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.’

Source: HM Revenue & Customs Wed, 23 Jun 2021 00:00:00 +0100

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.

Source: HM Revenue & Customs Wed, 23 Jun 2021 00:00:00 +0100

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.

Source: HM Revenue & Customs Tue, 22 Jun 2021 00:00:00 +0100

Are you taking advantage of trivial benefits?

The trivial benefits in kind (BiK) exemption applies to small non-cash benefits like a bottle of wine or a bouquet of flowers given occasionally to employees. By taking advantage of the exemption employers can simplify the treatment of BiKs whilst at the same time offering a tax efficient way to give small gifts to employees.

Although the benefit is defined as ‘trivial’, employers should remember that this offers a great opportunity to give small rewards and incentives to employees. The main caveat being that the gifts are not provided as a reward for services performed or as part of the employees’ duties. However, gifts to employees on milestone events such as the birth of a child or a marriage or other gestures of goodwill would usually qualify.

The employer also benefits as the trivial benefits do not have to be included on PAYE settlement agreements or disclosed on P11D forms. There is also a matching exemption from Class 1A National Insurance contributions.

The tax exemption applies to trivial BiKs where the BiK:

  • 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.

The rules also allow directors or other officeholders of close companies and their families to benefit, but overall payments made in a tax year cannot exceed £300. The £50 limit remains for each gift but could allow for up to £300 of non-cash benefits to be withdrawn per person per year.  The £300 cap does not apply to employees. If the £50 limit is exceeded for any gift, the value of the benefit will be taxable.

Source: HM Revenue & Customs Wed, 16 Jun 2021 00:00:00 +0100

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.

Source: HM Revenue & Customs Wed, 16 Jun 2021 00:00:00 +0100

Building a new home and VAT

The VAT DIY Housebuilders scheme is a special scheme that enables someone building their own home to benefit from special VAT rules that allow the qualifying construction costs of new homes and certain conversion works to be zero-rated. The scheme has been designed to effectively place DIY housebuilders in a similar VAT position to a property developer.

A claim can be made for qualifying building materials on which VAT has been charged. Qualifying materials include most materials incorporated into a new building or conversion which cannot be easily removed. There are exceptions including fitted furniture, carpets, and certain domestic appliances.

It is not possible to claim the VAT for any professional or supervisory services associated with the development. There are also time limits that should be adhered to when making a claim. A claim must usually be made within three months of the completion of the conversion or new building using the appropriate form. A repayment is usually made within 30 days of a claim being submitted.

There are two main forms for making a claim. The first form (VAT 431NB) is designed for new builds and the second form (VAT431C) is designed for qualifying conversions i.e., the conversion of a non-residential property to residential.

Source: HM Revenue & Customs Wed, 16 Jun 2021 00:00:00 +0100

Are you a landlord that owes tax to HMRC?

The Let Property Campaign provides landlords who have undeclared income from residential property lettings in the UK or abroad with an opportunity to regularise their affairs by disclosing any outstanding liabilities whether due to misunderstanding the tax rules or because of deliberate tax evasion. Participation in the campaign is open to all residential property landlords with undisclosed taxes. The campaign is not suitable for those letting out non-residential properties.

Landlords who do not avail of the opportunity and are targeted by HMRC can face penalties of up to 100% of the tax for UK gains and 200% for offshore liabilities together with possible criminal investigation.

Taxpayers that come forward will benefit from better terms and lower penalties for making a disclosure. Landlords that make an accurate voluntary disclosure and have taken ‘reasonable care’ are likely to face the lowest penalties. There are higher penalties where you did not take reasonable care if you deliberately misled HMRC regarding offshore liabilities. 

There are three main stages to taking part in the campaign, notifying HMRC that you wish to take part, preparing an actual disclosure and making a formal offer together with payment. The campaign is open to all individual landlords renting out residential property. That includes landlords with multiple properties and single rentals as well as specialist landlords with student or workforce rentals.

Source: HM Revenue & Customs Wed, 16 Jun 2021 00:00:00 +0100

How are dividends taxed?

The dividend tax allowance was first introduced back in 2016 and replaced the old dividend tax credit with an annual £5,000 dividend allowance with tax payable on dividends received over this amount. The tax-free dividend allowance was reduced to £2,000 with effect from 6 April 2018 and has remained fixed at that level.

The tax rate for dividends received more than the dividend tax allowance are taxed at:

  • 7.5% for basic rate tax payers
  • 32.5% for higher rate tax payers, and
  • 38.1% for additional rate tax payers.

Dividends that fall within your Personal Allowance do not count towards your dividend allowance and you may pay tax at more than one rate.

If you receive up to £10,000 in dividends you can ask HMRC to change your tax code and the tax due will be taken from your wages or pension or you can enter the dividends on your Self-Assessment tax return, if you already fill one in. You do not need to notify HMRC if the dividends you receive are within your dividend allowance for the tax year.

If you have received over £10,000 in dividends you will need to complete a Self-Assessment tax return. If you do not usually send a tax return, you need to register by 5 October following the tax year in which you had the relevant dividend income.

Source: HM Revenue & Customs Wed, 16 Jun 2021 00:00:00 +0100

Bed and breakfast – the same day rule

Historically, the term bed and breakfasting (sale and repurchase) of shares referred to transactions where shares were sold and then bought back the next morning. This used to have Capital Gains Tax (CGT) benefits by crystallising a gain or a loss but is no longer tax effective over such a short period. The change to the rule occurred in 1998 when new legislation introduced special share matching rules. Under these rules there are limitations including a 30-day waiting period before the shares can be repurchased again.

However, it is possible, under certain circumstances, to use a modified bed and breakfasting type of arrangement to sell an asset only to buy it back again a short time later. A gain could be created to use the annual exempt amount, or a non-resident may bed and breakfast their chargeable assets to establish a higher base cost before they enter the UK tax regime.

Proper advice should be taken before undertaking such transactions to ensure that all tax aspects have been considered. For example, for any bed and breakfast transaction to be effective, there must be a genuine transfer of beneficial ownership of the asset and the share matching rules must be met.

Source: HM Revenue & Customs Wed, 09 Jun 2021 00:00:00 +0100

Tax when you sell a business property

There are various methods at your disposal to reduce or delay the amount of Capital Gains Tax (CGT) when you sell a property that has been used for business purposes.

For example, Business Asset Rollover Relief allows for deferral of CGT on gains made when taxpayers sell or dispose of certain assets (including property) and uses all or part of the proceeds to buy new business assets. The relief means that the tax due on the gain of the property that has been sold is postponed. The amount of the gain is effectively rolled over into the cost of the new asset and any CGT liability is deferred until the new asset is sold. There are qualifying conditions that must be met to ensure entitlement to any relief.

If the main purpose of the business concerns buying and selling property, for example a property development or property trading business, then the business is not liable to CGT when a property is sold.  Instead, properties sold under the name of a Limited company will be liable to Corporation Tax and properties sold under the name of a sole trader or partner will be liable to Income Tax. 

There are also special rules for limited companies that dispose of UK residential dwellings valued at over £500,000 and which are held in a ‘corporate envelope’ (e.g., a company). Qualifying gains made after 6 April 2019 are liable to Corporation Tax.

Source: HM Revenue & Customs Wed, 09 Jun 2021 00:00:00 +0100
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