Tax tips for Family Businesses

(Note this page will be updated as things change, please ensure you monitor this page regularly.)

These are truly unprecedented times we are unfortunate to live in.

The Chancellor on 20 March 2020 set out an extra-ordinary package of targeted measures to support public services, people and businesses through this period of disruption caused by COVID-19.

This in addition to the measures announced a few days earlier and covers measures to support businesses including:

• a Coronavirus Job Retention Scheme (sign-up for our FREE step by step guide below)
• deferring VAT and Income Tax payments.
• Self Employment and Freelancers: (TBC) 80% of net monthly earnings averaged over last 3 years

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As the world reels from the effects of Coronavirus, the UK government has taken extraordinary action to provide a raft of measures for businesses and individuals in these unprecedented times. We have summarised them below.

Summary

• £50k Micro-business Bounce Back Loan scheme
• Coronavirus Job Retention Scheme (CJRS)
• Self-employed and Freelancers
• Deferring VAT and Income Tax payments
• Time to Pay: Business taxes
• Small business one off grants
• Statutory Sick Pay (SSP)
• IR35: off-payroll working & SSP
• Self-employed and low earners
• Business rates
• SMEs: Coronavirus Business Interruption Loan Scheme (CBILS)
• Insurance

The Coronavirus Job Retention Scheme

Check the latest guidance for employers to how to claim:

Coronavirus Job Retention Scheme – Further guidance on how to claim

• Coronavirus Job Retention Scheme – the government is to pay 80% of wages for employees unable to work due to the coronavirus pandemic, up to £2,500 a month.

• Eligibility – all UK businesses are eligible.

• How to access the scheme – you will need to:

• designate affected employees as ‘furloughed workers,’ and notify your employees of this change. This is a legal change and the status of employees needs to be agreed upon.
• submit information to HMRC about these employees and their earnings through a new online portal (HMRC will set out further details on the information required).

• How much?

HMRC will reimburse 80% of furloughed workers wage costs, up to a cap of £2,500 per month. HMRC are working urgently to set up a system for reimbursement.

If your business needs short term cash flow support, you may be eligible for a Coronavirus Business Interruption Loan.

We have a detailed step by step guide to help on how to claim this, if you would like your FREE copy please email us cjrs@shipleystax.com.

The Self Employed Income Support Scheme

• The self employment income support scheme will pay 80% of an individual’s average monthly profit over the last three years, up to a maximum of £2,500 a month.
• It will be open to all across the UK for a three month period, with an extension if necessary.
• Those who cannot produce three years of accounts will be able to submit either one or two years.
• It will only be on offer for those with “trading profits” of up to £50,000.
• Applicants for the scheme must have the majority of their income from self employment.
• They must also have already submitted a tax return for 2019. Those who have not submitted a tax return will not be eligible.
•  Late filers of the January tax return will have until 26 April 2020 in which to submit a return.
• Access to the scheme no later than the beginning of June, when the department will contact those eligible directly and ask them to fill in an online form. Payments will be made directly into their bank account, and will be back dated to 1 March, meaning a self employed taxpayer will receive three months’ money in one go.
• The bail out makes it more likely that that national insurance contributions (NICs) will be aligned so that employees and the self-employed pay the same.

Support for businesses through deferring VAT and Income Tax payments

HMRC will support businesses by deferring Valued Added Tax (VAT) payments for 3 months. If you’re self-employed, Income Tax payments due in July 2020 under the Self-Assessment system will be deferred to January 2021.

VAT

For VAT, the deferral will apply from 20 March 2020 until 30 June 2020.

Eligibility – All UK businesses are eligible.

How to access the scheme

This is an automatic offer with no applications required. Businesses will not need to make a VAT payment during this period. Taxpayers will be given until the end of the 2020 to 2021 tax year to pay any liabilities that have accumulated during the deferral period. VAT refunds and reclaims will be paid by the government as normal.

Income Tax

For Income Tax Self-Assessment, payments due on the 31 July 2020 will be deferred until the 31 January 2021.

Eligibility – If you are self-employed you are eligible.

How to access the scheme

This is an automatic offer with no applications required.

No penalties or interest for late payment will be charged in the deferral period.

HMRC have also scaled up their Time to Pay offer to all firms and individuals who are in temporary financial distress as a result of Covid-19 and have outstanding tax liabilities.

Time to Pay: Support for businesses taxes

• All businesses and self-employed people in financial distress, and with outstanding tax liabilities, may be eligible to receive support with their tax affairs through HMRC’s Time To Pay service.
• These arrangements are agreed on a case-by-case basis and are tailored to individual circumstances and liabilities.
• It is essential to contact HMRC and make a Time To Pay agreement before the tax debt becomes due. 

