Dividend tax rates to increase by 1.25% from April 2022

Keith Witchell


September 17, 2021|In KRW Tax news|By Keith Witchell

In a bid to level the playing field with business owners who take lower salaries and supplement their income with dividends which do not attract NIC, the government also announced an increase in dividend tax rates by 1.25% from April 2022. This will see the existing dividend tax rate on basic rate taxpayers increase from 7.5% to 8.75%, while the dividend tax rate applying to dividends above the higher rate tax threshold will increase from 32.5% to 33.75%, with those dividends over the additional rate tax threshold increasing from 38.1% to 39.35%. This represents an additional tax burden on business owners, on top of the additional employers NIC cost for their businesses.

For further advice on this matter, please contact me.

Keith Witchell

Director



Self employed class 4 NIC rates to increase by 1.25% from April 2022

Keith Witchell


September 17, 2021|In KRW Tax news|By Keith Witchell

In order to bring parity between employed and self-employed workers, it was confirmed that the 1.25% increase will also be applied to the Class 4 National Insurance rates paid by the self-employed (which includes partners in a partnership or LLP). This means that the current Class 4 NIC rate of 9%, which applies to profits from £9,568 to £50,270 per annum, will increase to 10.25% from April 2022, while the reduced rate applying to profits over £50,270 per annum will increase from 2% to 3.25%. For someone with a profit of £30,000 per annum this is an additional annual NIC cost of £255.

For further advice on this matter, please contact me.

Keith Witchell

Director



Employer NIC rates to increase by 1.25% from April 2022

Keith Witchell


September 17, 2021|In KRW Tax news|By Keith Witchell

Alongside the increase to employee NIC rates, it was also announced that the 1.25% increase will also apply to employer NIC contributions, from April 2022. Employers currently pay 13.8% NIC on each employee’s earnings over £8,844 per annum, with no reduced rate for higher earnings as there is with employees NIC. This change will see the employers NIC rate increasing to 15.05%. For an employee earning £30,000 gross per annum, this will cost the employer an additional £264 per annum (£22 per month).

For further advice on this matter, please contact me.

Keith Witchell

Director



Employee NIC rates to increase by 1.25% from April 2022

Keith Witchell


September 17, 2021|In KRW Tax news|By Keith Witchell

The Prime Minister announced that in order to fund wide ranging reform to the health and social care sectors, it would be necessary to increase the rate of National Insurance paid by employees by 1.25% from April 2022. This will mean the current 12% rate on earnings from £9,568 to £50,270 increasing to 13.25%, and the current 2% NIC rate for earnings above £50,270 per annum, increasing to 3.25% from next April. For someone earning a gross salary of £30,000 per annum, this represents a reduction in their net pay of £255 per annum (£21 per month).

For further advice on this matter, please contact me.

Keith Witchell

Director



Zero tax when selling your business with a holding company

Keith Witchell


July 30, 2021|In KRW Tax Tips|By Keith Witchell

With recent changes to Entrepreneurs Relief (now Business Asset Disposal Relief) many fear that the days are numbered for paying 10% tax when you sell your business.

So, is there another way? Yes there is.

Under current tax legislation, a limited company that owns more than 10% of the shares in a trading company for more than a year qualifies for the substantial shareholding exemption. This means that if the company sells those shares it doesn’t have to pay any Corporation Tax on the sale.

As a result it is possible to sell your trading company and pay no tax at all, and we have a couple of clients that have done exactly that.

There must be a catch, right? Well yes there is, and in some cases it’s a pretty big one! The proceeds from selling your company are now in your holding company, and you’ll face tax withdrawing the funds personally. Usually that means dividend tax on getting at the proceeds from the sale, which rather defeats the purpose!

But it all depends what you plan to do with those proceeds. If the plan is to payoff your mortgage, or buy a mansion and/or a fleet of supercars, then as above, having a holding company isn’t much of an advantage (although see the note below about liquidating the holding company to put you back in the same position as you would have been by holding the shares in the trading company directly).

However, we see people selling businesses and investing the proceeds in other businesses, or buy to let properties, or stocks and shares, or more often than not a mixture of all of these! In this case there is no need to withdraw the proceeds personally and you can achieve 0% tax on selling your trading business!

So, what if you don’t know yet what you want to do when you come to sell the trading company in the future? In this case bear in mind that you always have the option of liquidating the holding company to access the proceeds as capital, which then puts you in the same position as if you held the trading company shares personally, and you’ll face Capital Gains Tax, with the same reliefs.

