If your business is in the position to be able to afford to reward your staff this Christmas, there are other tax free alternatives to the traditional Christmas party. 

Tax free gifts for Employees

No employee is going to thank an employer for a gift that results in Benefit in Kind (BIK) charges, and increased self-assessment requirements. Luckily, there are ways to gift up to £50 (including VAT) each year to your employees, without them incurring BIK. In order to comply with HMRC requirements on Trivial Benefits, the employee gift must:

• cost £50 or less, including VAT
• not be cash or a cash voucher (vouchers for a retail store that cannot be converted to cash are fine to give as an employee gift)
• not be a reward for their work or performance
• not be in the terms of their contract

If the above requirements are met, there is no need to report the gifts to HMRC and no tax or NIC's are liable on them. Trivial benefits, such as these, don’t need to be reported on your annual P11D or P11D(b) forms. VAT is also reclaimable by the employer on the cost of an employee's gift.

But beware, if the cost of the gift or gifts go above £50 in one year, including VAT, then the entire cost of the gifts becomes taxable.

Gifts for Directors of Close Companies

For close companies, which includes the typical family-owned company, there is a limit of £300 per tax year for gifts to a director and their family members who are employees. These gifts are subject to the same £50 requirements as stated above for employees, meaning each gift can be no more than £50 for each individual. In the case of a director or a family member of a director who is an employee, they can receive gifts up to the value of £50, and which total in one year, no more than £300, including VAT.

A close company is a limited company with five or fewer shareholders, who are all directors.

HMRC examples of what is and is not allowed

Example A – Benefits allowed as trivial

An employer gifts each of their employees a bottle of wine costing £25 as a Christmas present.  However, as some of their staff don’t drink they give them a £25 supermarket gift voucher, which can be used to buy themselves an alternative. Both the bottle of wine and the non-cash gift voucher can be covered by the exemption.

Example B – Benefits not allowed

An employer gives each member of their 25-strong workforce a bottle of wine as a Christmas present. The total bill comes to £1,000. This is for 20 bottles of wine at £15 per bottle given to each of their employees, and five bottles of wine for the directors that cost £140 per bottle.

The £15 bottles of wine don’t exceed the trivial benefit financial limit, but the £140 bottles of wine for directors do.

See HMRC for more on Trivial Benefits.

Limited Companies and the Annual Party Exemption during COVID

*Note Sole Traders cannot claim the Annual party exemption, as they are not an employee. Their Christmas spending will be treated as their drawings.

With COVID restrictions in place, the traditional office Christmas party may not be happening this year, but for small companies/businesses and depending on which tier you are in, the COVID restrictions may not interfere with plans. In this case, they will need to comply with the HMRC regulations around Annual Staff Parties, which are:

• The party must be annual, meaning it does not have to be at Christmas
• The event must be available to all employees
• The cost per head must not exceed £150 including VAT

The £150 cost per head must cover the cost of:

• the party or function
• any transport or accommodation provided for those attending (including non-employees)
• any related VAT on the costs of the above

As long as the total cost, divided by the number of people attending, comes in at £150 per head, or below, then the cost does not incur BIK charges for those attending.

If the cost goes even 1p above £150, then the entire cost will be subject to BIK by the employees. The £150 is an exemption, not an allowance, and if it is exceeded, then the whole cost is taxable and must be reported on a P11D for the attending employees. The employee’s benefit must also include the cost of any attending spouse/partner who is not an employee in their own right. The employer must pay Class 1A following the end of the tax year. Alternatively, the employer can bear the tax themselves by including the benefit in a PAYE Settlement Agreement.  

This £150 per head exemption, is an annual one, meaning it can be used up across more than one social event. For example, a business may decide to organise a staff summer bbq and a Christmas dinner/party. Neither will incur BIK implications for employees, so long as the total annual cost does not exceed £150 per head, including VAT.

*COVID - Any Christmas parties must comply with HMRC's rule that all employees must be invited, to avail of tax relief, while also abiding by the local COVID restriction tiers in place in your area. So for businesses other than small ones, an online Christmas party or accessing the Trivial Benefits Exemptions may be a better option this Christmas.

What about a Virtual or Online Christmas Party?

Now that we are all Zoom/Skype/Teams experts, why not consider having a virtual party this year? As long as the above criteria have all been met, there should be no reason why the costs don't qualify for the exemption. Here are some tips to keeping your online work celebration within the guidelines.

• Provide proof that all employees were invited
• Retain proof of how many attended- using quiz apps like Kahoot, or events which need pre-registering by employees could help here? Remember you need to be able to divide the total cost (including VAT) by the amount of employees who attended and reach a figure of £150, or lower, per head. 
• Consider providing the employees attending the online party with a hamper of food and drinks- (remember the total costs may include more than just the hamper). Note, the employees receiving the hamper must be attending the online party for it to qualify as part of the Annual Party Exemption. If hampers go to employees not attending online, they could be valued at a lower cost, under £50, to qualify for the Trivial Benefits exemption (meeting all the requirements listed in the Trivial Benefits section above).

Whatever way you decide to celebrate Christmas 2020 with your colleagues, enjoy!

The Self-Employed Income Support Scheme (SEISS) has been a lifeline to many sole traders during the coronavirus pandemic. Provided they’ve met the necessary criteria, these individuals have been supplemented with up to 80% of their average trading profits

However, these grants are taxable – meaning that they’re subject to Income Tax and National Insurance contributions in the tax year in which they’re received. As a result, they need to be included in your Self Assessment tax return

So, to make that as easy as possible for you, we’ve asked tax return guru and Technical Director of GoSimpleTax, Mike Parkes, to set the record straight on SEISS grants and how to record them for HMRC.

Grant 4 now open

If you have reason to believe that you’ve suffered (or will suffer) a significant reduction in trading profits between 1st February 2021 and 30th April 2021 due to the coronavirus pandemic, and you’re eligible, you can now claim support.

To apply, you’ll need your:

●     National Insurance number

●     Government Gateway user ID and password

●     Unique Taxpayer Reference (UTR) number

●     UK bank details, including account number, sort code, and name and address linked to the account

This fourth instalment of SEISS closes on 1st June 2021. To determine your eligibility, HMRC first reviews your 2019/20 tax return. Your trading profits must be no more than £50,000 and account for more than 50% of your taxable income.

Changes to grant 5

The eligibility criteria for the fifth grant will be different. As it stands, the amount you receive will be dependent on your turnover between April 2020 and April 2021.

In effect, this means you may receive support if your sales have fallen by:

●     30% or more – In which case, the fifth grant will be 80% of three months’ average profits (up to a maximum claim of £7,500)

●     Less than 30% – In which case, the fifth grant will be 30% of three months’ average profits (up to a maximum claim of £2,850)

This fifth and final instalment of self-employed support is expected to ‘cover’ the period from May 2021 to September 2021. 

Declaring grants 1, 2 and 3 on your tax return

You won’t need to repay your SEISS grant, but they are subject to Income Tax and Class 4 National Insurance contributions. This means that, if you claimed grants 1, 2 or 3, they will need to be reported, in full, in your 2020/21 Self Assessment tax return.

HMRC is making this easier for users by including a box on the 2020/21 and 2021/22 tax return forms. You’ll need to include a 4th or 5th grant on the latter tax return should you claim them in 2021. 

Alternatively, you can easily declare that you’ve received support through tax return software. Platforms like GoSimpleTax include this as a simple drop-down field.

If you discover that you received a SEISS grant that you were not entitled to, or were paid more than you should have been, notify HMRC within 90 days to arrange repayment. Fail to do so, and you may be charged a penalty.

Provided you have claimed the correct amount and include all grants within your Self Assessment tax return, you should stay on the right side of the taxman.

About GoSimpleTax

Income, Expenses and tax submission all in one. GoSimpleTax will provide you with tips that could save you money on allowances and expenses you might have missed.

