all current Bank of England banknotes.

In tandem with the launch of the new £20 note the process of withdrawing the current paper £20 notes from circulation will begin. The paper £20 notes will remain as legal tender until they are withdrawn. The exact date that the paper notes are to be withdrawn has not yet been announced. The Bank of England has confirmed it will give six months’ notice ahead of the paper notes being withdrawn as legal tender. Even after the old £20 notes have been withdrawn, many banks will still continue to accept them as deposits from customers.

VAT-free shopping

There is a special VAT refund scheme called the VAT Retail Export Scheme or Tax-Free Shopping that allows individuals not resident in the EU to obtain a VAT refund on goods bought in the UK and taken out of the EU. The scheme does not apply to services, for example hotel bills.

The scheme can be used to reclaim VAT on purchases from participating shops. It is important to note that not all retailers offer tax-free shopping and there is usually a fee (from the retailer) for making a claim. The retailer will usually request proof that the claimant is eligible to use the scheme, by presenting a passport or national identity card.

Claimants cannot get a VAT refund for items including:

  • Mail order goods including internet sales, delivered outside of the UK.
  • Goods which have been used, or partly used, in the EU.
  • Motor vehicles and boats.
  • Goods over £600 in value that will be exported for business purposes.
  • Goods to be exported as freight and goods that need an export licence.
  • Unmounted gemstones.
  • A boat that is sailed to a destination outside the UK or EU.

There are a number of conditions that must be met in order to claim the VAT back including the requirement to leave the EU within three months of making the purchase. There is no minimum sales value specified in the legislation. However, most participating retailers have minimum purchase conditions. A special form (VAT 407) must be completed and qualifying conditions met.

10% reduction in Inheritance Tax rate

If your total assets exceed £325,000 then the excess will usually be subject to Inheritance Tax (IHT) at 40% when you die. A reduced rate of IHT of 36% applies where 10% or more of a deceased’s net estate is left to qualifying charities or Community Amateur Sports Clubs (CASCs).

The net value of an estate is the total value of its assets (gross value) after deducting the following:

  • Debts and liabilities
  • Inheritance tax reliefs
  • Exemptions such as assets left to a married or civil partner
  • All items below the current £325,000 IHT threshold.

If you are considering making a charitable legacy this can make the process very tax efficient and significantly reduce the 'cost' of your charitable donation. It can also be a worthwhile exercise to review your will and see if your estate will qualify for this relief, especially if you are at or near the 10% limit.

Remember, the 'net estate' value on which the 10% figure is based is after all relevant deductions. So, if the value of your net estate was £100,000, the estate would have to pay IHT of £40,000 (£100,000 x 40%). If a charitable legacy was left of £10,000, then the remaining chargeable assets in the estate of £90,000 would pay IHT of £32,400 (£90,000 x 36%). This represents a saving in IHT of £7,600.

It can sometimes be a complex procedure to ensure that an estate qualifies for the reduced rate of IHT. The value of certain charitable gifts (such as a piece of land) must be calculated to establish whether or not the 10% test is met. It is possible for an election to be made that the estate does not pay the reduced rate of IHT. This could happen where the administrative costs, such as valuing assets, outweigh the benefit of the reduced rate of tax.

Last chance for pensions relief?

There has been much press speculation that the Government is considering cutting higher rate tax relief for pension contributions in the March Budget. However, many Tory MPs are said to be up in arms at such a move and have been trying to quash such a reduction.

There are also concerns that such a complex change to pensions relief could come into effect with very little advance warning.

If you pay tax at a higher rate, the pension relief you can claim should not be underestimated. Even if we don’t see a change in the upcoming Budget this is a move that has been mooted for quite some time and could happen over the coming years. If you are considering making a pension contribution this year, you should consider maximising your contributions just in case changes are announced on Budget day.

You can currently claim tax relief at your highest rate of Income Tax for your private pension contributions, subject to the overriding limits. There is an annual allowance for tax relief on pensions of £40,000. There is also a three-year carry forward rule that allows you to carry forward any unused amount of your annual allowance from the last three tax years if you have made pension savings in those years. There is also a lifetime limit for tax relief on pension contributions. The limit is currently £1.055 million.

Please note, there is a tapered reduction of the annual allowance for high earners. If your income is in excess of £150,000 you will suffer a reduction in your annual allowance. For every complete £2 your income exceeds £150,000 the annual allowance is reduced by £1, up to a maximum reduction of £30,000 if your income is over £210,000.