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LONGHILL END OF TAX YEAR CIRCULAR

April 3rd, 2020


Dear Client
With the drastic and quickly changing disruptions to normal business and personal life caused by Coronavirus it may seem slightly odd to start thinking about tax returns but unless you believe that normal life is ending for good (and I should point out that official (very low and declining) casualty figures from the Chinese suggest that they at least are coming out the other side) then sooner or later life will start getting back to normal and that will include dealing with the Inland Revenue.
If you or family members are affected then please accept our hopes for a speedy recovery that does not involve intervention by the NHS. If your business is affected then you may need to look at the terms of your business insurance and whether that covers business interruption in these
circumstances. Otherwise take all sensible measures that you can, remembering that everyone is affected. This may involve asking staff to take unpaid leave, home working where possible, deferring major capital expense, and other appropriate measures.
So this circular does try and deal with the normal aspects of tax year and record gathering keeping and keeping that will help us look after you.
Longhill is in the fortunate position of working from home already so at present we continue to work as normal, although doubtless we shall be limiting face-to-face meetings (though as I say I imagine that this is the least of your concerns at present).
While we can’t afford to provide our normal services for free we are obviously aware that many of our customers are finding it hard to make ends meet and we will do our best to be accommodating if you have payment difficulties.
COVID-19 UPDATE
We covered the assistance given to small business in our last circular on the Budget. That was a week ago and already seems hugely out of date. On 16 March the Government introduced significant social distancing measures, primarily to limit the extent to which the NHS’ ability to deal
with serious cases (not huge to begin with) will be overwhelmed.
On 17 March the Chancellor unveiled a new raft of fiscal assistance measure. In summary:

  • Government-backed loan scheme extended to a total of £330 bn, ‘on attractive terms’ though the Business Interruption Scheme administered by the British Business Bank. These loans will be of up to £5m and no interest will fall due for the first 3 months.
  • Businesses with pandemic insurance should be able to claim against insurance even though CV-19 was not specifically identified in their policy.
  • For businesses in the retail, leisure & hospitality sectors without such insurance (most), and where their rateable value is less than £51000, a cash grant of £25000 is available (up from £3000 in the Budget). These grants will be available from local authorities in April.
  • Every business on these sectors, regardless of size, with be granted 100% business rates relief for 2020-21.
  • Other small businesses that were eligible for the £3000 cash grant announced in the Budget can now claim up to £10000. These grants will be available from local authorities in April.
  • Mortgage lenders will now offer a 3-month mortgage holiday to those affected by CV-19.
    The implication is that this covers a much wider group of people merely than those infected.
    Note that Government grants are usually treated as taxable income. There has been no indication that this will not be the case on this occasion.
    Quite how all this is going to be paid for in a time of falling tax receipts is an open question and it is the elephant in the room. We imagine that many of the Governments planned infrastructure
    improvements will have to be delayed and we would guess that taxes are likely to rise in years to come, especially in areas that don’t spook business investors (for example Inheritance Tax,
    National Insurance and possibly even income tax).
    END OF YEAR TAX PLANNING
    End of year tax planning generally involves spending money to gain tax relief. Please think carefully whether the business can afford to do this given that we probably have at least three tough months ahead of us.
    Fixed asset purchases
    The year-end for many businesses will coincide with the end of the tax year in March. If you are thinking of making any major capital purchases please remember that if you contract for the purchase prior to your yearend then we should be able to claim for the full cost of the asset against the taxable profits for the year. The annual limit for new purchases rose to £1m from 1 Jan 2019 (this limit expected to last until 31 Dec 2020, after which it reduces to the old limit of £200,000). Of course you may wish to defer capital expense until the CV crisis has eased but this may mean a higher tax bill for the current year.
    Generally the only exceptions to the above rule are cars (but not vans) and property.
    Interest on directors’ loan accounts
    This was covered in a separate note sent to all those who might be affected.
    Dividends
    If you own your own company and have undistributed post-tax profits in it then please remember that each shareholder can take up to £2000 of dividends at a tax rate of 0% each tax year (not
    company financial year). If you have not declared a dividend since March 2019 (contact us if unsure) and have post-tax profits available then please consider doing so as this allowance does
    not carry over to next tax year
    Pension contributions
    If you are trading through a company and have surplus profits it may be worth considering having the company make personal pension contributions for you. They do have to be ‘reasonable’ in the
    context of your overall remuneration as a director for the work you do but for most of our clients this should not be a problem.
    These will be tax-deductible in the company’s books so you get corporation tax relief on the contributions at 19% and of course the payments then form a part of your long-term saving.
    The downside is that this money is effectively locked up until retirement age so you should only use monies that you do not need in the short term.
    We are not qualified to advise on pensions so you should also take advice from a qualified professional on the subject before taking action.
    ISA allowances
    If you are fortunate enough to be able to put savings away for the year please remember that the ISA allowance for 2019-20 stands at £20000 and this needs to be used before 5 April if it is not to
    be lost. Monies held in an ISA are not subject to tax; no income tax arises on the income and no capital gains on the disposal of assets that would normally be subject to it (shares essentially).
    Director salaries
    For those of you trading through a limited company, the company will either be formally registered for PAYE or it will not. If it is registered then you will be paying yourself through a formal payroll.
    If not then please remember that, assuming you have no other job, you can take up to the Lower Earnings Threshold (‘LEL’) in salary (£6,136). Anything above that will have to be treated as
    dividend (if available) or Directors Loan. Obviously £6,136 does not even cover the NI nil rate band (£8632 this year, £9,500 for 2020-21) so
    if you want more next year then consider registering for PAYE.
    By registering for PAYE your salary is not subject to artificial limits but on the other hand you are subject to Real Time Information (‘RTI’) reporting requirements. HMRC do offer a free payroll tool to help you compute net pay and to submit reports, or alternatively you can ask a payroll bureau to do the work for you. We have the ability to recommend one if necessary.
    END OF TAX YEAR – records
    Many of our business clients make up their books to the end of the tax year and of course the end of the tax year on 5 April affects all of our clients who need to submit a personal tax return so I attach some year-end records checklists for you. Please select the one(s) applicable to you.
    Please read these checklists even if you are experienced in managing your accounts. They will give you a reasonable indicator of the sorts of thing that we tend to check and may ultimately save us time and you money.
    These are challenging times; we are usually available to talk although we can’t guarantee magic solutions.
    Stay well.
    Chris Thring FCA
    For Longhill Accounting Limited
    March 2020

The content of this article is for general information only. It should not be relied on and action which could affect your business or personal circumstances should not be taken without appropriate professional advice.