The software submits directly to HMRC and is the solution for the self-employed, sole traders and anyone with income outside of PAYE to file their self-assessment giving hints and tips on savings along the way. GoSimpleTax does all the calculations for you so there is no need for an accountant. Available on desktop or mobile application.

Our Favourite Tax App?
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ListenToTaxman have teamed up with GoSimpleTax, the online self-assessment app to bring you, what is in our view, the easiest way of calculating and submitting your tax return we’ve seen so far. Key in your income and expenses into the app, and it will flag up any unclaimed allowances. Simple.

Once you’re comfortable with the information you’ve entered, simply submit via the app to HMRC. You’ll just need your Tax Reference Number - found on most tax correspondence. GoSimpleTax let you use their software free for 14 days. If you don’t think it’s right for you - don’t pay anything. If you do to choose to submit your tax information via the app, then at most of you will be charged £49 for their service.

Find out More, No obligation trial, with no credit card required.

Gone, it would seem, are the days of the defensive Chancellor, protecting their red box of tricks for the big reveal in front of Parliament. Instead a social media drip feed of announcements by brand Sunak, left today's speech feeling a little hollow, like a bit of an afterthought. Most of what featured today had already been announced.

The big question left to be answered in parliament today was which taxes would go up? Restrained by the Conservative party manifesto pledge not to raise income tax, national insurance or VAT, where would the axe fall? Sandwiched between positives in his "3 Point Plan Speech" was the news that, for today at least, only two bitter pills would have to be swallowed:

• Freezes! The personal allowance and higher rate threshold freeze, until 2026. This means the Personal Allowance of £12,570, basic rate limit at £37,700 and higher rate threshold of £50,270, introduced for the 2021/22 tax year, will all remain unchanged until the 2025/26 tax year.
• The long awaited Corporation Tax hike arrived. It's jump to 25% probably caught many off guard, but the delay of introduction until 2023 and the specifics on its application for smaller companys, the tax treatment of losses and changes to capital allowances, went some way to soften the blow.

Overall, Sunak left us with no doubt that looming in the budgets to come must lie more pinching of purses and increased taxation to pay for supports and recovery programs, post COVID.

Below are the main points of today's budget news:

COVID Supports – New and continued

• An extension to the furlough scheme until the end of September. Government to continue paying 80% of employees' wages for hours they cannot work until July. At this point employers will be asked to contribute 10% in July and 20% in August and September, towards the cost of covering employee's wages.
• SEISS for self-employed extended until September. Those who's turnover dropped by less than 30% will receive reduced support.
• Access for the self-employed to grants has been widened. Those who completed and submitted their 2019/20 tax return by 28th Feb 2021 will now qualify for SEISS scheme.
• £20 weekly uplift in Universal Credit worth £1,000 a year to be extended for another six months
• Working Tax Credit claimants will get a £500 one-off payment
• Minimum wage to increase to £8.91 an hour from April
• Reliefs for home office expenses, COVID tests and cycle exemptions have been extended.

Personal

• No changes to income tax rates, thresholds, National Insurance, VAT.
• Personal allowances such as pension, savings, inheritance and CGT are all unchanged.
• Pension lifetime allowance has been frozen for 5 years. It will remain at its current level of £1,073,100 (2020/21) until 2026, rather than increasing in line with inflation.
• Tax-free personal allowance to be frozen at £12,570 until 2026
• Higher rate income tax threshold to be frozen at £50,270 until 2026
• Stamp duty holiday on house purchases in England and Northern Ireland extended until the 30th June
• A new mortgage guarantee scheme to help first-time buyers access 95% mortgages, on property with a value up to £600,00

Fuel and Alcohol Duty

• No increases on fuel duty.
• No increases to duty on beer, wine and spirits.

Business Taxation

• Corporation tax on company profits to rise from 19% to 25% in April 2023. The rate will be kept at 19% for smaller companies with profits less than £50,000.
• Tax treatment of losses has become more generous- Losses of up to £2m can now be carried back for 3 years.
• Capital Allowance changes- a new Super Deduction means that from April 2021 companies can now reduce their tax bill by 130% of the cost of new plant and machinery and 50% of the cost of special rate assets.
• The reduced VAT rate of 5% for businesses such as restaurants, hotels and other leisure attractions, has been extended until the end of September, then an interim rate of 12.5% will apply from 1st of October to March 2022.
• The 100% Business rates holiday will be extended through to the end of June. After that there will be a 2/3rd reduction for the following 9 months.
• Incentive payments for hiring new apprentices are being doubled to £3,000 while £126m will be invested to triple the number of new traineeships.
• £5bn in Restart Grants made available for shops and other businesses forced to close. £6,000 per premises for non-essential outlets due to re-open in April and £18,000 for gyms, personal care providers and other hospitality and leisure businesses
• A new Government loan scheme for businesses to run until the end of the year. Loans can be between £25,000 and £10m
• Help To Grow Scheme announced to help small businesses increase productivity. It will provide free access to training courses on management and going digital. There are also 50% discounts on software packages to help increase productivity. Businesses need to register to access the help. More information here.

Sports, Arts and Culture

• £400m to help arts venues and museums in England re-open
• £300m recovery package for professional sport and £25m for grassroots football
• £2.8m pledged to help in the joint UK and Ireland bid to stage the 2030 World Cup
• £1.2m to stage the delayed Women's Euros football tournament in England in 2022

Environment, Nations, Regions and Other Announcements

• £1.65 billion boost to aid the vaccine roll out
• New Visas for highly skilled migrants to be made available
• £10m pledged for mental health support for Veterans
• An extra £19m in funding support for domestic violence programs
• New UK Infrastructure Bank to be set up in Leeds
• Funding for the devolved Governments: £1.2bn in funding for the Scottish government, £740m for the Welsh government and £410m for the Northern Ireland executive
• Development of Freeports across the UK- Special Economic Zones- which allow companies importing and exporting from the UK to operate under simplified customs, tax, and planning rules. The first 8 in England listed: East Midlands Airport, Felixstowe and Harwich, Humber, Liverpool City Region, Plymouth, Solent, Thames and Teesside.
• £150m for community groups to take over pubs at risk of closure
• £1bn fund to promote regeneration in a further 45 English towns, including Middlesbrough, Preston, Swindon, Bournemouth, Newark, West Bromwich and Ipswich
• Green Savings Bonds - Savers will be able to buy into bonds offered through National Savings and Investments. These Government bonds will include investment in expanding offshore wind power plants, planting 30,000 trees and revamping UK homes and public transport.
• Increase in contactless payment limit to £100

HMRC COVID19 update 25th January 2020- Self-assessment customers will not receive a penalty for their late online tax return if they file by 28th of February. However any tax due for 2019-2020, that has not been paid on the 1st of February, will begin to incur interest. The usual rate is 2.6%.

As penalties on tax owing do not begin until the 2nd March, this means that a return made before the 28th February will cost the taxpayer interest on tax owing, but no flat rate fine or penalty. In real terms, this is an extension to the deadline for those who owe little or no tax.

See HMRC update for more.

The 3^rd grant opens for applications on 30^th November 2020.

This extension is taking the form of two grants: one covering the period between November 2020 to January 2021, and the other from February 2021 to April 2021. By extending the support, the government is acknowledging the contribution that sole traders make to the UK economy and how important it is to keep them afloat.

So, to help you get the most out of SEISS and ensure the success of your business, we’ve asked Mike Parkes from GoSimpleTax to explain the extension and how you can claim it.

What is the SEISS?

The SEISS is a series of taxable government grants for self-employed individuals. It was set up to support self-employed workers whose earnings have been adversely affected by COVID-19.

The scheme opened to applications of its first grant on the 13th May 2020. Successful applicants could get either £7,500 or 80% of their average monthly profits over the 2016/17, 2017/18 and 2018/19 tax years (whichever was the lower amount). The second phase involved a grant worth 70% of average monthly trading profits. It was paid out in a single instalment covering three months’ worth of profits, and capped at £6,750.

