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We offer cloud-based accounting solutions. Using good technology saves time. With the power of cloud accounting in your hands, you can access accurate real-time data on the go, accept instant payments and even automate repetitive tasks like invoicing. Fast, easy, touch-of-a-button software can make a real difference to the way you run your business.
COVID-19 Company Directors & Shareholders
COVID-19 IR35 & Off-payroll working
COVID-19 Insolvency & Directors
COVID-19 Statutory self-employment pay scheme
COVID-19 Landlords & tenants
COVID-19 Late payment interest rate
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Welcome to Adrian Mooy & Co Ltd
We offer a personal service and welcome new clients.
We are a firm of Chartered Certified Accountants
and tax advisors in Derby helping businesses
From start-up to exit & everything in-between.
Whether you’re struggling with company formation,
annual accounts and taxation, payroll or VAT you can
count on us at every step of your business’s journey. For
If you are looking for a Derby accountant then please contact us.
If you are starting your own business, running it as a sole trader is the quickest and easiest way to do it. However, you will have unlimited liability which means you are personally responsible for business debts.
Another important aspect is that you are taxed on all the profits with little opportunity for tax planning. This is why most businesses will incorporate as profits increase.
We can support you through business registration and provide advice on all aspects of tax including:
◦ Accounts for HMRC ◦ Self assessment ◦ VAT returns ◦
◦ Payroll services ◦ Tax planning ◦
Partnerships are similar to sole trades, except that they are used when more than one person owns the business.
Each profit share is determined by the partners and best practice is to record this in a partnership agreement.
With partnerships each partner has joint and several liability for the debts of the partnership, so that if one partner cannot pay their share of any business debts, the debt will fall on the other partners.
Setting up a partnership agreement from the outset is essential.
Corporate tax planning can result in significant improvements in your bottom line. Our services will help to minimise your corporate tax exposure.
We are a member firm of the Association of Chartered Certified Accountants.
Self assessment tax returns are becoming increasingly complex and failing to submit your return on time, or correctly, can result in substantial penalties.
We use the latest tax software to ensure that tax returns are completed efficiently, accurately and on-time.
Self assessment: Taking
away the hassles of tax
We provide a comprehensive personal tax compliance service for individuals that includes:
Invoicing your contracting work through a limited company is tax efficient. We will advise you on how to structure your contract to minimise IR35 risk. We will ensure you claim all the expenses that you are entitled to and work out if you can save money by joining the VAT Flat Rate Scheme. We will complete your accounts and tax returns and provide you with clarity over your tax payments.
Included in the service • IRIS KashFlow + Snap • Annual accounts • Corporate tax return • Personal tax return • Payroll • Dividend administration • VAT returns • Contract reviews • Dealing with HMRC
VAT • is one of the most complex tax regimes imposed on business. We provide a cost effective service including assistance with registration & completing your returns.
Payroll • Administering your payroll can be time consuming. We provide a comprehensive payroll service.
Your Payroll Solution
Construction Industry Scheme • CIS returns & payments
Book-keeping • Maintenance of accounting records
Provision of management accounts
For more about these services please contact us.
Keeping the Books
If your business does not require a statutory audit then our Assurance Service will provide reassurance that your accounts stand up to close scrutiny from your bank or other finance providers.
Work is tailored to your specific requirements and the level of confidence that you are looking to achieve and will provide credibility to your accounts by the issuing of an assurance review report.
Adrian Mooy & Co is a registered auditor with the Association of Chartered Certified Accountants.
We strive to provide an auditing service that adds more value than merely the statutory compliance requirement of an audit.
We tailor the audit to meet your circumstances and needs. Using the latest techniques and software we deliver a cost-effective audit that provides real value.
Before starting out you may need help with business planning, cash flow and profit & loss forecasts.
You may also want help identifying the best structure for your business. From sole trades and partnerships to limited companies and limited liability partnerships, we have the experience to advise on the best solution for you both operationally and from a tax point of view.
We also advise on accounting software selection, profit improvement, profit extraction & tax saving.
If you wish to know more about our Business Start-up service please contact us on 01332 202660.
Accountancy and taxation of property is a specialist area. We have the expertise and experience to work effectively with private landlords and property investors. We deal with self-assessment tax, accounts preparation & tax advice for all aspects of property portfolios.
Whether you are a first time buy to let landlord or a long established developer we will discuss and understand your situation in order to advise and recommend the most appropriate medium through which to carry out your property investments. We will guide you through the accounting and tax issues and help you to plan effectively.
We take the time to explain your accounts to you so that you understand what is going on in your business.
Up to date, relevant and quickly produced management information for better control.
As part of our accounts service we prepare your annual accounts and complete yearly personal and business tax returns.
As your year-end approaches we will agree a timetable with you for completion of the accounts that minimises disruption to your business and leaves no late surprises when it comes to your tax liabilities.
We can also prepare management accounts to help you run your business and make effective business decisions. Management accounts are also very useful when approaching lending institutions when no year end accounts are available. We offer:
For a meeting to discuss your requirements please call us on 01332 202660.
We understand the issues facing owner-managed businesses.
We provide advice on personal tax & planning opportunities.
Running a small business places many demands on your time. We can help lift the load with our complete payroll service.
Designed to ease your administrative burden, our service removes what is often a time consuming task, leaving you free to concentrate on managing your business.
We can also prepare your benefits and expenses forms and advise you of any filing requirements and national insurance due. Benefits and expenses can be a complicated area and knowing what to report can be tricky.
We can file all your in-year and year end returns with HMRC and provide you with P60s to distribute to your employees at the year end.
We also offer a solution to meet your auto-enrolment obligations.
Businesses dealing with the requirements of VAT legislation will agree that this is often a complex area.
Our compliance services offer support for all stages of completing your VAT returns, whether you need advice on the treatment of specific transactions or have produced your records and would like verification that they are correct.
We can also advise on the pros and cons of voluntary registration, extracting maximum benefit from the rules on de-registration and the Flat rate VAT scheme.
Our consultancy service guides you through the intricacies of the legislation, pinpointing areas where you may be able to relieve or partly relieve the cost of VAT for your business, for example when purchasing new equipment or undertaking new projects such as property development.
For a meeting to discuss VAT and obtain further advice please call us on 01332 202660.
We can conduct a full tax review of your business and determine the most efficient tax structure for you.
We give personal tax advice to a wide variety of individuals, including higher rate tax payers, company directors & sole traders.
We can assist with:
For a meeting to discuss your requirements please call us on 01332 202660.
Understand your needs
Firstly we listen and gain an understanding of your business and what you are aiming to achieve.
We seek your opinions on the service we provide and respond to feedback in order to upgrade and improve what we do.
Build a relationship
Success in business is based around relationships and trust. Our objective is to develop and build strong relationships with our clients, based on two way trust and respect.
