Month: August 2021

Corporation Tax loss buying

Posted on by Rana Zubair

Under qualifying circumstances, Corporation Tax (CT) relief is available where a company makes a trading loss. The trading loss can be used to claim CT relief by offsetting the loss against other gains or profits of a business in the same or previous accounting period. The loss can also be set against future qualifying trading income.

There are however restrictions on ‘loss-buying’. These are situations where a person buys a trading company wholly or partly for its unused trading losses rather than solely for the inherent value of its trade or assets. The new owner usually seeks to introduce new activity into the company to keep its entitlement to loss relief.

The legislation governing this area can result in all the company’s unused carried- forward trading losses being cancelled where either:

  • within any specified period, there is both; a change in the ownership of a company, and a major change in the nature or conduct of a trade carried on by the company,

or

  • there is a change in ownership of a company at a time when the scale of its trading activities has become small or negligible.

For accounting periods beginning on or after 1 April 2017, the specified period is 5 years beginning no more than 3 years before the change in ownership occurs.

Source: HM Revenue & Customs Tue, 24 Aug 2021 00:00:00 +0100

Covering pension contributions with unused allowances

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The annual allowance for tax relief on pensions is currently set at £40,000. The annual allowance is further reduced for high earners. This means that if your income is in excess of £240,000 you will usually begin to see your £40,000 annual allowance tapered. For every complete £2 your income exceeds £240,000 the annual allowance is reduced by £1. The annual allowance can also be reduced if you have flexibly accessed your pension pot.

If you have not used all your annual allowance in a tax year, then the unused allowance can usually be carried forward to the current tax year and added to the current year’s annual allowance. The calculation of the exact amount of unused annual allowance that can be carried forward can be complicated especially if you are subject to the tapered annual allowance. 

Normally, you can carry forward unused allowance from the three previous tax years. You do not need to report this to HMRC. If you have unused annual allowances from more than one year, you need to use the allowance in order of earliest to most recent. Any remaining balances can be used in future tax years, subject to the usual time limits. You do not need to report this to HMRC.

HMRC’s pension calculator can also help you check if you have any unused annual allowance to carry forward.
 

Source: HM Revenue & Customs Tue, 24 Aug 2021 00:00:00 +0100

Reporting travel and subsistence benefits

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There is no requirement to report certain routine expenses to HMRC. The types of expenses and benefits covered are referred to as exemptions and have replaced dispensations which can no longer be applied for. 

The travel and subsistence benefits that do not need to be reported include reimbursed costs to employees covering business travel. As an alternative to paying the employee back for actual costs incurred, HMRC’s benchmark scale rates or a special bespoke scale rate may be used. Employers only need to apply for an exemption if they want to use a bespoke scale rate which needs to be approved by HMRC. 

Employers that reimburse their employees with more than the necessary costs need to take action. The extra amounts should be added to employee’s other earnings and PAYE and Class 1 NIC’s will be due.

There is usually no tax relief for private travel between a permanent workplace and an employees’ home. Accounting for any tax due on private travel depends on who arranged the transport and who paid for it. There are a number of exceptions such as temporary workplaces and where the employee has a travelling appointment. 

Employers must also ensure that they have a checking system in place to ensure that employees are making valid expenses claims. This requirement is usually satisfied by asking employees to submit or retain receipts as evidence of a valid expense claim. HMRC is clear that employees aren’t allowed to check their own expenses and that someone else within the company must be responsible to ensure a claim is legitimate. 

Source: HM Revenue & Customs Tue, 24 Aug 2021 00:00:00 +0100

Tax Diary September/October 2021

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

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

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

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

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

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

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

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

31 October 2021 – Latest date you can file a paper version of your 2021 self-assessment tax return.

Source: HM Revenue & Customs Thu, 19 Aug 2021 00:00:00 +0100

VAT capital goods scheme overview

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The VAT Capital Goods Scheme (CGS) is a means of adjusting the initial VAT recovery in respect of certain assets over either 5 or 10 years. The scheme seeks to agree a fair and reasonable attribution of VAT to taxable supplies and non-taxable supplies relating to the use of an asset over its lifetime.

The adjustment period for land and buildings is 10 years and for other CGS assets, 5 years. This adjustment period also considers any non-business use of the asset. The CGS is intended primarily for partly exempt businesses. However, businesses can change direction over the adjustment period and be subject to making CGS adjustments some years after an asset was purchased.

The CGS currently applies to:

  • Land and building (including extensions, alterations and refurbishments) with a cost (net of VAT) of £250k or more.
  • Computers, or computer equipment, with a cost (net of VAT) or £50k or more.
  • Ships and boats with a cost (net of VAT) of £50k or more.
  • Aircraft with a cost (net of VAT) of £50k or more.
Source: HM Revenue & Customs Tue, 24 Aug 2021 00:00:00 +0100

Recovering VAT on car purchases

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There are complex VAT rules that determine how you can recover VAT on car purchases. The usual fallback rule is that if you purchase a car for your business then no VAT can be reclaimed. 

The main exception to this rule is if the new car is used solely for business use. To qualify for VAT recovery the car must not be available for any private use and you must be able to demonstrate this. This means that the car should only be available to staff during working hours and should never be used for personal journeys.

It is also possible to claim back the VAT on a new car that is purchased for a business-related activity such as for use as a taxi, self-drive hire car or a car for driving instruction.