There are of course other advantages to having a holding company, such as protecting surplus profits from the trading company and giving you a vehicle to invest those profits separately to the trading company. If you plan to invest surplus profits in buy to let properties, for example, and wish to take a mortgage then you’ll find that most mortgage lenders won’t lend to a trading business, however successful it might be, and therefore you’ll need a separate company (special purpose vehicle, SPV) to hold the property in.

Moving your shares into a holding company needs careful consideration and there is a process to follow to do so without triggering Capital Gains Tax or stamp duty on the current value of the shares. This is called share for share exchange, and we have carried out this work for a number of clients over recent years, and are well placed to assist.

Key Facts

  • Many fear that the days are numbered for paying 10% tax when you sell your business
  • Holding your shares via a holding company can lead to 0% tax when you sell up
  • However the proceeds are then in a company, and you will face tax accessing them
  • But for serial entrepreneurs and those wishing to invest the proceeds it works very well
  • We can provide advice on suitability and assist with the share for share exchange process

For further advice on this matter, please contact me.

Keith Witchell

Director



What tax and NIC will i owe on the SEISS grants?

Keith Witchell


July 30, 2021|In KRW Q&A|By Keith Witchell

Now that we’re into the full swing of preparing 2020/21 Self Assessment Tax Returns, we’ve had a number of clients query their tax bills, which include tax and NIC owed on SEISS grants.

Most of our self-employed clients have been adversely affected by COVID-19 one way or another, with the vast majority having claimed at least one or two SEISS grants during the 2020/21 tax year.

To recap, the first two grants included less onerous eligibility conditions, and arrived when most businesses had genuinely faced a drop in income as a result of the pandemic, and were facing major uncertainty around their trading conditions for the months ahead.

Fast forward to the end of the 2020/21 tax year and we’ve had a few clients with higher tax bills this year than last once the SEISS grants are included, which is often unexpected.

So, what tax and NIC will you owe on the SEISS grants? The grants represent taxable profits and are therefore subject to tax and Class 4 National Insurance at your marginal rates. For most taxpayers that were eligible for the SEISS grants, this means 20% tax and 9% NIC.

Meanwhile, most businesses faced lower business travel costs during 2020/21 as a result of the lockdown restrictions and therefore their taxable business profits weren’t as badly affected as they’d feared when the pandemic first struck. Adding the grants to these profits may then lead to a higher taxable income than the previous tax year and therefore a higher tax bill than normal.

This also has an impact on the payments on account for the 2021/22 tax year, which are based on the 2020/21 tax liability. Upon discussing these payments on account with clients, we are finding that many only claimed the first two SEISS grants, and therefore they expect their taxable profits to return to pre pandemic 2019/20 levels. In this situation we may be able to make a claim to reduce the payments on account accordingly.

We’d advise self employed clients (including partners in partnerships and LLPs) that claimed the SEISS grants to get their information to us sooner than usual this year so that we can give you plenty of notice of upcoming tax bills in January 2022.

It is also worth pointing out that those who claimed the 3rd grant during 2020/21 and have ended up with higher taxable profits than previous years once the SEISS grants are taken into account, may need to consider whether they were eligible for the third grant, which included a more stringent means test referring to reduced profits. The 2020/21 Self Assessment tax return includes new boxes to declare SEISS grants received which don’t meet the criteria, which allows these grants to be repaid as part of your tax bill.

Key Facts

  • SEISS grants are subject to tax and Class 4 National Insurance at your marginal rates
  • For most taxpayers eligible for the grants, this means 20% tax and 9% NIC
  • Many businesses faced lower travel costs in 2020/21, so profits weren’t as low as feared
  • As a result many self-employed taxpayers have higher tax bills in 2020/21 than previous years
  • This can also impact on 2021/22 payments on account, but you could claim to reduce these

For further advice on this matter, please contact me.

Keith Witchell

Director



How to calculate your turnover reduction for the fifth SEISS grant

Keith Witchell


July 30, 2021|In KRW Insight|By Keith Witchell

As set out in our Tax News article, the fifth SEISS grant opens at the end of this month, but this time there are two levels of grant dependent on your reduction in turnover as a result of COVID-19.

This new test runs alongside the main SEISS grant criteria (see the Tax News article for further details) and is referred to as the Financial Impact Declaration (FID).

So, how do you calculate your reduction in turnover for the purposes of this FID test? To calculate this you need to compare your turnover in the pandemic period to your turnover for a reference period. These terms in italics are further explained below.