What’s the value of the latest grant?

The third one (1st November 2020 to 31st January 2021) offers 80% of three months’ average monthly profits up to a total of £7,500. This is the same value as the first grant.

How do I know if I’m eligible?

The majority of the terms to the latest grant are the same as the first two. However, there’s one new requirement regarding reduced demand.

To make your application easier, I’ve listed each one below:

• You must declare that you’ve been impacted by reduced demand due to COVID-19 – This is the new term and it means that you can make a claim on the basis that you were previously trading but are temporarily unable to do so due to coronavirus.

• You must have filed a tax return for 2018/19 –In other words, you need to have been self-employed prior to 6th April 2019.

• You were eligible for the first and second SEISS grants – Although you do not have to have made a previous claim for these earlier grants.

• You must earn more than 50% of your total income from self-employment –HMRC will check this on your 2018/19 tax return. If you’re not eligible based on the 2018/19 tax year alone, they’ll review tax years 2016/17, 2017/18 and 2018/19 to see if your average profit across three years was more than 50% of your total income.

• You must be actively trading – You need to declare this to HMRC when you apply, and must intend to continue trading post-pandemic.

• Your average trading profit must be less than £50,000 – Any applicants earning more won’t be eligible.

Remember, you are still able to apply even if you didn’t apply for the previous two grants. Likewise, you can keep working after claiming the grant. You just need to prove that you were impacted by reduced demand during the pandemic.

How do I claim?

It’s simple, all you need to do is visit the official government claims portal. Applications for the third grant open on the 30th November, but you can create a Government Gateway account in the meantime. This will streamline the process when applications open.

This grant is arguably the best opportunity for sole traders to keep their businesses going through the uncertain times ahead. It’s unclear if the fourth grant will be as generous, especially if lockdown has eased by the time applications open.

Bear in mind that the 31st January is your tax return deadline too, so it’s important to have all your finances in order or you might risk losing your eligibility in future months. Software like GoSimpleTax can help you with this by enabling you to update your tax return in real time.

Please also note that these grants are subject to tax and national insurance and need to be included as part of your self-employed income on your 2020/21 tax return.

This article was written by our Self-Assessment Expert, Mike Parkes, who is also a director at GoSimpleTax, a low-cost online-software package which makes it really easy for the Self-Employed to calculate and submit their annual Tax Self-Assessment. They offer freemium access – and best of all NO payment details are required, which makes it very easy to try out.

Our Favourite Tax App?
It's Simple

ListenToTaxman have teamed up with GoSimpleTax, the online self-assessment app to bring you, what is in our view, the easiest way of calculating and submitting your tax return we’ve seen so far. Key in your income and expenses into the app, and it will flag up any unclaimed allowances. Simple.

Once you’re comfortable with the information you’ve entered, simply submit via the app to HMRC. You’ll just need your Tax Reference Number - found on most tax correspondence. GoSimpleTax let you use their software free for 14 days. If you don’t think it’s right for you - don’t pay anything. If you do to choose to submit your tax information via the app, then at most of you will be charged £46 for their standard service (silver).

Find out More, No obligation trial, with no credit card required.

Note, this article is regarding Employees working from home and is very different to allowances for the Self-employed who work from home. 

Working from home is becoming all the more possible and even encouraged. Additional time spent at home impacts the fuel, water, telephone and electricity bills. They are ways to reclaim some of those costs, but eligibility needs to be addressed from the outset.

In some case, employers will agree to reimburse the additional costs homeworking places on the employee. HMRC have a flat-rate working from home allowance, to make this process easier. In order to be eligible to claim any more than the flat-rate, an employer must be able to prove that working from home is necessary. Where working from home is optional, it is very unlikely that HMRC will allow the employer claim costs above the flat-rate. See examples on HMRC's guidance.

Where an employer will/ does not reimburse these expenses, the alternative is for the employee to claw back whatever they can through tax relief. This is possible as long as a home working agreement is in place with the employer, or working from home is addressed in the employees contract. Employees who work from home by choice are treated differently when claiming directly. In general, they cannot claim tax relief from HMRC if their employer does not reimburse some/all of their expenses.

Both options can result in the HMRC flat-rate working from home allowance, being claimed, but there are also options for situations where the flat-rate does not cover the additional expenses involved.

In this guide we go through both scenarios so you can choose which option is best suited to your situation. 

*COVID19- It is likely that eligibility requirements during the COVID pandemic will be realaxed, but clarity is still due from HMRC on this issue. In each of the areas of this article, we have added a COVID19 update where there is clarity from HMRC. For information specifically relating to the purchase of equipment for COVID-19 homeworkers, see the bottom of this article.

First Option: Employer reimbursement of costs- tax exempt.

Since 2003, employers have been able to make tax-free payments to cover the additional costs incurred by an employee who works from home. These payments are exempt from income tax or NIC's. This system relies on the employer agreeing to pay a tax-free allowance to the employee towards the costs incurred by working from home.

Who is Eligible?

To qualify, an employee needs to be working from home because it is specified as part of their job, or else a home-working agreement with the employer needs to be in place. This means that the employee is regularly performing some or all of their duties from their home. HMRC are strict about who qualifies for this exemption. They may check whether the employee the expenses are related to, meets their criteria to be classified as a homeworker. They will look for copies of the employee homeworking agreement or employment contract for evidence of this fact. If you don't have this in place you could be looking at a tax charge. Occasional working at home which is not by arrangement does not count as homeworking – for example taking work home in the evenings will not qualify the employee for tax exemption. There must be an arrangement to work from home and not at the employer’s premises, in place. It is best for this to be a written agreement.

*COVID-19 Update - HMRC will accept that employees who are either :

1. working from home because their work places have closed,  or
2. working from home because they have been advised to self-isolate, 

have met these eligibility requirements. Employees will be eligible to receive this tax free allowance from their employer, starting from the date that their employer agreed they could work from home, or from when government advice was announced. Being eligible to receive this allowance does not mean you automatically will. Your employer must agree to pay it to you first and then claim the allowance. 

What is Covered? 

Flat-rate

A tax-free allowance can be paid by the employer to cover the reasonable additional household expenses that an employee incurs in carrying out the duties of the employment at home, under homeworking arrangements. 

There are a couple of ways to agree a figure for this allowance. The most straightforward one is to use the flat-rate figures supplied by HMRC:

• £6/week for weekly paid employees (£4/week prior to 6 April 2020)  OR
• £26/month for monthly paid employees (£18/month prior to 6 April 2020).

Advantages of using this flat-rate system is there is no need for the employer to justify the expenditure and the employee does not need to keep records of their additional costs.

 COVID19 - guidance from HMRC for employers/employees -Check what expenses are taxable for homeworking employees during Covid19 pandemic.

Above Flat-rate

Sometimes the flat-rate is not enough to cover additional costs to the employee. In this case a larger tax-free allowance may be agreed, but sufficient evidence of the additional costs must be supplied. Remember, to claim above the flat-rate, working from home must be necessary, rather than optional. There are two options available when working out this amount.

1. Scale Rate:

Using guidance from HMRC a scale rate payment can be calculated, which reimburses the average additional costs of working at home. It is possible to agree to increase this annually. Once the scale rate has been agreed with HMRC, employees are not required to keep subsequent evidence of costs. (It is unlikely that HMRC will have the time or resources to agree scale rates during the COVID emergency).

