Reduction in entrepreneurs’ relief lifetime limit

After much speculation that it would be abolished in the Budget, entrepreneurs’ relief remains available, but with a significantly lower lifetime allowance. For qualifying disposals on or after Budget day (11 March 2020), the lifetime limit is £1 million – reduced from £10 million.

Where clients took protective action prior to Budget day in an attempt to secure availability of the relief, it should be noted that anti-forestalling provisions apply.

Where a contract was entered into prior to 11 March 2020 in respect of a disposal that would be a qualifying disposal for entrepreneurs’ relief purposes, the new £1 million lifetime limit will apply rather than former £10 million lifetime limit unless the parties to the contract are able to demonstrate that they did not enter into the contract to take advantage of the timing rules in TCGA 1992 whereby the date of the disposal is set as the time at which the contract was made. Further, where the parties to the contract are connected, they must also demonstrate that the contract was entered into wholly for commercial reasons to benefit from the £10 million lifetime limit.

Anti-forestalling measures also apply in certain circumstances where shares are exchanged for those in another company in the period from 6 April 2019 to 11 March 2020 and both companies are controlled or owned by substantially the same person.

It should be noted that disposals qualifying for entrepreneurs’ relief prior to 11 March 2020 count towards the new £1 million limit and clients who have already benefitted from entrepreneurs’ relief on qualifying disposals of more than £1 million will not be able to benefit from the relief on further disposals. Spouses and civil partners have their own lifetime limits allowing some planning to maximise the relief available, but each must meet the qualifying conditions for the requisite two-year period.

 

Written by the Tax Advice Network

SSP relaxations during the COVID-19 pandemic

In his Budget on 11 March 2020, the Chancellor, Rishi Sunak, announced a package of measures to help businesses and individuals negotiate the coronavirus pandemic. The measures included a temporary relaxation of the statutory sick pay (SSP) rules.

During the pandemic, employers will be able to pay SSP to employees from the first day of absence – employees will not need to serve the three waiting days before receiving SSP. Further, availability of SSP will be extended and will be available to employees who have been asked to self-isolate, even if they are not sick themselves, for example, where a member of their household displays COVID-19 symptoms.

Employees can self-certify absences up to seven days. To relieve burdens on GPs, employers will not need to obtain a fit note from employees for absences exceeding seven days. A temporary alternative to the fit note is being introduced which will be available from NHS-111, but the Government have advised employers to use their discretion in requiring medical evidence from employees.

The Government are also to allow employers with fewer than 250 employees as at 28 February 2020 to recover SSP paid for COVID-19 absences. The refund will be capped at two weeks’ SSP per employee. However, as SSP cannot normally be reclaimed, there are no procedures in place as yet to facilitate refunds. The Government have stated that they will work with employers over the coming months to set up a refund mechanism. It is important that clients paying SSP for COVID-19 absences keep records of the staff absences and the SSP paid to support refund claims once these are available.

Written by the Tax Advice Network

Off-payroll working reforms delayed by one year

Less than a week after the Chancellor confirmed in the Budget that the reforms to the off-payroll working rules would go ahead from 6 April 2020, the Government announced that to help businesses deal with the effects of the COVID-19 pandemic, the start date for the reforms would be delayed by one year. The reforms will now take effect from 6 April 2021 rather than 5 April 2020. However, the Government are keen to stress that this a deferral not a cancellation and that the reforms will be introduced as planned, but from 6 April 2021.

So what does this mean for clients who either provide their services through an intermediary or who engage workers who provide their services in this way?

Under the reforms, medium and large private sector organisations will need to determine the status of workers who provide their services through an intermediary, such as a personal service company. Where the worker would be an employee if the intermediary is ignored, the fee payer must deduct tax and National Insurance from payments made to the worker and pay employer’s Class 1 National Insurance. End clients within the scope of the reforms will now not need to operate the new rules until 2021/22. For 2020/21, it is business as usual and where they engage workers providing services through an intermediary, they should continue to make payments to the intermediary without deducting tax and National Insurance. The delay also relieves the end client of the associated employer’s Class 1 National Insurance liability until April 2021.

For workers who provide their services through an intermediary, the IR35 rules will apply for 2020/21 as they do now, such that if, ignoring the intermediary, the worker would be an employee of the end client, the intermediary must calculate the deemed payment at the end of the tax year and pay the tax and associated National Insurance on that deemed payment over to HMRC. This will remain the case for 2020/21 where the end client is a private sector body, regardless of its size. Where the end client is a public sector body, it is the public sector rather than the intermediary which must determine whether the rules, and deduct tax and National Insurance from the payment made to the worker’s intermediary.