Confirm your expectations
Our aim is to help you maximise your business potential and we tailor our service to meet your requirements and agree a timetable for delivering them.
Communication is important to the success of any commercial venture. It is therefore a vital part of our work with you, sharing the knowledge and ideas that help you to realise your ambitions.
Understand your needs
Confirm your expectations
Build a relationship
Straightforward and easy to deal with Adrian Mooy & Co provide an efficient, friendly and professional service - payroll, tax returns, annual accounts and VAT returns are always done on time. Eddie Morris
Call us on 01332 202660
Profit extraction in 2020/21 – What is the optimal salary?
A popular tax-efficient profit extraction strategy used by personal and family companies is to take a small salary and extract further profits as dividends. Where this approach is adopted, the starting point is to determine the optimal salary. While this will depend on personal circumstances and there is no excuse for not doing the sums, there are some general guidelines.
Where the director does not have the requisite 35 qualifying years to provide access to the full single tier state pension paying a salary at least equal to the lower earnings limit for Class 1 National Insurance purposes (set at £120 per week; £520 per month and £6,240 per year) will ensure that the year is a qualifying one.
Maximum salary that can be paid free of tax and National Insurance - The first question to consider is what is the maximum salary that can be paid free of income tax and employer’s and employee’s National Insurance. For 2020/21, the key numbers are:
• the personal allowance – set at £12,500;
• the primary threshold – set at £9,500 per year; and
• the secondary threshold –set at £8,788 per year.
Assuming the personal allowance has not been used elsewhere, the maximum salary that can be paid without triggering a tax or National Insurance liability is one equal to the secondary threshold of £8,788.
However, if the director is under 21, there is no secondary Class 1 liability until earnings exceed £50,000 and in this scenario, the maximum salary that can be paid free of tax and National Insurance is one equal to the primary threshold of £9,500 per month. The same is true where the director is over 21 but the employment allowance extinguishes any secondary Class 1 liability.
Is a higher salary tax-efficient? - Salary payments and any associated employer’s Class 1 National Insurance contributions are deductible for corporation tax purposes and there will therefore be an associated 19% reduction in the corporation tax bill. Where paying a higher salary triggers a National Insurance liability, this will be worth paying if it is more than offset by the corporation tax reduction. The sums differ depending on whether the employment allowance is available.
Employment allowance unavailable - In a personal company scenario, it is unlikely that the employment allowance is available as companies where the sole employee is also a director, as would be usual in a personal company do not qualify.
Where this is the case, assuming the director is over 21, a salary in excess of £8,744 will attract a secondary Class1 National Insurance liability. However, there is no primary Class 1 liability until the salary reaches the higher primary threshold, set at £9,500 for 2020/21. At 13.8%, the rate of employer’s National Insurance is less than the corporation tax rate – the corporation tax saving on the salary and employer’s National Insurance of £163 (19% (£756 x 1.138)) is more than the employer’s National Insurance on the additional salary of £104 (13.8% of £756), meaning it is tax efficient to pay a salary of £9,500. However, the employer’s NIC will need to be paid over to HMRC, incurring admin costs.
However, beyond this level, the combined effect of employer’s and employee’s National Insurance outweighs any corporation tax saving. The optimal salary in this case is therefore £9,500 a year.
Employment allowance available - In a family company scenario, the employment allowance may be available, making it possible to pay a salary of £9,500 free of tax and National Insurance. Paying an additional £3,000 to bring the salary up to the level of the personal allowance will trigger an employee Class 1 liability of £360 (12% of £3,000). However, the additional salary of £3,000 will reduce the corporation tax bill by £570 (19% of £3,000), making the additional salary worthwhile. However, once income tax at 20% is brought into the mix, this is no longer the case, meaning the optimal salary is one equal to the personal allowance of £12,500.
Switch to dividends - Once the optimal salary has been paid, it is tax efficient to extract further profits as dividends.
Annual investment allowances
From January 2019, businesses considering investing more than £200,000 in plant and machinery may benefit from a change to the capital allowances rules, which should allow them to obtain tax relief at a much earlier time.
Broadly, business profits, after any adjustments for tax purposes (for example depreciation of fixed assets), are reduced by capital allowances to arrive at taxable profit. Since capital allowances are treated as a trading expense of a particular accounting period, they can potentially increase a loss, or turn a profit into a loss for tax purposes. This in turn, will have an impact on the amount of tax payable by a business - so where a business is considering expenditure on qualifying items, it may be beneficial to undertake some upfront planning.
Annual investment allowance
The annual investment allowance (AIA) for capital allowances purposes is a 100% allowance for qualifying expenditure on machinery and plant. Put simply, this means that a business buying a piece of equipment that qualifies for the AIA can deduct 100% of the cost of that asset from the business’s profit before calculating how much tax is due on that profit.
VAT-registered businesses claim the AIA on the total cost of the asset less any VAT that can be reclaimed on that asset. Non-VAT-registered businesses can claim the AIA on the total cost of the asset.
The AIA was set at its current level of £200,000 from 1 January 2016, but it was announced in the 2018 Autumn Budget that, subject to enactment, the limit will be increased to £1,000,000 from January 2019. This measure is designed to stimulate business investment in the economy by providing an increased incentive for businesses to invest in plant or machinery. However, the increase will only be available for a limited time. Under current proposals, the AIA limit will revert to its current level from 1 January 2021. Businesses considering making significant investments in, say, the next five years, may wish to consider bringing their purchase forward, so as to benefit from the increased AIA limit and obtain immediate tax relief on their investment.
Where a business spends more than the annual AIA limit, any additional qualifying expenditure will still attract relief under the normal capital allowances regime, but this will result in relief being spread over several years, rather than in one go.
It is worth remembering that connected companies are only entitled to one AIA between them.
The legislation includes a series of transitional rules, which can be complex. It is worth seeking guidance where expenditure on qualifying AIA items is being considered and the business has a chargeable period that spans either of:
• the operative date of the increase to £1,000,000 on 1 January 2019, or
• the operative date of the reversion to £200,000 on 1 January 2021.
Running a business from home
Small businesses can choose to be taxed on the basis of the cash that passes through their books, rather than undertaking the more complex accounting calculations designed for larger businesses. This is known as the ‘cash basis’, and where a business opts to use it, it will also be possible for that business to use certain simplified arrangements for claiming expenditure in working out taxable profits for income tax purposes. Flat rate expenses can be claimed for business costs for vehicles, working from home, and living at the business premises.
Working from home - Where a business owner runs the business from home they will be able to claim flat rate expenses for business use of the property. This means that it will not be necessary to work out the proportion of personal and business use, for example, how much of their utility bills relate to business use. Instead a monthly deduction will be allowable provided certain criteria are satisfied. The current rates are as follows:
Number of hours worked per month Applicable amount
25 or more £10.00
51 or more £18.00
101 or more £26.00
HMRC's view is that ‘number of hours worked’ means hours spent wholly and exclusively on ‘core business activities’ in the home with core business activities comprising the provision of goods and/or services, the maintenance of business records and marketing and obtaining new business.