2. Work out the actual additional costs. The second way to work out a higher than flat-rate allowance is for the employer to evaluate the actual increase in household costs, due to the employee working from home. Allowable additional costs include:

• additional heating and lighting costs of the work area within the home
• additional home contents insurance
• metered water (you cannot claim for water rates)
• Business phone and internet access charges- additional costs only
• business rates where an additional cost is incurred

According to HMRC: 'additional household costs must be reasonable and must be incurred in carrying out the duties. This excludes costs that would be the same whether or not the employee works at home, for example mortgage interest, rent, council tax or water rates. It also excludes expenses that put the employee into a position to work at home, for example building alterations or the cost of furniture or office equipment. ' HMRC

When it comes to charges such as broadband, landline charges and waste removal,  HMRC say that if the employee is already paying the charge before starting working from home, then this is an existing expense and cannot be reimbursed tax-free. If, however, the employee is not connected to broadband and needs a connection to work from home, then this would qualify as an additional cost which the employer could reimburse tax-free. If there is a noticeable increase in cost of a service, due to an upgrade needed after the employee began working from home, then the additional cost could be reimbursed. Only additional costs incurred by the employee as a result of homeworking can be reimbursed by their employer tax-free.

Employers can give an employee office equipment and furniture. These would be deemed tax-free benefits in kind. Although a tax liability may arise if ownership of these items trasfer to the employee at a later date, or if the use is not wholly for work purposes. This area is covered in more detail at the bottom of this article, including the special measures brought in for COVID19 homeworking.

Second Option: Employee Claims Tax Relief Directly

If your employer does not reimburse additional costs incurred as a result of you having to work from home, then you may be able to claim the tax-free allowance directly, as long as working from home is necessary and not optional.

In cases where an employer reimburses you for some of the additional costs, but not all, you may be able to claim an allowance for the additional costs directly. Please note that if your employer pays you a homeworking allowance, then you must reduce your claim by this amount. Again, you can only claim above the flat-rate in cases where working from home is not optional.

The costs incurred must be costs wholly, exclusively and necessarily for your work. If you have not been claiming this allowance but should have been, do not fear, you can claim for it as far back as 2015/16. This allowance is free from tax or NIC's.

 Who is Eligible?

Eligible employees must be able to prove that their home is their workplace. They must also be able to prove that the additional expenses are incurred wholly and exclusively while carrying out their employed role. Working from home needs to be specified as part of the job, or else a home-working agreement (preferably written) with your employer needs to be in place.

*Where working from home is optional and the employer does not reimburse at least some of the costs, employees will not be eligible to claim this allowance.

According to HMRC, these are the conditions under which they will accept that an employee's home is their workplace:

• the duties that the employee performs at home are substantive duties of the employment. “Substantive duties” are duties that an employee has to carry out and that represent all or part of the central duties of the employment (see EIM32780)
• those duties cannot be performed without the use of appropriate facilities
• no such appropriate facilities are available to the employee on the employer’s premises (or the nature of the job requires the employee to live so far from the employer’s premises that it is unreasonable to expect him or her to travel to those premises on a daily basis)
• at no time either before or after the employment contract is drawn up is the employee able to choose between working at the employer’s premises or elsewhere.

COVID19 In March 2020 it was hinted at by the Treasury that some relaxation around meeting the above eligibility criteria, by workers having to work from home during the pandemic, may be agreed. As of yet, there has been no clear guidance on the issue from HMRC.

 How Much can you Claim?

There are some differences between what an employee can claim in allowances and what an employer can reimburse an employee for. In the case of an employee claiming allowances which have not been reimbursed by their employer, the following can be claimed:

• additional heating and lighting
• metered water (you cannot claim for water rates)

An employee cannot claim relief for the following expenses:

• mortgage interest or rent
• insurance
• council tax
• water rates

Often it is easier to just use the HMRC flat-rate, without having to justify the figures, which are:

• £6/week for weekly paid employees (£4/week prior to 6 April 2020)  OR
• £26/month for monthly paid employees (£18/month prior to 6 April 2020).

An additional claim can be made for business phone calls, more on what can be claimed from HMRC here.

 COVID19 - guidance from HMRC for employers/employees regarding what expenses are taxable for homeworking employees during Covid19 pandemic

How to Claim as Employee?

There are a few ways for employees to claim the home working allowance:

1. Through a self-assessment tax return.
2. Online/Post: If not registered for self-assessment, then an employee can use the form P87 procedure to claim this allowance. No more than £2,500 of expenses can be claimed using form P87. Claims above £2,500 will mean registering for self-assessment.
3. Phone: You can claim by phone if you’ve already claimed expenses in a previous year and your total expenses are less than £1,000.

Whichever method you use, remember to retain receipts and calculations as evidence to support the claims made above the flat-rate.

Purchases of Office Equipment for Working from Home

Employer Purchased:

Equipment, such as laptops, chairs, desks, keyboards, etc., that have been purchased by an employer so an employee can work from home, are considered a tax free benefit, so long as their use is solely for work purposes and there is 'no significant' private use.

In situations where there is significant private use, then a benefit in kind that is taxable for the employee, will arise. Employers can specify in work agreements, that equipment is not intended for private use, to avoid this.

In the event that ownership of the equipment transfers to the employee at a later stage, then a taxable benefit in kind for the employee will also be likely.

Employee Purchased and Employer Reimbursed:

Usually, when an employer repays/ reimburses the cost an employee spent on work related office equipment, a tax liability for the employer will occur.

COVID19 Temporary Exemption from Tax and NIC's on Employer Reimbursed Equipment Costs:

In May 2020 the Treasury announced temporary tax relief in the case of home working equipment costs for employees, who may be required to work from home during the pandemic. Where employees have had equipment costs reimbursed by their employers, no taxable liability will arise if certain conditions about the costs have been met. According to HMRC these are:

1. That equipment is obtained for the sole purpose of enabling the employee to work from home as a result of the coronavirus outbreak, and
2. The provision of the equipment would have been exempt from income tax if it had been provided directly by the employer.

Also, private use of the equipment should be minimal.

The exemption is a temporary measure, covering the period from 16th March 2020 until the end of the tax year 2020/21.

Employers should note that exemption is dependent on this benefit being made to all employees who need to work from home, equally.

Significantly, HMRC have confirmed that no benefit in kind will arise if at a later point, the employee returns to work and retains the equipment.

Employee Purchases and Employer Does Not Reimburse:

In the situation where the employer does not reimburse certain equipment costs to the employee arising from working from home, claiming in any other way from HMRC is unlikely to be successful. Equipment such as desks, chairs etc. are unlikely to meet the requirements set out by HMRC to qualify as capital allowances.

The reason you cannot claim for equipment like desks, chairs, etc., is that expenses you incur in connection with your job have to meet a test to qualify for tax relief. This test is that the expense is incurred ‘wholly, exclusively and necessarily in the performance of your duties’. The office chairs/desks were incurred to put you in a more comfortable position to do your job, rather than being used in the actual duties of your job itself. 

Costs for items such as printer ink, postage, paper, if not reimbursed by your employer, could be reclaimed from HMRC through self-assessment or Form P87. The reason is that these costs are all necessarily incurred by you in doing your job.

Employees should seek reimbursement from their employer for costs of office furniture, as it is very difficult to gain tax relief directly from HMRC.

Further helpful links:

COVID19 - guidance from HMRC for employers/employees regarding what expenses are taxable for homeworking employees during Covid19 pandemic

HMRC guidance document on what expenses are allowable if working from home.

HMRC guidance on how to decide whether an employee’s home is a workplace.

 Gov.uk Eligibility tool for Working from Home Allowance

Making a Form P87 return

Self-employed Working from Home Expenses.

Note, this article is regarding Employees working from home and is very different to allowances for the Self-employed who work from home. 

Working from home is becoming all the more possible and even encouraged. Additional time spent at home impacts the fuel, water, telephone and electricity bills. They are ways to reclaim some of those costs, but eligibility needs to be addressed from the outset.

In some case, employers will agree to reimburse the additional costs homeworking places on the employee. HMRC have a flat-rate working from home allowance, to make this process easier. In order to be eligible to claim any more than the flat-rate, an employer must be able to prove that working from home is necessary. Where working from home is optional, it is very unlikely that HMRC will allow the employer claim costs above the flat-rate. See examples on HMRC's guidance.

