Employment allowance – Have you claimed it?

Employment allowance – Have you claimed it?

The National Insurance employment allowance enables eligible employers to reduce the amount of employer’s National Insurance that they pay over to HMRC. The allowance, which is set at £4,000 for 2020/21, is available to most employers whose Class 1 National Insurance liability was less than £100,000 in 2019/20, with some notable exceptions, including companies where the sole employee is also a director.
The employment allowance must be claimed, but this can be done at any point in the tax year. There is no obligation to claim the allowance from the start of the tax year.
The allowance is set against employer’s Class 1 National Insurance until it is used up. It cannot be used against Class 1A or Class 1B liabilities, or to reduce the amount of National Insurance payable by employees.
Employment allowance and the CJRS
The Coronavirus Job Retention Scheme (CJRS) enabled employers to place employees on furlough and claim a grant from the Government to pay them furlough pay of 80% of their wages (capped at £2,500 per month) while on furlough.
Payments made to furloughed employees are liable for tax and Class 1 National Insurance as for usual payments of wages and salary. For pay periods up to an including 31 July 2020, employers were able to claim the associated employer’s National Insurance on grant payments, to the extent that it was not covered by the employment allowance.
This meant that if an employer had claimed the employment allowance from the start of the tax year, they would not be able to reclaim the associated National Insurance on grant payments until the employment allowance had been used up. By contrast, employers who delayed claiming the employment allowance could reclaim the employer’s National Insurance on grant payments from the Government under the CJRS and use the employment allowance against their secondary liability once the reclaim option came to an end. This was a beneficial strategy and one that HMRC have not raised objections to.
Remember to claim
If the employment allowance was not claimed at the start of the tax year to make the most of the CJRS, and has still not been claimed, eligible employers should now look to claim the allowance so that they can benefit from it.
The allowance must be claimed each year – claims do not roll forward automatically. HMRC guidance confirms that claims can be made ‘at any time in the tax year’.
Claims can be made via the payroll software.
Late claims
If the claim is made late in the tax year and the full amount of the available employment allowance (set at the lower of £4,000 and your employer Class 1 National Insurance liability for the year) is not used, any unclaimed allowance at the end of the year to pay any tax (including VAT and corporation tax) or National Insurance that you owe. Where no tax is paid, the employer can ask HMRC for a refund. Employers can check their HMRC online account to see how much of their employment allowance for the year they have used.
Where the employment allowance has not been claimed for previous years, claims can be made retrospectively for the previous four tax years.

Annual investment allowance – Beware the transitional rules

Annual investment allowance – Beware the transitional rules

The annual investment allowance (AIA) was increased from its usual level of £200,000 to £1 million for the two-year period from 1 January 2019 to 31 December 2020. As this period draws to a close, it may be prudent to review planned capital expenditure, particularly where this has been put on hold due to the Covid-19 pandemic. The AIA will revert to £200,000 from 6 April 2021.

What is the AIA?

The AIA is a capital allowance which provides for 100% relief for qualifying expenditure up to the available AIA in the period in which the expenditure was incurred. However, the allowance does not have to be claimed – writing down allowances can be claimed instead for some or all of the expenditure. Once the AIA has been used, relief for any further expenditure is given in the form of writing down allowances.

Incur expenditure in 2020 rather than 2021

The AIA for an accounting period depends on when the period falls. If the period falls wholly within the two-year period from 1 January 2019 to 31 December 2021, the allowance is £1 million. This is proportionately reduced where the accounting period is less than 12 months.

So, where a company prepares accounts to 31 December each year, it will have an AIA of £1 million for the year to 31 December 2020 and an AIA of £200,000 for the year 31 December 2021.

Consequently, if the company is planning to incur qualifying capital expenditure of more than £200,000, it would be beneficial from a tax perspective to incur the expenditure in 2020 rather than 2021 to maximise the immediate relief against profits.

Periods spanning 31 December 2020

Where the accounting period spans 31 December 2020, transitional rules apply to work out the AIA for the period. This is found by applying the formula:

(x/12 x £1,000,000) + (y/12 x £200,000)

Where:

  • x is the number of months in the accounting period prior to 1 January 2021; and
  • y is the number of months in the accounting period after 31 December 2020.