Example - John worked 60 hours from home for a period of 10 months, and worked 110 hours during two particular months. He can claim the following amount against his income for tax purposes:
10 months x £18.00 = £180.00
2 months x £26.00 = £52.00
Total amount claimed = £232.00 - Living at the business premises
Some businesses use their business premises as their home, for example, hotels and guesthouses. Where a premise is used for both business and private use, the business owner may, instead of making the standard deduction outlined above, make a deduction for the non-business use. The allowable deduction will therefore be the amount of the expenses incurred, less the non-business use amount. The non-business use amount is the sum of the applicable amounts (see below) for each month, or part of a month, falling within the period in question (usually the tax year). The applicable amounts are as follows:
Number of relevant occupants Applicable amount
3 or more £650
A relevant occupant is someone who occupies the premises as a home, or someone who stays at the premises otherwise than in the course of the trade.
Example - Sandy runs a guesthouse and also lives there all year round with her husband. Her overall business expenses are £10,000. She can claim a flat rate deduction for private use as follows:
12 months x £500 per month = £6,000
Expenses claimed against income £10,000 - £6,000 = £4,000
Where a person claims a flat rate deduction, they are still able to claim a separate deduction for fixed costs such as council tax, insurance and mortgage interest.
Expenses checker - You don’t have to use simplified expenses. You can decide if it suits your business. HMRC provide a simplified expenses checker, which can be used to compare what you can claim using simplified expenses with what you can claim by working out the actual costs. The checker can be found online at https://www.gov.uk/simplified-expenses-checker.
Claims - Anyone wishing to utilise the simplified expenses regime should ensure that they keep records of business miles for vehicles, the number of hours worked at home, and details of people living at the business premises over the year. At the end of the year, work out how much can be claimed and include these amounts of your self-assessment tax return.
Annual tax on enveloped dwellings
The annual tax on enveloped dwelling applies in the main to companies that own residential property in the UK. The amount of the tax depends on the value of the property, and only applies where the property is valued at more than £500,000.
Scope of the ATED
A liability to the ATED arises where a property that is classed as a ‘dwelling’ is owned completely or partly by a company, a partnership where any of the partners is a company, or by a collective investment scheme (for example, a unit trust or an open-ended investment vehicle), and that property is worth more than £500,000.
A property is classed as a dwelling if all or part of it is used, or could be used, as a residence. The definition of dwelling includes houses and flats. Where the property has a garden or grounds, these too form part of the dwelling.
However, the definition of ‘dwelling’ excludes hotels, guest house, boarding house accommodation, student halls of residents, care homes, hospitals, military accommodation and prisons.
In some circumstances it may be possible to claim relief from the charge, for example if it is let to a third party on a commercial basis or open to the public for at least 28 days a year. Details of the reliefs and exemptions can be found on the Gov.uk website.
Valuing the property
To ascertain whether the ATED applies and if it does, the amount of the tax, the property’s value must be known. For ATED purposes, properties are revalued every five years; from 1 April 2018 the charge is based on the value as at 1 April 2017. The next revaluation date is 1 April 2022.
The value of the property is the price that it would fetch in the open market with a willing buyer and a willing seller. If help is needed in working out how much ATED is due, HMRC can provide a pre-return banding check. Applications can be made on the Gov.uk website using the PRBC form.
The chargeable period for the ATED runs from 1 April to the following 31 March.
Where the property in respect of which a liability to the ATED is held on 1 April, a return for the period that commences on that date must be filed by 30 April in that year. Thus, where a property within the ATED is held on 1 April 2020, a return for the chargeable period that runs from 1 April 2020 to 30 March 2021 must be filed by 30 April 2020. Returns must be filed online.
Amount of the charge
The amount that charged depends on the value of the property. The charge for the period from 1 April 2020 to 31 March 2021 is shown in the table below. It must be paid by 30 April 2020.
Property value Annual charge
More than £500,000 up to £1 million £3,700
More than £1 million up to £2 million £7,500
More than £2 million up to £5 million £25,200
More than £5 million up to £10 million £58,850
More than £10 million up to £20 million £118,050
More than £20 million £236,250
Auto-enrolment threshold changes for 2020/21
The government has set the bands and thresholds for workplace pensions. These apply for paydays on or after 6 April 2020. For employees between 22 and 74 where you pay at the rate of:
• £6,240 per year, they are entitled to join your workplace pension and contribute to it but they do not have to.
• Between £6,241 and £10,000 per year, they can choose to join your workplace pension. If they do, both you and they must contribute to it.
• More than £10,000 per year, you must auto-enrol them in your workplace pension and both you and they must contribute.
From April 2020 you will only have to contribute to an employee’s workplace pension if they join your scheme and you pay them at the rate of £6,240 or more per year.
Coronavirus Job Retention Scheme
The Coronavirus Job Retention Scheme (CJRS) enables employers who are unable to maintain their workforce due to the COVID-19 pandemic to furlough their staff and claim a grant of 80% of the employee’s wages to a maximum of £2,500 a month. Employers are also able to claim the associated employer’s National Insurance contributions on the amount claimed, and also the minimum pension contributions that they are required to make under auto-enrolment. The full amount of the grant must be paid over to the furloughed employee, and the employee pays PAYE tax and National Insurance in the usual way. Employers can choose to top up the amount paid to employees to maintain their usual salary but are under no obligation to do so. The money received by the employer is taxable income and is taken into account computing their taxable profits.
Claims can be made by employers who have furloughed staff as a result of the COVID-19 pandemic, as long as they:
• created and started a PAYE payroll scheme on or before 19 March 2020;
• are enrolled for PAYE online; and
• have a UK bank account.
Claims can only be made in respect of furloughed employees. The scheme does not apply to staff who have had their hours and pay reduced. Furloughed employees cannot do any work for the employer while furloughed, although they may be able to work for a different unconnected employer if their contract permits this or work in a self-employed capacity.
Only furloughed employees who were on the payroll on or before 19 March 2020 and in respect of whom a PAYE submission had been made by this date are within the scope of the scheme. Employees who were on the payroll as at 28 February 2020 and who were made redundant after that date and before 19 March 2020 can be included in the scheme if the employer re-employs them and furloughs them. The employee does not need to be re-employed by 19 March to be eligible for furlough.
The option to furlough an employee is available regardless of what type of contract an employee is on. Thus the scheme can be used to furlough employees on full or part-time contacts and also those on flexible or zero-hours contracts.
