On 3 March 2021, the Chancellor, Rishi Sunak, submitted his budget for 2021 with the following highlights:
Extension of the Coronavirus Job Retention Scheme till September
Until the ninth month of the year 2021, the Coronavirus Job Retention Scheme will remain operational as employees continue to receive 80% of their salary for the period of their absence from work. However, every concerned staff needs to meet certain costs starting from July. The set employer contribution is 10% of the normal pay for furloughed hours for July, while the percentage will rise to 20% for August and September.
Self-Employment Income Support Scheme to Include Further Grants
With the Self-Employment Income Support Scheme, self-employed individuals can apply for additional two grants. Starting from February to April 2021, the fourth grant is expected to cover three months and worth 80% of the average profits made in three months, albeit capped at £7,500. Although the final grant depends on the pandemic’s impact on turnover, it is expected to cover May to September. Those who commenced their first self-employment in 19/20 can access the final two grants, provided they covered their 2019/20 tax return latest by 2 March 2021 midnight.
Continuation of the SSP Rebate Scheme
By utilizing the SSP rebate scheme, smaller employees can reclaim SSP per employee for up to two weeks from the Government, provided the coronavirus-related condition causes the absence. The same scheme is set to continue for now.
Income Tax Thresholds on Hold
While the basic rate stands at £37,700, personal allowance is set to rise to £12,570 for the 2021/22 period. This implies that higher rate tax is payable for any individual receiving the standard personal allowance immediately after the income surpasses £50,270. For 2021/22, the income tax rate remains the same at 20%, 40%, and 45%; the same applies to the 7.5%, 32.5%, and 38.1% dividend tax rates. Until 2026, it is expected to see personal allowance and high rate threshold frozen at their 2021/22 level.
IHT Nil-rate Band to Remain the Same
Currently, the inheritance tax nil-rate band stands at £325,000 – it is set to remain stagnant. Wherever the main residence belongs to a direct descendant, the resident nil rate band takes effect. In such an area, the current level of $175,000 is expected to continue till April 2026.
Capital Gains Tax Annual Exempt Amount stands still.
For the 2021/22 period, the capital gains tax annual exempt amount experiences no change and will remain so for the next half-a-decade (2025/26).
Zero change to Pension Lifetime Allowance
Currently, the pension lifetime allowance stands at £1,073,100. The allowance that places a cap on tax-relieved pension savings is expected to remain the same until 2021. Expectedly, the situation will affect people having pension savings close to or at the level by limiting future tax-relieved pension savings.
Huge deduction for Capital Expenditure
Companies having investment in plant and machinery with incurred expenditure between 1 April 2021 and 31 March 2023 will benefit from enhanced capital allowances for the investment in question. For expenditure on plant and machinery that qualifies for main rate capital allowances of 18%, there will be a first-year allowance of 130%. At the same time, expenditure on plant and machinery qualifying for special rate capital allowances of 6% can utilize the 50% first-year allowance. This doesn’t influence the Annual Investment Allowance, which is claimable when more rewarding.
A temporary increment of the carry-back period for losses
Companies and businesses that are unincorporated stand a chance to benefit from a momentary extension concerning the carry-back period for losses. The period has been increased by three years for a limited period. The unincorporated businesses can utilize the prolonged carry-back for losses suffered between 2020 and 2022. As for company groups, the offer is applicable to losses incurred between 1 April 2020 and 31 March 2021, as well as 1 April 2021 and 31 March 2022 – however, the offer is capped at £2 million for both accounting periods.
There will be a relief for the profits secured in the latter year before those meant for the earlier year.
There might be a need for tax repayment to benefit from the offer concerning the carry-back losses incurred due to the pandemic.
Corporation Tax to rise in the future
An increase of 6% has been added to the current rate of 19% for corporation tax that organizations having taxable profits of £250,000 or more need to pay. This new development will commence by 1 April 2023. For small companies with £50,000 profits or less, they have to pay 19% corporation tax while a 25% rate applies to companies making between £50,000 and £250,000. However, the latter can take advantage of the marginal relief. Taking into account the number of relevant companies and accounting periods below twelve months, the limits may reduce.
Covid-19 Antigen tests to come with tax exemption
If an employer chooses to refund a staff for the coronavirus antigen test cost, an income tax exemption will apply retrospectively for 2020/2021 and 2021/2022. The same exemption will cover National Insurance purposes.
Prolonged Temporary SDLT threshold
Before now, the Stamp Duty Land Tax (SDLT) residential threshold, which was increased to £500,000, is expected to close by 31st of March 2021. However, it has been prolonged until 30 June 2021. Starting from 1 July 2021, the threshold will come down to £250,000 and get back to the normal level of £125,000 by 1 October 2021. While SDLT is applicable to the property purchased in Northern Ireland and England only, Land Transaction Tax (LTT) applies in Wales as Land and Buildings Transaction Tax (LBTT) is applicable in Scotland.