It is worth highlighting that the delay in the rules merely change who is responsible for deducting tax and National Insurance and bearing the employer’s National Insurance liability in 2020/21, not whether IR35 applies. If the worker would be an employee of the end client if the intermediary is ignored, IR35 remains in point. However, for 2020/21, it remains the intermediary who must operate the rules where the end client is in the private sector.

Written by the Tax Advice Network

VAT on digital publications

It’s not often that a VAT case catches peoples’ imagination, but the News Corp win at Upper Tribunal is generating a lot of excitement among VAT specialists and publishers.

The issue is whether electronically delivered newspapers should carry VAT at 20% or 0%. News Corp won its case to zero rate digital versions of: The Times, The Sunday Times, The Sun, and The Sun on Sunday, by arguing that the digital content was essentially same as in the printed versions.

This ruling will allow News Corp to reclaim overpaid VAT on those electronic publications in past years. As this is a decision at the Upper Tribunal it sets a legal precedent, so HMRC is bound to consider claims made by other publishers who were not involved in the case.

VAT specialists are now approaching publishers who produce paper and an electronic versions of the same product, including magazines and books, to persuade them to submit protective claims for VAT paid in the last four years. This is the statutory period for reclaiming VAT.

To fall within zero-rating as per News Corp judgment the digital publication would need to share the following characteristics in common with its print-based stable-mate:

• the content must be fundamentally the same or very similar
• must be an edition-based publication (not rolling news)
• updates to the digital versions must be relatively minor
• additional content not be provided in newsprint must be a relatively minor aspect of the digital editions

HMRC is appealing the News Corp case and is unlikely to pay out any refunds until this litigation is concluded. However, if News Corp do win eventually, any overpaid VAT not protected by a claim will be lost forever.

It’s a difficult decision to make whether to make a claim or not, but if you have any queries on the above please contact our office.

Written by the Tax Advice Network

Reporting company cars

Company directors who want to drive an electric or low emissions car are now seriously considering whether their company should buy the car, and claim the 100% capital allowance available for new cars with CO2 emissions not exceeding 50g/km.

As we explained on 28 November 2019 this first year allowance is only available until April 2021, so directors have to get a move on. The lower benefit in kind charge for all low emissions cars from April 2020 will also provide an incentive to “go green”.

Where a company car is made available to the director for the first time it must be reported on the form P46(car). Where the new car has zero emissions “fuel type A” should be chosen on the current version of that form, and on the P11D for 2019/20.

A new version of P46(car) will be released in April 2020 to allow you to report the zero-emissions mileage for hybrid cars which have CO2 emissions figures of up to 50g/km. This figure may be found on the certificate of conformity, but check whether it is expressed in miles or kilometres, and convert to miles if necessary.

Diesel cars which meet the Euro 6D standard and hence are exempt from the 4% diesel supplement for benefits in kind, are now available. It is important to distinguish between diesel cars which do meet the Euro 6D standard, and those that don’t, on the P11d form for 2019/20.

• Use fuel letter F for diesel cars that meet the Euro 6D standard
• Use fuel letter D for diesel cars that don’t meet the Euro 6D standard

 

If the car benefit has been payrolled there is no need to complete a P11D to report the car. However, for low emissions cars provided in 2020/21, the zero-emissions mileage figure will have to be provided in a new field on the first FPS submitted for the year.

 

Written by the Tax Advice Network

NMW compliance

The National Minimum Wage (NMW) and the National Living Wage (NLW) rates will rise for pay periods starting on or after 1 April 2020, but this year the increase is quite steep as each rate rises by over 6% (see table).

The current and new NMW rates are:

Employers need to be prepared for this increase in wage costs and budget accordingly, as the increases will have a knock-on effect for employer’s class 1 NIC and the amounts of pension contributions required for work-place pension schemes under auto-enrolment.

There are also new rules for salaried workers who are paid a set annual amount, but in varying amounts each week or month, according to the hours worked. The employer will be permitted to choose the “calculation year” to monitor whether these workers have been paid at least the NMW for the hours they worked.

The “name and shame” threshold for underpayment of the NMW will be raised to £500 from £100. This will allow businesses which make errors that don’t exceed £100 across their payroll, to correct those errors without the risk of adverse publicity. However, the lower threshold of £100 will continue to apply where the business has found to have broken the NMW rules in the last six years.

Written by the Tax Advice Network