If your business leases a car for business purposes, then you can normally reclaim 50% of the VAT paid. Also, 100% of the VAT can be reclaimed if the car is used exclusively for a qualifying business purpose, such as a taxi or a car for driving instruction.

The rules are generally more straight forward for the purchase of commercial vehicles such as a van, lorry or tractor that are used only for business. Input paid on these purchases would normally be fully recoverable.

The VAT incurred on the purchase of motorcycles, motorhomes and motor caravans, vans with rear seats (combi vans) and car-derived vans can also be recovered if the vehicles are used solely for business use. 

Source: HM Revenue & Customs Tue, 24 Aug 2021 00:00:00 +0100

Rental business – post cessation transactions

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There are special rules for the taxation of post-cessation transactions after a trade has ceased. The legislation clearly states that the person who receives or is entitled to the post-cessation receipt is the person who is subject to Income Tax or Corporation Tax on the income. This does not have to be the same person who carried on the original trade.

HMRC manuals are clear that a receipt, which arises from a property rental business after it has ceased, is taxable under special rules; provided, of course, the taxpayer has not already included that receipt in the computation of their rental business profits. The tax payer may also be able to claim relief for post-cessation expenses for which they have had no relief. One example might be the cost of background heating for empty premises to keep down condensation and so maintain the value of the property for later sale.

A claim for post-cessation property relief is possible if a customer ceases to carry on a UK property business and within 7 years makes a ‘qualifying payment’ or a ‘qualifying event’ occurs in relation to a debt of the business.

A claim to relief must be made on or before the first anniversary of the 31 January following the end of the tax year in which the payment is made.

Source: HM Revenue & Customs Tue, 24 Aug 2021 00:00:00 +0100

The Help to Grow Management scheme

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The Help to Grow: Management course is a government backed programme to help business leaders develop their strategic skills, create jobs and boost their business performance.

The 12-week programme is delivered by over 40 leading business schools across the UK and combines a practical curriculum with 1 to1 business mentor support throughout and includes modules on financial management, strategies for growth and innovation, and approaches to digital adoption. 

The government has committed to making 30,000 places available on the course over the next 3 years. The cost of the course is 90% subsidised by the government and costs only £750.

UK businesses from any sector that have been operating for more than one year, with between 5 to 249 employees are eligible to enrol. The participant in the course should be the decision maker or member of the senior management team within the business. Charities are not eligible as the scheme is designed to support commercial enterprises.

The Business Secretary said:

‘Help to Grow: Management is a fantastic scheme to equip ambitious business leaders with the tools to take their business to the next level, helping create an even more high-productivity, high-wage economy we build back better from the pandemic.’

Source: Department for Business, Energy & Industrial Strategy Tue, 17 Aug 2021 00:00:00 +0100

Bona Vacantia – dissolved companies

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The final step in bringing a company to a legal end is when the company is dissolved. However, one of the important points to be aware of when doing so is that the dissolved company can no longer do or receive anything including receive a tax refund. It is the responsibility of the company directors to ensure that all of a company’s assets and liabilities are dealt with before it is dissolved.

Any assets or rights (but not liabilities) remaining in the company at the date of dissolution will pass to the Crown as ownerless property. This happens under what is known as 'bona vacantia' which literally means vacant goods. The bodies that deal with bona vacantia claims vary across the United Kingdom, but they all ultimately represent the Crown.

Only formally dissolved companies are caught by bona vacantia. A company 'in liquidation' or 'being wound up' is on its way to being dissolved but is still in existence. Until the company is dissolved, its property and rights will not be bona vacantia.

It may also be possible for a company to apply to be restored to the register if it was dissolved less than six years ago. This would mean that the bona vacantia ceases to exist. However, this process is by no means straightforward.

Accordingly, any assets or rights owned by the company should be dealt with before a company is dissolved.

Source: HM Revenue & Customs Tue, 17 Aug 2021 00:00:00 +0100

1.8m couples benefit from extra tax relief

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HMRC has confirmed that almost 1.8m couples across the UK have benefitted from the marriage allowance and are saving up to £252 a year. The marriage allowance is available to qualifying married couples and those in a civil partnership where a spouse or civil partner is a non-taxpayer i.e., has an income below their personal allowance (currently £12,570).

The marriage allowance allows the lower earning partner to transfer up to £1,260 of their personal tax-free allowance to their spouse or civil partner. The allowance can only be used when the recipient of the transfer (the higher earning partner) doesn’t pay more than the basic 20% rate of Income Tax. This would usually mean that their income is between £12,570 to £50,270 in 2021-22. The limits are slightly different if you live in Scotland.

If you are entitled to the marriage allowance and have not yet applied you could receive a payment of up to £1,220 from HMRC. HMRC is using the summer wedding season to remind couples to make a claim. It is estimated that whilst almost 1.8m couples have already claimed the Marriage Allowance, there are still in the region of 2 million eligible couples that have not made a claim.

If you meet the eligibility requirements and have not yet claimed the allowance you can backdate your claim to 6 April 2017. This could result in a total tax break of up to £1,220 for 2017-18, 2018-19, 2019-20, 2020-21 as well as the current 2021-22 tax year.

Source: HM Revenue & Customs Tue, 17 Aug 2021 00:00:00 +0100
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