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.
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.
If your contributions record is sufficient, you will be entitled to the state pension on reaching state pension age. The age at which you reach state pension age depends on when you were born.
To qualify for a full single tier state pension (set at £168.60 per week for 2019/20, rising to £175.70 per week for 2020/21), a person needs 35 qualifying years. A reduced pension is payable to someone who has at least 10 qualifying years, but less than 35. The single tier state pension is payable those reaching state pension age on or after 6 April 2016.
When you reach state pension age, you do not need to take your state pension immediately. You can instead choose to defer it, receiving a higher pension in return. The rules on deferred state pensions differ depending on whether state pension age was reached before 6 April 2016 or on or after that date.
The state pension is taxable.
State pension age reached on or after 6 April 2016
If you reach state pension age on or after 6 April 2016 and opt to defer your state pension, the amount that you receive when you start taking your pension will be increased, as long as you defer your pension by at least nine weeks.
The state pension is increased by 1% for every nine weeks by which the pension is deferred. Deferring the state pension for 52 weeks will increase it by just under 5.8%.
At the 2019/20 rate of £168.60 per week, deferring the state pension for 52 weeks will increase it by £9.74 per week. This will increase as the state pension increases.
Any deferred state pension is paid with the regular state pension and is taxable in the same way.
It is not possible to take a deferred pension as a lump sum where state pension age is reached on or after 6 April 2016.
State pension age reached before 6 April 2016
Different rules applied where state pension age was reached before 6 April 2016. Under the rules that applied at that time, the extra state pension could be used to increase the weekly pension payments or taken as a lump sum. Those reaching state pension age before 6 April 2016 receive, depending if the eligibility conditions are met, the basic state pension. This may be supplemented by the earnings-related second state pension.
The deferral rate was better under these rules too – the state pension was increased by 1% for every five weeks by which it was deferred. This is equivalent to an increase of 10.4% for every 52 weeks that the pension was deferred.
For 2019/20 the basic state pension was £129.20 per week. It will increase to £134.25 per week for 2020/21. At the 2019/20 rate, deferring the pension for 52 weeks increases it by £13.44 per week.
Under the pre-April 2016 rules applying to those who reached state pension age before 6 April 2016, it is possible to take the deferred pension as a lump sum if it has been deferred for at least 12 months in a row. Interest is also paid at 2% above the Bank of England base rate. This can be taken in the year in which the state pension is claimed or the following year.
A deferred pension lump sum is taxed at the taxpayer’s highest marginal rate on their other income when the lump sum is taken. So, if the taxpayer’s other income in that year is covered by the personal allowance, the deferred pension sum will be tax-free, but if the taxpayer has other income and is taxable at the basic rate, they deferred pension lump sum will be taxed at the basic rate, even if this takes the taxpayer’s total income into the higher rate band. It is taxed in the year in which it is taken
Deferring the state pension can be a useful way to increase your weekly pension if you do not need it immediately on reaching state pension age.
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.
Where a property qualifies in full for private residence relief, it is perhaps academic, from a tax perspective at least, whether a couple own it jointly or it is the one name only. In either case, the relief shelters any gain that arises and there is no tax to pay.
However, where a gain is not fully sheltered by private residence relief, as may be the case for an investment property or a second home, there can be very different tax consequences depending on how it is owned.
Take advantage of the no gain/no loss rules for spouses and civil partners
There are some breaks in the tax system for married couples and civil partners, and one of them is the ability to transfer assets between each other at a value that gives rise to neither a gain nor a loss. This can be very useful from a tax planning perspective to secure the optimal capital gains tax position on the sale of property where full private residence relief is not available. This enables a couple to utilise available annual exempt amounts and lower tax bands.
Capital gains tax on residential property gains is charged at 18% where total income and gains do not exceed the basic rate limit (set at £37,500 for 2019/20) and 28% thereafter.
Ron and Rita have been married a number of years and in addition to their main residence, they have a holiday cottage, which is owned solely by Ron. As their lives are busy, they no longer use the cottage much and decide to sell it. They expect to realise a gain of £100,000.
Rita does not work and has no income of her own. Ron is a higher rate taxpayer. Neither has used their annual exempt amount for 2019/20 (set at £12,000).