Where an employer will/ does not reimburse these expenses, the alternative is for the employee to claw back whatever they can through tax relief. This is possible as long as a home working agreement is in place with the employer, or working from home is addressed in the employees contract. Employees who work from home by choice are treated differently when claiming directly. In general, they cannot claim tax relief from HMRC if their employer does not reimburse some/all of their expenses.

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Both options can result in the HMRC flat-rate working from home allowance, being claimed, but there are also options for situations where the flat-rate does not cover the additional expenses involved.

In this guide we go through both scenarios so you can choose which option is best suited to your situation. 

*COVID19-HMRC will accept that employees working from home because their employer’s offices have closed - or because the employee is following advice to self-isolate - meet these requirements. Newly home-based employees will be eligible to receive the allowance tax free from the date that their employer agreed they could work from home, or from when the initial government advice to work at home was announced in March 2020. For information specifically relating to the purchase of equipment for COVID-19 homeworkers, see the bottom of this article.

First Option: Employer reimbursement of costs- tax exempt.

Since 2003, employers have been able to make tax-free payments to cover the additional costs incurred by an employee who works from home. These payments are exempt from income tax or NIC's. This system relies on the employer agreeing to pay a tax-free allowance to the employee towards the costs incurred by working from home.

Who is Eligible?

To qualify, an employee needs to be working from home because it is specified as part of their job, or else a home-working agreement with the employer needs to be in place. This means that the employee is regularly performing some or all of their duties from their home. HMRC are strict about who qualifies for this exemption. They may check whether the employee the expenses are related to, meets their criteria to be classified as a homeworker. They will look for copies of the employee homeworking agreement or employment contract for evidence of this fact. If you don't have this in place you could be looking at a tax charge. Occasional working at home which is not by arrangement does not count as homeworking – for example taking work home in the evenings will not qualify the employee for tax exemption. There must be an arrangement to work from home and not at the employer’s premises, in place. It is best for this to be a written agreement.

*COVID19 Update - HMRC will accept that employees who are either :

1. working from home because their work places have closed,  or
2. working from home because they have been advised to self-isolate, 

have met these eligibility requirements. Employees will be eligible to receive this tax free allowance from their employer, starting from the date that their employer agreed they could work from home, or from when government advice was announced. Being eligible to receive this allowance does not mean you automatically will. Your employer must agree to pay it to you first and then claim the allowance. 

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What is Covered? 

Flat-rate

A tax-free allowance can be paid by the employer to cover the reasonable additional household expenses that an employee incurs in carrying out the duties of the employment at home, under homeworking arrangements. 

There are a couple of ways to agree a figure for this allowance. The most straightforward one is to use the flat-rate figures supplied by HMRC:

• £6/week for weekly paid employees (£4/week prior to 6 April 2020)  OR
• £26/month for monthly paid employees (£18/month prior to 6 April 2020).

Advantages of using this flat-rate system is there is no need for the employer to justify the expenditure and the employee does not need to keep records of their additional costs.

 COVID19 - guidance from HMRC for employers/employees -Check what expenses are taxable for homeworking employees during Covid19 pandemic.

Above Flat-rate

Sometimes the flat-rate is not enough to cover additional costs to the employee. In this case a larger tax-free allowance may be agreed, but sufficient evidence of the additional costs must be supplied. Remember, to claim above the flat-rate, working from home must be necessary, rather than optional. There are two options available when working out this amount.

1. Scale Rate:

Using guidance from HMRC a scale rate payment can be calculated, which reimburses the average additional costs of working at home. It is possible to agree to increase this annually. Once the scale rate has been agreed with HMRC, employees are not required to keep subsequent evidence of costs. (It is unlikely that HMRC will have the time or resources to agree scale rates during the COVID emergency).

2. Work out the actual additional costs. The second way to work out a higher than flat-rate allowance is for the employer to evaluate the actual increase in household costs, due to the employee working from home. Allowable additional costs include:

• additional heating and lighting costs of the work area within the home
• additional home contents insurance
• metered water (you cannot claim for water rates)
• Business phone and internet access charges- additional costs only
• business rates where an additional cost is incurred

According to HMRC: 'additional household costs must be reasonable and must be incurred in carrying out the duties. This excludes costs that would be the same whether or not the employee works at home, for example mortgage interest, rent, council tax or water rates. It also excludes expenses that put the employee into a position to work at home, for example building alterations or the cost of furniture or office equipment. ' HMRC

When it comes to charges such as broadband, landline charges and waste removal,  HMRC say that if the employee is already paying the charge before starting working from home, then this is an existing expense and cannot be reimbursed tax-free. If, however, the employee is not connected to broadband and needs a connection to work from home, then this would qualify as an additional cost which the employer could reimburse tax-free. If there is a noticeable increase in cost of a service, due to an upgrade needed after the employee began working from home, then the additional cost could be reimbursed. Only additional costs incurred by the employee as a result of homeworking can be reimbursed by their employer tax-free.

Employers can give an employee office equipment and furniture. These would be deemed tax-free benefits in kind. Although a tax liability may arise if ownership of these items trasfer to the employee at a later date, or if the use is not wholly for work purposes. This area is covered in more detail at the bottom of this article, including the special measures brought in for COVID19 homeworking.

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Second Option: Employee Claims Tax Relief Directly

If your employer does not reimburse additional costs incurred as a result of you having to work from home, then you may be able to claim the tax-free allowance directly, as long as working from home is necessary and not optional.

In cases where an employer reimburses you for some of the additional costs, but not all, you may be able to claim an allowance for the additional costs directly. Please note that if your employer pays you a homeworking allowance, then you must reduce your claim by this amount. Again, you can only claim above the flat-rate in cases where working from home is not optional.

The costs incurred must be costs wholly, exclusively and necessarily for your work. If you have not been claiming this allowance but should have been, do not fear, you can claim for it as far back as 2016/17. This allowance is free from tax or NIC's.

 Who is Eligible?

Eligible employees must be able to prove that their home is their workplace. They must also be able to prove that the additional expenses are incurred wholly and exclusively while carrying out their employed role. Working from home needs to be specified as part of the job, or else a home-working agreement (preferably written) with your employer needs to be in place.

*Where working from home is optional and the employer does not reimburse at least some of the costs, employees will not be eligible to claim this allowance.

According to HMRC, these are the conditions under which they will accept that an employee's home is their workplace:

• the duties that the employee performs at home are substantive duties of the employment. “Substantive duties” are duties that an employee has to carry out and that represent all or part of the central duties of the employment (see EIM32780)
• those duties cannot be performed without the use of appropriate facilities
• no such appropriate facilities are available to the employee on the employer’s premises (or the nature of the job requires the employee to live so far from the employer’s premises that it is unreasonable to expect him or her to travel to those premises on a daily basis)
• at no time either before or after the employment contract is drawn up is the employee able to choose between working at the employer’s premises or elsewhere.

COVID19 During the COVID-19 pandemic, HMRC will accept that employees working from home because their employer’s offices have closed - or because the employee is following advice to self-isolate - meet these requirements. Newly home-based employees will be eligible to receive the allowance tax free from the date that their employer agreed they could work from home, or from when the initial government advice to work at home was announced in March 2020.

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 How Much can you Claim?

There are some differences between what an employee can claim in allowances and what an employer can reimburse an employee for. In the case of an employee claiming allowances which have not been reimbursed by their employer, the following can be claimed:

• additional heating and lighting
• metered water (you cannot claim for water rates)

An employee cannot claim relief for the following expenses:

• mortgage interest or rent
• insurance
• council tax
• water rates

Often it is easier to just use the HMRC flat-rate, without having to justify the figures, which are:

• £6/week for weekly paid employees (£4/week prior to 6 April 2020)  OR
• £26/month for monthly paid employees (£18/month prior to 6 April 2020).

An additional claim can be made for business phone calls, more on what can be claimed from HMRC here.

