Tax blog | Simply Accounting Solutions

Tax free payment that could help with the extra costs of working from home

Employers who require their employees to work from home as a result of the temporary closure of their business premises due to the Coronavirus can provide a tax-free payment as a means of offsetting reasonable additional household expenses.

The payment, which was increased to £6 per week – or £26 per month – from 6 April, in the March Budget, can be paid to workers in addition to their salary, free from income tax and national insurance.

It is up to your employer to decide whether to make the payment. If they don’t, you may be able to claim tax relief from HMRC on the additional household costs of your home office, provided you keep records of these costs and can prove to HMRC that they were ‘wholly, exclusively and necessarily’ in the performance of your work.

While I expect this situation to be temporary, the extra £6 per week payable to employees in addition to their regular salary payments would be a welcome boost, particularly for those on lower incomes, to help them offset some of the additional costs associated with working from home.

If you are currently working from home due to the closure of your employer’s premises, why not ask them if they would be willing to pay you the additional £26 per month whilst working from home?

Coronavirus – what help is available to me?

If you are self-employed

See our article here about help under the Self-employed Income Support Scheme.

If you work in the gig economy

Unless it has been agreed as part of your contract, it is unlikely that you will be entitled to Statutory Sick Pay, sick leave or paid holiday leave.

Some employers have said they will offer sick pay if you have to self isolate because of coronavirus. Others have said they might offer some kind of compensation if you have been diagnosed with coronavirus.

If you’re working in the gig economy, check with the company to find out what your rights are.

You will be able to claim sickness benefits available to self-employed people if you’re eligible.

If you’re employed

The government has announced it will pay your wages through the coronavirus job retention scheme if your employer is forced to temporarily close because of coronavirus.

This will be available to anyone on the PAYE scheme and your employer will need to contact HMRC to apply. In order for you to qualify, your employer will have to re-assign your employment status as a 'furloughed worker’.

The scheme will pay 80 percent of retained workers’ salaries, up to £2,500 a month, plus the associated employer National Insurance Contributions and minimum automatic enrolment employer pension contributions on that wage. Your employer can top up your salary to more than this if they choose to.

Wages under the scheme can be backdated to 1 March, if you stopped working then, and the scheme will be open for at least three months. There is no limit on the amount of funding or the number of employees that can be furloughed.

The first of the grants are hoped to be paid before the end of April so it could take a few weeks to get your money.

If you have already been told your job is gone, you should contact your employer to see if they are now willing to take you back on and reassign you as a furloughed worker.

If you have already made a claim for benefits contact the relevant benefit helpline for advice on what to do before you cancel your claim.

Employment and Suppot Allowance (ESA)

You can apply for ESA if you are employed, unemployed or self employed.

Most new claims will be for the 'new style' ESA. To get this 'new style' ESA you need to have worked as an employee, been self employed and paid sufficient National Insurance in the previous 2 - 3 years. National Insurance credits also count, so if you have claimed Child Benefit or Tax Credits, you may be eligable.

Your partners income and savings will not affect how much 'new style' ESA you are paid.

ESA is taxable and counted as social security income for Tax Credits

You cannot get 'new style' ESA if you are getting Statutory Sick Pay (SSP) from your employer. You can apply for 'new style' EA for upto 3 months before your SSP ends and you will start to receive ESA payments when your SSP ends.

You can get Universal Credit (UC) at the same time or instead of ESA, but it ESA is counted in full as unearned income for UC purposes.

You can apply for ESA if you are below state pension age and have a disability or health conition that affects how much you can work. You can apply for ESA if you are working, unemployed or self empolyed. There are conditions to working whilst claiming ESA.

You cannot get ESA at the same time as claiming:-

Statutory Sick Pay (SSP)
Statutory Maternity Pay (SMP)
Jobseekers Allowance

For more information and to check eligability click here.

If you don’t want to go into work because of coronavirus

If you don’t want to travel or go into work because you are worried about catching coronavirus your rights are more limited. Employers are required to listen to your concerns and try and find a way to work around them. You might also be able to take the time off as holiday or unpaid leave. Your employer may also be able to set you up to work from home.

Am I entitled to sick pay?

Your rights to Statutory Sick Pay (SSP) depend on your employment status and earnings, see below for the various options.

If you’re an employee and earn more than £118 a week

If you’re an employee and earn at least £118 a week (£120 from 6 April 2020), you will be able to get £94.25 per week (£95.85 from 6 April 2020) for up to 28 weeks. The government has announced SSP will be paid from the first day you are off sick if it is related to coronavirus.

