Use this scheme if you’re self-employed or a member of a partnership in the UK and have lost income due to coronavirus (COVID-19). This scheme DOES NOT apply to those trading via a limited company.
This scheme will allow you to claim a taxable grant worth 80% of your trading profits up to a maximum of £2,500 a month. It will be available for 3 months, but may be extended.
The grant will be subject to Income Tax and National Insurance contributions but does not need to be repaid.
You can make a claim for Universal Credit while you wait for the grant. You should record the grant as part of your self-employment income, and it may affect the amount of Universal Credit you get. This will not affect Universal Credit claims for earlier periods.
If you receive the grant you can continue to work or take on other employment including voluntary work.
The online service you’ll use to claim is not available yet. HMRC will aim to contact you by mid May 2020, and will make payments by early June 2020.
Who can claim
You can claim if you’re a self-employed individual or a member of a partnership and you:
have submitted your Self Assessment tax return for the tax year 2018 to 2019
traded in the tax year 2019 to 2020
are trading when you apply, or would be except for coronavirus
intend to continue to trade in the tax year 2020 to 2021
have lost trading profits due to coronavirus
You will need to confirm to HMRC that your business has been adversely affected by coronavirus. HMRC will as usual use a risk based approach to compliance.
You will only be able to claim using the GOV.UK online service. If you receive texts, calls or emails claiming to be from HMRC, offering financial help or a tax refund and asking you to click on a link or to give personal information, it is a scam.
We will continue to support our clients by email and online systems, but for the foreseeable future, our office is closed and we are working from home. Please allow a little extra time for us to respond to your queries as lots of clients are asking for our help at the moment.
4/4/20 If you are not sure whether your business has a rateable value or not, check on here (gov.uk webpage). Then check with your local council to make sure they know you are at that address. Obviously if you know you’ve got a rates bill (or SBRR) you don;t need to. This is for those who are unsure.
1/4/20 Furloughed Limited Company Directors – It would appear that HMRC are back-tracking on their initial guidance that limited company directors could only furlough to claim 80% of their PAYE wages if they did absolutely nothing for their company, i.e. make it officially dormant. Now, Martin Lewis (financial journalist) is saying he’s had confirmation from HMRC that they will allow company administration work as long as the director isn’t generating income nor providing services to their customers/clients. Whilst obviously this would be welcome news, we still have to wait for official confirmation from HMRC.
31/3/20 Those who feel left behind by the self-employed income protection scheme can send an outline of their situation to email@example.com to help FSB feed in as wide a range of examples to the government as possible.
The Government’s Self Employment Income Support Scheme has now been announced. This applies only to sole traders and partners in businesses, NOT to those trading through their own limited companies (see the furlough scheme mentioned above). Guidance states that HMRC will contact the self employed in due course who they think are eligible to claim, but it could be June before payments are made.
SCAM WARNING: Looks like the scammers are active at the moment – lots of people reporting receiving emails and texts purporting to be from HMRC or Govt telling people they’re due a refund or grant and asking you to click a link to claim. Please follow long standing advice NOT to click on any links in unexpected emails nor texts, and certainly don’t enter your bank details etc. If you think you’re due a refund or grant, make a claim via the official gov.uk or local authority website.
Business Grants – for those businesses occupying commercial premises who are eligible for small business rates relief, our local council, Lancaster City Council, now have a webpage for you to enter your business bank details in order that your grant can be paid directly when funds start to flow. If you’re not in the Lancaster City Council area, I’m sure other local authorities are doing the same, so please check your own local authority website.
ICPA Covid19 Update – ICPA have put together this update with as many useful links as possible, and those links will refresh every time you use them. We’ve also some articles which we hope you will find useful.
Further businesses and premises to close Restaurants, cafes, pubs, hair & beauty, car showrooms, hotels, B&Bs are instructed to close. Food shops, pharmacies, petrol stations, home & hardware shops, laundrettes, garages, pet shops, corner shops, newsagents are allowed to stay open for the time being.
