November 2020

How Business Asset Disposal Relief (BADR) Works

Posted on November 12, 2020 by Rana Zubair

Business Asset Disposal Relief (BADR) in simple words is a tax relief that the seller of a business can benefit from on sale of the business. This relief was formerly as Entrepreneurs Relief until 6th April 2020.

This incentive set up by the UK Government to encourage people to set up a business, put time and energy into building it and then reward them for their hard work once they are ready to sell it.

Business Asset Disposal Relief formerly known as Entrepreneurs’ Relief before 6 April 2020. The relief was renamed in Finance Act 2020. The name change does not affect the operation of the relief.

Where this relief applies:

Business Asset Disposal Relief (BADR) applies to the sale of a business, shares in a trading company or an individual’s interest in a trading partnership.

Where this relief is available CGT of 10% is payable in place of the standard rate. There are a number of qualifying conditions that must be met in order to qualify for the relief.

History of applicable rates:

When the relief was first introduced there was a lifetime limit of £1 million for gains. This was increased to £2 million from 6 April 2010, to £5 million from 23 June 2010 and to £10 million from 6 April 2011. The limit was reduced to £1 million on 11 March 2020.

The £1m lifetime limit means that individuals can qualify for the relief more than once subject to an overriding total limit of £1m of qualifying capital gains. The changes to the lifetime limit are not retrospective.

Please visit our Capital Gains Tax Page.

Who can claim:

To qualify for relief, you should be either an officer or employee of the company and own at least 5% of the company and have at least 5% of the voting rights. There are also other qualifying conditions that must be met in order to qualify for the relief.

The minimum period during which certain conditions must be met in order to qualify for Business Asset Disposal Relief increased from one to two years from 6 April 2019.

If you need further information; feel free to contact us.

New Guidance On Furlough Scheme

Posted on November 11, 2020 by Rana Zubair

There is quite a lot of changes around the furlough scheme since it started. The government published details of the New Furlough Scheme rules on 10^th November 2020 which deal with the following steps:

Check if you can claim
Check which employees you can put on furlough
Steps to take before calculating your claim
Calculate how much you should claim
Claim for your employees’ wages online
Report a payment in PAYE real-time information (RTI)

Have a look at our Payroll services.

From 1 July 2021, the level of grant will be reduced and you will be asked to contribute towards the cost of your furloughed employees’ wages. To be eligible for the grant you must continue to pay your furloughed employees 80% of their wages, up to a cap of £2,500 per month for the time they spend on furlough.

The table below shows the level of government contribution available in the coming months, the required employer contribution and the amount that the employee receives per month where the employee is furloughed 100% of the time.

Wage caps are proportional to the hours not worked.

Full details of these steps are set out at https://www.gov.uk/guidance/claim-for-wage-costs-through-the-coronavirus-job-retention-scheme

If you need further information; feel free to contact us.

Taxation Of Partnerships

Posted on November 5, 2020 by Rana Zubair

A Taxation Of Partnerships is a business structure where there are more than one person running and owning the business with the view of making profit. The people who own and run a partnership are called partners.

Partnerships can take many forms. Legal persons other than individuals can also be partners in a partnership.

https://www.gov.uk/set-up-business-partnership/register-partnership-with-hmrc

Generally, for tax purposes each partner is treated as receiving their share of the income and expenses of the partnership as they arise. This treatment is overridden in particular cases by anti-avoidance legislation intended to prevent partnership structures being used to avoid (or reduce) tax.

Partnerships may split profits between their partners equally, or unequally if this can be commercially justified, for example if one partner does more of the work of the business or has invested more money in the business.

There are two main types of partnership, a conventional one with two or more partners in the business. There is also a limited liability partnership or LLP, this more complex structure provides partners with the protection of limited liability, as afforded by a limited company.

