March 2021 | DSK Partners LLP

Expenditure disallowed

Posted on March 18, 2021 by Ketan Umretiya

When deciding whether an expense is allowed or disallowed for tax purposes it is important to bear in mind that the expenditure must be incurred wholly and exclusively for the purposes of your trade or employment.

Under the legislation any expenditure not incurred wholly and exclusively for the purposes of the trade, profession or vocation should be disallowed. Interestingly, HMRC takes a slightly more relaxed view than a strict reading of the legislation would suggest.

HMRC’s own internal manuals offers advice to HMRC inspectors to exercise care when applying the ‘wholly and exclusively’ test. The advice states that where there is an incidental benefit that does not, of itself, mean that the expenditure is disallowed.

The following example helps clarify this point. A self-employed consulting engineer may travel to exotic locations to advise on projects. The travel and the exotic locations may be benefits but where there was no private purpose they are incidental to the carrying on of the profession and the cost is allowable.

It is also possible to apportion part of an expense where necessary. For example, when considering the running costs of a car used partly for the purposes of the trade and partly for other purposes. HMRC’s position is that the costs associated with the business use of the car would be deductible.

Source: HM Revenue & Customs Wed, 17 Mar 2021 00:00:00 +0100

Rent-a-room relief

Posted on March 18, 2021 by Ketan Umretiya

The rent-a-room scheme is a set of special rules designed to help homeowners who rent-a-room in their home. The current tax-free threshold of £7,500 per year has been in place since 6 April 2016. If you are using this scheme you should ensure that rents received from lodgers during the current tax year do no exceed £7,500. The tax exemption is automatic if you earn less than £7,500 and there are no specific tax reporting requirements.

The relief applies to the letting of furnished accommodation and can be used when a bedroom is rented out to a lodger by homeowners in their home. The relief also simplifies the tax and administrative burden for those with rent-a-room income up to £7,500. The limit is reduced by half if the income from letting accommodation in the same property is shared by a joint owner of the property.

The rent-a-room limit includes any amounts received for meals, goods and services provided, such as cleaning or laundry. If gross receipts are more than the limit, taxpayers can choose between paying tax on the actual profit (gross rents minus actual expenses and capital allowances) or the gross receipts (and any balancing charges) minus the allowance – with no deduction for expenses or capital allowances.

Source: HM Revenue & Customs Wed, 17 Mar 2021 00:00:00 +0100

Tax-free property and trading income

Posted on March 18, 2021 by Ketan Umretiya

Two separate £1,000 tax allowances for property and trading income were introduced in April 2017. If you have both or either type of income highlighted below then you can claim a £1,000 allowance for each.

The £1,000 exemptions from tax apply to:

If you make up to £1,000 from self-employment, casual services (such as babysitting or gardening) or hiring personal equipment (such as power tools). This is known as the trading allowance.
If your annual gross property income is £1,000 or less, from one or more property businesses you will not have to tell HMRC or declare this income on a tax return. For example, from renting a driveway. This is known as the property allowance.

Where each respective allowance covers all the individual’s relevant income (before expenses) the income is tax-free and does not have to be declared. Taxpayers with higher amounts of income will have the choice when calculating their taxable profits, of deducting the allowance from their receipts, instead of deducting the actual allowable expenses.

You cannot use the allowances in a tax year, if you have any trade or property income from:

a company you or someone connected to you owns or controls
a partnership where you or someone connected to you are partners
your employer or the employer of your spouse or civil partner

You cannot use the property allowance if you:

claim the tax relief for finance costs such as mortgage interest for a residential property
deduct expenses from income letting a room in your own home instead of using the rent-a-room scheme

Source: HM Revenue & Customs Wed, 17 Mar 2021 00:00:00 +0100

Breaking even – a moveable feast

Posted on March 9, 2021 by Ketan Umretiya

In our previous newsfeeds we have described how you can calculate the level of turnover you need to create in order to meet all your costs whether they be fixed costs (rent, rates etc.,) or variable costs (goods you need to buy to convert into goods you sell).

Unfortunately, you will need to make this calculation each month to have any certainty that you have a realistic estimate of your breakeven turnover.

Over time, you could probably place more reliance on any underlying trend in the numbers you calculate.

The main factors that will change your breakeven calculations are increases or decreases in:

The amount you pay for any direct costs, to purchase goods or labour to convert into the products you sell.
The amount you pay for fixed costs – that do not tend to increase or decrease based sales volume. For example, premises costs, professional fees and admin support costs.