Amount of the claim
Employers can claim 80% of a furloughed employee’s wages to a maximum of £2,500 a month. The calculation of the amount which can be claimed will depend on how the employee is paid and whether their pay varies. The claim will be based on the employee’s ‘wages’, which are the regular payments which the employer makes to the employee. It will include non-discretionary overtime, fees and commission, but no discretionary payments. Payments in kind are also excluded.
The employer can also claim the associated employer’s National Insurance and minimum pension contributions on the amount of the grant.
HMRC have produced a calculator which can be used to work out the amount which can be claimed in respect of a furloughed employee.
Claims should be made online via the online portal. Employers should receive the money within six working days.
Cars and vans – What’s new for 2020/21
There are a number of changes that apply from the start of the 2020/21 tax year that relate to the taxation of company cars and vans.
New way of measuring CO2 emissions - The way in which the level of a car’s CO2 emissions is determined changes from 6 April 2020. The CO2 emissions figure for new cars registered on or after that date is determined in accordance with the Worldwide Harmonised Light Vehicle Test Procedure (WLTP). The CO2 emissions figure for cars registered before 6 April 2020 is determined in accordance with the New European Driving Cycle.
Different appropriate percentages - For 2020/21, it will be necessary to know whether a new car was registered before 6 April 2020 or on or after that date in order to ascertain the correct appropriate percentage to use when calculating the company car benefit charge.
With the exception of zero emission cars and those with CO2 emissions of 170g/km and above, for 2020/21, the appropriate percentage for cars registered on or after 6 April 2020 whose CO2 emissions are determined in accordance with the WLTP is two percentage point lower than for a car with the same CO2 figure which was registered prior to 6 April 2020 and whose emissions are determined in accordance with the NEDC. This means, for example, that the appropriate percentage for a car with CO2 emissions of 100—104g/km is 23% where the car is registered on or after 6 April 2020 and 25% where the car is registered before that date. The maximum charge applies for cars registered prior to 6 April 2020 with CO2 emissions of 160g/km and over and to cars registered on or after 6 April 2020 with CO2 emissions of 170g/km and over. The 4% diesel supplement applies where diesel cars do not meet RDE2 standards, subject to the 37% maximum charge.
For 2021/22, the appropriate percentage for cars registered on or after 6 April 2020 will be one percentage point lower than those registered prior to that date. The figures are aligned from 2022/23.
Zero emission cars - The charge for zero emission cars is 0% for 2020/21, regardless of whether the car was registered before or after 6 April 2020. It will increase to 1% for 2021/22 and to 2% for 2022/23.
Cars in 1—50g/km
The appropriate percentage for cars in the 1—50g/km band also depends on the car’s electric range for 2020/21 onwards. This is the case regardless of whether the emissions are measured under the WLTP or the NEDC.
The 1—50g/km is split into five bands according to the car’s electric range (also referred to as its zero emission mileage). The bands are:
• more than 130 miles;
• 70 to 129 miles;
• 40 to 69 miles;
• 30 to 39 miles; and
• less than 30 miles.
The appropriate percentages range from 2% to 14% for cars registered before 6 April 2020 and from 0% to 12% for cars registered on or after this date, with lower percentages applying to cars with the greatest electric range.
Car fuel benefit - Where an employer provides, or meets the cost, of fuel for private motoring in a company car, a benefit in kind charge arises, found by multiplying the appropriate percentage by the multiplier for the year. For 2020/21, the car fuel multiplier is set at £24,500.
Vans - The flat rate van benefit in kind is set at £3,490 for 2020/21. The charge for zero emission vans is 80% of the full charge, equivalent to £2,792. The fuel benefit charge where fuel is provided for private motoring in a company van is set at £666 for 2020/21.
The charge for zero emission vans is to be reduced to nil from 2021/22.
30-days reporting for CGT
Certain changes regarding payment of CGT took effect from April 2020 which align the position of UK residents with that of non-UK residents. Broadly, from 6 April 2020, a UK resident who sells a residential property in the UK will have 30 days to tell HMRC and pay any capital gains tax (CGT) owed. Failure to notify HMRC within 30 days of completing a sale may result in penalty and interest charges.
A CGT report and accompanying payment of tax may be required where the taxpayer sells or otherwise dispose of:
• a property that they have not used as their main home;
• a holiday home;
• a property which has been let out for people to live in;
• a property that has been inherited and not used as a main home.
There is no requirement to make a report make a payment of tax when:
• a legally binding contract for the sale was made before 6 April 2020;
• the individual satisfies the for Private Residence Relief (generally a main residence);
• the sale was made to a spouse or civil partner;
• the gains (including any other chargeable residential property gains in the same tax year) are within the tax free allowance known as the annual exempt amount (£12,300 in 2020/21);
• the property is sold for a loss; or
• the property is outside the UK.
Calculation - Subject to certain exceptions, where there has been a disposal of a residential property, payment on account of the CGT will be due on the filing date for the return, which is generally within 30 days of the day after the date the property sale is completed.
The payment on account required is the amount of CGT notionally chargeable at the filing date. This is the tax that would be due if, under the normal rules for calculating chargeable gains for a tax year, the tax year ended at the time the disposal is completed.
In calculating the amount, any unused allowable losses for capital gains purposes incurred by the time the disposal is completed can be used. Available reliefs and the annual exempt amount are applied in the normal way.
The amount of CGT payable on account is the amount after applying the applicable rate of tax to the net gain.
Multiple disposals - Where there is more than one residential property disposal in the same tax year, the amount of CGT notionally chargeable must be calculated after each disposal.
This is, however, done by taking into account that all of the gains (or losses) on those disposals are taken into consideration and any new losses that have arisen on disposals of other assets can also be used.
Where there has been a previous return and payment on account for the tax year and the amount notionally chargeable contained in a later return is more than the amount of tax already paid on account, the difference is payable to HMRC.
Provisional figures - Since the 30-day payment window can make it difficult for some people to provide exact figures, HMRC allow for certain estimates and assumptions to be made. The taxpayer can make a correction once the exact figures are known. If the resulting amount is higher than the amount previously paid, the difference becomes payable to HMRC and interest may be due. No penalty will however, be charged. If the amount is lower, the difference becomes repayable along with repayment interest from HMRC.
HMRC are currently developing a new online service to allow taxpayers to report and pay any CGT owed.
Coronavirus self-employed scheme
HMRC will pay a taxable grant to self-employed individuals and partners equivalent to 80% of their average trading profits for three months, capped at £2,500 per month.
Who gets what? - The government has chosen to base the amount of grant for each taxpayer on the average of their trading profits as reported in their last three tax returns for the years: 2015/16 to 2018/19. If the taxpayer started trading within this three year period the monthly average of profits will be calculated from the periods in which they were trading.