SSP covers you both if you’re ill and if you need to self isolate because you have been in direct contact with the virus. You will still need to provide a sick note or fit note. You no longer have to go to a doctor to get a sick note or fit note. You can get one by calling NHS 111.

Some employers have more generous contractual sick pay schemes, which menas that they will pay you either full pay or reduced pay for your period of illness. It is worth checking your contract, staff handbook or directly with your employer.

The government has said that it will bear the costs of SSP for small employers, so claiming it should not be a problem. If you do have a problem, contact the HM Revenue and Customs statutory payment dispute team:

Telephone: 03000 560 630
Monday to Thursday 8.30am to 5pm
Friday 8.30am to 4.30pm

Textphone: 0300 200 3212
Monday to Friday 8am to 5pm

If you’re an employee and earn less than £118 a week

If you’re employed but your earnings are too low to claim SSP, you may be able to claim Universal Credit. You can do this online here.

Don’t delay making a claim for benefits, even if you think you might have been affected by coronavirus.

However, if you are already getting any of these benefits, which are being replaced by Universal Credit:

Housing Benefit
Tax Credits
Income Support
Employment and Support Allowance

and need to make a new claim for Universal Credit because of coronavirus, check with the Citizens Advice Help to Claim service as soon as possible to find out how they might be affected and to get advice about your situation. Making a new claim for Universal Creit could mean that your existing benefits are reduced, so make sure you take advice first.

If you run your own business

The government has said they will fund the costs of Statutory Sick Pay (SSP) for employers with workforces of 250 people or fewer for up to 14 days.

You can also apply to HMRC for a grant to cover up to 80% your employees’ salaries, up to £2,500 a month, providing that you have designated them a 'furloughed worker'.

The government has announced grants and business rates support for small and medium sized business too.

Banks will also be offering loans to small and medium sized businesses under the governments Coronavirus Business Interruption Loan scheme.

If you’re registered for VAT, the government has announced VAT payments due between 20 March 2020 and the end of June 2020 have been deferred. They will need to be paid by the end of the financial year, however.

The government has announced the next Self Assessment tax return payment – due on 31July – has been deffered until January 2021 and you won’t be charged any penalties or interest for late payment during this period.

HMRC has expanded its Time to Pay Scheme if you are struggling financially because of anything to do with coronavirus and you owe outstanding tax.

If you already have missed a payment or are worried you will miss your next payment, call the HMRC Time to Pay helpline on 0800 0159.

If you’re business is struggling from the impact of coronavirus, then you can call Business Debtline on 0800 197 6026.

If you can’t work because you have to look after someone with coronavirus

You are entitled to time off work if you have to help a child or close relative who has coronavirus, has to self-isolate or needs to go into hospital. This person does not have to live with you.

This also applies if you need to take time off to look after children or arrange childcare because their school has been forced to close.

You have no statutory right to pay during this time, but employers might offer support depending on your contract and workplace policies. Talk to your employer to see what they can do to help.

The amounts of time you take off must be reasonable for the situation and you might have to use any unused paid holiday first.

If your partner or relative who lives with you gets coronavirus, or has symptoms, they might be able to claim Statutory Sick Pay (SSP).

If your child’s school has closed

Schools across the UK have closed to everyone apart from for the children of key workers. This might be a difficult time for parents, but there are options available to you.

You are entitled to take time off to care for a dependent child. There are no rules around how much time you can take off and you should talk to your employer about your options.

You might also be able to take time off as holiday leave.

If you’re worried about childcare costs

If your hours have been reduced, your income has gone down, you might be worried about how this will affect any help you get towards childcare costs.

With the lockdown in place and some childcare providers closing temporarily, you might also be concerned if you’ve paid in advance to retain your child’s place, or if your childcare needs have stopped completely.

If you claim through the tax-free childcare scheme, this is usually based on a three-month period, so support will depend on when you next need to report your income.

If you’re getting the childcare costs element of Universal Credit, or getting help through tax credits, the number of hours you’re now working and your income can affect how much help you get towards childcare costs.

If you’re getting free school meals

Schools are making provisions to provide meals and food parcels to everyone who is eligible for free school meals.

How this is happening depends on the school your child is attending and where in the country you live.

If you live in England visit the Gov.uk website.

In Wales visit the Gov.wales website.