 COVID19 - guidance from HMRC for employers/employees regarding what expenses are taxable for homeworking employees during Covid19 pandemic

How to Claim as Employee?

There are a few ways for employees to claim the home working allowance:

1. Through a self-assessment tax return.
2. Online/Post: If not registered for self-assessment, then an employee can use the form P87 procedure to claim this allowance. No more than £2,500 of expenses can be claimed using form P87. Claims above £2,500 will mean registering for self-assessment.
3. Phone: You can claim by phone if you’ve already claimed expenses in a previous year and your total expenses are less than £1,000.

Whichever method you use, remember to retain receipts and calculations as evidence to support the claims made above the flat-rate.

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Purchases of Office Equipment for Working from Home

Employer Purchased:

Equipment, such as laptops, chairs, desks, keyboards, etc., that have been purchased by an employer so an employee can work from home, are considered a tax free benefit, so long as their use is solely for work purposes and there is 'no significant' private use.

In situations where there is significant private use, then a benefit in kind that is taxable for the employee, will arise. Employers can specify in work agreements, that equipment is not intended for private use, to avoid this.

In the event that ownership of the equipment transfers to the employee at a later stage, then a taxable benefit in kind for the employee will also be likely.

Employee Purchased and Employer Reimbursed:

Usually, when an employer repays/ reimburses the cost an employee spent on work related office equipment, a tax liability for the employer will occur.

COVID19 Temporary Exemption from Tax and NIC's on Employer Reimbursed Equipment Costs:

In May 2020 the Treasury announced temporary tax relief in the case of home working equipment costs for employees, who may be required to work from home during the pandemic. Where employees have had equipment costs reimbursed by their employers, no taxable liability will arise if certain conditions about the costs have been met. According to HMRC these are:

1. That equipment is obtained for the sole purpose of enabling the employee to work from home as a result of the coronavirus outbreak, and
2. The provision of the equipment would have been exempt from income tax if it had been provided directly by the employer.

Also, private use of the equipment should be minimal.

The exemption is a temporary measure, covering the period from 16th March 2020 until the end of the tax year 2020/21.

Employers should note that exemption is dependent on this benefit being made to all employees who need to work from home, equally.

Significantly, HMRC have confirmed that no benefit in kind will arise if at a later point, the employee returns to work and retains the equipment.

Employee Purchases and Employer Does Not Reimburse:

In the situation where the employer does not reimburse certain equipment costs to the employee arising from working from home, claiming in any other way from HMRC is unlikely to be successful. Equipment such as desks, chairs etc. are unlikely to meet the requirements set out by HMRC to qualify as capital allowances.

The reason you cannot claim for equipment like desks, chairs, etc., is that expenses you incur in connection with your job have to meet a test to qualify for tax relief. This test is that the expense is incurred ‘wholly, exclusively and necessarily in the performance of your duties’. The office chairs/desks were incurred to put you in a more comfortable position to do your job, rather than being used in the actual duties of your job itself. 

Costs for items such as printer ink, postage, paper, if not reimbursed by your employer, could be reclaimed from HMRC through self-assessment or Form P87. The reason is that these costs are all necessarily incurred by you in doing your job.

Employees should seek reimbursement from their employer for costs of office furniture, as it is very difficult to gain tax relief directly from HMRC.

Further helpful links:

COVID19 - guidance from HMRC for employers/employees regarding what expenses are taxable for homeworking employees during Covid19 pandemic

HMRC guidance document on what expenses are allowable if working from home.

HMRC guidance on how to decide whether an employee’s home is a workplace.

 Gov.uk Eligibility tool for Working from Home Allowance

Making a Form P87 return

Self-employed Working from Home Expenses.

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Rishi Sunak has made announcements relating to everything from Vouchers to VAT, the furlough scheme, Stamp Duty etc. in an effort to restart the UK economy. Today was probably the easier of the upcoming statements from the Chancellor. The Autumn budget will see Sunak explaining how all the COVID response schemes will be paid for. Here are todays highlights:

Coronavirus Job Retention Scheme (JRS)

The Coronavirus Job Retention Scheme is winding down and will gradually cease, with a finish date of Oct 2020.

A New Job Retention Bonus

A once off bonus of £1,000, per employee, will be paid to employers for bringing back, and retaining, furloughed employees.

These employees must be paid at least £520, on average, per month, from Nov to the end of Jan 2021.

Kickstart Scheme

This new scheme will pay employers who employ 16 to 24 year olds (who are in receipt of Universal Credit or at risk of long-term unemployment), for a minimum of 25 hours per week, at the minimum wage. The jobs must be new additional jobs. The scheme will directly pay the employer the wages of these young employees for 6 months, a value of approx £6,000. Employers can apply to take part from August, with the idea that employees can start in their new jobs by the Autumn. There is no cap on places available.

Traineeships/Apprenticeships

The government will pay employers a cash incentive to take on trainees and hire young people. These new incentives are in addition to the existing £1,000 payment already provided for taking on new 16-18-year-old trainees and certain other apprentices aged over 25.

• Employers will also be paid £2,000 for every newly created apprentice place.  
• A £1,500 payment will be made for taking on apprentices aged over 25 years old.

Universal Credit Supports

Rishi Sunik announced the following to help those on Universal Credit get back to work:

• Doubling the number of career "Back to work" coaches in job centres
• Extra £1b in funding for DWP
• Extending the Rapid Response Service and expanding the Work and Health Programme.
• Increasing the Flexible Support Fund, which provides help for jobseekers.
• A job-finding support service for those out of work for less than three months, costing £40m

Infrastructure Investment

Further increased funding for roads, hospitals, towns, schools.

Green Homes Grant

A new grant to be made available from Sept 2020, to homeowners and landlords who want to make their homes more energy efficient. This grant will be paid in the form of vouchers, which will help support the local trades people. These vouchers will cover at least 2/3rd's od the cost of the renovation measures, up to a value of £5,000 per household.  For low income households, the grant will cover up to 100% of the costs, up to the value of £10,000, per household.

Other Green initiatives announced were:

• £1b to improve the energy efficiency of public buildings
• Measures to de-carbonise social housing.

Temporary Stamp Duty Cuts

The current Residential Stamp Duty Threshold will be temporarily increased from £125,000 up to £500,000. This Stamp Duty cut will be in place until 31st March 2021 and will take effect from today.

VAT Changes

The Hospitality, Tourism and Leisure sectors will receive a VAT rate cut for 6 months. VAT on food, accommodation, leisure admission fees for cinemas, zoos etc., is cut by 20%, with the new rate being 5%. This VAT rate cut begins next Wednesday, the 15th July, and will continue for 6 months until the 12th January 2021. 

Food and non-alcoholic drinks in restaurants, pubs and cafes, as well as hot takeaway food will be covered. Accommodation in hotels and B&Bs and admission to attractions such as theme parks and cinemas also affected Expect further guidance from HMRC to be published on the particulars of this new VAT rate, in the next few days.

Eat Out to Help Out

For the month of August, everyone will receive a 50% voucher to spend in participating restaurants, cafes and pubs, on their meal.

• The voucher can only be used from Monday to Wednesday.
• Every diner, including children, will be entitled to a 50% discount up to the value of £10 each, at participating restaurants.
• This voucher can be used an unlimited amount of times, on food and non-alcoholic drinks, for the month of August, across the UK.
• Participating establishments can then claim the discount given, back from the government, who have promised they will receive payment within 5 working days.
• To become a participating establishment, businesses need to register online, which they can do from next Mon, the 13th.
• Customers do not need to do anything to claim their discount as this will be automatically applied to the bill, so long as the venue has signed up to the Government's scheme.

There you have it..Rishi Sunak's plan to invigorate the economy. As more information and guidance becomes available from HMRC, we will update this article.

Mike Parkes, Self-Assessment expert, and director GoSimpletax, encourages the self-employed to get their skates on to apply by the deadline for the second grant from the Self-Employment Income Support Scheme (SEISS). Find out if you qualify.