In order to register a partnership with HMRC, the following forms need to be completed (where applicable):

Form SA400 – Registering a partnership for Self-Assessment
Form SA401 – Registering a partner for Self-Assessment and Class 2 NICs
Form SA402 – Registering a limited company, trust or another partnership as a partner

The registration forms should be filed with HMRC within six months of the end of the tax year the partnership commenced.

LLP’s are automatically registered with HMRC upon registering with the Companies House, which is mandatory for these types of partnership. This means that there is no need to need to submit Form SA400. However, it is important that details of the partners are filed with HMRC using Forms SA401 and/or SA402.

HMRC should also be notified when new partners join an existing partnership, using forms SA401 or SA402.

Taxation Of Partnerships

If you are looking to know about this; feel free to contact us.

Anti Avoidance For Capital Gains Tax

Posted on November 5, 2020 by Rana Zubair

Anti Avoidance for Capital Gains Tax

Capital gains tax is levied on gains made by an individual but there are situations where instead of Capital Gains Tax (CGT), Income Tax may be charged.

For this to happened ALL of the following conditions must all met:

The main object, or one of the main objects, of the transactions or arrangements must be the avoidance or reduction of liability to Income Tax.
The individual must be carrying on an occupation wholly or partly in the UK.
Transactions or arrangements must have been effected putting some other person in a position to exploit the earnings capacity of that individual.
A ‘capital amount’ must have been obtained by the individual or for some other person, as part of, or in connection with, or in consequence of the transactions or arrangements.

Please see our Capital gains tax page to know more.

The charge to Income Tax will take place in the tax year or years in which the capital amount becomes receivable or the sale or realization occurs.

There are anti-avoidance provisions that are aimed at arrangements where an individual gives up the prospect of future income but, either he or some other person, receives instead a ‘capital amount’. https://www.gov.uk/hmrc-internal-manuals/capital-gains-manual/cg14325

If you are looking to know about this; feel free to contact us.

Gift / Bonus To Employee For Christmas

Posted on November 5, 2020 by Rana Zubair

Gift / Bonus To Employee For Christmas

Most of the employers must be looking to give some sort of gifts / bonus to employee for Christmas. There are few gifts which are tax free and employers and employees could take benefit of these rules.

There is no tax to pay on trivial benefits in kind (BIK) provided to employees where all of the following apply:

the benefit is not cash or a cash-voucher; and
costs £50 or less; and
is not provided as part of a salary sacrifice or other contractual arrangement; and
is not provided in recognition of services performed by the employee as part of their employment, or in anticipation of such services.

https://www.gov.uk/expenses-and-benefits-trivial-benefits

Normally an employer would use trivial benefits in the following types of expenses:

Buying each employee, a Christmas present; or

Sending flowers.

Please have a look at our Tax planning page for basic advice.

So, for example a turkey that cost £45 would qualify as would a £15 bottle of wine. It is also possible to provide employees with a gift voucher (not a cash-voucher) where the value is £50 or less. It is important to remember that the gifts must not be provided in recognition of the employees’ services but merely as a gesture of goodwill at Christmas.

There is an annual cap for directors of a ‘close’ company of £300 per year. If the Christmas gifts have a value of over £50 or cannot be counted as a trivial benefit then the gift must be reported on form P11D and Class 1A NICs will be payable on the value of the gift.

If you are looking to know about this; feel free to contact us.

Capital Gains Tax Facts

Posted on November 5, 2020 by Rana Zubair

We consider the taxation of capital gains and some basic facts around Capital Gains Tax (CGT).

A capital gain arises when certain capital (or ‘chargeable’) assets are sold at a profit. The gain is the sale proceeds (net of selling costs) less the purchase price (including acquisition costs).

CGT annual exemption:

Every tax year each individual is allowed to make gains up to the annual exemption without paying any CGT. The annual exemption for 2020/21 is £12,300 (£12,000 in 2019/20). Consideration should be given to ensuring both spouses/civil partners utilise this facility.