The taxpayer (or their tax agent) does not need to provide any figures at this stage. HMRC will arrive at the taxpayer’s average earnings by totalling up the reported profit for the three tax years (or shorter period as applicable) and divide by three to arrive at a typical average year. One quarter of that average annual profit will then form the basis of the SEISS grant awarded – at the 80% rate.
The number of months covered by a SEISS grant may be extended beyond three months if the coronavirus shutdown continues beyond the end of June.
Who doesn’t qualify - The SEISS grant will not be payable to anyone who meets any of these conditions:
If the taxpayer has not submitted their 2018/19 tax return, they have until 23 April 2020 to submit it in order to qualify for the grant. Penalties for late filing and late payment of tax will apply as normal.
Those who started trading on or after 6 April 2019 are not eligible for the SEISS grant. This seems harsh, but HMRC has to draw the line somewhere.
The purpose of the SEISS grant is to help traders through the coronavirus crisis. To qualify for the grant the business must have traded in 2019/20 and would still be trading if it hadn’t been for the interruption to business due to the coronavirus. If the trader has taken the decision to cease trading completely, no grant is payable.
Property letting businesses are not regarded as a trade, so landlords will not qualify for the SEISS grant even if more than half of their taxable income is from rental income.
Similarly, the letting of furnished holiday accommodation is not strictly a trade, although it is treated as a trade for certain pensions and CGT purposes. HMRC are unlikely to consider income from furnished holiday lets as qualifying for the SEISS grant, although these landlords will be among the hardest hit of all “self-employed”.
How will the grant be delivered? - HMRC will contact those taxpayers who are eligible for this grant and will invite them to apply for the payment online. It is not clear if this contact will be made by letter, but it certainly won't be by email or text message.
The taxpayer may need to confirm to HMRC that they were trading in 2019/20 and expect to continue to trade in 2020/21. Some indication of the business turnover for 2019/20 may have to be provided at that point.
When will the money arrive? - The SEISS grant for three months will be payable in one lump sum into the taxpayer’s bank account, but the money will not be available until early June.
The grant will be treated as taxable income, and will have to be reported on tax returns for 2020/21. Taxpayers in receipt of working tax credits or universal credit will have to treat the SEISS grant as part of their self-employed income for 2020/21. coyle cave
Making tax-free payment to employees working from home
As a result of the Coronavirus (COVID-19) pandemic, many workers have been forced to work from home. While working from home saves the costs of commuting to the workplace and perhaps allows workers to adopt a more relaxed dress code, there are also costs associated with working at home. Workers may need to equip themselves with somewhere to work, and perhaps invest in furniture, equipment and stationery where this is not provided by the employer. Household bills are also likely to increase as a result of homeworking arrangements.
There are also tax implications to consider, both where the employer meets the additional costs and provides equipment etc., and also where the employee picks up the tab.
Additional household expenses - Household expenses may increase where an employee works from home – the costs of heating and lighting may rise, as may telephone, broadband and cleaning costs. The tax system recognises this and include an exemption that allows employers to reimburse tax-free reasonable additional household expenses incurred as a result of working from home. Household expenses are defined as ‘expenses connected with the day-to-day running of the employee’s home’. For the exemption to apply, the employee must be working at home under ‘homeworking arrangements’. These are arrangements between the employee and the employer under which the employee regularly performs some or all of the duties of employment at home.
The costs that can be reimbursed within the scope of the exemption include the additional costs of heating and lighting the work area and increased charges for internet use, home insurance or business telephone calls. Where working at home triggers a liability for business rates, the extra cost that this entails can be met within the terms of the exemption.
The exemption does not apply to fixed costs which are the same regardless of whether the employee works at home or not, such as rent or mortgage interest. Likewise, expenses that put the employee in a position to work at home, such as the costs of setting up a home office, are not covered
As regards the amount that can be reimbursed tax-free, the employer can meet the actual additional costs of working at home. However, these are likely to be difficult and time consuming to identify, and the effort is likely to be disproportionate to the amounts involved. Far simpler is to take advantage of the flat rate allowance which enables employers to pay homeworking employees £6 per week tax free to cover additional household expenses. Prior to 6 April 2020, the tax-free amount was £4 per week. On the downside, the amounts are not exactly generous and may not cover the additional costs in full.
However, where an employer does not meet the cost of additional household expenses, the employee can only deduct expenses to the extent that they are wholly necessarily and exclusively incurred in performing the duties of the employment. There is no corresponding flat rate deduction for employees.
Equipment and supplies - A separate exemption removes any charge to tax where the employer provides the employee with ‘accommodation, supplies or services’ used by the employee in performing the duties of the employment. In a homeworking context, this may cover the cost of providing a computer and a printer, stationery and maybe a desk and chair. Private use does not jeopardise the availability of the exemption as long as it is not significant.
Again, relief is only available to the employee for revenue costs that are wholly, exclusively and necessarily incurred – stationery costs may come into the category. There is no relief for capital expenditure met by the employee in order to facilitate working from home.
Covid-19: Business rate help for smaller businesses
As the Government’s response to the Covid-19 pandemic evolves, various measures have been announced to help business struggling to cope with the impact of the virus. The measures include help through the business rate system for smaller businesses and those in certain sectors.
Grants for businesses eligible for small business rate relief
Full (100%) small business rate relief (SBBR) is available for businesses where the rateable value of their business premises is £12,000 or less. Where the rateable value is between £12,001 and £15,000, reduced SBRR is available, tapering from 100% where the rateable value is £12,000 to nil where the rateable value is £15,000 or above.
To help businesses that pay little or no business rates, it was announced at the time of the Budget that funding would be provided to local authorities to provide businesses eligible for SBBR with grants of £3,000. However, following the Budget, the Chancellor announced an increase in the amount of the grant, to £10,000. The grant is a one-off grant designed to help eligible businesses to meet their on-going business costs. The grants will be available to businesses that receive full or tapered SBRR or rural relief.
Businesses do not need to claim the grants – local authorities will write to businesses that are eligible.
Retail, leisure and hospitality sectors - To help sectors that are being hit particularly hard during the Covid-19 pandemic, retail business rate relief is to be doubled from 50% to 100% for 2020/21 and extended to businesses in the leisure and hospitality sectors, providing them with a business rate holiday for 2020/21. The holiday will apply to eligible businesses in England where the rateable value of their business premises is less than £51,000. It will apply where the premises are used wholly or mainly as:
• shops, restaurants, cafes, drinking establishments, cinemas and live music venues;
• for assembly or leisure;
• as hotels, guest and boarding premises and to provide self-catering accommodation.
Businesses eligible for the holiday do not need to take any action – it will apply to the council tax bill in April 2020. However, where a bill has already been issued, councils may need to reissue a bill to exclude the business rate charge.
