EORI

Have you got your EORI number?

From 1 January 2021, you will need an Economic Operators Registration and Identification (EORI) number to move goods between Great Britain and the EU. Prior to 1 January 2021, you only needed an EORI number if you move goods between the UK and non-EU countries. 

If you do not already have an EORI number, you will need to obtain one in order to move goods between Great Britain and the EU. You may also need one if you move goods between Northern Ireland and non-EU countries.

Applying for an EORI number

From 1 January 2021, you will need an EORI number that starts with ‘GB’ to move goods between Great Britain and other countries.

If you do not already have an EORI number that starts with ‘GB’ and you have yet to apply for one, this should be done as soon as possible. 

Applications for an EORI number can be made online. 

To make an application, you will need:

  • your VAT number and the effective date of your registration (which can be found on your VAT registration certificate);
  • your National Insurance number (if you are applying as an individual);
  • your Unique Taxpayer Reference (UTR);
  • the date that your business started and its Standard Industrial Classification (SIC) code (which can be found on the Companies House register for a company); and
  • your Government Gateway User ID and password.

Making an application using the online service should only take 5—10 minutes. You will receive your EORI number straight away unless HMRC need to make further checks, in which case it will take up to five working days.

Once an application has been made, the status of that application can be checked online. 

Moving goods between Great Britain and Northern Ireland

The Northern Ireland Protocol comes into effect on 1 January 2021. Special rules apply to the movement of goods between Great Britain and Northern Ireland. From that date, an EORI number that starts with ‘XI’ will be needed to:

  • move goods between Northern Ireland and other countries;
  • make a declaration in Northern Ireland; or
  • get a customs decision in Northern Ireland.

To obtain a EORI number that starts with ‘XI’ you will need to have one that starts with ‘GB’ – if you don’t, you will need to apply for one first. If you already have an EORI number that starts with ‘GB’ and HMRC have identified that you are likely to need one that starts with ‘XI’, then they should send you one automatically.

Trader Support Service

If you move goods between Great Britain and Northern Ireland, sign up to the Trader Support Service (see www.gov.uk/guidance/trader-support-service) for help and support on moving goods between Great Britain and Northern Ireland.

Director's loan

Tax implications of making loans to directors

Where a family company has cash in the bank but profits have been adversely affected by the pandemic, directors of a family company may wish to take a short term loan to enable them to meet personal bills, with a view to clearing the loan with a dividend payment when business picks up. This can be a tax-efficient strategy, although there are tax implications to be aware of if the loan balance exceeds £10,000, or if the loan is not repaid by the corporation tax due date.

A tax-free loan

It is possible to enjoy a loan of up to £10,000 tax-free for up to 21 months. To enjoy the maximum tax –free period, the loan must be taken out on the first day of the accounting period. Where the loan is taken out during the accounting period, as long as it is does not exceed £10,000, it can be enjoyed tax-free until nine months and one day after the end of the accounting period.

Provided the loan is for £10,000 or less, there is no benefit in kind tax to pay. But if the outstanding loan balance exceeds £10,000 at any point, the director is taxed on the benefit of the loan.

Benefit in kind charge

A tax charge will also arise on the director under the benefit in kind legislation if the loan balance exceeds £10,000 at any point in the tax year. The amount charged to tax is the difference between interest due on the loan at the official rate (set at 2.25% since 6 April 2020) and the interest, if any, paid by the director. The company must also pay Class 1A National Insurance (at 13.8%) on the taxable amount.

Section 455 charge

To avoid a section 455 charge, the loan must be repaid within nine months and one day of the end of the accounting period. This is the day by which corporation tax for the period must be due. A section 455 charge (named after the legislative provision imposing it) is a charge on the company set at 32.5% of the outstanding loan balance. The charge is aligned with the higher dividend tax rate.

If the loan is cleared by the corporation tax date, there is no section 455 tax to pay. There are various ways in which the loan could be cleared, for example, by declaring a dividend (assuming that the company has sufficient retained profits) or by paying a bonus. However, there will be tax implications of these too. Unless the director can use funds from outside the company to clear the loan or will pay tax on the dividend or bonus being used to clear it at a rate which is less than 32.5%, it may be better to pay the section 455 charge instead. 