It has been announced that due to the Coronavirus, the proposed private sector reforms to IR35 will be delayed by 1 year. Instead of coming into force on 6 April 2020, it will now be deferred until 6 April 2021.
This means that we go back to the pre-existing rules which require the contractor themselves to “self assess” whether they are caught by IR35 or not, and where they are responsible for calculating and making “deemed payments” in their own payroll as necessary.
The new reforms were designed to transfer that obligation to the client/agency who would have become responsible for deciding whether IR35 applied and, if so, deducting tax and NIC from their contractors invoices. This system is already in existence for public sector contracting since April 2018 and the latest announcements don’t appear to change the public sector rules.
Whether contractors have or havn’t already moved to PAYE or umbrella companies, there may still be time for them to contact their clients and agencies to explore whether they can continue to contract via their personal service companies for another year.
If your business is not making sales but you are still incurring costs, HMRC may refuse to repay the input VAT on purchases and ask you to cancel your VAT registration voluntarily as there are no business activities. This is a drastic solution as you will lose your VAT number. If your trade picks up again later, you will have to reregister for VAT and be allocated a new VAT number. There may also be VAT liabilities to pay if you have reclaimed VAT on large building costs under the capital goods scheme.
As an alternative to deregistering altogether, you could keep your business within the VAT system and retain its VAT number by joining the VAT flat rate scheme (FRS). You cannot reclaim input VAT while you are within the FRS although there is an exception for VAT on purchases of capital goods which cost £2,000 or more.
A business can join the FRS at the beginning of the VAT period after submitting its FRS application unless HMRC agree an earlier date. You can leave the FRS on any day, even in the middle of a VAT period, so joining the FRS could be a temporary solution to your stagnant trade problem.
When you sell your business, you can expect to pay capital gains tax (CGT) on any gains your make.
Currently CGT is payable at 10% (if within your basic rate band for income tax) or 20% on such gains. But the 10% rate can also apply to gains of up to £10m if entrepreneurs’ relief (ER) applies.
To qualify for ER the business must have been trading for at least two years before the sale date. A business is trading when most or all of its activities relate to a trade rather than to investments.
The focus for ER is on the effort put in to produce the trading or investment income, rather than the proportion of turnover which is generated by the investments compared to the trade.
For example, a cash-rich company may receive much of its income from passive investments but the directors spend all of their time trying to drum up new sales leads. As long as the majority of the activities of the company (expenses and time spent) relate to the trade, the company will be considered to be trading even if most of the income arises from the passive investments.
By contrast, a company which owns a let property that the directors spend some time managing will not be considered to be a trading company unless there is some other activity within the company which can be classified as a trade. Letting a property is only regarded as a trade if there are considerable activities around receiving and catering for those who pay the rent.
Furnished holiday accommodation let on a commercial basis is regarded as a trade, as is a bed and breakfast business or a hotel. However letting an industrial unit is not generally treated as a trading activity.
If you are thinking of selling your business, ask us to check whether ER will apply before you agree the terms of the sale.
Most businesses start small with a few occasional sales. Only once the trader is convinced that they can deliver the product or service effectively do they launch their business properly.
The issue is deciding when trading officially began for tax purposes: was it when the first sale was made, or on a later date when a viable business seemed possible? This commencement date drives the deadline by which income from the new business must be reported to HMRC.
The trading and miscellaneous income allowance (TMIA) is there to help. The TMIA can cover up to £1,000 of trading or sundry income per tax year, meaning that income is not taxable and does not have to be reported on a tax return. It does not matter when the income was received within the tax year; as long as the total amount is less than £1,000 it will qualify for the TMIA. However this only applies for income received after 5 April 2017.
Self-employed taxpayers must include income from all of their different trades and can only claim the TMIA if total sales are below £1,000. If you have a hobby which is turning into a new business, please speak to us as soon as possible. If total sales are less than £1,000 there may be nothing to report, but once your business takes off you will need to have a system in place to record all the income and costs accurately.
Closing your business will normally involve winding-up your company and taking out any residual value as a capital payment subject to capital gains tax (CGT) at 10% or 20%. HMRC will accept this as long as you are not involved with the same or a similar business within two years.