In Scotland visit the Mygov.scot website.

In Northern Ireland visit the NI Direct website.

If you’re worried about losing your job

The government grants, which allow your employer to cover up to 80 percent of your salary up to £2,500 a month, should minimise the risk of losing your job. Ask your employer if they could place you on furlough instead of making you redundant, this would mean you could still get 80% of your salary.

Lay-offs and reduced hours

If you’ve been asked to take unpaid leave, and your contract allows you to be unpaid during this period, you might be able to claim Guarantee Pay.

You might also be able to claim new-style Jobseekers Allowance and, if you need help with other costs, Universal Credit.

Benefit changes because of coronavirus

The Universal Credit standard allowance and working tax credit basic element will both be increased by up to £1,040 a year for 12 months.

This will be available to new and existing claimants regardless of whether you’re employed, self-employed or a job seeker.

The amount you will get depends on your circumstances including household income and savings. You will not beable to claim Universal credit if you have more than £16,000 in capital.

If you’re self-employed, the minimum income floor for Universal Credit will be temporarily abolished from 6 April 2020, meaning that most self employed people should be able to claim.

The Local Housing Allowance will increase and some people may get more money to cover their housing costs to cover the costs of the bottom 30 percent of rental properties in your area.

If you’re claiming Universal Credit and are not able to work or attend interviews at the jobcentre because of coronavirus, it’s important you contact your work coach by phone or through your online journal as soon as possible.

Covid-19 support for the self-employed

Being self-employed means that you are not entitled to Statutory Sick Pay (SSP).

In last weeks budget the Chancellor of the Exchequer announced that any self-employed person who is affected by Covid-19 or self isolating will be eligable for Employment and Support Allowance (ESA) from day one of sickeness, rather than waiting until day 8.

If you are over 25 and eligable ESA is payable at a rate of £73.10 per week.

More details and how to claim can be found here https://www.gov.uk/employment-support-allowance

Chancellor announces support for businesses during Covid-19 outbreak

The Chancellor, Rishi Sunak, has announced a package of measures to support business and workers affected by the coronavirus.

The measures include:

•giving all retail, hospitality and leisure businesses in England a business rates holiday for the next 12 months;

•making grants available to small businesses eligible for Small Business Rate Relief from £3,000 to £10,000; and

•providing additional grants of £25,000 to retail, hospitality and leisure businesses operating from smaller premises, with a rateable value over £15,000 and below £51,000.

Further details on the support measures can be found here

Tax Credit Renewals deadline 31 July 2019

The annual tax credit renewal period is now firmly underway. If you claimed tax credits during the 2018/2019 tax year and have not finalised your claim and moved to universal credit, then you should have received your renewal pack by now.

If you were expecting a renewal pack but haven’t received it yet then you should contact HMRC straightaway as something may have gone wrong.

If you receive a reply-required renewal pack – with a red line across the first page and an instruction to ‘reply now’ – then you must complete your renewal declaration by 31 July 2019, otherwise payments will stop.

If your actual income is not known, then an estimate can be given by 31 July 2019 but you must update HMRC with your actual income by 31 January 2020 once your self-assessment tax return has been completed.

If your actual income is more than you estimated then HMRC will ask for any over paid tax credits to be repaid. This can be done in one lump sum payment, or a smaller amount deducted each month from your tax credit payments.

If your actual income turns out to be less than you estimated, then HMRC will pay you the shortfall.

If you have received an auto-renewal pack – which shows the instruction to ‘check now’ – you only need to contact HMRC if there have been any changes to your income or circumstances or there are corrections to make.

Help and information on renewing tax credits is available from HMRC:

On GOV.UK at https://www.gov.uk/browse/benefits/tax-credits;
Using HMRC’s online forum (click on Tax Credits and You);
Through HMRC’s webchat help service; or
By calling the tax credits helpline: 0345 300 3900

Tax Credit renewals can be completed either:

On-line, via the GOV.UK website
Calling HMRC’s tax credits helpline (0345 300 3900 : textphone 0345 300 3909)
By post to:

Tax Credit Office
HM Revenue and Customs
BX9 1LR
United Kingdom

The tax free personal allowance and the marriage allowance

As the 2019/20 tax year, covering the period 6 April 2019 to 5 April 2020, has begun there are a few changes which came into effect from a personal tax perspective. Here we look at two of them - the marriage allowance and the personal allowance.

