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One of the main benefits of operating through a UK Limited Company is that you are able to reclaim a substantial proportion of the expenses that you incur from the Company and these expenses are allowable against Corporation Tax.
To enable us to capture this non-billable expense information, we issue Expense Reports on a monthly basis by the close of the third working day after each month which we ask you to complete and return in time for us to validate the details and include the reimbursement of the expenses incurred in the monthly payroll run on the 25th day of the month.
Broadly speaking, non-billable expenses fall into three main categories – day-to-day expenses, recurring expenses and allowances.
Day-to-Day Expenses are those expenditures that change depending on the purchasing decisions of the Director(s) and are supported by a receipt.
We have identified the following main categories:
As a guide, spending of up to £20.00 on a meal can reasonably be categorised as Subsistence whereas spend of over £20.00 would be deemed to be Entertainment. From a tax perspective, there is a difference in the treatment of Entertainment incurred in the UK and overseas. Hence, we have included a category for each. Motor Expenses are for the variable elements such as licences, repairs and servicing. Car Lease costs and insurance appear on the Recurring Expense schedule.
Recurring Expenses are those expenditures that occur regularly on a periodic basis and at least a portion of which can be treated as a business expense.
We have identified the following main categories:
The level of these costs that can be reasonably treated as a business expense depends on the circumstances of the individual but the benchmark for the Home Office cost elements is 25%.
For certain categories of expenditure, as an alternative to claiming the reimbursement of receipted expenses, the HMRC has set the following allowances that can be claimed:
Subsistence
Where you are unable to obtain a receipt and you are working on a client’s site but are not staying overnight, then a meal allowance can be claimed on the following basis:
Accommodation
Where you are unable to obtain a receipt, an allowance is available in respect of accommodation, meals and incidental subsistence costs, at the following rates:
Mileage
Mileage can be claimed for business-related travel including to and from your home to your place of work. The following rates are applicable:
| Vehicle Type | First 10,000 business miles | Over 10,000 business miles |
| Car | 45p | 25p |
| Motorbike | 24p | 24p |
| Cycle | 20p | 20p |
Incidentals
The maximum cost of incidental expenses of £5 per day in the UK and £10 per day if overseas can be claimed for each night that you have to stay away from home.
This is to cover costs such as laundry, personal telephone calls and newspapers.
Bounce Back Loan abuse is in the news…the Insolvency Service is to be given new powers to crackdown on Bounce Back Loan abuse by enabling them to investigate directors of companies that have been dissolved.
This effectively closes a legal loophole. At present, the Insolvency Service, on behalf of the Business Secretary, only has the ability to investigate directors of live companies or those entering a form of insolvency.
These new powers have been driven, in part, by concerns that businesses are abusing the dissolution process to fraudulently avoid the repayment of loans under Bounce Back Loan scheme.
The powers at the disposal of the Insolvency Service are:
Another abuse that these powers are set to address is phoenixing. Here, the directors dissolve one company and set up a virtually identical business after the dissolution, often leaving employees, customers, suppliers and HMRC out of pocket.
The intention is for these measures to be retrospective. The Insolvency Service will be investigating companies that have already been dissolved to see if this this was appropriate or to avoid the repayment of Bounce Back Loans.
The Bounce Back Loan Scheme was a vital element of government support during the COVID-19 pandemic. It provided a quick injection of cash for businesses struggling to make ends meet.
However, it was always more of a band aid than a panacea. Businesses fail despite the best-efforts of the directors. In many cases, closing and dissolving the company is the correct course of action.
These powers are looking to target the small element who applied for a Bounce Back Loan with no intention to repay it.
Under the existing rules, directors of three companies have been banned for between eight and nine years where there had been misrepresentation in the application or the misuse of the funds.
You will find our previous article regarding the bounce back loan scheme by clicking here.
The government announced yesterday that they will delay Making Tax Digital for the Self-Employed and Landlords until April 2024. This is a year later than originally planned.
Therefore, from 6th April 2024, for all self-employed businesses and landlords with a turnover of over £10,000, the government will replace the Self-Assessment Tax Return with Making Tax Digital.
