Tax Diary July/August 2021

1 July 2021 – Due date for Corporation Tax due for the year ended 30 September 2020.

6 July 2021 – Complete and submit forms P11D return of benefits and expenses and P11D(b) return of Class 1A NICs.

19 July 2021 – Pay Class 1A NICs (by the 22 July 2021 if paid electronically).

19 July 2021 – PAYE and NIC deductions due for month ended 5 July 2021. (If you pay your tax electronically the due date is 22 July 2021).

19 July 2021 – Filing deadline for the CIS300 monthly return for the month ended 5 July 2021. 

19 July 2021 – CIS tax deducted for the month ended 5 July 2021 is payable by today.

1 August 2021 – Due date for Corporation Tax due for the year ended 31 October 2020.

19 August 2021 – PAYE and NIC deductions due for month ended 5 August 2021. (If you pay your tax electronically the due date is 22 August 2021)

19 August 2021 – Filing deadline for the CIS300 monthly return for the month ended 5 August 2021. 

19 August 2021 – CIS tax deducted for the month ended 5 August 2021 is payable by today.

Exempt beneficial employee loans

An employee can obtain a benefit when provided with an employment-related cheap or interest-free loan. The benefit is the difference between the interest the employee pays, if any, and the commercial rate the employee would have to pay on a loan obtained elsewhere. These types of loans are referred to as beneficial loans.

There are scenarios where beneficial loans are exempt and employers might not have to report anything to HMRC or pay tax and National Insurance. The most common exemption relates to small loans with a combined outstanding value to an employee of less than £10,000 throughout the whole tax year.

The list also includes loans provided:

  • in the normal course of a domestic or family relationship as an individual (not as a company you control, even if you are the sole owner and employee)
  • to an employee for a fixed and invariable period, and at a fixed and invariable rate that was equal to or higher than HMRC’s official interest rate when the loan was taken out
  • under identical terms and conditions to the public as well (this mostly applies to commercial lenders)
  • that are ‘qualifying loans’, meaning all of the interest qualifies for tax relief
  • using a director’s loan account if it is not overdrawn at any time during the tax year.

HMRC’s official interest rate is currently 2%.

What is net income for pension relief purposes?

The lifetime allowance is the maximum amount of pension and/or lump sum that benefits from tax relief. The lifetime allowance is currently set at £1,073,100. The annual allowance for tax relief on pensions is currently £40,000 and there is a three year carry forward rule that allows taxpayers to carry forward unused annual allowance from the last three tax years if they have made pension savings in those years. 

If you have a reduced (tapered) annual allowance the first step is to calculate your net income. Your net income is your taxable income for the year less any tax reliefs such as payments made to your pension scheme that had tax relief but were paid before the relief was applied. You will also need to quantify your pension savings, threshold income and adjusted income.

Those with an adjusted income over £240,000 will begin to see their £40,000 annual allowance tapered. For every complete £2 income exceeds £240,000 the annual allowance is reduced by £1. In recent years, both the annual and lifetime allowances have been gradually reduced removing the amount of tax relief on pensions available to high earners.

VAT – what is partial exemption?

A business that incurs expenditure on taxable and exempt business activities is partially exempt for VAT purposes. This can happen where a business makes or intends to make both taxable and exempt supplies and incurs input tax that relates to both kinds of supply. Under this scenario, the business must make an apportionment between the activities using a 'partial exemption method' to calculate how much input tax is recoverable.

There are a number of partial exemption methods available. The standard method of recovering any remaining input tax is to apply the ratio of the value of taxable supplies to total supplies, subject to the exclusion of certain items which could distort the calculations. The standard method is automatically overridden where it produces a result that differs substantially from one based on the actual use of inputs. It is possible to agree a special method with HMRC.

The VAT incurred on exempt supplies can be recovered subject to two parallel de-minimis limits.

The tests are met where the total value of exempt input tax:

  1. Is under £625 a month (£1,875 a quarter/£7,500 a year); and
  2. Is less than half of the total input tax incurred.

If both tests are met the VAT can be recovered. Businesses that are partially exempt, need to complete this calculation on a quarterly basis as well as completing an annual calculation.