Businesses in the retail, leisure and hospitality sectors will also be able to benefit from a cash grant of up to £25,000 where the rateable value of their business premises is £51,000 or less. The grant is set at £10,000 where the rateable value is £15,000 or less, and at £25,000 where the rateable value is between £15,001 and £51,000. Business do not need to claim the grants – local authorities will write to businesses that are eligible.
Nursery business - A business rates holiday for nursery businesses is being introduced for 2020/21. It will apply to nursery businesses based in England in premises occupied by providers on Ofsted’s Early Years Register and used wholly or mainly for the provisions of the Early Years Foundation Stage. Local authorities will apply the holiday automatically, although this may involve re-issuing bills that have already been issued.
Tax-efficient savings for all the family
Although interest rates remain low, there are still various tax-efficient savings incentives available which may help maximise potential returns. This article summarises some of these schemes.
Help-to-save - The Help-to-save scheme offers working people on low incomes a 50% bonus, rewarding savers with 50p for every £1 saved. Over four years, a maximum bonus of £1,200 is available on savings of up to £2,400. Savings limits are flexible and it is not necessary to pay in every month to get a bonus.
How much is saved and when is up to the account holder – the rules stipulate that investors can save between £1 and £50 every calendar month, up to a maximum of £2,400 over a four-year period.
Accounts last for forty eight months from the date that the account is opened and the government bonuses are added at the halfway point, i.e. after two years, and at the end of the four year lifespan of the account, or on the date that the individual becomes terminally ill or dies, if earlier.
Accounts will be available to open up until September 2023 and may be held by anyone:
• receiving Working Tax Credit;
• entitled to Working Tax Credit and receiving Child Tax Credit;
• claiming Universal Credit and their household earned £604.56 or more from paid work in the last monthly assessment period.
The investment limits mean that £2,400 is the maximum an individual can save, with a maximum government bonus payable of £1,200. In comparison, high street banks are currently offering a typical interest rate of between 1 and 2% on savings bonds, which does appear to make the Help-to-Save account a particularly attractive option for someone looking to save.
ISAs and Junior ISAs - The maximum annual investment limit for Individual Savings Accounts (SAs) remains at £20,000 for 2020/21. The limit effectively allows a couple to save a not-insignificant £40,000 a year and receive interest on the investment tax free. There will also be no capital gains tax to pay when the account is closed.
Junior ISAs are available to UK-resident children under-18 and run on similar lines to ‘adult’ ISAs. The maximum investment limit has been significantly increased for 2020/21 to £9,000 (from £4,368 in 2019/20). This increase provides adequate scope for parents and grandparents to make tax-free savings investments on behalf of their children/grandchildren.
Help-to-buy ISAs and equity loans - Help-to-buy ISAs continue to be available to assist first-time buyers save a deposit to purchase their first home. Broadly, up to £200 a month can be saved in the ISA (along with an initial deposit of £1,000, and up to a maximum of £12,000) and, provided certain conditions are met, the government will provide a 25% boost to the savings up to a maximum of £3,000 per person. A couple buying together could therefore save up to £30,000 tax-free towards the purchase of their first home.
The Help-to-buy loan equity scheme for new-build properties is designed to help those with 5% deposits get on the housing ladder. The Government lends up to 20% of the property price and after five years the purchaser starts paying interest on the loan. The scheme was due to end in 2021, but it was announced in the Autumn Budget that it has been extended until 2023. However, the scheme is now only open to first-time buyers and lower regional price caps will be applied.
Premium bonds - With a return rate comparable with regular savings accounts (currently 1.40%), Premium Bonds (PBs) remain one of Britain’s most popular ways to save. Currently the minimum amount of PBs that can be purchased is £25 and the maximum that may be held is £50,000. It is now permissible for anyone over the age of 16 to buy PBs on behalf of children. The odds on winning a prize in any one month are currently 24,500 to one. There are currently two £1m prizes, five £100,000 prizes and ten £50,000 prizes each month.
Although Premium Bonds are not strictly an ‘investment’, they can be encashed at any time with the full amount of invested capital being returned - and in the meantime, any returns by way of ‘winnings’ will be tax-free. ISAs
An informal company wind-up
Capital or income
Usually, when a company distributes its profits to its shareholders they are liable to income tax on the payments they receive. However, a special rule means that distributions made in the course of winding up a company are taxed as capital instead. This provides tax-saving opportunities.
Example. Owen and Jane are equal shareholders of Acom Ltd. Both are higher rate taxpayers. They decide to close the business and appoint a liquidator to wind up the company. All distributions of profit left in Acom from this point are capital meaning that Owen and Jane can deduct any unused part of their capital gains tax (CGT) annual exemption (£12,000 for 2019/20) and pay tax on the balance at a maximum of 20%. Assuming Acom has £98,000 to distribute in total, Owen and Jane would each be liable to CGT on £49,000. If their CGT exemptions are available in full they would each have to pay tax of up to £7,400 (£49,000 - £12,000) x 20%) but it would be less if they were entitled to entrepreneurs’ relief (ER).
By comparison, if Acom distributed its profits before starting the winding up process, Owen and Jane would each be liable to income tax of at least £15,925 (£49,000 x 32.5%). By comparison the CGT bill is less than half that, but there’s still room for further tax saving.
Winding up costs
Usually, the tax advantage of capital distributions is only available when you appoint a liquidator to wind up your company. The trouble is a liquidator’s fees can be high and, depending on the value of your company, might significantly eat into or even outweigh the tax saving achieved.
Rather than paying a liquidator to wind up your company you could do it yourself informally by notifying Companies House of your intention. However, CGT treatment will only apply if the amounts available to distribute are no more than £25,000 - any more than that and the whole of any distribution is taxed as income.
Reduce the distributable amount
If your company’s net value is more than £25,000 you’ll need to reduce it before you can use the informal winding up tax break. That will require you to make distributions from your company on which you’ll have to pay income tax. Despite this you can still save on tax and costs. You’ll need to crunch the numbers to see if it’s worthwhile.
Example. Shaun is a higher rate taxpayer and the only shareholder of Bcom Ltd. It has distributable reserves of £35,000. Shaun could formally liquidate Bcom so that what he receives, after paying the liquidator’s fees of, say, £3,000, is liable to CGT. This would leave him with £28,000 after tax. If instead he paid a dividend of £10,000 and then applied to Companies House to dissolve the company, he would net £29,150. Not a massive tax saving but Shaun also avoids the time and red tape that goes with a formal liquidation.
Reduce the value of your company to £25,000 by making distributions to shareholders and informally winding up the company. This will save the cost of a liquidator’s fees. Plus, each shareholder can use their annual capital gains tax exemption to reduce the amount on which they pay tax on their share of the final £25,000 distributed from the company.
New reporting procedure for cars
New tax rates for zero and low emission company cars mean that from 6 April 2020 employers must provide more information to HMRC.
Lower tax bills.