General partnerships must join Making Tax Digital from the tax year beginning in April 2025. The government will confirm the date for other types of partnerships in the future.
Making Tax Digital will require five filings a year in an electronic format. Four quarterly reports and a year-end final declaration.
Whilst HMRC have approved a range of filing formats, submitting these reports on paper will not be an option.
Therefore, if you are not already using systems for your record-keeping and accounts preparation you will need to do the following:
Hence, you can configure the software to remind you when to file and there will also be a cumulative calculation of the tax due for the year based on the data submitted.
The tax payment due date for 2024-25 will remain the 31st January of the following year. However, HMRC are indicating that there will be a method to make voluntarily payments based on each submission.
A likely outcome of Making Tax Digital for the Self-Employed and Landlords is that, at some point, these payments will become compulsory.
For the first year there will be additional complexity because your 2023-24 tax return will still be due by 31st January 2025.
The first submission under Making Tax Digital will be due, the government expects, in the fourth month of the accounting period, followed by submissions on a three-monthly basis.
If your trading year aligns to the tax year, you must submit your report in August 2024 and the overall calendar will be:
We appreciate that “Making Tax Digital Delayed” may seem an age away with an additional cost in terms of time and money. However, our advice is to embrace the change now. Ultimately, Making Tax Digital will give you a better overview of your business.
We are already implementing cost-effective solutions for clients to get them ready for Making Tax Digital.
Wondering if you need to submit a tax return? Please see our blog post here to help you answer this question.
If you have any queries or would like any assistance to ensure you are ready, please do not hesitate to contact us on tax@cooperfaure.co.uk.
You can find the official gov.co.uk new release here.
Here we explain the difference between a business partnership and a LLP.
In choosing the better option for you, it is worth bearing in mind that a partner does not have to be an actual person. A limited company is considered to be a ‘legal person’ and can also be a partner.
A business partnership is not a separate legal entity. As a result, you and your partners will be responsible for any losses your business makes and any loan, credit agreements or unpaid bills.
The business is usually regulated by a Partnership Agreement. This agreement sets out the rights and responsibilities of each partner, defines how the profit will be split, how key decisions are made and who will be the nominated partner.
The nominated partner is responsible for managing the partnership tax returns and keeping business records. All individual partners also need to send their own tax return.
You must register with HMRC as a business partnership and/or a partner by 5th October in your second tax year. For example, if your partnership started or you became a partner during 2020-21 tax year, you must register before 5th October 2021.
A business partnership carries less administrative burden than an LLP and the accounts are private. On the other hand, as well as any liabilities remaining with the partners, a business partnership cannot borrow money as an entity.
An LLP (Limited Liability Partnership) is a hybrid between a business partnership and a limited company. An LLP needs to be registered as a company at Companies House and is a legal entity in its own right.
The partners in an LLP are designated as members and are not personally liable for any debts incurred by the partnership. However, an LLP is tax transparent. In other words, it is does not pay Corporation Tax and the members are responsible for paying the tax on their share of the profits.
Your business name cannot be the same as, or too similar to, another registered name at Companies House (https://find-and-update.company-information.service.gov.uk/company-name-availability)
Your business must end in ‘Limited Liability Partnership’ or ‘LLP’ or the regional equivalents.
An LLP offers limited liability to the partners set at the amount of your capital contributions. It also carries a legal status which means it can trade in its own right. On the other hand, there are more filing requirements and some financial information will be in the public domain.
‘What is the difference between being self-employed and a sole trader?’ is a question that we are frequently asked.
The definition of self-employed is someone not employed and paying Income Tax through PAYE. In other words, you are running your own business and pay your tax due through your personal tax return.
However, it also means that you are fully responsible for the success or failure of your business.
Self-employed defines the way you work not the business structure. There are three options for this – a sole trader, business partnership or limited company – read more here.
As a sole trader you own the business outright. You and your business are seen as one blended legal and financial entity. As such you would be personally responsible for any loan, credit agreements or unpaid bills.
Even though a sole trader can be VAT registered and have employees, there is a perception that this is a smaller operation than a limited company. However, there is a lessened level of paperwork.
In summary, a sole trader is self-employed but you can be self-employed but not a sole trader.