Turnover includes all sales, takings, fees, and money earned by the business, excluding VAT and using either the accruals basis or cash basis (whichever you use when completing your tax returns). You do not include any COVID-19 related grants such as SEISS grants or rates payments etc. This will be the turnover you usually include on box 9 of your self-employment short supplementary pages, or box 15 of your self-employment full supplementary pages of your Self Assessment tax return.

It is recommended to keep a note of your workings to support your SEISS claims, in case HMRC ever question the basis for your calculations.

Pandemic period is the period of a full year commencing 1 or 6 April 2020. If you haven’t completed your 2020/21 tax return yet, then you may need our help in calculating this figure.

Reference period is either the 2019/20 tax year, or the 2018/19 if you reasonably believe that the 2018/19 tax year more accurately reflects the usual turnover of the business. So, for example, if you were on maternity leave for part of 2019/20 then 2018/19 would be a fairer reflection of your usual pre-pandemic turnover.

For partners in partnerships or LLP’s you should use the turnover of the partnership/LLP rather than your share of that turnover.

If you have multiple sole trades then you must include your turnover from all of these businesses in both periods to carry out the comparison.

However, if you are a sole trader and a partner in a partnership or LLP, then in that case you should only include your share of the partnership turnover, together with the turnover of the sole trade business(es). This differs to the situation if you are only a partner (see above).

What if you started self-employment (or became a partner in a partnership or LLP) during 2019/20? In this case, providing you weren’t self-employed or in partnership in any of the tax years 2016/17 through to 2018/19 then you won’t have to complete the FID test, and your grant will be the full 80% of profits amount, providing all other conditions to claim are met.

The following example illustrates how the FID test works in practice.

Terry is a self-employed plumber and has been a sole trader for many years. He draws accounts up to 31 March each year. He hasn’t completed his 2020/21 tax return yet, but he’s worked out his turnover for the year ended 31 March 2021, excluding SEISS grants and other COVID-support income, to be £47,520. He was affected by reduced sales as a result of COVID-19, and continues to be affected during the period 1 May 2021 to 30 September 2021. His turnover for the year ended 31 March 2020 (which fell into the 2019/20 tax year) was £45,690. However, he took 3 months off in that year to visit his brother in Australia so feels that the previous year ended 31 March 2019 (2018/19 tax year) more accurately reflects his usual business turnover. In that year his turnover was £61,340. He therefore calculates the FID test as follows:

Reference period turnover (year ended 31 March 2019)£61,340 [A]
Pandemic period turnover (year ended 31 March 2021)£47,520 [B]
Reduction in turnover is therefore [B-A]£13,820 [C]
Percentage reduction in turnover [C/A x 100]22.53%

Terry’s turnover has reduced by less than 30%. He is therefore entitled to make a fifth SEISS claim equal to 30% of 3 months of his average profits over the tax years 2016/17 through to 2019/20. This is equal to 30/80ths of the amount he received for the fourth SEISS grant.

For more information on how to calculate the turnover reduction, or for the figures from previous tax returns to use in the FID test, then please contact you Client Manager.

Key Facts

  • 5th SEISS grant includes new test to establish reduction in turnover as a result of COVID-19
  • You need to compare your turnover for 2020/21 to your turnover in 2019/20
  • You can compare to 2018/19 instead if that more accurately reflects normal turnover
  • If you need assistance calculating the FID test, please contact your Client Manager

For further advice on this matter, please contact me.

Keith Witchell

Director



5th coronavirus grant for the self employed opens end of July

Keith Witchell


July 30, 2021|In KRW Tax news|By Keith Witchell

Earlier this month, HM Revenue & Customs issued some guidance about the fifth, and potentially final, Self Employed Income Support Scheme grant which kicks off at the end of this month.

Back in our March Tax Bulletin we announced that the 4th and 5th SEISS grants to support self-employed taxpayers (including partners in partnerships and LLPs) whose business have been adversely affect by COVID-19 had been confirmed, but at that stage the finer details for the 5th grant hadn’t been made available. These details were eventually published on 2 July 2021.

So, who qualifies for the fifth grant? The eligibility criteria are the same as for the fourth grant, with the additional requirement to quantify how much your trade has been affected, the results of which will lead to two levels of grant for the first time.