VAT Registration Thresholds Stands Still at £85,000
The current £85,000 cap for VAT registration threshold will remain the same for 2021/22 and the subsequent two years.
Extended Temporary 5% VAT rate for Leisure and Hospitality
Until 30 September 2021, the current 5% VAT rate for holiday accommodation, leisure attractions, and hospitality will be the same. However, starting from 1 October 2021 till 31 March 2022, a new 12.5% rate applies. From there, it will revert to the normal rate of 20% by 1 October 2022.
Private residence relief removes the charge to capital gains tax on the taxpayer’s only or main residence.
For the purposes of the relief, a taxpayer can generally only have one residence qualifying for the relief at any one time, subject to the final period exemption for properties which have been the only or main residence at some time, set at nine months from 6 April 2020 (unless the taxpayer goes into care, in which case the final 36 months count).
Married couples and civil partners can only have one main residence between them.
More than one residence
Where a taxpayer has more than one residence, they can nominate which of them counts as the main residence for the capital gains tax purposes. However, to be nominated, the property must be lived in as a ‘residence’ – a property which is let out cannot be nominated.
The nomination must be made within two years of the date on which the particular combination of residences changes. If a nomination is not made, which property qualifies as the main residence for capital gains tax purposes will be determined in accordance with the facts.
Bertie has lived in a cottage in Shropshire since December 2012. In October 2019 he starts a new job in London, buying a flat in January 2020 to live in during the week. He has until January 2022 to nominate which of his residences is his main residence for capital gains tax purposes.
Where a couple marry or enter into a civil partnership and each partner owned a residence which the couple continue to use after the date of their marriage of civil partnership, they must nominate which residence is their joint main residence as married couples and civil partners can only have one main residence between them. The nomination must be made within two years of the date of their marriage or civil partnership.
However, unmarried couples can each have their own main residence.
Those looking to buy an investment property may wish to consider a holiday let. Not only do the second and subsequent homes benefit from SDLT savings as a result of the temporary increase in the SDLT threshold, they can also benefit from the favourable tax regime for furnished holiday lettings.
There are special tax rules for properties that qualify as furnished holiday lettings:
- plant and machinery capital allowances can be claimed for furniture, equipment and fixtures;
- capital gains tax reliefs for traders – business asset disposal relief, business asset rollover relief, relief for gifts of business assets — are available;
- profits count as earnings for pension purposes.
However, to qualify, the let must meet the conditions to qualify as an FHL.
The property must be in the UK or in the EEA, it must be let commercially and it must be let furnished. In addition, it must meet three occupancy conditions:
- pattern of occupancy condition — the total of all lettings that exceed 31 days is not more than 155 days in the year;
- the availability condition — the property must be available for letting as furnished holiday accommodation for at least 210 days in the tax year (excluding any days in which the landlord stays in the property); and
- the letting condition –the property must be let commercially as furnished holiday accommodation to the public for at least 105 days in the year (ignoring lets of more than 31 days unless the let exceeds 31 days as a result of unforeseen circumstances and lets to family or friends).
If the let does not meet the letting condition (which may be the case, for example, if there are further lockdowns) all is not lost. Where the landlord has more than one property let as a FHL, the letting condition is treated as met if the average rate of occupancy for all properties is at least 105 days in the year. To take advantage of this, the landlord must make an averaging election no later than one year from 31 January following the end of the tax year (i.e. by 31 January 2023 in respect of an election for 2020/21).
The second way of qualifying as a FHL in a year where the letting condition has not been met is to make a period of grace election. This route can be taken where there was a genuine intention to meet the condition but this did not happen due to unforeseen circumstances (such as letting cancelled due to lockdowns). To be eligible to make an election, the pattern of occupation and the availability conditions must have been met and, for the first year for which a period of grace election is made, the lettings condition was met in the previous tax year. Where a period of grace election is made, the lettings condition is treated as met. A further period of grace election can be made for the following year if the lettings condition is not met that year. However, if after two successive period of grace elections the letting condition is not met, the property will cease to qualify as a FHL.
Separate FHL business
Lettings that are FHLs are taxed as a separate FHL property business.
The residential SDLT threshold is increased to £500,000 where completion takes place between 8 July 2020 and 31 March 2020. This also benefits those purchasing second and subsequent residential properties as the 3% supplement is added to the residential rates, as reduced. However, the clock is running and completion must take place by 31 March 2021 to benefit from the savings.