Whichever is the best option for you, there are statutory requirements to register to your business before you start trading.
“What is a sole trader?” is a question that we are often asked. There are three key considerations in deciding whether setting up as a sole trader is right for you:
To set up as a sole trader, you need to notify HMRC that you intend to pay Income Tax and National Insurance through a personal tax return.
If you are not already submitting a person tax return, you will need to register and then file a tax return every year.
You can trade under your own name or you can choose a trading name for your business.
You do not need to register your name but there are some rules. Sole trader names must not:
You must include your name and trading name, if you have one, on official paperwork such as invoices, quotes and letters.
If you do opt for a trading name, it is advisable register your name as a trade mark to prevent anyone else using the same name.
You must register for VAT once your turnover exceeds £85,000 in a twelve-month period. However, you can register voluntarily if it suits your business. The consideration is who you sell to and whether they can reclaim the VAT.
If you are intending to work in construction industry as a subcontractor or contractor, you will also need to register with HMRC for the Construction Industry Scheme.
Although you are self-employed, your business can have employees paid under PAYE and can register with HMRC for this as and when needed.
You are eligible for working from home tax relief if your employer requires that you work from home on a regular basis. This applies to both part time or full time home working scenarios. You may calculate your expenses based on the additional costs you incur as a result of working from home.
However, you cannot claim tax relief if your employer has either directly reimbursed your expenses or paid you an allowance to cover them.
Many offices have been closed since the start of the 2020-21 tax year due to COVID-19. This means that millions more employees are now eligible. You may make a claim as part of your Self-Assessment Tax Return if you are already obliged to submit one.
You can claim tax relief on:
You may claim the full annual allowance whether you have worked from home for the full year or only a small part of it. Theoretically this applies even if you worked from home for just one day. You just need to show that your employer requests that you do so.
The areas where you may be able to claim working from home tax relief are:
Where you claim the actual costs, you will need to be able to provide evidence to the HMRC. This will be in the form of invoices, receipts or contracts.
In addition, for the costs of equipment, you have two key considerations in determining whether it is eligible for tax relief:
For instance, if you have purchased a laptop and your employer has a policy restricting private use, this would support it was purchased for work purposes.
Unlike many other countries, not everyone in the United Kingdom has to submit an annual personal tax return. However, more and more people do. Have a look over the list below and keep in mind that you must submit a return if you;
At CooperFaure, we will work with you to ensure that you know your tax position as soon as is practicable after the end of the tax year.
You may be entitled to a tax relief that you are unaware of. For instance, many employees will be entitled to a rebate against the costs of working from home in the 2020-21 and 2021-22 tax years. Details of what you can claim are here (link to blog).
As of 2021 we will be sending out an online questionnaire which will guide you through the process step-by-step.
If you have a rebate due, HMRC usually makes the payment within four weeks of the submission of your tax return.
If you have tax to pay, the deadline remains 31st January irrespective of when you submit your tax return . Early submission enables you to plan your cashflow.
If you have earned between £2,000 and £10,000 from share dividends or between £1,000 and £2,500 in any other untaxed income, such as airbnb or eBay, you need to inform HMRC here – https://www.gov.uk/government/organisations/hm-revenue-customs/contact/income-tax-enquiries-for-individuals-pensioners-and-employees
From the 6th April 2023, Making Tax Digital will replace tax return submissions for all self-employed businesses and landlords with a turnover of over £10,000.
This will require five filings a year in an electronic format. If your trading year is aligned to the tax year, your first report will be due in August 2023.
Whilst this may seem like an age away, we are implementing cost-effective solutions to get you ready for Making Tax Digital.
Whilst ‘how much does a UK accountant cost?’ is a seemingly simple question, in the past it has been hard to get a clear answer.
Traditionally accountants have aligned themselves with other professional services charging based on timesheets. This would leave you with little idea of the total cost for the year until after the services were delivered. Often you would get a nasty surprise.
The great news is those time are changing. Now you are in control. You can have certainty on the price to be paid and can pay the fee monthly.
The first decision that you need to make is whether you view accountancy services as a commodity or a value add. There is no right or wrong answer, it is what is better for your business.