HMRC may view the revival of a ‘dead’ business in a new form as tax avoidance and can insist that the proceeds from the old business are subject to income tax at rates of up to 38.1% rather than to CGT. Therefore if you want to start up a similar business after a short break it may be better to sell your old company rather than liquidate it.
HMRC are concerned that companies which use tax avoidance schemes can be left with significant tax debts if the scheme fails. At that point the company is insolvent so it is dissolved and the tax is never paid to HMRC.
The Government wants individuals connected with companies that have avoided or evaded tax to be made liable for the missing tax when the company is wound-up without paying amounts due to HMRC. Instead of the tax debt dying with the company the proposed new law would allow it to be transferred to directors, shadow directors and participators in the company who are shareholders but not directors. This new law will take effect for periods ending after the day on which next Finance Act is passed in 2020. Please take advice before winding-up or liquidating your company.
Most VAT registered builders who are also registered for the construction industry scheme (CIS) will be aware that a fundamental change in the way they calculated and administered VAT was planned from 1 October 2019 under the new reverse charge rules. From that date registered subcontractors would no longer charge VAT on their invoices to contractor firms.
Instead the CIS contractor would account for VAT on the full value of its sales and purchases. In a move hailed as a ‘victory for common sense’ the Government has announced a twelve-month delay to the introduction of the domestic reverse charge citing industry concerns and Brexit as the reasons behind the postponement. In a short briefing published via the HMRC website, the Government announced that the introduction of the domestic reverse charge for construction services would be put on ice for a period of twelve months until 1 October 2020.
You will need to understand when the reverse charge will apply to sales invoices and when it will not but thanks to the deferral you will now have time to plan and prepare for what is, for some builders, a dramatic change. If you would like to discuss how this change will affect you, get in touch with us and we can help you prepare.
As a small business selling to individual consumers you will be acutely aware of the VAT registration threshold which has been frozen at £85,000 until at least 31 March 2022. But what happens if you temporarily exceed that threshold?
If you exceed the threshold but you expect your VATable sales to be less than the deregistration threshold of £83,000 in the next 12 months you can ask HMRC for an exception to VAT registration. We can help you with this but there is no time to waste; you must contact HMRC within 30 days of exceeding the £85,000 threshold. HMRC must be satisfied that the spike in turnover was a genuine one-off situation which will not be repeated.
If your turnover has exceeded the VAT threshold for a longer period and you have not registered for VAT there is no alternative but to register and incur the late registration penalty. We can help you minimise this penalty by providing HMRC with calculations of the VAT due before they ask. In this case your late-registration error will be categorised as careless and the penalty could be reduced to zero.
If your 12-month turnover has already dropped below £83,000 we can ask HMRC to treat your period of VAT registration as ending on the date your annual turnover fell below that threshold. This will also reduce any late-registration penalty.
HMRC refer to the IR35 rules as ‘off-payroll working’ to imply that every freelance worker should be paid through the payroll, which is certainly not the case.
For public sector contracts it is the engager who decides whether the IR35 rules apply to freelance contractors. This will also be the case for contracts with large and medium-sized private sector engagers from 6 April 2020. Smaller engagers (ie those with less than £10.2m turnover, less than £5.1m value on their balance sheet, or fewer than 50 employees) can continue to leave the IR35 question to the worker.
If IR35 does apply, income tax and employee’s NIC must be deducted from the fee paid to the freelance contractor, but the fee-payer must pay employer’s NIC to HMRC separately. In a chain with a larger engager the fee-payer will normally be the employment agency which pays the worker’s personal service company.
The engager should consider the circumstances of each contractor separately and issue each contracted worker with a decision on IR35. The worker can object to that decision, giving the engager 45 days to respond, but in the meantime the engager must continue to apply the IR35 rules in line with its decision. The worker can choose to leave the contract and seek work elsewhere or request a higher gross fee to compensate for the tax and NIC which will be deducted from that fee.
The new IR35 processes provide many opportunities for confusion and miscommunication. We can help you decide how the rules apply to you.