Replacement of domestic items relief

The replacement of domestic items relief has been in place since April 2016. The relief allows landlords to claim tax relief when they replace movable furniture, furnishings, appliances and kitchenware in a rental property. The allowance is available for the cost of domestic items such as free- standing wardrobes, curtains, carpets, televisions, fridges and crockery.

The amount of the deduction is based on:

  • the cost of the new replacement item, limited to the cost of an equivalent item if it represents an improvement on the old item (beyond the reasonable modern equivalent); plus
  • the incidental costs of disposing of the old item or acquiring the replacement;
  • less any amounts received on disposal of the old item.

There is an important distinction when deciding if a new item represents a replacement or an improvement. Where the new item is an improvement on the old item the allowable deduction is limited to the cost of purchasing an equivalent of the original item.

HMRC’s guidance provides the example of replacing a sofa with a sofa bed and is clear that if a new sofa would have cost you £400 but a sofa bed cost you £550, you could only claim the £400 as a deduction and no relief is available for the £150 difference as this is an 'improvement'.

However, if a replacement item is for a reasonable modern equivalent for example a new energy efficient fridge replacing an old fridge this is not considered an improvement and the full cost of the new item is eligible for relief.

Boost to UK tourism

In a boost to UK tourism, the government has launched a new Tourism Recovery Plan to help the sector bounce back from the pandemic. The plan is to recover domestic tourism to pre-pandemic levels by the end of 2022 and international visitor numbers and spend by the end of 2023. If achieved, this would be at least a year faster than independent forecasts predict.

Specifically, the aim is to:

  • Ensure that the sector’s recovery benefits every nation and region, with visitors staying longer, growing accommodation occupancy rates in the off-season and high levels of investment in tourism products and transport infrastructure.
  • Build back better with a more innovative and resilient industry, maximising the potential for technology and data to enhance the visitor experience and employing more UK nationals in year-round quality jobs.
  • Ensure the tourism sector contributes to the enhancement and conservation of the country’s cultural, natural and historic heritage, minimises damage to the environment and is inclusive and accessible to all.
  • Return the UK swiftly to its pre-pandemic position as a leading European destination for hosting business events. 

The National Lottery will also launch a £10 million voucher scheme to encourage people to take holidays outside of the peak summer season. The scheme will provide National Lottery players the chance to claim vouchers to redeem at tourist attractions across the UK between September 2021 and March 2022. A rail “staycationers” pass for domestic tourists will also be launched later this year.

The plan seeks to capitalise on a year of celebration and renewal in 2022 with major events including Her Majesty The Queen’s Platinum Jubilee, the Festival UK 2022 and the Birmingham Commonwealth Games.

Childcare top-up to cover summer activities

As the school holidays fast approach, many parents face having to organise extra school holiday childcare over the summer months. 

HMRC is reminding working families that the Tax-Free Childcare (TFC) scheme can help if you have children aged up to 11 years old (17 for those with certain disabilities). The TFC scheme helps support working families with their childcare costs and can be used to pay for accredited holiday clubs, childminders or sports activities during the school holidays. There are many registered childcare providers including school, football, art and tennis clubs signed up across the UK. Parents can pay into their account regularly and save up their TFC allowance to use during school holidays. 

The TFC scheme provides for a government top-up on parental contributions. For every £8 contributed by parents an additional £2 top up payment will be funded by Government up to a maximum total of £10,000 per child per year. This will give parents an annual savings of up to £2,000 per child (and up to £4,000 for disabled children until the age of 17) in childcare costs. 

The TFC scheme is open to all qualifying parents including the self-employed and those on a minimum wage. The scheme is also available to parents on paid sick leave as well as those on paid and unpaid statutory maternity, paternity and adoption leave. To be eligible to use the scheme parents will have to be in work at least 16 hours per week and earn at least the National Minimum Wage or Living Wage. If either parent earns more than £100,000, both parents are unable to use the scheme.