Accountancy can be viewed as a commodity for managing your business compliance. You want to keep the bookkeeping up-to-date and file the annual accounts and tax returns. If this is the case, the key driver should be price.
There are a number of online solutions for this. For example, Crunch, The Accountancy Partnership and Mazuma Accountants to name three. For a sole trader or a simple owner-director Limited Company the monthly fee would be under £100.00 plus VAT.
Indeed, with the developments in automated bank feeds, machine learning in accounting software and artificial intelligence, it is likely that the cost of compliance will fall even further.
However, partnering with the right accountancy can add tremendous value to your business.
Google search “accountant” in your hometown and you will be presented with an array of firms offering accountancy services. Notably, the vast majority are not explicit on the cost unlike their online solution counterparts. The website is more an invitation to start a conversation with the fees to be discussed later.
At CooperFaure, the COVID-19 pandemic has given the opportunity for us to re-evaluate how we work. We can now focus our time on delivering more value to our customers locally, nationally, and internationally.
The first step is to give you clarity on the price. We have three levels of service plans for a fixed monthly fee.
The second step is to demonstrate how we add value. In our opinion, this is not by reporting on what has happened, it is about providing the tools, experience and advice to guide you for the future.
It is all about tomorrow not yesterday. We have developed a suite of business intelligence and analysis to support you towards your destination.
Are we more expensive than our local accountant counterparts? Likely yes, but we are giving you complete transparency with no hidden extras.
It is all too easy to have a visually attractive website with no substance behind it. We have fifteen years as a business supporting and nurturing customers like you grow by combining traditional values and modern techniques.
Our philosophy is that, if you partner with CooperFaure, we will deliver true insights that will add value to your business. We offer a thirty-day free trial, do not tie you in to a long-term contract and give you the freedom to move between plans.
In other words, it is you the customer that has the ultimate say in whether we have added value.
In summary, there is an abundance of choice. There accountants available, whether you are looking for a price-driven compliance solution, more support from a local accountant or a full added-value solution. As we said earlier, there is no right or wrong answer, it is what best for your business.
If you would like to see how we can help you can find a list of our products and prices here.
A question that we are asked all the time is, “What kind of business should I start in the UK?”. There are really three main options and the truth is each option has pros and cons. The decision should be based on what is best for you, your situation and your customers.
Here is a high level view of each of the choices available to you. Overall, our advice is to incorporate. The cost is relatively inexpensive and has the benefit of limiting your personal liability.
As a Sole Trader, you are the business. As such, you would be personally responsible for any loan, credit agreements or unpaid bills. Even though a Sole Trader can be VAT registered and have employees, there is a perception that this is a smaller operation than a Limited Company. However, there is a lessened level of paperwork.
A Partnership is where you and other people decide to work together in a business. In most cases, a Partnership is like a Sole Trader and you are collectively personally responsible for your business. The partners share the profits and each pays tax on their share.
There are other forms of Partnership that offer limited liability but the paperwork is on a similar level to a Limited Company.
A Limited Company offers you protection by limiting your liability. Any loan or credit agreements would be in the name of the company offering a degree of safety to the individual. A Limited Company is often viewed as a superior entity when coming to winning new business.
Whichever is the best option for you, there are statutory requirements to register your business before you start trading. Our Business Set-Up service will take care of these for you.
For individuals with disposable income, making Venture Capital investments is growing in popularity, mainly through the Enterprise Investment Scheme (EIS) or Seed Enterprise Investment Scheme (SEIS).
Under the schemes, the government is encouraging investment in eligible companies by offering a range of tax reliefs to investors who purchase new shares in those companies.
The initial tax relief is on Income Tax and this is usually claimed through your personal tax return.
A crucial point is that claiming Income Tax relief is a requirement to be able to apply the Capital Gains Tax exemption should the investment make a return in the future.
In a scenario where you have invested £5,000 each under EIS in four companies in the tax year, this gives you potential Income Tax relief of £6,000. However, your Income Tax paid in the year is £3,000 with nothing in the preceding year. As a result, the maximum relief you can claim is £3,000 to bring your Income Tax paid back to zero.