You’ll therefore need to meet ALL of the following conditions to make a claim:

  • you must carry on a trade which has been adversely affected by Coranvirus;
  • you must have submitted your 2019/20 tax return to HMRC by 2 March 2021;
  • you must have carried on a trade in both the 2019/20 and 2020/21 tax years;
  • you must intend to continue to carry on a trade in the 2021/22 tax year;
  • you must meet the profits condition for the fifth grant as set out below;
  • your trade must have suffered reduced activity, capacity or demand in the period 1 May 2021 to 30 September 2021;
  • at the time you make the claim you must reasonably believe that you will suffer a significant reduction in annual trading profits compared to what you would have reasonably expected if you had not suffered that reduced activity, capacity or demand.

You cannot claim under the scheme if the only reason for your business being adversely affected is due to a period of self-isolation in the UK following an overseas holiday. In other words, if you lost income because you couldn’t work after going on holiday then this must be disregarded.

Does the profits condition still apply? Yes it does, as it has done for all of the SEISS grants. This means that if your profits exceeded £50,000 in 2019/20 or your non trading income exceeded your trading income (i.e., less than half of your taxable income came from self-employment) then you are not eligible to claim. However, if either of those applies in 2019/20 you can average your profits for the tax years 2016/17 to 2019/20 as an alternative, so may still be able to claim.

How much is the fifth SEISS grant? There are two levels of grant for the first time with the fifth SEISS grant, dependent on the impact of COVID-19 on your turnover. To claim the full grant equal to 80% of 3 months profits (capped at a maximum grant of £7,500) you must be able to demonstrate that your turnover has reduced by at least 30%, as a result of COVID-19, compared to the 2019/20 tax year (you can compare to 2018/19 if that more accurately reflects the usual turnover of the business). If you meet all of the other conditions to claim the grant, but your turnover has reduced by less than 30%, then your claim will be equal to 30% of 3 months profits (capped at £2,850).

Please see our Insight article for a deep dive into how to calculate the turnover reduction.

When can you claim? Claims will open from the end of this month, with HMRC contacting taxpayers directly to let them know when they can submit their applications. The deadline for making claims will be 30 September 2021.

To summarise, if you qualified for the fourth SEISS grant and your business has continued to be affected by COVID-19 then you should qualify for the fifth SEISS grant. The amount you receive will be the same as you received for the fourth grant if your turnover has reduced by at least 30% since 2019/20, or 30/80ths of that amount if your turnover has reduced by less than 30%.

If you have any questions on this then please don’t hesitate to contact your Client Manager.

Earlier this month, HM Revenue & Customs issued some guidance about the fifth, and potentially final, Self Employed Income Support Scheme grant which kicks off at the end of this month.

Back in our March Tax Bulletin we announced that the 4th and 5th SEISS grants to support self-employed taxpayers (including partners in partnerships and LLPs) whose business have been adversely affect by COVID-19 had been confirmed, but at that stage the finer details for the 5th grant hadn’t been made available. These details were eventually published on 2 July 2021.

So, who qualifies for the fifth grant? The eligibility criteria are the same as for the fourth grant, with the additional requirement to quantify how much your trade has been affected, the results of which will lead to two levels of grant for the first time.

You’ll therefore need to meet ALL of the following conditions to make a claim:

  • you must carry on a trade which has been adversely affected by Coranvirus;
  • you must have submitted your 2019/20 tax return to HMRC by 2 March 2021;
  • you must have carried on a trade in both the 2019/20 and 2020/21 tax years;
  • you must intend to continue to carry on a trade in the 2021/22 tax year;
  • you must meet the profits condition for the fifth grant as set out below;
  • your trade must have suffered reduced activity, capacity or demand in the period 1 May 2021 to 30 September 2021;
  • at the time you make the claim you must reasonably believe that you will suffer a significant reduction in annual trading profits compared to what you would have reasonably expected if you had not suffered that reduced activity, capacity or demand.

You cannot claim under the scheme if the only reason for your business being adversely affected is due to a period of self-isolation in the UK following an overseas holiday. In other words, if you lost income because you couldn’t work after going on holiday then this must be disregarded.

Does the profits condition still apply? Yes it does, as it has done for all of the SEISS grants. This means that if your profits exceeded £50,000 in 2019/20 or your non trading income exceeded your trading income (i.e., less than half of your taxable income came from self-employment) then you are not eligible to claim. However, if either of those applies in 2019/20 you can average your profits for the tax years 2016/17 to 2019/20 as an alternative, so may still be able to claim.

How much is the fifth SEISS grant? There are two levels of grant for the first time with the fifth SEISS grant, dependent on the impact of COVID-19 on your turnover. To claim the full grant equal to 80% of 3 months profits (capped at a maximum grant of £7,500) you must be able to demonstrate that your turnover has reduced by at least 30%, as a result of COVID-19, compared to the 2019/20 tax year (you can compare to 2018/19 if that more accurately reflects the usual turnover of the business). If you meet all of the other conditions to claim the grant, but your turnover has reduced by less than 30%, then your claim will be equal to 30% of 3 months profits (capped at £2,850).