HMRC’s Director General for Customer Services, said:

‘We want to help kids stay active this summer, whether they are going to summer holiday clubs or a childminder. A childcare top-up will go a long way towards helping parents plan and pay for summer activities to keep their kids happy and healthy.’

Mandatory vaccinations for those working in care homes

The government has published its response to its consultation on making COVID-19 vaccination a condition of deployment for workers in care homes in England and has confirmed that it will now bring forward regulations to implement a mandatory vaccination requirement to protect all care home residents who are clinically vulnerable to COVID-19. These regulations, which will amend the Health and Social Care Act 2008 (Regulated Activities) Regulations 2014, will require all service providers of nursing and personal care regulated by the Care Quality Commission (CQC), in care homes in England, to allow entry to the premises only to those who can demonstrate evidence of having had a complete course of an authorised COVID-19 vaccine (or evidence that they are medically exempt from vaccination). 

The requirement will only apply indoors and will exclude residents, friends or relatives of residents who are visiting, persons providing emergency assistance or urgent maintenance work in the care home, and those under the age of 18. 

The consultation response also lists three key changes to the proposals set out in the original consultation document:
 

  • extending the scope of the policy to all CQC-registered care homes in England which provide accommodation for persons who require nursing or personal care, not just those with residents over the age of 65
  • extending the vaccination requirement to all persons who enter a care home building, regardless of their role, rather than just care home staff and volunteers. This will therefore include other healthcare professionals, tradespeople, hairdressers, beauticians and CQC inspectors, but will not apply to people who only work in the outdoor surrounding grounds of care home premises
  • widening of the proposed exclusions.

If approved by Parliament, there will be a 16-week grace period from when the regulations are made to when they come into force to enable staff who haven’t yet been vaccinated to take up the vaccine, which means the mandatory vaccination requirement is likely to apply from October 2021. 

A further consultation will be launched shortly on whether to make COVID-19 vaccination a condition of deployment in other health and social care settings.

Agent Dedicated Line relaunched

HMRC has confirmed that the Agent Dedicated Line (ADL) that offers priority access to HMRC staff has been relaunched on a trial basis from 14 June 2021. 

HMRC has also made it clear that the ADL is not expected to be used to handle certain types of calls where digital services are available or where the pertinent information could have been obtained directly from clients. 

The ADL will be available Monday – Friday 8am – 6pm on 0300 200 3311 and calls are anticipated to be answered within 10 minutes. HMRC is also asking agents to space out their calls to the dedicated line throughout the day rather than phoning as soon as the helpline opens.

HMRC is also working to develop more digital services for agents, with a view to materially reducing their need to phone. This is expected to include changes to forms processing, agent authorisation processes and the agent income record viewer.
 

Self-employed NIC charges

There are two types of National Insurance contributions (NICs) payable by the self-employed. These are known as Class 2 NICs and Class 4 NICs.

Class 2 NICs are paid by all self-employed taxpayers unless they earn under the Small Profits Threshold (SPT), currently £6,515, which remove the necessity to pay NICs. Class 2 NICs are currently payable at a flat weekly rate of £3.05 for the current 2021-22 tax year. Class 2 NICs count towards payments such as the basic State Pension, the employment and support allowance, maternity allowance and bereavement benefits.

The self-employed are required to pay Class 4 NICs (as well as to Class 2 NICs) if their profits are £9,569 or more a year. Class 4 NIC rates for the tax year 2021-22 are 9% for chargeable profits between £9,569 and £50,270 plus 2% on any profits over £50,270.

There is a specific list of jobs where class 2 NICs are not payable. These are:

  • examiners, moderators, invigilators and people who set exam questions
  • people who run businesses involving land or property
  • ministers of religion who do not receive a salary or stipend
  • people who make investments for themselves or others – but not as a business and without getting a fee or commission

If you fall within any of these categories it can be beneficial to get a State Pension forecast and examine whether voluntary Class 2 NICs should be made to make up missing years contributions.