Whilst including the details of two of the investments would meet the arithmetic goal of clearing down your Income Tax, you need to include the details of all four venture capital investments and split the relief across them.
In order to claim the Income Tax relief on venture capital investments, you must have received a Compliance Certificate from the company that you have invested in which will provide the following information for your tax return:
The Compliance Certificates do not need to be submitted with your personal tax return but should been kept safely as HMRC make ask for them in the future.
You can find more information about SEIS/EIS using the following links:
Our blog post on EIS – https://cooperfaure.designmindshost.com/enterprise-investment-scheme/
One of the proposals that was announced in the Budget was to provide a temporary extension to the loss carry back rules for trading losses of both corporate and unincorporated businesses.
This newsletter looks at how the changes will apply to a Limited Company and next week we will be looking at the impact on unincorporated businesses, which covers sole trader and partnerships.
ΩFor a Limited Company, the existing rules are that a company incurring a trading loss in an accounting period that are unused against profits in that year can claim for the balance to be offset against the profits from the preceding twelve-month period.
Alternatively, the trading loss can be carried forward to set against trading profits in the future. There are restrictions but these only come into play when the profits exceed £5 million, only 50% of these profits are available for offset by carried-forward losses.
Should a Limited Company cease to trade, there is entitlement to Terminal Loss relief which allows unlimited carry back of trading losses of the final accounting period to set off against profits of the previous three years.
Under the new legislation, for accounting periods ending between 1st April 2020 and 31st March 2022, the carry back period will be extended to three years, with losses required to be set against profits of most recent years first before carrying back to earlier years.
No change is proposed to the current unlimited carry back of trade losses against the first year. However, for the extended relief, the amount of loss that can be carried back to the earlier two years is to be capped at £2,000,000 for each of the trading years. For group companies, there will be a group cap of £2,000,000 for each relevant period.
Normally, a carry back relief claim is made as part of the Corporation Tax return submission for the loss-making year. However, there will be the provision to allow a claim of up to £200,000 to made outside the Corporation Tax return process.
Let’s take the example of Company A that has current year (CY) trading losses of £400,000 and profits of previous periods as follows:
CY-1 – £150,000
CY-2 – £200,000
CY-3 – £300,000
Under the current rules, Company A would be entitled to claim carry back relief of £150,000 against CY-1 profits.
Under the new rules, Company A would be entitled to claim carry back relief for the full £400,000 with £150,000 against CY-1 profits, £200,000 against CY-2 and £50,000 against CY-3.
It is worth bearing in mind in this scenario that, if Company A went on to make a further loss in the next year, there would be no further carry back relief available as the unused balance in CY-3 would then be out of scope.
If the profit profile had been different as follows:
CY-1 – £300,000
CY-2 – £400,000
CY-3 – £300,000
Under the new rules, Company A would be entitled to claim carry back relief for the full £400,000 with £300,000 against CY-1 profits and £100,000 against CY-2.
This would leave an available balance in CY-2 of £300,000 which, for the next year, would be deemed CY-3.
A claim for carry back loss relief can be made once the amount of the loss has been established.
One of the benefits of modern cloud-based accounting software like Xero is that the amount of the loss can be established within days of the end of the accounting period. The Corporation Tax return submission flows naturally out of this process.
For businesses using other software or platforms which do not provide such an integrated solution, a stand-alone claim of up to £200,000 can be made under the provisions of Sch1A of the Taxes Management Act 1970 as soon as the loss-making accounting period has ended providing the losses can be quantified appropriately.
A claim under this process would require supporting documentation and evidence, such as draft accounts or management accounts, to enable the validity and accuracy of the claim to be verified.
Although the preparation for an Extended Loss Carry Back Relief can be made, HMRC will be unable to action the claim or process the repayment until Finance Bill 2021 receives Royal Assent.
Once this has happened, we expect HMRC to publish their guidance on the timeframe for the repayment to be made once a claim has been submitted.
The Treasury has issued more guidance on The Recovery Loan Scheme. However, many questions remain unanswered.
The Recovery Loan Scheme is designed to ensure businesses of any size can continue to access loans and other kinds of finance up to £10 million per business once the existing COVID-19 loan schemes close.