Therefore, if a company prepares its accounts for the year to 31 March 2021, the AIA for that year is £800,000 ((9/12 x £1,000,000) + (3/12 x £200,000)).

However, the transitional rules have a sting in the tail – a cap applies to expenditure incurred in that part of the accounting period falling on or after 1 January 2021.

The cap is found by applying the formula:

y/12 x £200,000

Where:

  • y is the number of months in the accounting period after 31 December 2020.

This means that where the accounting period is the year to 31 March 2021, the cap is £50,000 (3/12 x £200,000). The cap operates to limit the AIA for expenditure incurred in the period 1 January 2021 to 31 March 2021 to £50,000, even if the expenditure for the year is with the AIA of £800,000.

Thus, to prevent the cap biting and to obtain maximum benefit from the AIA for the year, the bulk of the expenditure should be incurred in 2020 rather than 2021. This can catch the unwary.

Paying back deferred VAT

Paying back deferred VAT

At the start of lockdown, the Government announced a number of measures to help businesses weather the pandemic. One of those measures was the option for VAT-registered businesses to defer VAT payments that fell due between 20 March 2020 and 30 June 2020. This window meant payment of VAT for the following quarters could be deferred:

  • quarter to 29 February 2020 – due by 7 April 2020;
  • quarter to 31 March 2020 – due by 7 May 2020; and
  • quarter 30 April 2020 – due by 7 June 2020.

However, businesses opting to defer payments were still required to file their VAT returns on time.

VAT due after 30 June 2020

Normal service is resumed in respect of VAT which falls due after 30 June 2020. This must be paid in full and on time. Consequently, VAT for the quarter to 31 May 2020 must be paid by 7 July 2020, even if the trader has yet to pay their VAT for the quarter to 29 February 2020. This applies to successive VAT quarters too.

Set up canceled direct debits

Where VAT is normally paid by direct debit but the direct debit was canceled to enable the trader to take advantage of the deferral option, the direct debit needs to be set up again so that payments can be taken automatically. If this has not yet been done, payments will need to be triggered manually to ensure that VAT reaches HMRC on time until the direct debit is back up and running.

Paying VAT that has been deferred

Deferred VAT remains due – the measure simply provides a longer payment window; it does not cancel the liability. VAT that fell due in the period from 20 March 2020 to 30 June 2020 was originally due to be paid in full by 31 March 2021.

However, in delivering his Winter Economy Plan on 24 September 2020, the Chancellor, Rishi Sunak, announced that instead, he will allow businesses to spread the repayment of deferred VAT over 11 smaller repayments during 2020/21, with no interest to pay.

Struggling to pay?

Businesses in certain sectors, such as hospitality and leisure, are still not able to operate normally. Where, despite the longer repayment period, a business thinks that it may struggle to repay its deferred VAT, it should contact HMRC to set up a time to pay agreement, which can spread the repayments over a longer period.  This should be done before the first payment becomes due.

ACQ5 Awards – An Honour Granted to Select Organisations & Professionals

ACQ5 Awards – An Honour Granted to Select Organisations & Professionals

The ACQ5 annual awards program recognizes organizations that have achieved beyond exceptional commercial success in their designated area of expertise. Since 2005, the ACQ has acknowledged organizations worldwide, celebrating their achievements, milestones and innovations through their annual award programs.

The award is only presented to professional sector organizations that have demonstrated quality and excellence in their respective fields, as well as those that have consistently made generous contributions to their local economic growth in the last 5 years.

Each year, ACQ5 seeks the help of world-renowned industry leaders, exemplary teams, influential professionals and esteemed organizations – all of which represent the pinnacle of best practices and achievements in their respective disciplines.

Guided by the results of the polls, individuals and organizations that have had the most influence and impact within their industry over the last 5 years are duly honored. And, before handpicking winners, ACQ5 studies the nominations made by voters very closely and acknowledges that all the organizations or individuals that were nominated are leading forces in their sectors.

At Not Just Bookkeeping, we happen to be among the few organizations recognized for their performance and quality services – an honor and privilege that we are proud to have. Earlier this year, we won the Best Practice Operator of the Year (Accounting Services) award at the ACQ5 Country Awards 2020.