Exceptions to the CGT rates

The rates of CGT are generally 10% and 20%. However, 18% and 28% rates apply for carried interest and for chargeable gains on residential property that does not qualify for private residence relief.

If you are looking to know more; please have a look at our Capital Gains Tax page.

Selling at less than the Market Value:

CGT may also apply if you give away an asset or sell it for less than it is worth. This is because CGT under these circumstances is calculated based on the market value of an asset at the time of its disposal, not the amount of money (if any) that you sell it for. HMRC can check your valuation and it is important to keep detailed records regarding the sale and purchase of the asset.

Business assets you may need to pay tax on include:

land and buildings
fixtures and fittings
plant and machinery, for example, a digger
shares
registered trademarks
your business’s reputation

There are various tax reliefs available that can significantly reduce or delay the amount of CGT you are required to pay such as Entrepreneurs’ Relief, Business Asset Rollover Relief and Incorporation Relief. There is generally no CGT payable on gifts to your spouse, civil partner or to a charity.

Capital Gains Tax (CGT) is normally required to be paid by self-employed sole traders or as part of a partnership. It is important to note that CGT is not payable by limited companies or unincorporated associations when they sell an asset and make a gain. Instead, the gain (less any allowable costs and reliefs) is subject to Corporation Tax.

If you are looking to know about this; feel free to contact us.

Less Than 100 Days To File Your Tax Return

Posted on November 5, 2020 by Rana Zubair

HMRC has published a news release to remind taxpayers that there is now less than 100 days to file their 2019-20, Self-Assessment tax return. Last year over 11 million taxpayers were required to complete a tax return, but over 958,000 taxpayers missed the deadline. If you are filing online for the first time you should ensure you register to use HMRC’s Self-Assessment online service as soon as possible.

The deadline for submitting your 2019-20 Self-Assessment tax returns online is 31 January 2021. You should also be aware that payment of any tax due should also be made by this date. This includes the payment of any balance of Self-Assessment liability for 2019-20 plus the first payment on account due for the current 2020-21 tax year.

Have a look at our Personal Tax Services.

The following types of individuals should file a Self Assessment return if they:

have earned more than £2,500 from renting out property
have received, or their partner has received, Child Benefit and either of them had an annual income of more than £50,000
have received more than £2,500 in other untaxed income, for example from tips or commission
are a self-employed sole trader whose annual turnover is over £1,000
are an employee claiming expenses in excess of £2,500
have an annual income of over £100,000
have earned income from abroad that they need to pay tax on.

The second payment on account for 2019-20 was due on 31 July 2020 but there was an option to defer this as part of the government support measures during the coronavirus outbreak. There are also other options to defer payments due on 31 January 2021 for up to 12 months. This includes a self-serve Time to Pay facility online for debts up to £30,000 or by making an arrangement with HMRC. Taxpayers will be required to pay interest on the tax owed on any outstanding balance from 1 February 2021.

HMRC is encouraging taxpayers to complete their tax return as early as possible as the filing date looms. In fact, last year over 3,000 taxpayers submitted their tax returns on Christmas Day with a further 9,254 taxpayers completing their tax returns on Boxing Day.

HMRC’s Interim Director General of Customer Services, Karl Khan, said:

‘The vast majority of Self-Assessment customers complete their tax return by the 31 January deadline, but you don’t need to wait until January; you can send it back now and get it out of the way.

HMRC is determined to help customers during this difficult time. We know many customers will have been adversely affected by the coronavirus pandemic or will need help to spread the cost of their tax bill. That’s why we’ve made it quick and simple to set up a payment plan to spread the costs and help people get back on their feet. It’s easy to do online and there’s no need to call us to set it up.’

Less than 100 days

If you are looking to know about this; feel free to contact us.

Job Retention Scheme And Other Business Support Extended

Posted on November 2, 2020 by Rana Zubair

In anticipation of the tough winter ahead the Prime Minister announced further support for business which mainly revolves around Coronavirus Job Retention Scheme (CJRS) and other grants.