If you are concerned about being able to pay your tax due to COVID-19, you can call us on 01124 275 6292 for further advice or call HMRC’s dedicated helpline on 0800 0159 559 direct.

Small business one-off grants

• The government will provide additional funding for local authorities to support small businesses that already pay little or no business rates because of small business rate relief (SBBR).
• This will provide a one-off grant of £10,000 to businesses currently eligible for SBRR or rural rate relief, to help meet their ongoing business costs.
• For example, a property with a rateable value of £12,000, this is one-quarter of their rateable value, or comparable to three months of rent.
• If your business is eligible for SBRR or rural rate relief, you will be contacted by your local authority – you do not need to apply.
• Funding for the scheme will be provided to local authorities by government in early April. Guidance for local authorities on the scheme will be provided shortly.

How to access the scheme

You do not need to do anything. Your local authority will write to you if you are eligible for this grant.

Any enquiries on eligibility for, or provision of, the reliefs and grants should be directed to the relevant local authority.

Find your local authority.

Statutory Sick Pay (SSP)

• SSP is paid to eligible employees by their employers.
• SSP is not available to those earning below the Lower Earnings Limit of £118 per week, see Sick pay (below).

The government said that it will allow small and medium-sized businesses and employers to reclaim SSP paid for sickness absence due to COVID-19. The eligibility criteria for the scheme will be as follows:

• SSP will be payable from day one instead of day four for affected individuals. 
• SMEs may reclaim up to two weeks’ SSP expenditure per eligible employee who has been off work because of COVID-19.
• The rate of SSP, for working a five-day week is currently £95.85 per week.

Key summary details for employers:

• An SME is broadly an employer with fewer than 250 employees as of 28 February 2020.
• Employers should maintain records of staff absences and payments of SSP.
• Employees will not need to provide a GP sick note.
  • People who are advised to self-isolate for COVID-19 will soon be able to obtain an alternative to the sick note to cover this by contacting NHS 111, rather than visiting a doctor.
  • This can be used by employees where their employers require evidence.
• The eligible period for the scheme will commence the day after the regulations on the extension of Statutory Sick Pay to those staying at home/self-isolating comes into force.

As existing systems are not designed to facilitate employer refunds for SSP, the government will work with employers over the coming months to set up the repayment mechanism for employers as soon as possible.

IR35: Personal Service Companies, Off-payroll working & SSP

• HM Treasury have said they intend to postpone the introduction of the controversial Off-Payroll working rules to the private sector.
• The extension of the off-payroll working rules was due to commence on 6 April 2020. The start date is now be deferred to 6 April 2021.
• As such all workers providing their labour via their own Personal Service Companies (PSCs) to private sector end clients, will be entitled, as they are currently in 2019-20 above to claim SSP under the current rules, via their own PSC.

Self-employed and low earners

****UPDATE 24 MARCH 2020***

SELF EMPLOYED/FREELANCE? Support package is on its way week commencing 23 March.

There is a real feeling of panic growing among the UK’s self-employed. While there are some measures in place, they’re simply not enough.

We understand however the government has officially confirmed they are working on a further support package (some reports suggest it may be as soon as Wednesday 25th, but almost certainly be by Friday 27th). We do not know what it is but suspect it will be on a par with the 80% of salary up to £2,500 for employees.

Sick Pay

• Self-employed individuals and people earning below the Lower Earnings Limit of £118 per week are not eligible for SSP.
• These individuals can make a claim for Universal Credit or Contributory Employment and Support Allowance.
• Special measures apply for the duration of the virus outbreak. See https://www.gov.uk/government/publications/support-for-those-affected-by-covid-19/support-for-those-affected-by-covid-19

Business Rates

• Existing small business rate relief continues to apply, this provides full relief for businesses using a single property with a rateable value of £12,000 or less.
• A business rate holiday applies to retail, hospitality and leisure businesses in England for the 2020/21 tax year.
• A £25,000 grant will be provided to retail, hospitality and leisure businesses operating from smaller premises, with a rateable value between £15,000 and £51,000.

Any enquiries on eligibility for, or provision of, the reliefs should be directed to the relevant local authority. Guidance for local authorities on the business rates holiday will be published by 20 March.

SMEs: Coronavirus Business Interruption Loan Scheme (CBILS)

• The temporary Coronavirus Business Interruption Loan Scheme supports SMEs with access to loans, overdrafts, invoice finance and asset finance of up to £5 million and for up to 6 years.

• The government will also make a Business Interruption Payment to cover the first 12 months of interest payments and any lender-levied fees, so smaller businesses will benefit from no upfront costs and lower initial repayments.

• The government will provide lenders with a guarantee of 80% on each loan (subject to pre-lender cap on claims) to give lenders further confidence in continuing to provide finance to SMEs. The scheme will be delivered through commercial lenders, backed by the government-owned British Business Bank.