Marriage Allowance

It is possible for some couples, where one spouse or civil partner’s income is below the personal allowance, to transfer 10% of their personal allowance to their spouse or civil partner. This is only possible if the other spouse or civil partner’s income is taxed at the basic rate, so if you are a high earner, you cannot benefit from this allowance.

The Marriage Allowance can be claimed by contacting HMRC, or by making a claim on your self-assessment tax return. If you have a spouse or civil partner who is earning less than £12,500 per year and have not claimed the marriage allowance before, please get in touch as we may be able to help you claim for the current year and previous years. Getting you a nice tax rebate!

Personal Allowance

The personal allowance has increased with effect from 6th April 2019 to £12,500, an increase of £650 from the 2018/19 tax year (£11,850). This means that for most people living and working in the UK, the first £12,500 of income is tax free. For most basic rate taxpayers this will mean that you are better off by £130 this year.

If you have “adjusted net income”, (a technical term and beyond the scope of this article to explore in detail) of more than £100,000, your tax-free personal allowance will be reduced by £1 in every £2. There will be no entitlement to the personal allowance if your "adjusted net income" exceeds £125,000. There are ways to deal with this reduction in the personal allowance for high earners and if you are affected, please get in touch to find out how we can help.

Have you claimed your marriage allowance?

Not made a claim for the marriage allowance? Get in touch now to find out how much you are owed

Make a claim now!

Confusion over Self-assessment July 2019 payments on account

The due date for the second payment on account for 2018/19 income tax self-assessment tax liabilities is 31 July 2019.

HMRC’s self-assessment system has, in some cases, failed to generate the payments on account that are due for 2018/19. If the first payment on account for 2018/19, due in January 2019, was missing from your statement of account then the second payment will also be missing.

HMRC has provided the following update:

“In some of these cases the individual or their agent contacted us and payments on account (POA) for 2018/19 were then set up. For these individuals the second POA for 2018/19 will be due on 31 July 2019 and a statement of account reflecting this will be issued as normal.”

If you do not receive a statement of account in June or July 2019 as the 2018/19 Payments on Account have not been created correctly, HMRC have confirmed that you do not need to do anything about it. There will not be any penalties or interest added for missing the payment, providing that any liability due for 2018/19 is paid in full by 31 January 2020.

If you have received your statement with the POA's correctly added, you will need to make the payment otherwise interest WILL be added.

Bear in mind that if you do not make a payment in July because HMRC has not created the POA’s correctly, you may be facing a larger payment than normal in January, so make sure you budget accordingly as interest will be charged if you pay later than 31 January 2020.

Holiday let landlords could be next to trial MTD

HM Revenue and Customs (HMRC) have been writing to landlords with furnished holiday lets recently, inviting them to take part in the next stage of trials for Making Tax Digital (MTD).

Some commentators have suggested that this means that the next group of businesses to be mandated into MTD, from 2021, will be landlords with furnished holiday let properties.

Landlords selected for the trial will need to find and sign up for MTD-compatible software to keep a digital record of their income and expenses for the 2019/20 financial year. During the trial, landlords will need to submit digital records to HMRC every quarter, along with a final annual summary by 31 January 2021. That is FIVE separate returns to HMRC for a single tax year!

Landlords are not the only ones being encouraged to trial the MTD system for income tax. Sole traders are also being asked to test the software too. VAT registered businesses with turnover in excess of £85,000 are already using the MTD system to file their quarterly VAT returns with HMRC, but MTD for income tax is still in the trial stages.

The Government confirmed earlier this year that it would not mandate MTD for any new taxes or businesses in 2020. The delay was prompted after concerns were raised that the pace of the roll out to small businesses was too fast.

HMRC’s letter to landlords points out that HMRC consider that the improved accuracy and support that digital software provides, and the fact that information is sent directly to HMRC from the software, will reduce the amount of tax lost due to avoidable errors.

Some commentators believe that there are a lot more advantages to landlords in moving to a digital system. Many landlords lose claimable receipts and can struggle to keep their records in good order. By using software to record income and expenses in real-time it will be easier for landlords to monitor the profitability of their rental portfolios and to plan well in advance for the year end tax payments.

Have you completed your P11ds yet?

If you were providing employees with taxable benefits and expenses in 2018/19 (cars, vans, private medical etc) these must be notified to HM Revenue & Customs (HMRC) on a form called a P11d

The reporting requirements depend on whether the benefits were put through the payroll or not. Payrolled benefits should not be included on the P11D but must be taken into account in calculating the Class 1A National Insurance liability on form P11D(b).