There is a significant reduction in tax bills for drivers of electric and hybrid company cars which will apply for 2020/21. The changes will also benefit employers by reducing the amount of car benefit on which you have to pay Class 1A NI. As a result, HMRC is making changes to its reporting procedures for employers.
New Forms P46 car.
If after 5 April 2020 an employee’s company car is changed or they have use of one for the first time, and it’s a zero or low emissions car, you’ll need to notify HMRC in the new box that will be added to the P46 car. If it’s a hybrid with CO2 emissions of between 1g/km and 50g/km you must enter the vehicle’s zero emission mileage, i.e. the maximum distance it can be driven in electric mode without recharging. If you payroll your company car benefits, there will be a new field on the PAYE full payment submission in which to enter the mileage details.
If you use a paper P46 car rather than the online version, make sure that you download and use the new-style form. Destroy any old-style forms. The new forms will be available to download from 6 April 2020.
If you’re leasing a hybrid vehicle, the leasing firm is required to provide you with the mileage information. If you own the vehicle, the zero emission mileage figure can be found on its “certificate of conformity”. If this isn’t available you can obtain the figure from the manufacturer.
Existing company car users.
You aren’t required to notify HMRC about employees who currently use electric or hybrid cars and continue with the same vehicle after 5 April 2020. However, it would be helpful if you notified the employees that their tax bills might reduce and that they should contact HMRC as soon as possible to check if their code number needs to be amended.
There will be a new P46 car (online and paper versions) from 6 April 2020. Destroy any old paper versions. For hybrid cars you must provide details of the vehicle’s electric only range as shown on the certificate of conformity.
Claiming the NI employment allowance for 2020/21
The National Insurance employment allowance is available to eligible employers and can be set against the employer’s secondary Class 1 National Insurance liability. In the 2020 Budget, the Chancellor announced that the allowance would be increased to £4,000 for 2020/21. However, from 6 April 2020, it is only available to employers whose Class 1 National Insurance liability in the previous tax year was less than £100,000. Existing exclusions continue to apply, including that for companies where the sole employee is also a director -- meaning that personal companies rarely qualify.
If an employer has more than one PAYE scheme, the employment allowance can only be claimed in respect of one of the PAYE schemes.
Maximum amount of the allowance
For 2020/21, the National Insurance employment allowance is the lower of:
• the employer’s secondary Class 1 National Insurance liability for the year; and
Thus, where the secondary Class 1 National Insurance liability for the year is more than £4,000, the employment allowance is £4,000. It is set against the employer’s Class 1 National Insurance liability until it is used up. It cannot be set against Class 1A (payable on benefits in kind) or Class 1B (payable on items within a PAYE settlement agreement) liabilities – only secondary Class 1.
Remember to claim
The National Insurance employment allowance is not given automatically and must be claimed. A claim can be made through the employer’s payroll software; the claim is made in the Employment Payment summary by putting a ‘Yes’ in the Employment Allowance indicator field. It only needs to be claimed once for the tax year – once claimed it is available until the allowance has been used up. Any unused balance is carried forward to the next tax month.
The claim can be made at any time in the tax year, but it is advantageous to make the claim as soon as possible. If a claim is made too late to enable it to be fully offset against the employer’s secondary Class 1 National Insurance liability, the employer can either ask HMRC for a refund, providing that they do not owe anything to HMRC. Alternatively, the unused amount can be set against other tax bills which the employer has to pay – including VAT and corporation tax.
Employers eligible for the employment allowance should not only remember to claim it for 2020/21 – they should also check that they utilised the allowance in full in 2019/20.
Case study: Coronavirus Job Retention Scheme claims
The COVID-19 pandemic has brought an unprecedented challenges for businesses. Information has been changing on a daily basis, making it difficult to keep up-to-date with support measures and where to find the necessary guidance. This article focuses on claims for wages under the Job retention Scheme (CJRS), which is now up and running.
Broadly, the scheme is available to all UK employers with a PAYE scheme that started on or before 19 March 2020. It covers part of the salary of employees who would otherwise be laid off because of the crisis – known as ‘furloughing’. Employees on any type of employment contract, including full-time, part-time, agency, flexible or zero-hour contracts can be included.
To access the support, employers have to ‘furlough’ employees, which means asking them to stop working but retaining them on payroll. This is a formal process with employment law implications and needs to be followed through carefully. Only furloughed employees on the payroll on or before 19 March who have received some pay in 2019/20 can be covered. HMRC will pay a grant worth 80% of an employee’s usual wages, up to £2,500 a month, and associated employer NICs and minimum automatic enrolment employer pension contributions on the subsidised wage. Note that furloughed employees cannot carry out work for their employer during furlough and there are also rules around volunteer work and training.
General requirements for making claims are summarised as follows:
• the employer must agree with the employee that they are a furloughed worker;
• employees must be notified that they have been furloughed;
• employees must be furloughed for a minimum of three weeks;
• the employee cannot do any work for the employer that has furloughed them;
• the scheme allows claims for 80% of wages, up to a maximum of £2,500 per month per furloughed employee;
• separate claims are needed for each PAYE scheme;
• only employees who were on the PAYE payroll on or before 19 March 2020 may be furloughed;
• an HMRC RTI submission notifying payment in respect of the employee claimed for must have been made on or before 19 March 2020; and the employer must have a UK bank account.
The majority of employers with full-time or part-time employees on a set salary will need to work out the following:
1. total amount being paid to furloughed employees - 80% of your employee’s wages up to a maximum of £2,500 a month
2. total employer NICs
3. total employer pension contributions (up to 3%)
Example - An employee who has been working for an employer for many years is paid a fixed gross monthly salary of £2,400 per month, with the last payment received on the last day of February 2020. The employee has agreed to be placed on furlough from 21 March 2020, at 80% of their salary.
The employer can claim a CJRS payment for Mach as follows:
£2,400 divided by 31 (days in March) = £77.42
£77.42 x 11 days (21 March to 31 March) = £851.62
£851.62 x 80% = £681.30
The maximum amount test is: monthly maximum of £2,500 divided by 31 days in March = £80.65
£80.65 x 11 days of furlough = £887.15. This employer’s claim of £681.30 is a lower amount, so this is the amount that may be claimed.
The employee’s gross pay at the end of the month is made up of £1,548.40 of salary funded by the employers for 1 to 20 March (20 days), plus £681.30 of pay funded by CJRS for the remaining 11 days of March. The employer NICs due on the total gross pay of £2,229.70 is £208.48
Step 1: £208.48 divided by 31 days in March = £6.73
Step 2: Daily employer NIC amount of £6.73, multiplied by 11 furlough days = £74.03.
The employer claims £74.03 for employer NIC’s due on the employee’s March pay.
Claiming - Employers need to be registered for PAYE before CJRS claims can be made. Once the employer has gathered together the relevant information, the claim can be made at https://www.gov.uk/guidance/claim-for-wages-through-the-coronavirus-job-retention-scheme.