If they leave the property in Ron’s sole name, they will realise a chargeable gain of £88,000 after deducting his annual exempt amount of £12,000. As a higher rate taxpayer, this will give rise to a capital gains tax bill of £24,640 (£88,000 @ 28%).
However, as Rita has her basic rate band and annual exempt amount available, making use of the no gain/no loss rule to put the property in joint names prior to sale can save the couple a lot of tax. Each will realise a gain of £50,000.
As far as Ron is concerned, £12,000 of his gain will be sheltered by his annual exempt amount, leaving a chargeable gain of £38,000 on which tax of £10,640 will be payable.
Rita will also have a gain of £50,000, of which the first £12,000 is covered by her annual exempt amount, leaving a chargeable gain of £38,000. As her basic rate band is available in full, the first £37,500 is taxed at 18% (£6,750), with the remaining £500 being taxed at 28% (£140). Thus, Rita’s tax liability is £6,890, and the couple’s total tax bill is £17,530.
By taking advantage of the no gain/no loss rule to put the property into joint names prior to sale, the couple will be able to make use of Rita’s annual exempt amount and basic rate band, reducing the capital gains tax payable on the sale from £24,640 to £17,530 – a saving of £7,110.
From 1 April 2020, nearly three million workers are set to benefit from increases to the National Living Wage (NLW) and minimum wage rates for younger workers, according to estimates from the independent Low Pay Commission.
From 1 April 2020, the NLW will rise from £8.21 per hour to £8.72 per hour.
The new rates should mean a pay rise of some £930 over the course of the year for a full-time worker on the NLW. Younger workers who receive the National Minimum Wage (NMW) will also see their pay boosted with increases of between 4.6% and 6.5%, dependant on their age, with 21-24 year olds seeing a 6.5% increase from £7.70 to £8.20 an hour.
Employers need to make sure they are ready for the new rates.
The compulsory NLW is the national rate set for people aged 25 and over. The NLW is enforced by HMRC alongside the national minimum wage which they have enforced since its introduction in 1999.
Generally, all those who are covered by the NMW, and are 25 years old and over, will be covered by the NLW. These include:
- most workers and agency workers
- casual labourers
- agricultural workers
- apprentices who are aged 25 and over
The NMW is the minimum pay per hour that most workers are entitled to receive by law. The rate to which they are entitled depends on a worker’s age and whether they are an apprentice.
The rates from 1 April 2020, the NMW will rise across all age groups, including increases:
- from £8.21 to £8.72 for over 25 year olds
- from £7.70 to £8.20 for 21-24 year olds
- from £6.15 to £6.45 for 18-20 year olds
- from £4.35 to £4.55 for under 18s
- from £3.90 to £4.15 for apprentices
Payments that must be included when calculating the NMW are:
- income tax and NICs
- wage advances or loans and repayments
- repayment of overpaid wages
- items that the worker has paid for, but which are not needed for the job or paid for voluntarily, such as meals
- accommodation provided by an employer above the offset rate (£7.55 a day or £52.85 a week)
- penalty charges for a worker’s misconduct
Some payments must not be included when the NMW is calculated.
- payments that should not be included for the employer’s own use or benefit, for example if the employer has paid for travel to work
- items that the worker has bought for the job and has not been refunded for, such as tools, uniform, safety equipment
- tips, service charges and cover charges
- extra pay for working unsocial hours on a shift
There are a number of people who are not entitled to the NMW, including:
- self-employed people
- volunteers or voluntary workers
- company directors
- family members, or people who live in the family home of the employer who undertake household tasks
All other workers including pieceworkers, home workers, agency workers, commission workers, part-time workers and casual workers must receive at least the NMW.
Businesses should make regular checks to ensure compliance with NLW/NMW obligations including:
- checking that they know who is eligible in their organisation
- taking the appropriate payroll action where relevant
- letting employees know about any new pay rate
- checking that staff under 25 are earning at least the right rate of NMW
The penalty for non-payment of the NLW can be up to 200% of the amount owed, unless the arrears are paid within 14 days. The maximum fine for non-payment is £20,000 per worker.
The government is currently committed to raising the NLW to £10.50 per hour by 2024 on current forecasts.
Employers need to take action over the coming weeks to ensure that they are ready for the increase in rates on 1 April 2020 and beyond.