And what if you need to invest in your business? If you do not have retained funds to meet investment costs you may need to borrow to fund the investment. This will increase your costs (interest charges) and require that you produce enough retained profits, as a result of your investment and general trading, to meet lending repayments.

We can help. Call if you need help to consider your planning options. To find a way out of the present difficult trading conditions we may all need to do more than just breakeven.

Source: Other Tue, 09 Mar 2021 00:00:00 +0100

Lending to fund losses

Posted on March 9, 2021 by Ketan Umretiya

One of the Chancellors key announcements in the Budget last week was to replace the government guaranteed Bounce Back and Business Interruption loans – due to end for new applications from 31 March 2021 – with a new Recovery Loan Scheme (RLS).

The RLS is similar to the lapsed schemes in that it includes a government pledge to underwrite lenders risks and therefore reduce the borrower’s risk.

In a nut-shell, the government guarantees 80% of the finance to the lender to ensure they continue to have the confidence to lend to businesses. The scheme launches on 6 April 2021 and is open until 31 December 2021, subject to review. Loans will be available through a network of accredited lenders that will eventually include most of the major high street banks.

Businesses that need credit to survive the continuing disruption should consider the advisability of taking on these loans by undertaking a rigorous planning exercise. This should aim to:

Ensure that there is a real possibility that future resumption of trade will create sufficient cash flow to meet loan repayments as they become due.
That if there is a dip into insolvency – liabilities exceed asset values – that this is just a temporary situation.
Demonstrate that the expected gradual easing of COVID lockdown restrictions will enable the business to return to profitability, and more importantly, to start retaining profits and restoring stability to their balance sheets.

Please call if you feel there is a need to apply for funding under the new scheme. We can help you consider your options.

Source: HM Treasury Tue, 09 Mar 2021 00:00:00 +0100

Spring Budget 2021 – Corporation Tax

Posted on March 4, 2021 by Ketan Umretiya

The Chancellor confirmed that the Corporation Tax main rate will remain at 19% from 1 April 2021 for the next 2 years. The main rate had been expected to increase to help pay the massive costs of the coronavirus pandemic to the public purse.

However, the Corporation Tax main rate will increase to 25% from 1 April 2023 for companies with profits over £250,000. The Chancellor also announced the introduction of a Small Profits Rate (SPR) of 19% from the same date for companies with profits of up to £50,000.

Where a company has profits between £50,000 and £250,000 a marginal rate of Corporation Tax will apply that bridges the gap between the lower and upper limits. The lower and upper limits will be proportionately reduced for short accounting periods and where there are associated companies.

The Diverted Profits Tax (DPT) will increase from 1 April 2023 from 25% to 31% to maintain the current 6% differential with the main rate of Corporation Tax. The DPT is an anti-avoidance measure that targets large multinational businesses that are deemed to be using contrived and artificial arrangements to divert profits overseas thereby paying less or no tax in the UK.

This announcement gives some short-term relief to businesses, many of whom had expected rates to increase before April 2023.

Source: HM Government Wed, 03 Mar 2021 00:00:00 +0100

Spring Budget 2021 – VAT

Posted on March 4, 2021 by Ketan Umretiya

It has been confirmed, by the Chancellor, that the taxable turnover threshold that determines whether businesses should be registered for VAT will be frozen at £85,000 until 31 March 2024. The taxable turnover threshold that determines whether businesses can apply for deregistration will also be frozen at the current rate of £83,000 for the same time period.

Businesses are required to register for VAT if they meet either of the following two conditions:

At the end of any month, the value of the taxable supplies made in the past 12 months or less has exceeded £85,000; or
At any time, there are reasonable grounds for believing that the value of taxable supplies to be made in the next 30 days alone will exceed £85,000.

It was also confirmed that the temporary VAT reduction to 5% for the tourism and hospitality sector that was first announced as part of the Summer Economic update last year and had been subsequently extended until 31 March 2021, will be extended for a further 6 months until 30 September 2021. A new reduced rate of 12.5% will then be introduced for the sector until 31 March 2022. It is hoped this VAT cut will help rehabilitate the tourism and hospitality sector that has been severely impacted by the coronavirus pandemic.

Source: HM Revenue & Customs Wed, 03 Mar 2021 00:00:00 +0100

Spring Budget 2021 – Income Tax Rates & Allowances

Posted on March 4, 2021 by Ketan Umretiya

It has been confirmed as part of the Budget announcements that the 2021-22 personal allowance will increase to £12,570 (2020-21: £12,500) and the basic rate limit to £37,700 (2020-21: £37,500). As a result, the higher rate threshold will increase to £50,270 (2020-21: £50,000) from 6 April 2021.

