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Fiscal Updates & News for SMEs

08/01/2021

In this blog post we identify UK tax updates we think SMEs and business owners should be aware of as they trade through these difficult times. 

VAT 

As a result of COVID-19, VAT payment deadlines have been extended. Chancellor Sunak announced that those VAT registered business who have deferred their VAT payments to 31 March 2021 can now extend that VAT payment deadline to 31 March 2022.

Also, instead of paying the full amount of the deferred arrears VAT by 31 March 2021, those businesses can arrange to pay by making smaller payments, interest-free. If you want to take up this VAT payment extension to your already set up deferred payment arrangement you will need to claim with HMRC to opt into the VAT deferred extension.

HMRC have said that the above-mentioned opt-in arrangements will be announced in early 2021.

The temporary lower 5% vat rate for the hospitality and entertainment industry is to remain in place for an extended period to 31 March 2021.

Sub-contractors & VAT 

A recent case before the first-tier Tribunal has decided that where a VAT registered contractor takes full responsibility to a customer for a job completed or partly completed by non-VAT registered sub-contractors, then VAT must be added to the full price charged for the job.

This is so even if the customer pays the sub-contractors direct for their part of the job’s total cost. The above is a common practice within the construction industry to try and avoid VAT for the customer. Building contractors should be aware and take the time to arrange for the non-VAT registered sub-contractors to contact the customer to discuss and agree directly what the job is and to ensure it is clear to the customer that the sub-contractor is responsible for invoicing and collecting payment for the job completed directly.

National Insurance Contributions (NIC)

Ok NIC is strictly not a tax, although NIC is collected by HMRC and it falls into the same ‘money pot’ as taxation at the Exchequer – but we spotted a news item from HMRC worth repeating here – namely that as from 6 April 2021 employers who take on former members of the UK armed forces will not have to pay the employer’s NIC on their wages for 12 months.

The salary cap for the free employer NIC is the annual upper earnings limit which is currently £50k. HMRC are yet to announce if the above is to be included in their RTI payroll arrangements by 6 April 2021 – but if not, you will need to pay the NIC on wages to ex-members of the UK armed force in the normal way and then claim a NIC refund at the end of the tax year.

Inheritance Tax (IHT)

Business Property Relief 

Firstly, a point for small to medium enterprises trading via a limited liability company (SMEs) – many trading SMEs are required to be funded personally by their owners through share capital.

There is an IHT problem to be aware of if an SME raises new required capital and that new share capital (could be new ordinary shares or new preference shares) is paid for by the SME’s owner having to raise the funds via a personal loan secured e.g. on his or her house.

The IHT problem with this is that the value of the shares held in a SMEs trading as a limited liability company is exempt from IHT under the Business Property Relief (BPR). But, where debt is incurred to acquire a BPR asset then the debt liability (in this example the secured personal loan) must be deducted from the value of the IHT exempt BPR shares when calculating the Estate value for IHT. Where possible arrange funding of a BPR asset such as shares in trading SMEs via other financial resources.

The Residence Nil Rate Band (RNRB) 

The RNRB is in effect an IHT allowance of £175k available if you own your home. The RNRB is available per individual so a home owned jointly each owner has an RNRB of £175k. Any unused RNRB on a first death can be transferred to your surviving spouse or civil partner.

The condition for an RNRB is that the home must be inherited by one or more of your direct descendants or if the home is sold by the executors the proceeds must be passed to your direct descendants.

Protecting the RNRB becomes important where the home is sold as the owners are downsizing their residential property or they sell the home and move to live with a family member. It is important to remember that where you sell the home in the circumstances of downsizing (or indeed not purchasing another residential property) you can still claim the RNRB. This is known by HMRC as the ‘downsizing allowance’ and this allowance has to be claimed by the executors completing and filing to HMRC the IHT 435 form. The downsizing allowance can be claimed if ‘any’ of the undermentioned applies to your estate.

I. Downsizing took place on or after 8 July 2015.

II. Part of your home was given away.

III. You owned all or part of your home and it would have qualified for the RNRB if you had not sold or transferred it.

So, if you sell your home make sure that you keep records of the sale of your home as they may be needed by your executors to ensure that the RNRB – worth a total of £350k for a home owned by a husband and wife or civil partners-is protected.

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.