Coronavirus Job Retention Scheme

The Coronavirus Job Retention Scheme (CJRS) commonly known as the furlough scheme will be extended until December with employees receiving up to 80% of their salary for hours not worked. The exact date when the extended scheme will finish has not yet been confirmed.

https://www.gov.uk/guidance/claim-for-wages-through-the-coronavirus-job-retention-

The furlough scheme had been wound down over the last few months, with Government support reduced to 70% of wages in September and 60% in October before the scheme was due to come to an end on 31 October 2020. It had been announced that the CJRS would be replaced by the Job Support Scheme (JSS), a scheme that would have topped up wages for people returning to work on reduced hours. The introduction of the JSS has now been put on hold until the CJRS extension ends.

The main feature of the CJRS extension announced to date is set out below:

People who are unable to work will receive up to 80% of their wages during the new lockdown. This payment is subject to a maximum of £2,500 per employee (for hours not worked). Employers will have the discretion to top-up the payments if they so wish.
The scheme is expected to apply across the UK, in England, Wales, Scotland and Northern Ireland even where the regions are subject to different lockdown restrictions.
Employers will be required to pay employer NICs and pension contributions for their employees whilst on furlough.
Flexible furloughing, whereby employers can bring back employees to work part-time will be allowed. Employers will have to pay employees for the hours they work but can still use the scheme to cover any normal hours where employees are furloughed.
Businesses will be paid upfront by the Treasury to cover wages costs. However, there will be a short period whilst the Government changes the legal terms of the scheme and updates the system. During this time businesses will be paid in arrears.
To be eligible, employees must have been registered on their employers PAYE payroll by 23:59 on 30 October 2020. This means a Real Time Information (RTI) submission notifying payment in respect of that employee must have been made to HMRC on or before 30 October 2020.
All employers with a UK bank account and UK PAYE schemes can claim the grant. Neither the employer nor the employee needs to have previously used the CJRS.
Further details on how to make a claim are expected to be released shortly. There will be no gap in eligibility between the previously announced end date of the scheme on 31 October 2020 and this new extension.

Mortgage holidays:

It has also been confirmed that mortgage payment holidays will no longer end as planned on 31 October 2020. Borrowers who have been impacted by coronavirus and have not yet had a mortgage payment holiday will be entitled to a six month holiday, and those that have already started a mortgage payment holiday will be able to top up to six months without this being recorded on their credit file.

Cash grants:

It had been previously announced that businesses in England that are forced to shut as a result of a lockdown will be eligible for grants of up to £3,000 per month payable every two weeks. Businesses will be eligible to claim after two weeks of closure.

The amount businesses will be able to claim from their local authority depends on their rateable value:

Small businesses with a rateable value of or below £15,000 will be able to claim £1,334 per month or £667 per two weeks.
Medium-sized businesses with a rateable value between £15,000 and £51,000 will be able to claim £2,000 per month, or £1,000 per two weeks.
Larger businesses will be able to claim £3,000 per month, or £1,500 per two weeks.

Further support for businesses:

The government is providing an additional £1.1bn to Local Authorities in England, distributed on the basis of £20 per head. These payments are designed to help Local Authorities to support businesses more broadly.

Self Employed Income Support Scheme Extension (SEISS):

No further changes to support measures for the self-employed have been announced. The most recent announcement confirmed that the grants for the self-employed will be extended based on 40% of previous qualifying earnings.

The initial lump sum will cover three months of profits from 1 November 2020 calculated as 40% of average monthly profits, up to a maximum total of £3,750. The extended scheme will apply for 6 months from 1 November 2020 with an initial taxable grant made available to those who continue to trade and meet the eligibility requirements.

An additional second grant will be made available from 1 February 2021 to 30 April 2021. The level of this second grant amount is subject to review and will be set in due course.

If you are looking to know about this; feel free to contact us.