The section 455 charge is a temporary charge which is repaid if the loan is repaid. The repayment is made nine months and one day from the end of the accounting period in which the loan was repaid, usually be setting it against the corporation tax liability for that period.

It should be noted that anti-avoidance provisions apply to prevent a director from clearing the loan shortly before the corporation tax due date and re-borrowing the funds shortly afterwards.

Deferred VAT

More time to pay back deferred VAT and tax

At the start of the pandemic, VAT registered businesses were given the option of deferring payment of any VAT that fell due in the period from 20 March 2020 to 30 June 2020. Self-assessment taxpayers were also given the option of delaying their second payment on account for 2019/20, which was due by 31 July 2020. In his Winter Economy Plan, the Chancellor extended the deadlines by which the deferred tax must be paid, giving further help to those struggling to pay their tax bills as a result of Coronavirus.

VAT

VAT-registered businesses which took advantage of the opportunity to delay paying VAT that fell due between 20 March 2020 and 30 June 2020 were originally required to pay the deferred VAT by 31 March 2021. However, there is now another option for those for whom this presents a challenge, and they can instead pay the deferred VAT in smaller equal instalments up to the end of March 2022. Those wishing to take advantage of the instalment option will need to opt into the scheme; failure to do this will mean that the VAT owed will need to be repaid by 31 March 2021. Where businesses are able, they can if they so wish pay the deferred VAT in full by 31 March 2021.

Depending on the business’ VAT quarter dates, deferred VAT will relate to the quarter ending 29 February 2020, the quarter ending 31 March 2020 or the quarter ending 30 April 2020. VAT due after 30 June 2020 (i.e. for the quarter to 31 May 2020 and subsequent quarters) must be paid in full and on time. Where direct debits were cancelled, these should be reinstated if this has not already been done.

Regardless of whether the instalment option is chosen or not, the deferred VAT will need to be paid in addition to the usual VAT payments, and it is prudent to budget for this.

Self-assessment

Under the original proposals, self-assessment taxpayers could delay paying their second payment on account for 2019/20 due by 31 July 2020 and instead pay it by 31 January 2021, along with any balancing payment due for 2019/20 and the first payment on account due for 2020/21. For some taxpayers who have been affected financially by the pandemic, this will be something of a stretch. In recognition of this, self-assessment taxpayers who are finding it difficult to pay what they owe can set up an automatic time to pay arrangement online, as long as they do not owe more than £30,000 in tax.

Pension planning

Tax efficient remuneration using pension contributions

Despite on-going speculation that the government will intervene at some point, for now, making contributions into a pension scheme continues to be a particularly tax-efficient form of savings. 

Nearly everyone is entitled to receive tax relief on pension contributions up to an annual maximum – regardless of whether they pay tax or not. The maximum amount on which a non-taxpayer can currently receive basic rate tax relief is £3,600. So an individual can pay in £2,880 a year, but £3,600 will be the amount actually invested by the pension provider. 

Moreover, subject to certain conditions, tax relief is still currently available on pension contributions at the highest rate of income tax paid, meaning that basic rate taxpayers get relief on contributions at 20%, higher rate taxpayers at 40%, and additional rate taxpayers at 45%. In Scotland, income tax is banded differently, and pension tax relief is applied in a slightly different way. 

The total amount of tax relief available on pension contributions is calculated with reference to ‘relevant UK earnings’. If you own a limited company and you take both salary and dividends, the dividends do not count as ‘relevant UK earnings’. This means that if you take a small salary and a large dividend from your company, your pension tax relief limit will be low – tax charges will apply if the limit is exceeded.

If you want to increase your tax-free contributions limit, you could consider either increasing the amount of salary you take from the company (to increase your ‘relevant UK earnings’), or making the pension contribution directly from your company as an employer contribution. Making an employer contribution has additional advantages.

Employer contributions

Qualifying employer contributions count as allowable business expenses, so the company could currently save up to 19% in corporation tax. In order to qualify for a deduction, the pension contributions must be ‘wholly and exclusively’ for the purposes of business. HMRC will check for evidence that this is the case, for example whether other employees are receiving comparable remuneration packages.