The Chancellor, Rishi Sunak revealed that these rates will be frozen until April 2026. This freeze is part of the Chancellor’s approach to improve public finances. This means that the allowances will not increase in line with inflation creating a stealth increase in the limits.

The basic rate limit currently applies to non-savings and non-dividend income in England, Wales and Northern Ireland and to savings and dividend income across the UK. The Scottish Parliament sets the basic rate and higher rate thresholds for non-savings and non-dividend income in Scotland. Changes to the Scottish bands were announced on 28 January 2021 as part of the Scottish Budget measures.

For high earning taxpayers the personal allowance is gradually withdrawn by £1 for every £2 of adjusted net income over £100,000 irrespective of age. Adjusted net income is total taxable income before any personal allowances, less certain tax reliefs such as trading losses and certain charitable donations and pension contributions. Any taxpayers with an adjusted net income of between £100,000 and £125,140 in 2021-22 will pay an effective marginal rate of tax of around 60% as the tax-free personal allowance is gradually withdrawn.

Source: HM Revenue & Customs Wed, 03 Mar 2021 00:00:00 +0100

Spring Budget 2021 – Capital allowances

Posted on March 4, 2021 by Ketan Umretiya

Designed to help offset the increased Corporation Tax main rate and promote investment, the Chancellor announced the introduction of a new ground breaking super-deduction tax relief. The new temporary tax relief applies on qualifying capital asset investments and will apply from 1 April 2021 until 31 March 2023. The new super-deduction is designed to help companies finance expansion in the wake of the coronavirus pandemic and help to drive growth.

The measure will apply to qualifying expenditures as follows:

a super-deduction providing allowances of 130% of most new plant and machinery investments that ordinarily qualify for 18% main rate writing down allowances
a first year allowance of 50% will apply to most new plant and machinery investments that ordinarily qualify for 6% special rate writing down allowances

The measure will apply to qualifying expenditure from 1 April 2021 and will exclude expenditures incurred on contracts entered into prior to Budget day, 3 March 2021. Certain expenditures will be excluded.

The government had also previously announced that the temporary Annual Investment Allowance (AIA) cap would be extended for a further 12 months. The AIA allows for a 100% tax deduction on qualifying expenditure on plant and equipment. The temporary limit of £1 million will remain in place until 31 December 2021 before reverting to the usual £200,000 limit.

Source: HM Revenue & Customs Wed, 03 Mar 2021 00:00:00 +0100

Spring Budget 2021 – Government backed loan schemes

Posted on March 4, 2021 by Ketan Umretiya

The deadline for applications for all the government-backed loan schemes including the Bounce Back Loan scheme, Coronavirus Business Interruption Loans and the Future Fund ends on 31 March 2021.

The Chancellor did not announce any further extension to these loan schemes but instead announced that a new successor loan guarantee programme would be introduced from 6 April 2021. The Recovery Loan Scheme will allow businesses of any size to access loans and other kinds of finance between £25,000 and £10 million. The new scheme will remain open until 31 December 2021 (subject to review).

The scheme will provide further support to businesses to help them recover and grow following the disruption of the pandemic and the end of the transition period.

Under the new loan scheme, the government will provide lenders with a guarantee of 80% on eligible loans provided to UK businesses. The scheme will be open to all businesses, including those who have already received support under the existing COVID-19 guaranteed loan schemes.

The following finance options will be available:

Term loans and overdrafts will be available between £25,001 and £10 million per business.
Invoice finance and asset finance will be available between £1,000 and £10 million per business.

Finance terms are up to six years for term loans and asset finance facilities. For overdrafts and invoice finance facilities, terms will be up to three years. No personal guarantees will be taken on facilities up to £250,000, and a borrower’s principal private residence cannot be taken as security.

Further details on how to apply and details of accredited lenders will be released in due course.

Source: HM Treasury Wed, 03 Mar 2021 00:00:00 +0100

Month: March 2021

Expenditure disallowed

Rent-a-room relief

Tax-free property and trading income

Breaking even – a moveable feast

Lending to fund losses

Spring Budget 2021 – Corporation Tax

Spring Budget 2021 – VAT

Spring Budget 2021 – Income Tax Rates & Allowances

Spring Budget 2021 – Capital allowances

Spring Budget 2021 – Government backed loan schemes

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