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Welcome…
To June’s Business Companion News.
P60s for employees
Have you given your employees their end of year pay summaries (P60s)? If not, you must do so now. Let us know if you have mislaid them for your staff. If you would prefer that the payslips are sent directly to your employees in the future please .
If you’re not already one of our clients have a look at our Business Companion Service. Our comprehensive accountancy service includes bookkeeping training, workplace pension support, MTD returns and much more.
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Transfer of VAT Records at HMRC causes chaos
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HMRC are moving VAT records from an old mainframe system to their new Enterprise Tax Management Platform (ETMP) which will cover all business taxes. Similarly there is a new platform for personal tax records (Individuals Tax management platform – ITMP). The VAT data transfer to the ETMP commenced in April 2021 and should be completed by November.
As with any major change at HMRC this is starting to cause issues for businesses and accountants.
VAT payments by Direct Debit
Apparently all VAT taxpayers whose records are transferred to the ETMP will have to set up a new direct debit (DD) mandate through their Business Tax Account or make alternative payment arrangements. Their old direct debit mandates will be cancelled when their records are transferred.
Taxpayers will be advised about this through their Business Tax Account (BTA) if they have one. HMRC will also attempt to advise businesses by email – but in many cases HMRC do not hold a valid email address. So they will also be writing to VAT-registered businesses to ask them to add an email address to their Business Tax Account so they can be contacted when they need to update their DD. As a large proportion of Businesses do not have a BTA this is clearly going to cause problems as DD payments of VAT are rejected.
We advise our clients NOT to pay VAT by Direct Debit as we don’t trust HMRC to get it right – so this shouldn’t be an issue for them. However we can check VAT contact details held by HMRC (until the point you move onto Making Tax Digital) and we can amend your contact email address if required.
Problems with VAT return filing
The second issue created by the data migration to the ETMP concerns VAT returns which are filed using the old HMRC VAT portal (online form), rather than using MTD-compatible software.
There are around 200,000 businesses still using the old VAT portal, either because they have not signed up to MTD, or because they are exempt on the basis of their turnover. Businesses who registered for VAT before their annual turnover reached £85,000, and which have not breached that threshold do not have to enter the MTD regime until April 2022.
Following the migration of a VAT record to the ETMP, the old VAT portal will transmit an incorrect message saying that the taxpayer has signed up to MTD, although that is not the case. We have advised all our clients that we will sign them up to MTD when this becomes neccessary – so we will be on alert if we receive this unexpected message. Apparantly there is a workaround available which involves us updating the status of the client in our new Agent Services Account.
If you are having problems with Making Tax Digital or submitting VAT returns do . We help prepare and submit VAT returns for all of our clents and will be happy to help you.
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| VAT Deferral – Apply online by 21 June |
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Company Dissolution & Loans
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The VAT deferral new payment scheme is open for all businesses who deferred paying VAT due between 20 March and 30 June 2020 and were unable to pay in full by 31 March 2021.
You can apply now to spread these payments – businesses that join by 19 May 2021 can pay in up to nine monthly instalments. If you apply to spread your VAT payments between 20 May and 21 June you can pay in eight instalments.
21 June is the deadline for businesses to join this scheme. You can apply quickly and simply online without needing to call us. To find out more sign up online.
If you are still unable to pay and need more time, we can phone for you.You may be charged a 5% VAT penalty and/or interest if you do not sign up to the VAT deferral scheme by the deadline of 21 June, or pay in full by 30 June, or get in touch with us to make an alternative arrangement to pay by 30 June 2021.
Any business that took advantage of the scheme in 2020 that has not repaid the deferred amount will need to indicate to HMRC how they are planning to make repayment or risk receiving a penalty of 5% of the outstanding amount on 30 June. Businesses may seek to take advantage of the new repayment scheme. If they wish to do this, they will need to register for the scheme by 21 June. This will allow them to make repayment in eight equal instalments
Information regarding eligibility is available here. |
The government has grown concerned that some companies are being dissolved with a view to avoiding repayment of government-backed loans that were made available to support businesses affected by Covid-19. In response, the government has published a Bill that aims to prevent this by preventing directors of dissolved companies from setting up a highly similar business following the dissolution. The Bill also contains significant sanctioning powers.