Another advantage of making a company contribution is that employer National Insurance Contributions will not be payable on the contributions made, saving the company up to 13.8% on the contribution amount.

This means that the company can potentially save up to 32.8% by paying money directly into your pension rather than paying money in the form of a salary. Depending on your circumstances, this may or may not be more beneficial to you rather than paying personal pension contributions.

Employee benefits

An employer-provided pension can be a significant benefit. Employers can make contributions to occupational or personal pension plans without triggering a tax charge. This can significantly enhance an employee’s remuneration package and is a tax efficient way of rewarding employees. It is also worth noting that, subject to a couple of conditions, there is a tax exemption covering the first £500 worth of pension advice paid for by an employer. The exemption covers advice not only for pensions, but also on the general financial and tax issues relating to pensions.

Pension inequality

The government is currently reviewing feedback from a consultation on pensions tax relief administration, particularly in relation to an anomaly in the tax rules whereby people on low incomes may pay 25% more for their pension contributions due to the way their employers’ pension scheme operate. It is likely that there will be some modification to the rules to iron out this issue. Whether there will be wider-ranging changes or restrictions on pensions tax relief remains to be seen, but it is recommended that anyone considering topping up their pension pot should think about doing it sooner rather than later.

Payment on account

Should I reduce my payments on account?

The deadline for filing your 2019/20 tax return is fast approaching, as is the due date for the first payment on account for 2020/21. Now is the time to think about whether you can reduce your payments on account.

Need to make payments on account

If you pay tax under self-assessment you may need to make payments on account. These are advance payment towards your tax and Class 4 National Insurance bill. 

You will need to make payments on account if your last self-assessment bill was at least £1,000 unless you paid at least 80% of what you owe under deduction at source, for example, under PAYE.

Payments on account based on previous year’s liability

When making payments on account, the assumption is that the current year’s liability will be roughly the same as the previous year’s liability. Thus each payment on account is 50% of the previous year’s tax and Class 4 National Insurance liability. Class 2 National Insurance contributions are not taken into account in working out payments on account.

When are they due?

Payments on account are due on 31 January in the tax year and 31 July after the end of the tax year. Consequently, payments on account for 2020/21 are due on 31 January 2021 and 31 July 2021.

Falling profits

Payments on account for 2020/21 are based on profits for 2019/20. Thus, where a business has been adversely affected by the Covid-19 pandemic, the payments on account will not reflect this because they will be based on pre-pandemic profits. 

Where pandemic has taken its toll, cashflow is likely to be tight and there is little sense in making higher payments on account than are needed. You can elect to reduce your payments on account so that they better reflect your likely taxable profits for 2020/21. However, when working out your projected profits for 2020/21, remember to take into account any SEISS grants and other taxable Government support payments that you received.

Reduce your payments on account

There are various ways in which you can tell HMRC that you want to reduce your payment on account. This can be done by signing into your online personal tax account via the Government Gateway and using the ‘reduce payments on account’ option or by completing form SA303 and sending it to HMRC. You can also tell HMRC that you want to reduce your payments on account in the other information box on the self-assessment tax return. You will need to specify what you want to pay and the reason for the reduction.

Beware paying too little

Where cashflow is tight, it may be tempting to reduce payments on account to reduce your outgoings in January and July. However, if you reduce your payments below the actual amount that is due (i.e. 50% of the liability for that year), you will be charged interest on the shortfall between what you should have paid and what you have paid. Remember, if you are struggling to pay tax due on 31 January 2021, you can set up a ‘Time to Pay’ agreement to pay your tax in instalments. As long as you do not owe more than £30,000, this can be done online.

Side Hustle

Make the most of your spare time

In the current economic climate, many people are looking for ways to increase household income. The trading allowance may be particularly useful to employees who also have small part time earnings from self-employment as it enables them to receive tax-free income of up to £1,000 with no requirement to report it to HMRC.

The allowance has already proved very popular with individuals with casual or small part time earnings from self-employment, for example, people working in the ‘gig economy’ (Deliveroo workers and such like), or small scale self-employment such as online selling (maybe via eBay or similar). In broad terms, it means that:

  • individuals with trading income of £1,000 or less in a tax year will not need to declare or pay tax on that income; and
  • individuals with trading income of more than £1,000 can elect to calculate their profits by deducting the allowance from their income, instead of the actual allowable expenses.