Interestingly, “the finance can be used for any legitimate business purpose, including growth and investment.”
The scheme is due to launch on 6th April and is open until 31st December, although the close date is subject to review.
The loans will be available through a network of accredited lenders. However, at this stage, it is not clear who the lenders will be.
The government will guarantee 80% of the finance to the lender with the expectation that this will provide confidence to lend to businesses.
There will be two types of finance:
The term period is up to six years for loans and asset finance facilities and up to three years for overdrafts and invoice finance facilities.
No personal guarantees can be taken on facilities of up to £250,000, and in no circumstances can the principal private residence of the borrower be taken as security.
The eligibility criteria for the Recovery Loan Scheme are that your business:
A definition of “collective insolvency proceedings” will be issued in due course.
Businesses that have funding under the existing COVID-19 loan schemes will be eligible to the Recovery Loan Scheme if they meet all other eligibility criteria.
Only a few business sectors cannot apply:
However, there are crucial questions that still need to be answered, primarily what will the interest rate be and precisely what security demands can lenders make?
The Recovery Loan Scheme launches as banks are about to start collecting the first repayments from the Bounce Back and Coronavirus Business Interruption Loan schemes in June.
Banks are privately indicating that 40-50% of the loans issued will not be paid either due to affordability or fraud.
Given this backdrop, the level of enthusiasm for The Recovery Loan Scheme amongst the traditional High Street banks remains to be seen. However, this may provide an opportunity for alternative lenders to deliver a greater proportion of the overall funding.
We will be publishing updates on The Recovery Loan Scheme over the course of the next month as we receive more clarity on these issues.
The Chancellor, Rishi Sunak, unveiled the 2021 UK Budget in parliament today and there were twelve key takeaways:
Employees will continue to receive 80% of their current salary capped at £2,500 for hours not worked. However, the employer will need to make a 10% contribution in July and a 20% contribution in August and September.
See our blog on this topic here – https://cooperfaure.designmindshost.com/covid-19-business-support-job-retention-scheme-extended-by-a-month-and-more/
The grant will be worth 80% of three months’ average trading profits covering the February to April period. As before, it will be paid as a single amount and will be capped at £7,500 in total. All other eligibility criteria will remain the same as for the third grant, so there remains no support for those who were remunerated by dividends. The grant can be claimed from late April.
There will be a fifth and final grant covering the May to September period. The value of the grant will be determined by a turnover test. Individuals whose turnover has fallen by 30% or more will continue to receive the full grant, 80% of three months’ average trading profits capped at £7,500. Individuals whose turnover has fallen by less than 30% will receive a 30% grant, capped at £2,850. The final grant can be claimed from late July.
See our latest blog on this topic here – https://cooperfaure.designmindshost.com/covid-19-the-government-has-announced-a-welcome-second-grant-under-the-self-employment-income-support-scheme-but-key-groups-to-the-revival-of-the-economy-are-still-left-with-nothing/
The temporary increase in the residential Nil Rate Band to £500,000 in England and Northern Ireland has been extended until 30th June 2021. From 1st July 2021, the Nil Rate Band will reduce to £250,000 until 30th September 2021 before returning to original level of £125,000 on 1st October 2021.
The government will underwrite lenders with a guarantee of 80% on eligible loans between £25,000 and £10 million. The scheme will be open to all businesses, including those who have already received support under the Bounce Back Loan Scheme or CBILS.
See our latest blog on this topic here – https://cooperfaure.designmindshost.com/the-recovery-loan-scheme/
This measure applies to England and offers grants of up to £6,000 per premises for non-essential retail businesses and up to £18,000 per premises for hospitality, accommodation, leisure, personal care and gym businesses.
The temporary reduced rate to 5% VAT for goods and services supplied by the tourism and hospitality sector will continue until 30th September 2021. A 12.5% rate will apply for the subsequent six months until 31st March 2022 with the rate then returning to 20%.
There will be 100% business rates relief from 1st April 2021 to 30th June 2021 followed by 66% business rates relief for the period from 1st July 2021 to 31st March 2022. The relief will be capped at £2 million per business for properties that were required to be closed on 5th January 2021, or £105,000 per business for other eligible properties.