• There are 40 accredited lenders able to offer the scheme, including all the major banks.

Eligibility

You are eligible for the scheme if:

• your business is UK based, with turnover of no more than £45 million per year
• your business meets the other British Business Bank eligibility criteria

How to access the scheme

The scheme is now open for applications. All major banks are offering this scheme.

To apply, you should talk to your bank or one of the 40 accredited finance providers (not the British Business Bank) as soon as possible, to discuss your business plan. You can find out the latest on the best ways to contact them via their websites. Please note that branches may currently be shut down to enable social distancing.

The full rules of the scheme and the list of accredited lenders are available on the British Business Bank website.

If you have an existing loan with monthly repayments you may want to ask for a repayment holiday to help with cash flow.

Insurance

Standard business interruption policies are unlikely to cover a pandemic. You need to check your policy wording and contact your insurer.

For more information or if you would like a detailed step by step guide on how to claim CJRS email info@shipleystax.com or call 0114 272 4984.

We understand that these are troubling and uncertain times for you and your organisation. The team here at Shipleys Tax are here to answer all your questions. We will support you through the difficult times and help you make the right decisions.

In response to Government advice, please note:

•    Shipleys Tax remains open during our normal hours of 9:00am to 5:30pm.  Staff will generally work from home and we will only have the skeleton number of staff on site. 

•    All staff working from home will use secure IT systems and will have limited access to information on the server.

•    All staff remain available by email and telephone. 

•    Telephone conferences and written work will be dealt with as before. Face-to-face meetings and video conferences are possible. Please contact us for further information.

We will continue to monitor Government guidance and ensure client’s needs are fully met throughout these turbulent times.

We wish everyone the very best. Stay safe, stay home.

Warm regards
SHIPLEYS TAX TEAM

Landlords are being hit from all sides by recent and forthcoming tax changes. So is it better to buy a property personally or through a company? We look at the pros and cons below.

Holding it personally

Where a property is held by an individual, the property income tax rules apply. The profits of the property rental business are charged to income tax at the individual’s marginal rate of tax. If a loss is made, this can only be carried forward and set against future profits of the same property rental business. The personal allowance is available if not used elsewhere.

The widely reported interest relief restrictions have been phased in progressively from 6 April 2017. For 2019/20, only 25% of interest can be deducted in computing taxable profits, with relief for the remaining 75% given as a tax reduction at the basic rate. From 6 April 2020, relief for all interest and finance costs will be given in this way.

Where a property is held by an individual, the property income tax rules apply. The profits of the property rental business are charged to income tax at the individual’s marginal rate of tax.

When purchasing the investment property, if it is a residential property and the landlord already owns at least one other residential property, the 3% Stamp Duty Land Tax (SDLT) supplement will apply.

On sale of the rental property, capital gains tax will be charged on any gain. The higher residential rates apply – 18% where your total income and gains do not exceed the basic rate band and 28% thereafter. Bear in mind you can set your annual exempt amount – set at £12,000 for 2019/20 – against any chargeable gain where available.

Owning it through a company

Where a property is owned through a company, any profits are charged to corporation tax rather than income tax. There is no equivalent of the personal allowance – so profits are taxed from the first pound. However, at 19%, corporation tax rates are lower than income tax rates. More pertinently, the interest rate restrictions do not apply to companies, and interest is deductible in accordance with the corporation tax rules meaning full interest relief is available.

Companies pay corporation tax on chargeable gains and any gain on disposal of the property is subject to corporation tax. There is no annual exempt amount, and basic rate taxpayers pay capital gains tax at a lower rate than the corporation tax rate payable by companies; however, at 28%, the rate payable by higher rate personal taxpayers is more.

Where a property is owned through a company, any profits are charged to corporation tax rather than income tax. There is no equivalent of the personal allowance – so profits are taxed from the first pound.

If the value of the property is more than £500,000, the company will also have to pay the annual tax on enveloped dwellings. The amount depends on the value of the property – ranging from £3,650 for a property in the £500,000 to £1 million band to £232,350 for properties valued at £20 million or more (2019/20 rates).

Where the property is brought by the company, SDLT will be payable, with the 3% supplement applying to the purchase of residential properties.

Buying through a company will also raise the issue of how best to extract the profits, and once personal and dividend allowances have been used, this will trigger personal tax liabilities in the hands of the recipient.

Do the numbers

The best option will depend on personal circumstances, and there is no substitute for doing the sums. Remember to take account of the non-tax considerations, such as the additional costs associated with running a company and higher borrowing costs.

If you are considering a property acquisition and would like to know how to structure this is in the most tax efficient manner, call us on 0114 275 6292 or email info@shipleystax.com.