The January self-assessment payment deadline is not well timed, falling as it does in a month when people may be already struggling to pay their Christmas credit card bills. However unpalatable the 31 January tax deadline is, it is not one that should be ignored.
Taxpayers who are within self-assessment will need to pay any remaining tax due for 2020/21 by midnight on 31 January 2022, and also any Class 4 and Class 2 National Insurance liabilities for 2020/21. Where their tax and Class 4 National Insurance liability for 2020/21 was at least £1,000 and less than 80% of their liability was collected at source, such as via PAYE, the first payment on account must also be paid by midnight on 31 January 2022.
If you are struggling to pay what you owe, what can you do?
Ignoring the problem will not make it go away; rather, it will make it worse. If you think that you are going to struggle to pay what you owe in full by the 31 January 2022 deadline, you should set up a time to pay agreement or contact HMRC as soon as possible, and ideally before 31 January 2022. However, if you miss this deadline, all is not lost and you may still be able to set up or agree an instalment plan.
Paying in instalments
It may be possible for you to pay what you owe in instalments by setting up a time-to-pay agreement.
You can do this yourself online via your Government Gateway account if:
- you have filed your latest self-assessment tax return;
- you owe less than £30,000;
- you are within 60 days of the payment deadline; and
- you plan to pay back what you owe within the next 12 months or less.
If you do not meet all of the above conditions, you will not be able to set up an instalment payment plan online. However, you may be able to agree one with HMRC. To do this, you will need to call the Self-Assessment Payment Helpline on 0300 200 3822. The line is open from Monday to Friday from 8am to 4pm. If you cannot pay another type of tax, for example, corporation tax, you should instead call HMRC’s Payment Support Service on 0300 200 3835. The lines are open from Monday to Friday from 8am to 4pm.
When making the call, make sure that you have the following information to hand:
- your unique taxpayer reference and National Insurance number;
- your VAT registration number if you are VAT-registered;
- your bank account details; and
- details of any previous payments that you have missed.
HMRC will take into account what you are able to pay in full, your monthly income and outgoings, any savings and investments that you have and what you can afford to repay each month. If you have savings or investments, you will be expected to use these to clear your tax bill.
There is no set length for a time-to-pay agreement – it will depend on how much you can afford to pay each month to clear the tax that you owe. The payments are usually made by direct debit, and once the agreement is in place, it is important that payments are not missed and future liabilities are paid on time. You can pay more than the agreed amount if you are able to clear the debt more quickly.
If you do not make the payments, or HMRC will not agree to a time-to-pay agreement, you will be expected to pay what you owe in full. HMRC may use their debt collection powers if you do not do this.
The hospitality and leisure industry were particularly hard hit by the effects of the Covid-19 pandemic and associated lockdowns. To help the industry recover they benefitted from a reduced rate of VAT of 5% from 15 July 2020 until 30 September 2021.
As a temporary measure, a new reduced rate of VAT of 12.5% applies from 1 October 2021 until 31 March 2022.
The rate will revert to the standard rate of 20% from 1 April 2022.
Supplies benefitting from the reduced rate
The following supplies, which benefitted from the reduced rate of 5% until 30 September 2021, will also benefit from the new reduced rate of 12.5% from 1 October 2021 to 31 March 2022.
- Food and non-alcoholic beverages sold for on-premises consumption, for example, in restaurants, cafes and pubs.
- Hot takeaway food and hot takeaway non-alcoholic beverages.
- Sleeping accommodation in hotels or similar establishments, holiday accommodation, pitch fees for caravans and tents, and associated facilities.
- Admission to cultural attractions that do not already benefit from the cultural VAT exemption, such as theatres, circuses, fairs, amusement parks, concerts, museums, zoos, cinemas, exhibitions and other similar cultural events and facilities.
Where an admission to an attraction is within the existing cultural VAT exemption, this takes precedence over the reduced rate.
Dividends have their own tax rules and their own rates of tax. The rules and the rates apply in the same way regardless of whether the dividends are paid from your personal or family company as part of a profit extraction strategy, or whether they represent investment income on shares. As part of the Government’s health and social care plan, the rates at which dividends are taxed are to increase by 1.25% from 6 April 2022.
Dividends have already suffered corporation tax
Dividends can only be paid out of retained profits. This means that if you want to pay a dividend from your personal or family company, you can only do so if you have sufficient retained profits from which to pay. ‘Retained profits’ are post-tax profits which have not yet been paid out. Consequently, they have already suffered corporation tax. The rate of corporation tax is currently 19%, but is due to increase from 1 April 2023 where the company’s profits are more than £50,000.