This will be available for both incorporated and unincorporated businesses. Relief for up to £2 million of losses in each of 2020-21 and 2021-22 years can be carried back against profits in the preceding three years to generate a Corporation Tax or Income Tax refund.
See our latest blog on this topic here – https://cooperfaure.designmindshost.com/extended-loss-carry-back-relief-limited-companies/
In a reversal of the previous strategy, Corporation Tax will increase from April 2023 to 25% on profits over £250,000. The rate for small profits of up to £50,000 will remain at 19%. There will be an as yet undefined tapered increase in the rate on profits between £50,001 and £250,000.
Despite there being little evidence of widespread abuse, for accounting periods beginning on or after 1 April 2021, the amount of SME payable R&D tax credit that a business can receive in any one year will be capped at £20,000 plus three times their total PAYE and NICs liability. At the same time, there will be another R&D consultation to cover whether the schemes should be amended to remain internationally competitive and keep the UK at the cutting edge of innovation.
See our latest blog on this topic here – https://cooperfaure.designmindshost.com/research-and-development-tax-relief-testimonial/
Whilst the preceding policy announcements had been widely revealed before the 2021 UK Budget, the Chancellor held one announcement back. From 1st April 2021 until 31st March 2023, companies investing in qualifying new plant and machinery assets will benefit from a 130% first-year capital allowance. This super-deduction will allow companies to cut their tax bill by up to 25p for every £1 they invest.
As ever, the Budget document runs to over one hundred pages covering a lot more than in the speech. For instance, the contactless payment card limit will increase to £100, and cumulative contactless payments up to £300. Banks are expected to implement the new limits during the year.
We will be reviewing the document to unearth other gems for our next newsletter over the weekend.
We will also be looking at how the changes to the Corporation Tax rate will impact the remuneration strategy between salaries and dividends. In April 2016, the personal tax treatment of dividends changed. This closed the gap on the overall tax paid between a salary and a dividend, but it still tilted in favour of a dividend.
At the time, the Corporation tax rate was 20%. From 2023, with the rate 5% higher, the overall tax basket may well tilt in favour of a salary.
Further information is available from gov.uk – https://www.gov.uk/government/topical-events/budget-2021
Whilst the customs and VAT on moving goods between the UK and EU is far more complex, what are the rules around services?
In this first of two guides, we look at the provision of services from the UK to business customers in the EU. The second guide will focus on the steps to take for UK companies wishing to supply services in the EU.
From 1st January 2021, the supply of services to customers in the EU is treated the same as those to any customer outside the EU.
For Business-to-Business services, the service is deemed to be provided where the customer is resident. This is outside the scope of UK VAT and zero-rated. However, it is advisable to obtain commercial evidence showing that your customer is in business outside the UK. For EU customers, the best evidence is their national VAT registration number.
EU customers will use the ‘reverse charge’ method to show the VAT in their return.
Likewise, UK companies buying services from the EU need to apply reverse charge rules in their UK VAT return.
In essence, under the reverse charge rules, the customer acts as if both the supplier and the recipient of the services. It applies where the supplier belongs outside the UK even if they have a UK VAT registration number.
We have a worked calculation here.
For a business in the UK that is not registered for VAT, the value of reverse charge supplies must be added to the business taxable supplies to determine whether the company should be registered for VAT.
Even if the company has no taxable supplies, it must register for VAT if the total reverse charge supplies exceed the registration threshold in a rolling twelve-month period. The VAT registration threshold is currently £85,000.
For UK businesses supplying digital services to non-business customers in the EU, the ‘place of supply’ continues to be where the customer resides. VAT on those services is due in the EU member state in which the customer resides.
The £8,818 annual threshold for cross borders sales of digital services to EU consumers no longer applies, so VAT is due on all sales.
For UK businesses supplying insurance and financial services, the input VAT deduction rules changed from 1st January 2021. Supplies that were previously exempt from VAT move to outside the scope. This aligns with the existing rules for supplies of these services to customers outside the EU.
As a result, VAT incurred after 1st January 2021 on supplies used to fulfil services to customers in the EU can now be recovered.