End of Year Tax Reminders
As the end of the tax year approaches, we wanted to share tax news and reminders we think you should be aware of.
HMRC’s Online Check Employment Status Tool (CEST)
With the new off-payroll tax rules coming in from 6 April 2021 – for medium to large businesses who have an individual providing services to them via an intermediary – more are now turning to the HMRC website to use their online CEST tool to establish if there will be a requirement for an off-payroll procedure to be operated after 6 April 2021.
New Off-Payroll Rules for 2021
It is not compulsory to use the HMRC online tool CEST but it seems sensible so to do as HMRC will accept the decision made, provided the data supplied is correct and complete. The CEST will decide if the person whose services you are proposing to use via an intermediary as from 6 April 2021 is a worker (paye/nic via the intermediary’s off-payroll) or self-employed (no paye/nic required).
The problem is that recently published HMRC statistics for the year to 30 November 2020 show that of the approximately 975,000 CEST users a staggering 188,719 (nearly 20% of the total CEST users) were given the answer ‘don’t know’! The ‘don’t knows’ are then referred to the detailed and technical HMRC manual to try and establish if they are caught by the new off-payroll rules.
If you do this and then decide that the new off-payroll tax rules do not apply, then please ensure you keep written records to show as to how you arrived at this decision as it will be useful evidence if HMRC should raise a formal Enquiry and will avoid or mitigate any financial penalties that HMRC may try and levy on you.
HMRC have confirmed that if you do decide that the off-payroll rules should be applied from 6 April 2021 for individuals whose services you have used via an intermediary ‘before 6 April 2021’ then this will not lead to a formal HMRC Enquiry into the pre 6 April 2021 position.
The alternative to the above is to take professional advice – and here HaesCooper we are very well placed to give you the advice required, contact us to find out more.
Tax year-end reminders
As we approach the end of the tax year 2020/2021 on 5 April 2021 it would be a good idea for you to review your personal tax matters. Some of these personal tax considerations that may be relevant to you are listed below.
Inheritance Tax (IHT)
The perennial annual gift relief from IHT still applies for 2020/2021 – and you can make use of the £3,000 total IHT free annual gift provision provided the gift(s) are made before 5 April 2021.
In addition, if you have not used this £3,000 IHT free gift for the previous tax year 2019/2020 then you can make IHT free gift(s) that total of £6,000 provided the one gift of £6,000 is made or the total of the gifts of £6,000 are made by 5 April 2021.
There are other IHT gift reliefs you should review including gifts that can be evidenced as gifts normally made from your disposable income and gifts made on the specified occasions such as weddings/civil partnerships. For example, if the wedding/civil partnership is for a son or daughter the IHT free gift limit is £5,000.
Particularly important in these current Covid-19 times you can also make an IHT free gift to help with another person’s living costs-such as an elderly relative.
Also, although not a tax issue, you should make your Will, or, if already have one, make sure that you review your Will to ensure it is up to date.
Capital Gains Tax (CGT)
For 2020/2021 the annual CGT exemption available to an individual is £12,300. If not used, then the unused part of the £12,300 CGT exemption cannot be carried forward. In view of this if you have the opportunity to realise a gain before 5 April 2021 in order to use your £12,300 CGT exemption – then you should give that serious consideration. You need to bear in mind that the anti-avoidance rules apply to thwart a so called ‘bed and breakfast’ transaction in shares/securities. If you sell shares/securities showing a capital gain as compared to the shares’ original purchase cost, and they are re-purchased within 30 days of the sale contract date then for CGT the sale proceeds are identified to the re-purchase cost not the shareholding’s original purchase cost.
If you have used your £12,300 2020/2021 CGT exemption but you also have a spouse or civil partner, and you are not permanently separated, then you can indirectly use your spouse/civil partner’s unused £12,300 CGT exemption for 2020/2021 provided you are able to transfer the asset to your spouse/civil partner and they then sell the asset by 5 April 2021. This is because your original purchase date and cost for the asset ultimately sold is transferred to your spouse/civil partner for the purposes of calculating your spouse/civil partner’s CGT on the date the asset is sold.
Remember that there is a 4 years’ time limit to claim CGT relief for a capital loss. This means that a capital loss made in the tax year 2016/2017 needs to be claimed to HMRC by 5 April 2021. Even if the capital loss cannot be immediately relieved for CGT the loss will be available to be carried forward, without a time limit, for future CGT relief.
There are a number of elections and claims with a 5 April 2021 deadline – but the main one is if you believe that you have overpaid Income Tax for the tax year 2016/2017 then you make sure you contact HMRC and claim the repayment of the overpaid tax by 5 April 2021.
Look at the use of your 2020/2021 personal allowance. In particular, if your taxable income for 2020/2021 is between £100k and £125k then your personal allowance will be phased out. Given this, if you intend to make charitable donations then consider ensuring that such charitable donations are made by 5 April 2021 as such donations will reduce your 2020/2021 taxable income and also it will produce an increase in your 2020/2021 personal allowance.
If you want to donate to a charity that is registered as non-UK, then ensure that the non-UK charity is accepted by HMRC by checking the HMRC website. Also, if you are a UK taxpayer then remember to tick the Charity paperwork for UK Gift Aid to apply as by doing that all of the UK taxpayers will also make a donation to the Charity via HMRC.
Contributions to your personal pension plan also reduce your 2020/2021 taxable income and so again will increase the claim for your 2020/2021 personal allowance plus you may want to ensure you are claiming your maximum statutory annual limits. It is strongly recommended that you take advice from an FSA before contributing to your personal pension plan – but make sure that all this happens in good time for you to make any pension contribution by 5 April 2021.
Individual Savings Accounts (ISAs).
As for pension contributions, there are for ISAs annual limits which if not used are lost. For ISAs-remember that you do not receive tax relief for the money you invested in the ISA but the income/gains you make from the ISA investment are tax-free. The annual investment (cash, UK stocks and shares and other permitted investments) maximum level for 2020/2021 that can be invested by 5 April 2021 is £20k.
Also, do not forget the Junior ISA-available for your children under 18 years of age where the 2020/2021 maximum limit is £9k and needs to be invested by 5 April 2021. Usually, if a parent gives money to their child the parent remains liable to Income Tax while the child is under 18 years of age on the full amount of the income from the gift if that income exceeds £100. A Junior ISA investment is outside of the above provisions provided you have kept to the annual maximum investment limits i.e., for the tax year 2020/2021 the maximum limit of £9k.
Investments with UK tax benefits
If you are in the position of having funds available for investment, then you should remember that certain investments do have UK tax breaks:
- Enterprise Investment Scheme (30% Income Tax relief up to a per tax year £1m investment or £2m if extra £1m invested in knowledge-intensive companies)
- Seed Investment Scheme (50% Income Tax relief up to a per tax year £100k investment)
- Venture Capital Trusts (30% Income Tax relief up to a per tax year £200k investment)
There is also the Social Investment Tax Relief with 30% Income Tax relief up to a per tax year £1m investment. Please note that this tax relief investment scheme is due to be closed on 5 April 2021.
In addition to the Income Tax relief, the investments in the above schemes also provide Capital Gains Tax benefits.
HaesCooper can help you with your UK fiscal requirements whether you are a small, medium or large business. To discuss your needs or to learn more, contact us.
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