On the 25th March 2020, Chancellor Rishi Sunak announced the Self-Employment Income Support Scheme (SEISS). This allowed HMRC to calculate and provide an appropriate taxable grant to self-employed individuals ‘whose livelihoods are adversely affected by coronavirus’, based on their average income.

The news was well-received. There had been concern that the self-employed would need to wait on Universal Credit until their industries were able to operate again. Now, with the scheme being extended with a second grant, a large number of sole traders are able to come out of lockdown relatively unscathed.

However, accessing this scheme is no small feat. To ensure you qualify for the additional support through June, July and August, we’ve asked Mike Parkes from GoSimpleTax to explain the application process and your role within it.

What is the SEISS?

SEISS is a scheme set up to support self-employed workers unable to earn as a result of COVID-19. The scheme opened to applications of its first grant on the 13th May 2020 – covering income for March, April and May – with HMRC identifying eligible self-employed workers and inviting them to enter their bank details online.

The support is determined by the individual’s average profits from the past three tax years. HMRC adds up the total profit for the combined three years, divides it by three, and uses that to calculate the monthly amount – a useful method if the earnings in one of your three years was significantly different from the other two.

In the initial period (March-May), the grant you receive would be 80% of the determined average profit – much like employee furlough. There is a limit though. The grant is capped at £2,500 a month for those that are eligible, and it is taxable (meaning you must declare it on your Self Assessment tax return). From June to August, this percentage will drop to 70%. It’ll be paid as a single instalment that covers three months’ profits, and capped at £6,570 total.

The deadline for applying for the first grant is 13th July 2020. Applications for the second grant are due to open from 17th August 2020, but you must confirm that your business has been adversely affected by COVID-19 either on or after 14th July 2020.

Who qualifies for SEISS?

To be eligible for SEISS, there are a series of requirements you’ll need to meet. These are:

• You must earn the majority of your income through self-employment
• Your average trading profits need to be less than £50,000 a year
• You’ve filed a tax return for the 2018/19 tax year
• You’ve traded during the 2019/20 tax year and intend to continue trading in 2020/21

Of course, this will allow some self-employed individuals to get support even without three years’ worth of tax returns. If that applies to you, then averages will be taken using what history is available.

However, those without a single, full year’s Self Assessment history (those who have started self-employment in the 2019/20 tax year) won’t qualify. This is to prevent fraudulent claims.

Can I keep working?

Yes, provided you intend to continue working as a self-employed individual in the 2020/21 tax year. You can even work at another job in order to support your household income while receiving payments. However, you will still need to prove that your payments represent the majority of your income (i.e. greater than 50%).

As the SEISS payment will constitute earned income, you should beware if you were on Universal Credit to supplement your income. This may stop, and you may need to re-apply for Universal Credit in July.

How do I stay compliant with HMRC?

Provided you qualify for the SEISS and you submit your Self Assessment tax return with all the relevant information, you should stay on the right side of the taxman.

However, you should also bear in mind that the second payment on account deadline has been extended. Usually, some self-employed individuals are required to pay their second payment on account on 31st July. However, with COVID-19 causing a significant disruption to many sole traders’ cash flows, HMRC has decided to delay this deadline until 31st January 2021.

While this initially sounds beneficial, if you normally make a second payment on account, it could result in the perfect storm next year when all your tax responsibilities come at once – causing greater harm to your cash flow and potentially leaving you with little in the bank in January. It’ll pay to file your Self Assessment early, be aware of your tax bill, and put any plans in place to meet your obligations.

About GoSimpleTax

With GoSimpleTax software, you can avoid being caught off guard in January by working out your tax liability ahead of time.

Their award-winning platform lets you log your income and expenditure in real time, and uses this information to automatically calculate your tax bill.

By signing up for their free trial today, you can even take advantage of their ability to highlight any allowable expenses you may qualify for. Then, just upgrade your account to submit a complete Self Assessment tax return

 directly to HMRC. It’s as simple as that.

For those that are new to the Self Assessment tax return process, payments on account are one of the most common stumbling blocks. Despite being introduced as an initiative to help taxpayers spread their tax payments, it often results in annual frustration and can actually harm your cash flow if you’re caught unaware.

That’s why, in response to the COVID-19 pandemic, HMRC announced that they would allow taxpayers to defer their second payment on account (that would have normally been due on 31^st July 2020). It is hoped that this gives taxpayers the chance to prepare. But is that the right course of action? We’ve brought in Mike Parkes from GoSimpleTax to set the record straight.

What is a payment on account?

Payments on account are advance payments towards your next tax bill. They’re calculated based on the amount that you paid the previous year.

HMRC splits this amount into two, and places the deadline for payment six months apart from one another. For the 2019/20 tax year, the first was due by midnight on 31^st January 2020, and the second would normally be made by midnight on the 31^st July 2020.

This latter payment is what can now be deferred, as long as it is eventually paid by the 31^st January 2021.

If you had a £5,000 tax bill for the 2018/19 tax year, for instance, you would need to make two £2,500 payments on account towards your 2019/20 tax bill.

But if your 2018/19 Self Assessment bill was less than £1,000 or if over 80% was deducted at source (such as employment), then you will not need to make a payment on account – you would simply need to pay any outstanding tax by the 31^st January.

What are your options?

If you are required to make payments on account, you will still need to pay your second one. Although, as HMRC has offered taxpayers the opportunity to delay this, you can choose to make your second payment as late as the 31^st January 2021, alongside the submission of your Self Assessment tax return.

HMRC will not charge any interest or penalties should you choose to do this. However, by delaying your second payment to January, you do run the risk of having to fulfil all your tax responsibilities at once. This could result in you having insufficient funds in place to cover all your tax liabilities.

You therefore have three options.

1. Pay in accordance with the original July deadline

If you can afford to pay your tax bill as you would do normally, you should do. If anything, it creates a sense of ‘business as usual’ in an otherwise tumultuous time.

I appreciate that, for many, paying in July will harm their cash flow. However, it is my view that clearing debt where possible is more sustainable and allows January to mark the start of a new financial year – and a fresh start.

 2. Reassess and reduce liability

If you’re doubtful that you can afford a second payment on account right now, calculate your 2019/20 tax liability before the 31^st July 2020. This will confirm the actual amount to be paid in July 2020, January 2021 and July 2021, and give you clarity. To do this, you need to file your 2019/20 Self Assessment tax return early.

Filing early won’t mean that you have to pay your tax bill early, after all – but it does allow you to determine what your total tax bill will be ahead of time. From here, you can consider two key points:

1. Does the July 2020 payment on account need to be deferred?
2. Do the January 2021 and July 2021 payments on account (for the 2020/21 tax year) need reducing to reflect the impact that COVID-19 has had on them?

 3. Defer to later in the year

Of course, there will be some cases that are unable or unwilling to pay anything towards their tax bill in July now that they can defer. In this instance, it’s important that they are reminded of the Self Assessment late penalties should they wish to push this all the way back to 31^st January and be unable to make payment at that time.

Deferring could have an impact on cash flow in 2020/21. If you are also VAT-registered and have deferred your VAT payment, then it is worth noting that this also needs to be paid by 31^st March 2021.

Ultimately, it falls to you to make the decision that best suits you. However, it is my view that, by planning your 2021/22 payments now, you will be in a much safer position.

About GoSimpleTax

With GoSimpleTax, driving instructors can get a clear picture of their obligations. All your income can be logged in an easy-to-understand format, and their software will highlight areas where you can potentially reduce your tax liability through tax relief.

Register for their free trial today and stay abreast of all the latest tax changes. When you’re ready to file your Self Assessment tax return, upgrade to their full service and submit straight to HMRC.

To help you with your tax planning, we’ve asked GoSimpleTax to produce this article.

While the nation’s attention is currently fixed on the work of our carers and hospital workers, little thought is paid to those that are self-employed and still need to submit their tax returns.

