Tax returns and ongoing business aid – what you need to know

The tax return deadline for filing your online Self-Assessment for the tax year ending 5th April 2020 is midnight on 31st January 2021. This applies to the self-employed, business owners and for any other situations where tax returns would be required, such as child benefit (if your earnings/profit exceed £50,000 a year), if you earned more than £2,500 from renting out property, or you earn more than £100k a year from income gained abroad, but there are some changes that you need to know about for 2021.

Nationwide small businesses and the self-employed, particularly, have faced challenging terrain because of the coronavirus pandemic, so in acknowledgement of this the Government last year announced some support measures, including self-employment tax bill deferrals.  Income tax payments due on 31st July 2020 were able to be deferred until January 2021 however subsequently further announcements said that if sole traders or business owners are unable to do so, they can apply for an enhanced payment arrangement (called Time to Pay), whereby tax owed (under £30,000) can be paid in instalments for up to 12 months.  However this is subject to agreement by the HMRC and at this late stage, online applications are closed so the only route to discuss this is via telephone.  It’s also important to note that interest will be charged from 1st February 2021 until settlement occurs.

If you’re an employee who was told by your employer to work from home you can claim £125 a year tax relief so do look into this before the deadline passes, but bear in mind that as the first lockdown started on 23rd March 2020, the pandemic spans across 2 years (2019-20 for two weeks and 2020-21).  Rather than completing a tax return, the HMRC has created an online portal to make it easier for employees to claim.

If you run a business whose profits have been adversely affected into the 2020/21 tax year, and are forecasting a dip in profit year on year,  may be able to reduce the level of your payments on account for 2020/21 if your taxable profits are likely to be less than for the 2019/20 tax year. If so, you can make the claim to reduce the payments on account before filing your tax return or further down the line towards the July 2021 payment.

If you are VAT registered and deferred VAT payments between 20th March 2020 and 30th June 2020, you now have 3 options. You can pay the deferred VAT in full on or before 31st March, opt in to the VAT deferral new payment scheme when it launches in 2021, or contact HMRC if you need more help to pay.

The NI threshold has increased to £9,500 which equates on average to a £78 cut in self-employed tax, so you will be paying Class 4 NI on profits exceeding that which is 9% up to £50k and 2% beyond that. There are some small concessions for Class 2 NICs and Class 4 NICs for sole traders.

You can claim a third and fourth SEISS (Self-employment Income Support Scheme) should your business be significantly impacted with reduced profits by the coronavirus, as long as you were eligible for them previously regardless of whether you claimed.  The deadline to apply for the third grant is almost here – 29th January, which covers loss of income from November 2020 to January 2021.  The Government has not yet released details on the fourth grant, apart from the period of cover which will be from February-April, but eligibility criteria and thresholds are as yet unknown.  You also have to prove for these third and fourth grants that you have been significantly impacted, although no figures or percentages were stated at the time the grant applications opened.

It was also announced earlier this month that up to 700,000 small (sole-director) business owners could potentially be in line to receive a grant of up to £7,500, as long as they earn less than £50,000 per annum.  Directors who pay themselves through dividends have so far been excluded from any national Covid “bailouts” so have received no financial assistance for almost a year.  The difficulty is in distinguishing Directors from other shareholders, however it is the first time a financial payout to this group has come under “active consideration” since March 2020.

For LTD companies their full statutory accounts must be prepared and there must be a company tax return filed whether there has been profit or loss, and penalties are incurred if the deadlines are failed. It is illegal for a business to knowingly continue to trade insolvent.

Corporation tax returning filing deadlines have not been formerly extended however the HMRC are apparently willing to help companies who have been negatively impacted by the pandemic.

In November, the HMRC issued a press release urging taxpayers to be aware of increased scamming guises, noting in the last 12 months there were 846,000 instances of suspicious activity relating to false communication from the HMRC, and almost 500,000 of these were bogus tax rebates.

The three fold procedure of ‘stop, challenge and protect’ is encouraged. Stop before giving out personal information and money, do not open attachments nor reply to texts. Challenge requests by ignoring or refusing them, as the pressure is applied to cause impulsive compliance and panic. Protect yourself by forwarding anything suspicious to phishing@hmrc.gov.uk and texts to 60599, and contact your bank immediately if you believe a scam has occurred and report to Action Fraud.

Finally, the new “off-payroll” working rules, known as IR35 will start in the private sector from April 2021, forcing medium and larger sized businesses to undertake the responsibility of working out a contractor’s employment status.  If a contractor is, in effect, an employee, the Government does not want them to enjoy the same tax efficiency as those who are genuinely self-employed, however these new rules are not without controversy, especially in light of the current economic climate.  When the same reforms were introduced in the public sector in 2017, business decided to stop using contractors altogether, therefore hindering the flexibility of the self-employed, when you could argue the UK needs them the most.

In essence, an “unprecedented” global pandemic may be capable of closing down countries, but it won’t change the fact that “two things are guaranteed in life – you will die and you must pay your taxes”….

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