There are a few practical implications of the allowance to note. For example, where actual expenses are less than £1,000, deducting the trading allowance will be beneficial, whereas if actual expenses are more than £1,000, deducting these expenses will give a lower profit figure, and ultimately a lower tax bill. In addition, where income is less than £1,000, but the individual makes a loss, an election for the allowance not to apply may be made. In this case, the loss in is dealt with in the usual way with the loss being carried forward against future property profit. The details will need to be declared on the tax return. This in turn, means that loss relief is not wasted. 

Example – Income less than £1,000

Peter enjoys cycling and does all his own bike repairs. In his spare time, he services bikes for friends and neighbours for a small fee. During the year 2019/20 he received income of £600 from this source, and his expenditure on bike parts was £150. As Peter’s trading income is less than £1,000, he does not need to report it to HMRC nor does he need to pay tax or national insurance contributions (NICs) on it.

Example – Income exceeding £1,000

Jane enjoys baking and makes celebration cakes to order in her spare time. In 2019/20, her income from cake sales was £1,600 and she incurred expenses of £400. As Jane’s expenditure is less than £1,000, she will be better off claiming the trading allowance. Her taxable profit will be £600 (£1,600 less the trading allowance of £1,000).

The trading allowance is available even if the individual has only traded for part of the tax year. For example, if trade started in February 2021, the individual would still be able to claim the full amount of the trading allowance of £1,000 as if they had been trading for the entire 2020/21 tax year.

Although the trading allowance may work well for many small scale traders, care must be taken where an individual’s main source of income is from self-employment and their secondary income is from a completely separate small scale business. HMRC will combine income from all trading and casual activities when considering whether the trading allowance applies. In this type of situation, where the allowance is claimed, the individual will not be able to claim for any expenditure, regardless of how many businesses they have and how much are the total business expenses.

Student loan repayments

A final point worth noting is that where an individual is claiming the trading allowance and they are also repaying a student loan, then the income used to calculate their student loan repayments will be the amount after the trading allowance has been deducted.

Holiday home

Can you claim Business Asset Disposal Relief on the sale of the holiday let?

Furnished holiday lets benefit from a number of tax advantages which are not available to landlords of residential lets. One of the main advantages is the opportunity to benefit from Business Asset Disposal relief (BADR) on the sale of the property, paying capital gains tax at only 10% above the annual exempt amount rather than at 18% or 28% (depending on whether the gains fall in the basic rate band or not) on the sale of the buy-to-let. Individuals can benefit from BADR on gains up to the lifetime limit of £1 million.

A let must meet certain conditions re availability and letting to qualify as a furnished holiday let for tax purposes.

Nature of the relief

Business Asset Disposal Relief was previously known as Entrepreneurs’ relief. It is available on the disposal of all or part of the business. The commercial letting of furnished holiday lettings, which for certain capital gains tax purposes, including BADR purposes, is treated as a trade, falls within the scope of the relief. Furnished holiday lets qualify for the relief if the let is in the UK or the EEA, but not elsewhere in the world.

Qualifying disposal

The relief is available for a disposal of the whole or part of the business, and for a disposal of the assets used for the purposes of a business that has now ceased. Where the business is operated as a company, relief is available for the disposal of the shares. 

In the case where an individual has one property that is let as a holiday let and decides to stop letting and sell the property, relief will be available where:

  • the property was used as a FHL at the time that the FHL business ceased;
  • the business was owned by the individual making the disposal for a period of two years immediately prior to the cessation of the business; and
  • the disposal takes place within three years of the cessation.

The rules allow the landlord three years to sell the property once the FHL business ceases without losing the relief.

Example

Billy has a cottage in Suffolk that he lets as a holiday let. The let meets the conditions for a furnished holiday let. The cottage was purchased as a holiday let in 2010. Billy ceases letting it in May 2020, putting it up for sale. The property is sold in November 2020, realising a gain of £120,000.