In June 2020, the Government announced that it was making funding available to customs intermediaries and businesses to help increase their capacity to make customs declarations. Broadly, businesses need to prepare ahead of new procedures coming into play in 2021 following the end of the UK’s EU withdrawal transition period.
As well as injecting a substantial amount of cash to support businesses with recruitment, training and supplying IT equipment to handle customs declarations, the Government is also changing rules which will remove the financial liability from intermediaries operating on behalf of their clients, and will also allow parcel operators to continue declaring multiple consignments in a single customs declaration.
In August, to help accelerate further growth of the customs intermediary sector and help meet the increased demand it will see from traders at the end of the transition period, the Government confirmed that the next phase of the customs grant scheme is now open for application.
Who can apply?
To qualify for a grant a business must:
- have been established in the UK for at least 12 months before the submission of the application and when the grant is paid; and
- not have previously failed to meet its tax obligations.
In addition, the businesses must meet one of the following descriptions:
- complete or intend to complete customs declarations on behalf of clients;
- be an importer or exporter and complete or intend to complete declarations internally for their own good
- be an organisation which recruits, trains and places apprentices in businesses to undertake customs declarations.
The grant can cover salary costs for new or redeployed staff, up to a limit of £12,000 per person and £3,000 for recruitment costs for new employees. This will help them to recruit new staff and train them up ahead of July 2021, when all traders moving goods will have to make declarations.
In relation to training, the grant can provide businesses with up to 100% of the actual costs of externally-provided training for employees, up to a limit of £1,500 for each employee on the course. It will also cover the cost of internal training, up to a limit of £250 for each employee on the course.
The grant for IT covers expenses for increasing capacity or productivity for customs declarations, customs software, set-up costs, and related hardware.
There is a state aid restriction, which applies a cap on total grants received in the last three years at 200,000 euros (which is the maximum amount of state aid available).
The business will receive the funding for the cost of recruitment then 50% of the eligible salary costs once the grant offer is issued. The remaining 50% of salary costs will be paid when details of the new employee’s contract have been submitted along with a copy of their first pay slip.
Evidence of expenditure on IT improvements or training will need to be submitted within two months of receiving a grant offer letter. The grant will then be paid directly to the business within 30 days.
For tax purposes, the treatment of the grant will need to be matched to the expense and offset accordingly.
If the business has spent more on capital expenditure (like IT equipment) than is covered by the grant, capital allowances can be claimed on the amount not covered by the grant.
Eligible businesses should consider applying for a grant as soon as possible. Funding will be allocated on a first-come-first-serviced. Applications must be made by 3 June 2021, although the scheme, which is being administered by PricewaterhouseCoopers (PwC) on behalf of HMRC, will close earlier if all funding is allocated before that date.
Employees, can you claim tax relief for expenses of working from home?
The Covid-19 pandemic has meant that more employees worked from home than ever before. This trend looks set to continue following the Government’s latest advice to continue to work from home where you can do so. Further, many business plan to embrace flexible working beyond the end of the pandemic, allowing employees to work from home some or all of the time where their job allows this.
However, while working from home may save the cost of the commute, there are expenses associated with working from home. Is the employee able to claim tax relief where these are not met by the employer?
Additional household expenses
As a result of working from home, an employee will incur the cost of additional household expenses, such as additional electricity and gas costs, additional cleaning costs, and such like. During the Covid-19 pandemic, HMRC confirmed that employees are able to claim a deduction for additional household expenses attributable to working from home of £6 per week without supporting evidence. Where the actual additional costs are more than £6 per week, tax relief can be claimed for the full amount, as long as the employee can substantiate the claim. For example, this could be done by comparing bills prior to working from home with those during the working at home period.
Employees may have needed to buy office equipment, such as a computer and a printer, to enable them to work from home. Where these costs are not reimbursed by the employer, HMRC have confirmed that employee can claim a tax deduction for the actual expenditure incurred, as long as it was incurred ‘wholly, exclusively and necessarily’ in the performance of the duties of the employment.
To claim relief for other expenses employees will need to pass the general test that the expense was incurred ‘wholly, necessarily and exclusively’ in the performance of the duties of the employment. Care must be taken to distinguish between expenditure which puts the employee in the position to do their job as opposed to being incurred in the performance of it. Childcare, for example, would fall into the former category.
Relief is also denied for dual purpose expenditure, such as an office chair which enables the employee to be comfortable while working, as this fails the ‘exclusively’ part of the test.
Where the conditions for tax relief are met, a deduction can be claimed on form P87 (available on the Gov.uk website) or, where the employee completes a tax return, on the employment pages of the return.