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Avoid the 60% Income Tax trap
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There is a twilight zone when tax rates get vicious. Many individuals fall into the 60% Income Tax trap without even realising it.
The headline rates of Income Tax are 20%, 40% and 45%: bad enough. However you could also end up with a 60% tax charge in certain circumstances. If you earn more than £100,000 you lose £1 of your Personal Allowance for every £2 you earn over £100,000. So, if you earn more than £125,140 you lose your entire £12,570 Personal Allowance (this is because £25,140 divided by 2 equals £12,570).
Examples
1) If someone earns £125,140 in a year they pay £42,476 in tax as they lose the Personal Allowance and, as a result, more of their income is taxed at the 40% higher rate, as shown below.
| Tax Band |
Income in Tax Band |
Tax Due |
| Personal Allowance – 0% |
£0 |
£0 |
Basic Rate Income Tax – 20%
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£37,700
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£7,540 |
| Higher Rate Income Tax – 40% |
£87,440 |
£34,976 |
Total
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£125,140
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£42,516 |
2) If the same person had earned £100,000 they would have paid significantly less tax, as they would still have their complete Personal Allowance.
| Tax Band |
Income in Tax Band |
Tax Due |
| Personal Allowance – 0% |
£12,570
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£0 |
| Basic Rate Income Tax – 20% |
£37,700
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£7,540 |
| Higher Rate Income Tax – 40% |
£49,730 |
£19,892 |
| Total |
£100,000 |
£27,432 |
The extra tax is £15,084 (£42,516 less £27432) on the extra £25,140 earned. The £25,140 this taxpayer earned over the £100,000 limit is effectively taxed at a 60% rate. 60% is one of the highest rates of tax we have in this country. 60% is even higher than the 45% Additional Rate tax band (which applies above £150k pa earnings) .
Tax Efficient Benefits
These examples assume that the earnings are taken as salary. Employee NI of £5,878 is also potentially payable in the second compared to £6,382 in the first case. If the bulk of the earnings are taken as dividends they are taxed as 32.5% rather than 40% which will reduce these figures a bit.
Nevertheless the best way to avoid the extra tax is to receive the benefit in another form. Have a look on our website at our section on tax-efficient benefits.
The simplest alternative benefit would be for the company to make a considerable employer pension contribution instead of paying salary. The usual limit is up to £40k unless your earnings are over £240k. The main restriction is that you cannot take this money out until you are 55 years old (57 from 2028/9). |
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| June questions and answers |
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 Q. I’ve been going over some old tax returns to try to track down some capital losses. However, whilst doing this I’ve noticed that I missed including my considerable pension contributions off the 2018/19 return. From what I can see online, I’ve just missed the deadline to amend it. Is there any way to claim the extra relief? It’s worth around £2,000 which would be very helpful at the moment. Answer
Q. We make a relatively high number of B2C sales to EU-based customers – usually over the summer months. We also use the flat rate scheme, and I’ve heard that Brexit may cause issues for us. Is that the case and if so can we leave the scheme for the summer months? Answer
Q. Following the Covid-19 pandemic, I’ve decided to change my year end to 31 March (from 31 December) in order to utilise overlap relief that I’ve been carrying forward. However, I’m not sure exactly what profits to include on my return. Answer |
 1 – Due date for payment of Corporation Tax for accounting periods ending 31 August 2020
7 – Electronic VAT return and payment due for quarter ended 30 April 2021
14 – Claim deadline for employers for furlough days in May.
19/22 – PAYE/NIC, student loan and CIS deductions due for month to 5/6/2021
30 – Tax credit recipients should have received a renewal pack
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 Please contact us if we can help you with these or any other tax or accounts matters.
In addition, if there’s anyone else who you think would benefit from the newsletter, please forward the email to them or ask them to contact us to be added to the newsletter list. |
 If you are not already a client and are interested in becoming one, we would love to discuss how we can help and provide you with a competitive quote for our services.
See details of our Business Companion Service. |
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Simple Accounting Limited offers a cost effective Business Companion service to business owners who use MYOB, Acclivity, Mamut, FreeAgent, Solar Accounts, Quickbooks, Xero or Clearbooks.
‘All clients using these software packages can benefit from our support. Visit our website http://www.simpleaccounting.co.uk for a look at the resource on offer.’ |
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