The conditions for BADR are met. Assuming Billy has his annual exemption available and has not used up his lifetime allowance of £1 million, he will pay capital gains tax £10,770 on the chargeable gain of £107,700 ((£120,000 – £12,300) @ 10%).

If the property had been a residential let and assuming Billy is a higher rate taxpayer, the capital gains tax bill would have been £30,156 (£107,700 @ 28%).

Multiple properties 

Problems may arise when the landlord has several properties in his or her furnished holiday letting business. The relief is only available for the sale of the whole or part of the business or assets used at cessation. Thus, where a landlord has multiple properties, but sells one of them while continuing to run the FHL business, that sale may not qualify for BADR and the lower rate of capital gains tax,In some cases, there may be a part disposal of the business. This may be the case where the landlord has properties in different locations and sells those in one location, but continues to run the FHL business in other locations. It will depend on the facts in each case. 

pressies

Trivial benefits exemption for tax-free Christmas gifts

The Covid-19 pandemic has placed the office Christmas party as we know it firmly off the menu this year. Regardless of what restrictions are in place over the Christmas season, many employers will want to take the opportunity to spread some seasonal cheer amongst workers, who may have been furloughed or working from home for much of 2020.

The impact of any goodwill gesture is somewhat diminished if it comes with an associated tax bill. This is where the trivial benefits exemption can come into its own, enabling employers to provide employees with tax-exempt Christmas gifts, while keeping the costs low at a time when many businesses are struggling financially. Personal and family companies can similarly make use of the exemption.

Nature of the exemption

Under the trivial benefits exemption, a benefit is exempt from income tax and National Insurance if all of the following conditions are met.

  • The cost of providing the benefit does not exceed £50.
  • The benefit is not in the form of cash or a non-cash voucher.
  • The employee is not contractually entitled to the benefit.
  • The benefit is not provided in recognition of, or in anticipation of, services performed   as part of the employee’s employment duties.

Where a benefit is provided to a group of people and it is impracticable to work out the exact cost of providing it to each recipient, the average cost is used to determine whether the benefit is trivial.

Directors of close companies (together with members of their family or household) can only receive tax-free trivial benefits to a maximum value of £300 in a tax year. For other recipients, there is no annual limit (but each individual trivial benefit must cost £50 or less).

Seasonal gifts

The following example illustrates how the trivial benefits exemption can be utilised to provide tax-free Christmas gifts to employees.

Example 1

An employer purchases 100 turkeys to be given to employees at Christmas. The total bill is £4,800. The turkeys vary slightly in weight but are not priced individually.

As it would be impracticable to work out the exact cost of the turkey provided to each individual employee, the average cost of £48 is taken as the cost of the benefit. Assuming all the other conditions are met, the gift of the turkey falls within the trivial benefit exemption and is free from tax.

Gift card trap

Care should be taken using gift cards which are topped up on several occasions. Rather than evaluating each use of the card separately for the purposes of the trivial benefits exemption, HMRC look at the total cost of providing benefits via the card in the tax year in question. The following example illustrates the trap.

Example 2

An employee is given a gift card at Christmas which can be exchanged in a particular store for a gift. The card costs the employer £30 to provide. The card is topped up by a further £30 on the employee’s birthday. Although each top-up costs the employer less than £50, the total cost of providing the employee with a gift card is £60 for the tax year. As this exceeds the £50 trivial benefit limit, the exemption does not apply. 

Instead, the employer should give the employee separate gifts costing £30 each, both of which would be exempt.

Working from home

Can you claim tax relief for expenses of working from home?

The Covid-19 pandemic has meant that more employees worked from home than ever before. This trend looks set to continue for the foreseeable future. Further, many business plan to embrace flexible working beyond the end of the pandemic, allowing employees to work from home some or all of the time where their job allows this.

However, while working from home may save the cost of the commute, there are expenses associated with working from home. Is the employee able to claim tax relief where these are not met by the employer?

Additional household expenses

As a result of working from home, an employee will incur the cost of additional household expenses, such as additional electricity and gas costs. During the Covid-19 pandemic, HMRC confirmed that employees are able to claim a deduction for additional household expenses attributable to working from home of £6 per week without supporting evidence. Where the actual additional costs are more than £6 per week, tax relief can be claimed for the full amount, as long as the employee can substantiate the claim. 