Dividends covered by the dividend allowance are tax-free
All taxpayers, regardless of the rate at which they pay tax, are entitled to a dividend allowance. This is available in addition to the personal allowance, and, unlike the personal allowance, is not abated once income reaches £100,000.
Although termed a dividend ‘allowance’, it is not an allowance as such; rather it is a nil rate band. Dividends that are covered by the dividend allowance are taxed at zero rate. However, they count as part of band earnings. The dividend allowance is set at £2,000 for 2021/22.
Dividends are treated as the top slice of income
Dividends are taxable to the extent that they are not sheltered by the dividend allowance or, if not fully used elsewhere, the personal allowance. In determining the appropriate rate of tax, dividends are treated as the top slice of income.
Dividend tax rates are lower than income tax rates
Dividends have their own tax rates. These are lower than the usual rates of income tax. However, as noted above, dividends are paid from profits which have already suffered corporation tax.
Dividends are taxed at the dividend ordinary rate to the extent that they fall within the basic rate band. This is set at 7.5% for 2021/22. It is to increase to 8.75% from 6 April 2022.
Dividends are taxed at the dividend upper rate to the extent that they fall in the higher rate band. This is set at 32.5% for 2021/22. It is to increase to 33.75% from 6 April 2022.
Dividends are taxed at the dividend additional rate to the extent that they fall in the additional rate band. This is set at 38.1% for 2021/22. It will increase to 39.35% from 6 April 2022.
Capital allowances are the tax equivalent of depreciation, and the mechanism of providing tax relief for certain items of capital expenditure. However, with the exception of cars, capital allowances are not available where accounts are prepared under the cash basis; instead relief may be available as a deduction in computing profits under the cash basis capital expenditure rules.
Plant and machinery capital allowances
Plant and machinery capital allowances are available for items such as machinery, fixture and fittings, tools, computer equipment, plant and vehicles. Capital allowances may be given at different rates.
The annual investment allowance (AIA) is given at the rate of 100% on qualifying expenditure up to the AIA limit. This is set at £1 million until 31 December 2021, reverting to £200,000 from 1 January 2022. Special rules apply where the accounting period spans 31 December 2021.
100% first-year allowances are also available in limited cases, such as for expenditure on new zero emission cars and goods vehicles
18% writing down allowances
Writing down allowances on main rate expenditure is given at the rate of 18% on a reducing balance basis. Main rate capital allowances are available for most plant and machinery.
6% writing down allowances
Some items, such as high emission cars and long life assets are allocated to the special pool and attract writing down allowances at the lower rate of 6%.
Enhanced capital allowances
For a limited period companies are able to claim enhanced capital allowances in respect of qualifying expenditure that is incurred between 1 April 2021 and 31 March 2023. A super deduction of 130% is available where the expenditure would otherwise qualify for main rate capital allowances at 18%, and a 50% first-year allowance is available where the expenditure would otherwise qualify for special rate capital allowances of 6%.
Balancing charges and allowances
The capital allowance system provides tax relief for the net capital expenditure (cost less sale proceeds) over the life of the asset. Consequently, when an asset is sold, is it necessary to take account of the disposal proceeds. If the capital allowances that have been claimed over the life of the asset exceed the cost less disposal proceeds, it may be necessary to claw back some of the allowances. This is done by means of a balancing charge.
Let’s assume a van is purchased for £10,000 and the AIA allowance is claimed, providing immediate tax relief for the full £10,000 of expenditure. If the van is sold three years later for £5,000, the net cost to the business is £5,000 (cost of £10,000 less proceeds of £5,000). However, without adjustment, the company would have received tax relief of £10,000. The position is corrected by means of a balancing charge of £5,000. The balancing charge effectively increases the profits that are charged to tax. Where the AIA or a 100% first year allowance has been claimed, the balancing charge will be equal to the sale proceeds.
There will not always be a balancing charge on disposal – it depends on whether the tax written down value is more or less than the sale proceeds. If it is more, there will be a balancing charge and if it is less, there will be a balancing allowance.
A car is purchased for £15,000 on which main rate capital allowances are claimed at the rate of 18%. In year 1, the writing down allowance is £2,700, in year 2, it is £2,214 and in year 3 it is £1815. At the end of year 3, the written down value is £8,271.
If the car is sold for £8,000, balancing allowances of £271 will be available; however, if the car is sold for £10,000, a balancing charge of £1,729 will arise. The net allowances equal the cost less the disposal proceeds.
The balancing allowance increases taxable profits in the year of sale, while a balancing allowance will reduce the taxable profits.
