Ketan Umretiya | DSK Partners LLP

Tax Diary March/April 2021

Posted on March 25, 2021 by Ketan Umretiya

1 April 2021 – Due date for Corporation Tax due for the year ended 30 June 2020.

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

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

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

30 April 2021 – 2019-20 tax returns filed after this date will be subject to an additional £10 per day late filing penalty.

1 May 2021 – Due date for Corporation Tax due for the year ended 30 July 2020.

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

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

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

31 May 2021 – Ensure all employees have been given their P60s for the 2020-21 tax year.

Source: HM Revenue & Customs Thu, 18 Mar 2021 00:00:00 +0100

What would a business vaccine aim to prevent?

Posted on March 23, 2021 by Ketan Umretiya

Now we are getting used to the idea that the various vaccines will provide some defence against COVID outbreaks, what would a vaccine for our businesses attempt to prevent?

We have listed below a few strategies that you might like to consider that would help you survive any more periods of lockdown that governments may be forced to consider.

Retain profits

If you are fortunate and can reopen your business as lockdown restrictions are eased, and you manage to re-establish profitability, try and hang on to some of those profits.

Retained profits (after tax is paid) are the fat on the bone of your business. If retained profits are growing this must mean that your business assets are increasing. Should a further period of lockdown or similar reductions in trade be experienced, these retained profits may provide you with the resources to weather any downturn in trade.

Retain cash

Don’t take this advice literally. What we mean is try and save some of your hard-won profits in your bank.

During periods of low activity these cash reserves will help to maintain liquidity, and during times of rapid increases in turnover, they will insulate you from the down-side of overtrading – when money due from customers does not come in fast enough to meet payments to suppliers and settle other overheads.

These two simple tactics are worth considering as the regional UK governments take steps to ease current lockdown restrictions. And while they are unlikely to immunise your business against all aspects of COVID disruption, they may offer you the resources to fight-off the worst effects.

Source: Other Tue, 23 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

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

Changing accounting date

Posted on March 18, 2021 by Ketan Umretiya

There are special rules in place which limit the ability to change a company’s year end date. A company’s year-end date is also known as its ‘accounting reference date’ and is historically set by reference to the date the company was incorporated. Under certain circumstances it is possible to make a change to the year end.

As a rule, you can only change the year end for the current financial year or the one immediately before it. Making a change to a year-end date will also change the deadline for filing accounts (except if during a new company’s first financial year).

There is no limit to the number of times you can shorten a year-end date, but you can only extend the period to a maximum of 18 months once in every five years. The financial year can be extended more often under limited circumstances, for example, if the company has been placed in administration.

A request for a change to an accounting reference date can be made online using the Companies House online service or by using a postal version of the Change your company accounting reference date (AA01) form. No change can be made to a period for which accounts are overdue.

There is no overriding reason for using one date over another but there are several factors to consider. The most common year-end dates are 31 December (to coincide with the end of the calendar year) or 31 March (to coincide with the end of the tax year).

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

Tax-free mileage expenses

Posted on March 18, 2021 by Ketan Umretiya

If you use your own vehicle for business journeys, then you may be able to claim a tax-free allowance from your employer known as a Mileage Allowance Payment or MAP. The allowance is available if employees use their own car, van, motorcycle or bike for work purposes. It is important to note that this tax-free allowance is not available for journeys from home to work, but it is available where employees use their own vehicles to undertake other business-related trips.

Employers usually make payments based on a set rate per mile depending on the mode of transport used. There are approved mileage rates published by HMRC. For cars, the approved mileage allowance payment for the first 10,000 business miles is 45p per mile and 25p per mile for every additional business mile. An equivalent payment of 20p per mile is available for bicycle travel and 24p per mile for motorcycle travel.

If an employee travels with business colleagues, they can claim an additional 5p per passenger per business mile for each qualifying passenger.

Planning note... Where an employer pays less than the published rates, the employee can make a tax claim for the shortfall using Mileage Allowance Relief (MAR). There is no equivalent to MAR for passenger payments.

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 – 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

Author: Ketan Umretiya

Tax Diary March/April 2021

What would a business vaccine aim to prevent?

Rent-a-room relief

Tax-free property and trading income

Expenditure disallowed

Changing accounting date

Tax-free mileage expenses

Breaking even – a moveable feast

Lending to fund losses

Spring Budget 2021 – VAT

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