Please see our Insight article for a deep dive into how to calculate the turnover reduction.

When can you claim? Claims will open from the end of this month, with HMRC contacting taxpayers directly to let them know when they can submit their applications. The deadline for making claims will be 30 September 2021.

To summarise, if you qualified for the fourth SEISS grant and your business has continued to be affected by COVID-19 then you should qualify for the fifth SEISS grant. The amount you receive will be the same as you received for the fourth grant if your turnover has reduced by at least 30% since 2019/20, or 30/80ths of that amount if your turnover has reduced by less than 30%.

If you have any questions on this then please don’t hesitate to contact your Client Manager.

You may also like to read this month’s Q&A article about paying tax and NIC on the SEISS grants.

Key Facts

  • 5th SEISS grants open for claims from the end of July with a deadline of 30 September 2021
  • The same criteria apply as with previous SEISS grants
  • You must have suffered reduced activity, capacity or demand from 1 May to 30 September 2021
  • To claim the full grant of 80% of 3 months profits (max £7,500), turnover must be down 30%+
  • If turnover is down less than 30%, the grant will be 30% of 3 months profits (max £2,850)

For further advice on this matter, please contact me.

Keith Witchell

Director



Self employed income support scheme further grants confirmed

Keith Witchell


April 8, 2021|In KRW Tax news|By Keith Witchell

The Chancellor confirmed that there will be two further three-month grants for self-employed taxpayers once again set at 80% of past profits, and capped at £7.5k. In a welcome step, both grants will be made available to newly self-employed individuals, providing they have filed a 2019/20 Self Assessment tax return. However, for the fifth and final grant covering May to September 2021, your turnover must have reduced by at least 30% to get the full 80% grant, with a lower level grant of 30% of past profits for those whose income has fallen by less than 30%, capped at £2,850.

For further advice on this matter, please contact me.

Keith Witchell

Director



Urgent action needed to spread the payment of deferred vat bills

Keith Witchell


March 18, 2021|In KRW Tax news|By Keith Witchell

Almost a year ago, on the eve of the first lockdown, the Chancellor announced that businesses could defer their quarterly VAT liability falling due in April/May/June 2020 until the end of the tax year.

Rishi Sunak then went on to announce the option of spreading out the payment of the deferred VAT bills over a further year in his Winter Economy Plan last autumn.

So, what are the options to settle the deferred VAT?

If you’d prefer to settle it in one go you need to do so by 31 March 2021. Deferred VAT can be paid in the normal way using the usual reference numbers. There is no need to contact HMRC.

Alternatively, you can join the VAT deferral new payment scheme. This scheme opened on 23 February 2021 and will remain open until 21 June 2021. It requires you to opt in to use it, and since interest and surcharges can be added after 31 March 2021, we strongly advise anyone wishing to use it to opt in this month.

The deferred VAT liability can be spread over a number of equal instalments over the next 12 months, interest-free. The number of instalment payments available is determined by when you join the scheme, as follows:

Opt-in byMax no. of instalments
19 March 202111
21 April 202110
19 May 20219
21 June 20218

We’d therefore recommend opting in as soon as possible to allow maximum flexibility and to minimise the impact on your cashflow as the economy starts to recover post COVID.

Unfortunately joining the scheme is not open to us as agents on your behalf, and must be done by the business itself, using their Government Gateway account (which can be set up as part of the process if not already in place).

However, we will be on hand to assist with any questions.

To be able to join the scheme you must not have any overdue VAT returns in the past 4 years, and you’ll need to know the amount you owe (i.e., the deferred amount less anything you may have paid towards it already).

You will also need to make the first instalment payment when you join, with a Direct Debit to be set up for the remaining instalment payments.

You can join the scheme using this link which takes you to the Government Gateway login page. From here you will have the option to join the VAT deferral new payment scheme.

For further advice on this matter, please contact your Client Manager.

Key Facts

  • VAT bills deferred from April/May/June 2020 fall due for payment by 31 March 2021
  • These liabilities can be spread out over a period of up to one year interest-free
  • However, businesses have to opt in this month to benefit
  • 5Opting in by 19 March 2021 allows up to 11 equal instalment payments
  • You need to opt in by 21 June 2021 and we’d advise doing so this month

For further advice on this matter, please contact me.

Keith Witchell

Director