Form P11D(b) must be filed regardless of whether benefits are payrolled or notified to HMRC on form P11D. The P11D(b) is the Class 1A return, as well as the employer’s declaration that all required P11Ds have been submitted.

There are various ways in which forms P11D and P11D(b) can be filed. The simplest is to use HMRC’s online end of year expenses and benefits service or HMRC’s PAYE Online for employer’s service. Forms can also be filed using commercial software packages.

There is no requirement to file P11Ds and P11D(b)s online – paper forms can still be filed if you prefer.

Deadline

Regardless of the submission methods, forms P11D and P11D(b) for 2018/19 must reach HMRC by 6 July 2019 at the latest, or there will be a fine. Employees must be given a copy of their P11D (or details of the information contained therein) by the same date, so they can include it on their self-assessment tax returns. Details of payrolled benefits should have been notified to employees by the earlier date of 31 May 2019.

The Class 1A National Insurance due on the benefits must be paid by 22 July where paid electronically, or by 19 July where payment is made by cheque.

If you are providing your employees with benefits and are unsure on what you need to do, please get in touch.

Beware the tax traps when making gifts

New research from the National Centre for Social Research (NatCen) and the IFS (Institute for Fiscal Studies) indicates that there is a huge lack of awareness of the rules when it comes to gifting. Liability for inheritance tax (IHT) and the risk of making financial gifts without considering the tax side of things can mean that there is a nasty surprise waiting around the corner.

Only 25% of gifters were described as having a ‘working knowledge’ of IHT rules while fewer than half (45%) of gifters reported being aware of IHT rules or exemptions when they gave their largest gift. However, despite knowing about the tax liability, most respondents did not equate gifting with inheritance tax, and said it did not affect their gifting behaviour. Only 8% of all gifters considered the tax rules before making a financial gift.

It is worth remembering that it is not only IHT but also CGT (Capital Gains Tax) can come into play when making gifts. If, for example, you wanted to gift a property that you had owned for many years and rented out, the CGT could be considerable. You may be wondering how you can make a gain when you have given something away for nothing? It’s because HMRC treat the gift as a disposal for tax purposes and this disposal is deemed to be at a market value. So although you have not received any money in return for you property, you could still end up with a sizable tax bill to pay.

For those who were aware of the IHT rules, 54% said this influenced the value of their largest gift, and on the whole these respondents came from more affluent taxpayers, with assets of £500,000 plus.

Over half (56%) of respondents said they planned to leave an inheritance, with 15% sure they would not, and 29% said they did not know.

When it comes to where the money goes, one in 10 made donations to charity, while the majority of the gifters gave to individuals (80%) with the most common beneficiaries being adult children with over half of respondents giving to this group, while 15% gave to parents, siblings, grandchildren and partners and nearly as many to friends (14%).

So what are the Tax rules when it comes to gifting

Gifts valued at less than £250 individually, totalling less than £3,000 per year, or to help with certain people’s living costs are exempt from IHT. Most gifts made by an individual, to another individual, during their lifetime, will be exempt from IHT unless the donor dies within seven years of making the gift. Such gifts are known as potentially exempt transfers (PETs).

The current starting threshold for IHT for a single person is £325,000, and £650,000 for married couples and civil partners. This group also have the added benefit of the residential nil-rate band which gives them an additional £150,000 each of tax-free property-based inheritance as of 6 April 2019. The allowance is set to rise to £175,000 from 6 April 2020.

This additional tax relief for residences is only available when assets are passed on to children, and was the way the Conservative government kept its pledge to raise the IHT threshold to £1m.

If you should die within 7 years of making a gift, this is called a failed PET and it is taxed on a sliding scale. This means that where the gift was given less than three years before death, tax on the gift is charged at the full rate at 40%, reducing to a taxable rate of 8% if the gift is given six to seven years before death.

With many families facing potentially high care costs for family members, it is important to note that there are very strict rules on property transactions. While a gift given more than seven years before death is not normally counted towards the value of the estate, this is not true where a gift is subject to a reservation of benefit.

This means, for example, if you give away your home to your children and continue to occupy it rent-free, the property is still treated as forming part of your estate, the gift is effectively ignored for IHT purposes, even though your children may be the legal owners of the property.

With so many tax traps to be aware of when making gifts, why not contact us. We can help you plan your giving in a tax efficient way, so you and your family can enjoy the benefits.