Add proceeds to the pool
Unless the item is in a single asset pool, balancing charges and allowances are calculated globally for the ‘pool’ rather than on an individual asset-by-asset basis. Thus, when an asset is sold, it is not necessary to calculate the balancing charge individually for that asset – instead, the sale proceeds are simply added to the pool.
Super-deduction and balancing charges
Special rules apply where an asset has benefited from the super deduction of 130% and depending when the asset is disposed of, it may be necessary to inflate the sale proceeds when working out the balancing charge.
You must register your business for VAT if your VAT taxable turnover exceeds the registration threshold. This is currently £85,000.
You must register if:
- at the end of any month, the value of your VAT taxable supplies in the previous 12 months or less is more than £85,000; or
- at any time if you expect the value of your taxable supplies in the next 30 day period alone to exceed £85,000.
Different thresholds apply to businesses based in Northern Ireland for buying from and selling to EU countries.
VAT taxable turnover
The VAT taxable turnover is the total value of sales that are not exempt from VAT. Thus, you should include sales that would attract VAT at the standard rate, the reduced rate or which are zero rated, but not sales that are exempt from VAT.
Exception from registration
If you exceed the VAT registration threshold but believe that your VAT taxable turnover will not exceed the deregistration threshold, currently £83,000, in the next 12 months, you can apply to HMRC for an exception from registration. This can be done on form VAT1. This may be case if you have a one-off sale that is particularly large,
Registration is compulsory if your VAT taxable turnover exceeds the registration threshold (unless an exception applies). However, if your VAT taxable turnover is below this level, you may choose to register for VAT voluntarily. This can be advantageous, particularly if you supply goods that are zero rated (such as food) as it will enable you to reclaim any VAT that you pay on purchases.
How to register
Most businesses are able to register online on the Gov.uk website. In certain cases, registration must be done by post, for example, if you apply to join the agricultural flat rate scheme.
You will receive a VAT registration number once you have been registered for VAT. You should receive a VAT registration certificate within 30 days.
Implications of being VAT-registered
Once you have registered for VAT, you will need to charge VAT at the appropriate rate on any sales that you make. You will also be able to reclaim any input tax that you suffer on purchases.
You may choose to join one of the schemes to simplify the process and reduce the associated VAT return, for example, the flat rate scheme for small business.
You must also file VAT returns each quarter and pay any VAT owing over to HMRC and comply with Making Tax Digital for VAT. You can appoint an agent, such as an accountant, to file your VAT returns on your behalf.
During the Covid-19 pandemic, the advice was ‘work from home if you can’. As a result, millions of employees found themselves working at home, often at very short notice. Many still have not returned to the workplace, and homeworking (whether fully or flexibly) is here to stay.
Employees will generally incur additional costs as a result of working from home. They will use more electricity to run their computer and light their workspace and may use more gas as a result of having the heating on during the day.
While for many years there has been a statutory exemption that allows employers to meet or contribute towards the additional costs of working from home, in recognition of the homeworking requirements imposed by the pandemic, employees who do not receive homeworking payments from their employer are able to claim tax relief for the extra household costs that they have incurred while working from home.
Exemption for costs met by the employer
Employers can pay employees a homeworking allowance of £6 per week (£26 per month) tax-free, and without the employee having to demonstrate that they have actually incurred additional household costs of at least this amount as a result of working from home. The tax-free amount is the same, regardless of whether the employee is required to work from home full-time or one day a week. Consequently, the payments can be made to employees who work flexibly, working from home part of the time and at the employer’s workplace part of the time.
Where the employee’s actual additional household costs as a result of working from home are more than £6 per week, the employer can meet the actual costs tax-free, as long as the employee is able to provide evidence in support of the actual additional costs.
Tax relief for employees
Employees who have been required to work from home can claim tax relief for the additional costs of doing so where these are not met by the employer. HMRC will accept claims of £6 per week/£26 per month without needing evidence of the actual additional costs. Where these are higher, the higher amount can be claimed, as long as this can be substantiated.
HMRC are now accepting claims for 2021/22. Claims can be made online at www.tax.service.gov.uk/claim-tax-relief-expenses/only-claiming-working-from-home-tax-relief?_ga=2.193253997.1398232652.1624373729-980780301.1612354164.
Relief is given for the full tax year, even if the employee returns to the workplace before 5 April 2022. Employees who were entitled to the relief for 2020/21 can also claim for that year if they have not yet done so.
Where an employee is required to complete a self-assessment tax return, the claim can be made on the return.
A claim of £6 per week (£312 for the year) will save a basic rate taxpayer £62.40 in tax and a higher rate taxpayer £124.80 in tax.