Moreover, we’d also like to give a special thanks to all our supporters and particularly to our respective ACQ5 Members!

Statutory redundancy pay and furloughed employees

Statutory redundancy pay and furloughed employees

As the Coronavirus Job Retention Scheme draws to a close, employers may face the difficult decision to make some employees redundant. Legislation was introduced at the end of July to protect furloughed employees.

Entitlement

An employee is entitled to statutory redundancy pay if they have at least two years’ continuous employment when they are made redundant. Where an employee has been furloughed during the Coronavirus pandemic, the time that they are on furlough counts as part of their continuous employment.

Amount

The amount of statutory redundancy pay to which an employee is entitled depends on:

  • how many complete years they have been employed at the date that they are made redundant;
  • their age at the date of redundancy; and
  • how much they are paid.

It is paid at the rate of:

  • one and a half week’s pay for each full year the employee was aged 41 or older;
  • one week’s pay for each full year the employee was 22 or older but younger than 41; and
  • half a week’s pay for each full year that the employee was younger than 22.

The number of years’ service that is taken into account in calculating statutory redundancy pay is capped at 20 and is counted back from the date of the redundancy. This works in the employee’s favour as the rate at which statutory redundancy is paid increases with age.

Pay is also capped. For 2020/21, the cap is set at £538 per week, meaning that the maximum statutory redundancy pay that is payable for 2020/21 is £16,140 (£538 x 1.5 x 20).

Pay and furloughed employees

Where an employee has been furloughed and a grant claimed under the Coronavirus Job Retention Scheme, the employee may only be receiving minimum furlough pay of 80% of their pay to a maximum of £2,500 per month, rather than their usual pay.

However, when working out an employee’s statutory redundancy pay, the employee’s pre-furlough pay is used rather than their furlough pay where this is lower. This applies where the calculation date for statutory redundancy pay is on or before 31 October 2020 (the date on which the furlough scheme comes to an end).

Where the employee’s pay varies, statutory redundancy pay is based on average pay over the previous 12 weeks. Where that period includes at least one week where the employee was furloughed, the averaging calculation must be performed over 12 weeks of full pay.

Reduced rate of VAT for hospitality and leisure

Reduced rate of VAT for hospitality and leisure

The hospitality and leisure industries have been severely affected by the Coronavirus pandemic. To help businesses in these sectors to get back on their feet, a reduced rate of VAT of 5% rather than the standard rate of 20% will apply to certain supplies for a limited period, from 15 July 2020 to 12 January 2021.

Hospitality

Food and drink supplied for consumption in the premises, for example by a restaurant or a bar, and hot takeaway food and beverages are normally liable for VAT at the standard rate of 20%. During the support period, the 5% rate will apply instead to:

  • hot and cold food for consumption on the premises on which they are supplied;
  • hot and cold non-alcoholic beverages for consumption on the premises on which they are supplied;
  • hot takeaway food for consumption off the premises on which it is supplied;
  • hot takeaway non-alcoholic beverages for consumption off the premises on which they are supplied.

Hotel and holiday accommodation

For businesses supplying hotel and holiday accommodation, the 5% rate VAT applies during the support period to:

  • supplies of sleeping accommodation in a hotel or similar establishment;
  • certain supplies of holiday accommodation;
  • charge fees for caravan pitches and associated facilities;
  • charge fees for tent pitches and camping facilities.

Meals provided to guests in long-term holiday accommodation (more than 28 days) will also benefit from the reduced rate, but the hire of motor caravans will not.

Admission to attractions

The reduced rate of 5% also applies during the support period in respect of admission to certain attractions which would normally be liable for VAT at the standard rate. However, if the admission fee is exempt from VAT, this will take precedence over the 5% charge and the admission charge will remain exempt.

The temporary reduction will apply to admissions to shows, theatre, circuses, fairs, amusement parks, concerts, museums, zoos, cinemas, exhibitions and similar cultural events where these are not included in the existing cultural exemption.

Impact on flat rate scheme

VAT registered businesses using the flat rate scheme should note that some of the flat rate percentages have been reduced to take account of the temporary reduction in the rate of VAT.