Homeworking equipment

Employees may have needed to buy office equipment, such as a computer and a printer, to enable them to work from home. Where these costs are not reimbursed by the employer, HMRC have confirmed that employee can claim a tax deduction for the actual expenditure incurred, as long as it was incurred ‘wholly, exclusively and necessarily’ in the performance of the duties of the employment.

Other expenses

To claim relief for other expenses employees will need to pass the general test that the expense was incurred ‘wholly, necessarily and exclusively’ in the performance of the duties of the employment. Care must be taken to distinguish between expenditure which puts the employee in the position to do their job as opposed to being incurred in the performance of it. Childcare, for example, would fall into the former category.

Relief is also denied for dual purpose expenditure, such as an office chair which enables the employee to be comfortable while working, as this fails the ‘exclusively’ part of the test.

Making claims

Where the conditions for tax relief are met, a deduction can be claimed on form P87 (available on the Gov.uk website) or, where the employee completes a tax return, on the employment pages of the return.

shutterstock_07.12.20

Virtually time for the office Christmas party

Despite the crazy and uncertain times that we find ourselves living in, directors and employees can still celebrate Christmas in tax-free style – even if it does have to be in the form of a ‘virtual’ office Christmas party.

Although there is no specific allowance for a Christmas party, or any other employer-provided social function, HMRC do allow limited tax relief against the cost of holding an ‘annual event’ for employees, providing certain conditions are met.

A staff event will qualify as a tax-free benefit if the following conditions are satisfied:

  • the total cost must not exceed £150 per head, per year
  • the event must be primarily for entertaining staff
  • the event must be open to employees generally, or to those at a particular location, if the employer has numerous branches or departments

The exemption should therefore apply if, say, an employer meets the cost of meals delivered to each employee’s home and the staff ‘party’ is held virtually via video conferencing or similar. 

The ‘cost per head’ of an event is the total cost (including VAT) of providing:

a)         the event, and

b)         any transport or accommodation incidentally provided for persons attending it (whether or not they are the employer’s employees),

divided by the number of those persons.

Provided the £150 limit is not exceeded, any number of parties or events may be held during the tax year, for example, there could be three parties held at various times, each costing £50 per head.

The £150 is a limit, not an allowance – if the limit is exceeded by just £1, the whole amount must be reported to HMRC. 

The £150 exemption is mirrored for Class 1 NIC purposes, (so that if the limit is not exceeded, no liability arises for the employees), but Class 1B NICs at the current rate of 13.8%, will be payable by the employer on benefits-in-kind which are subject to a PSA.

If there are two parties, for example, where the combined cost of each exceeds £150, the £150 limit is offset against the most expensive one, leaving the other one as a fully taxable benefit.

The cost of staff events is generally tax deductible for the business. Specifically, the legislation includes a let-out clause, which means that entertaining staff is not treated for tax in the same way as customer entertaining. The expenses will be shown separately in the business accounts – usually as ‘staff welfare’ costs or similar.

There is no monetary limit on the amount that an employer can spend on an annual function. If a staff party costs more than £150 per head, the cost will still be an allowable deduction, but the employees will have a liability to pay tax and National Insurance Contributions (NICs) arising on the benefit-in-kind.

The employer may agree to settle any tax charge arising on behalf of the employees. This may be done using a HMRC PAYE Settlement Agreement (PSA), which means that the benefits do not need to be taxed under PAYE, or included on the employees’ forms P11D. The employer’s tax liability under the PSA must be paid to HMRC by 19 October following the end of the tax year to which the payment relates.

The full cost of staff parties and/or events will be disallowed for tax if it is found that the entertainment of staff is in fact incidental to that of entertaining customers.

VAT-registered businesses can claim back input VAT on the costs, but this may be restricted where this includes entertaining customers.

In recent months radical measures have been put in place by governments across the world to try and control the spread of coronavirus, and almost all businesses and their employees will have been affected in some way. The staff Christmas party will probably look quite different this year, but with a tweak here and there to meet with current restrictions, it should still be possible for employers to provide some festive cheer.