HMRC advise that payment will be received six days after making an application. Employers who wish to receive a payment from the scheme by the end of the month will therefore need to submit their claim at least six working days in advance for the money to clear into their bank account.
New-style lettings relief
Lettings relief provides additional relief for tax where a property that has been occupied as a main residence is let out. For disposals prior to 6 April 2020, relief was available where a property was let as long as that property had at some time been the owner’s only or main residence. However, availability of the relief is seriously curtailed in relation to disposals on or after 6 April 2020. From that date, relief is only available where the owner shares the property with the tenant.
Amount of the new-style relief
For disposals on or after 6 April 2020, lettings relief is available where:
• part of the property is the individual’s only or main residence and
• another part of that property is let out by the individual, otherwise than in the course of a trade or a business.
The gain relating to the let part is only chargeable to capital gains tax to the extent that it exceeds the lesser of:
• the amount of private residence relief; and
Spouses and civil partners can take advantage of the no gain/no loss rules to transfer the property or a share in it to each other without a loss of lettings relief. Where lettings relief would be available to a transferring spouse or civil partner for the period prior to the transfer, it remains available to the recipient.
Henry brought a three-bedroom house in 2015. He lived in the property for five years until it was sold in May 2020, realising a gain of £90,000. Throughout the time that he lived in the property, he let out two rooms. The let rooms comprised one-third of the property by floor area.
Two-third of the property was occupied as Henry’s main residence, and thus two-thirds of the gain qualifies for private residence relief. This equates to £60,000 (2/3 x £90,000).
The remaining gain of £30,000 is attributable to letting.
As Henry occupied the property with the tenants, he can claim lettings relief. Thus, the gain attributable to the letting is only chargeable to capital gains tax if, and to the extent, that it is greater than the lower of:
• 60,000 (the amount of the private residence relief); and
As the gain attributable to the letting is less than £40,000, lettings relief is available to shelter the full amount of the gain.
Consequently, the entire gain is free from capital gains tax
Reduced payment window for residential property gains
Currently, capital gains on the sale of residential property in the UK are reported on the self-assessment tax return and the total capital gains tax liability for the tax year is payable by 31 January after the end of the tax year. Thus, the capital gains tax on residential property gains arising in the 2019/20 tax year must be reported to HMRC on the 2019/20 self-assessment return by 31 January 2021 and the associated capital gains tax paid by the same date.
However, from 6 April 2020 this will change. From that date, gains arising on disposals of residential property by UK residents must be notified to HMRC with 30 days of the completion date, and a payment on account of the eventual tax liability made by the same date.
What disposals are affected? - The new rules will apply from 6 April 2020 to disposals by UK residents of UK residential property which give rise to a residential property gain. The rules applied to disposals by non-residents from April 2019.
A new return - Rather than notifying HMRC of the gain on the self-assessment return, there will be a new return for advising HMRC where a gain arises on the disposal of a residential property. If there is no taxable gain, for example if the property is disposed of to a spouse or civil partner on a no gain/no loss basis, there is no requirement to make a return.
The return must be submitted to HMRC within 30 days from the date of completion.
Payment on account of tax due - The taxpayer must also make a payment on account of the capital gains tax liability within 30 days of the completion date. This is considerably earlier than now, where the lag is at least nine plus months and may be as much as almost 22 months.
Amount to pay - The amount to pay is effectively the best estimate of the capital gains tax at the time of the disposal, taking into account disposals to date in the tax year.
Example 1 - Paul sells a second home, completing on 31 May 2020 realising a gain of £50,000. He has made no other disposals in 2020/21 at the time that the property is sold.
He can take into account his annual exempt amount (for purposes of illustration this is assumed to be £12,000 for 2020/21) when working out his liability. Paul is a higher rate taxpayer.
The payment on account is therefore £10,640 ((£50,000 - £12,000) @ 28%).
Where a capital loss has been realised before the residential property gain, this can be taken into account when calculating the payment on account.
The return must be filed and the payment on account made by 30 June 2020.
Example 2 - Rebecca sells her city flat, which is a second property, on 1 August 2020, realising a gain of £100,000. In May 2020, she sold some shares, realising a loss of £10,000. Rebecca is a higher rate taxpayer.
The loss can be set against the residential property gains of £100,000, leaving a net gain of £90,000. As her annual exemption is available, the chargeable gain is £78,000 and the payment on account is £21,840.
No account is taken of a loss realised after the residential gain. - Final capital gains tax liability for the year
The final capital gains tax liability for the year is computed via the self-assessment return taking into account all gains and losses for the year. The payment on account is deducted from the final bill and the balance payable by 31 January after the end of the tax year.
If the payment on account is more than the final liability, for example if losses were realised later in the tax year, a refund can be claimed once the self-assessment return has been submitted.
Winding up your personal service company
Come April, many workers who have been providing their services through an intermediary, such as a personal service company, may find that their company is no longer needed. This may be because they fall within the off-payroll working rules, with the result that because tax and National Insurance is deducted from payments made to the intermediary, the tax advantages associated with operating through a personal service company are lost. Alternatively, it may be because their end client does not want the hassle of operating the off-payroll working rules and has decided only to use ‘on-payroll’ workers, putting workers previously using personal service companies on the payroll.
Where the personal service company is not needed, the question arises as how best to wind it up and extract any remaining cash.
Striking off can be an attractive option where the personal service company can pay its debts and has less than £25,000 left in the company to extract.
The advantage of this route is that sums paid out in anticipation of the striking off are treated as capital rather than as a dividend, with the result that the capital gains tax annual exempt amount, if available, can be used to reduce the taxable amount. Where entrepreneurs’ relief is available, any taxable gain is taxed at only 10%. To qualify for this treatment, the company must be struck off within two years of making the last distribution.
If the amount left to extract is less than £25,000, but it would be preferable for it to be taxed as a dividend, for example, because the dividend allowance and/or the personal allowance are available or the distribution would be taxed at the lower dividend rate of 7.5%, striking off can still be used. However, to prevent the capital treatment applying, it would be necessary to breach one of the conditions so that the dividend treatment applies instead. This can be achieved by waiting more than two years from the date of the last distribution before striking off.
Members’ voluntary liquidation (MVL)
Where the funds left to extract are more than £25,000 and it would be beneficial for them to be taxed as capital – for example, to benefit from entrepreneurs’ relief or to utilise an unused annual exempt amount, the members’ voluntary liquidation (MVL) procedure can be used.
An MVL is a formal procedure; the director(s) must provide a sworn affidavit that creditors will be paid in full and a liquidator must be appointed.
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Adrian Mooy & Co is the trading name of Adrian Mooy & Co Ltd. Registered in England No. 05770414.
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