Of course, it’s sometimes tough to determine what counts as a deductible expense and what doesn’t. Mike Parkes, Self-Assessment Expert an Director at GoSimpleTax , has written a timely article to help guide you through the maze.

What clothing expenses can I claim for?

Uniforms are costly. And while you do operate as a self-employed individual, you may also represent certain authorities when you’re caring for patients or vulnerable people. As a result, you may be expected to purchase a uniform or your own PPE.

Fortunately, you’re able to claim for it as an allowable business expense. Provided that what you’re purchasing is either a uniform or necessary protective clothing needed for your work, you’ll qualify for tax relief.

What’s more, if you need to purchase any additional PPE for your role (say, gloves and face masks), this is also considered an allowable expense.

Are there any other expenses I may be eligible for?

It largely depends on your specific role within healthcare. If you operate as a consultant, for example, it may be that you must be a member of a professional organisation in order to practise in your field. That’s why subscription fees are often eligible for tax relief.

HMRC have a list of approved organisations and learned societies to help you determine whether you can claim or not. Whilst this list is aimed at employees, it does give a good, broad view of the subscriptions you can claim as an expense on your tax return.

If you’re a carer, it may be that you’re required to drive between the houses of your vulnerable clients. Petrol expenses add up – so, as long as you’re driving for work purposes, you can claim some travel costs in your Self Assessment tax return. This extends to public transport and parking, which is especially useful if you’re travelling to hospitals.

How can I claim my expenses?

Firstly, be sure you’ve registered for your Self Assessment. If you’ve not done this before, you’ll be sent a letter following your registration with a 10-digit Unique Taxpayer Reference (UTR) number. With this, you can set up your account for the Self Assessment online service. However, the process takes approximately 10 working days. Factor that in ahead of the Self Assessment tax return deadline.

Currently, Self Assessment tax returns can be submitted to HMRC via post, HMRC’s online portal, or using tax return software. By filing online or using tax return software, you’ll effectively be giving yourself an additional three months’ extension as the online submission deadline is 31^st January (as opposed to 31^st October of the previous year for postal submission).

If you’re new to Self Assessments, you claim for tax relief by adding up your total allowable expenditure and including this figure on your tax return. Be sure to keep a hold of all receipts as they can act as evidence should HMRC require it. Of course, parking and clothing receipts are some of the easiest items to lose. This is why it’s important that you pay careful attention to how you store and log them, otherwise you run the risk of an unnecessarily higher tax bill.

About GoSimpleTax

With GoSimpleTax, you can prevent all those receipts from piling up and adding stress to the Self Assessment tax return process. Instead of sifting through paper, their full service allows you to take photos of any invoices or receipts and log them immediately from your mobile device. But you can also use their free trial straight away to get started managing your finances in real time.

Then, when you’re ready to submit, all the documentation you need is right in front of you – saving you time, money and reliance on an accountant.

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Sadly, the current COVID-19 pandemic has had two big impacts. One is a huge health impact on the country. The second, is on the economy which has hit employees, small (and large) businesses, and of course, people that hold investments such as landlords with rental income. This has resulted in the government introducing new measures to try to support people who are suffering financially as a result. This blog identifies what is and isn’t available to landlords

Self-Employment Income Support

By far the most common question during the pandemic we have received, is whether a landlord receives self-employed trading income that will qualify for the self-employed income support grant. Unfortunately, for a lot of people who receive property income, there isn’t a happy ending to this! The answer is not usually. Property income falls in to three categories:

Where Trade Exists

For property income to be trading income, the element of service is key. Hotels and B&B’s are two easy examples here. Also, if you have a business model where you intend to profit from selling properties by either a natural increase in their value, or more commonly, to undertake some sort of renovation and develop the property, this is likely to be seen as trading. Some people know this as flipping. The key is that you are intending to generate profits by selling properties rather than by rental income.

Furnished holiday lets (FHL’s) are a bit of an odd one. FHL properties must meet certain conditions in the length of occupation, availability of occupation and actual occupation of the property. If the conditions are met, FHL’s benefit from some tax advantages normally given to trades.

This leads to the question as to whether FHL income would make you eligible for the self-employment income support. Although it hasn’t been directly referred to in any of the guidance, it appears to be unlikely. FHL income is still property income and reported on the property income pages. The trading income is likely to be based on what is reported on the self-employment income pages in the tax return.

Where a Trade Partly Exists

In some cases, a trade may partly exist. When we say a trade may partly exist, what we mean is that a trade runs side by side with your property business. Some of the examples given by HMRC in PIM 4300 include:

• “Providing cleaning services while letting
• Supply of Clean Linen.
• Regular Provision of Food.”

The key is that these must be services that are above and beyond what you would normally provide as a landlord. It would also be considered whether your tenant pays separately for the services in addition to their normal rental payment, and if the tenant can opt out of the additional services or not.

In terms of the self-employment income grant, because the amount you receive is based on the trading income you have reported in your previous tax returns in 2016/17, 2017/18 and 2018/19 it depends how your income is represented on your tax returns. Any amendment made to the tax return after 26th March isn’t considered. If you have partly run a trade, this should have been reported on the self-employed pages and would be considered as trading income.

Where a Trade Doesn’t Exist

Unfortunately, a lot of landlords fall into this category and their property income is treated as investment income. Some of the examples that HMRC have given as normal services a landlord would undertake include:

• “the cleaning of stairs and passages in multi-unit premises,
• the provision of hot water and heating,
• supervision involving rent collection and arranging new tenancies, arranging for repairs to the property.”

HMRC have also pointed out that undertaking a significant number of these activities, where they are a full-time landlord maybe with a significant portfolio, does not change the nature of the income.

If you do receive trading income you may be eligible for self-employment income support if you meet the other conditions. Trading profits must be no more than £50,000 and represent more than half of your income. You will need to have traded in the 2018/19 tax year previously and intend to carry on trading. You must have lost profits due to COVID-19 and you will need to make an application. Applications aren’t open yet but HMRC are intending to write to anyone potentially eligible by mid-May.

Mortgage Holiday

One of the main schemes mentioned in the government guidance for landlords, as a result of the current situation, is the mortgage holiday. You may be able to apply for a mortgage holiday for up to three months; this includes buy to let mortgages. To obtain a mortgage holiday, you need to speak to your lender. Just to clarify, a payment holiday is a deferral which means you will still have to pay the mortgage back at some point, so it is strictly a cashflow advantage you will receive. It will also add a little bit of interest to the amount you have to ultimately repay.

Self-Assessment July Payment Deferral

If you meet the relevant criteria and owe a payment on account in July, and can’t pay this because of COVID-19 related hardship, you can defer payment until next January. No application is required so it is just an automatic offer. You should be aware of whether you have a payment due 31^st July already, as this is based on your already filed 2018/19 tax return.

In contrast to the mortgage holiday, HMRC won’t charge you interest on this, so long as it is paid by 31^st January 2021. Therefore, this should be used in priority to the mortgage holiday where both are available.

Time to Pay Arrangements

Time to pay arrangements are not a new concept; they have been around long before the pandemic. The idea with a time to pay arrangement, is that if you currently have an outstanding tax bill that you can’t pay, you would speak with HMRC and agree a payment plan based on what they feel you can afford. They go through a list of questions to try and assess what you can pay and then you would pay in instalments.

Generally, it works out well for both parties where the agreement is kept. HMRC won’t have the costs of legal fees or enforcement action in recovering the debt, and if the terms of the agreement are kept, this usually means they stop charging penalties. They usually add a bit of interest but at the current rates (calculated as The Bank of England interest rate plus 2.5%) this is likely to be negligible.

All that has really changed, is that they have set up a new helpline to assist with queries regarding COVID-19 and they are obviously likely to be sympathetic if you are affected by the current situation.

Further Measures for Furnished Holiday Lets

For a lot of Landlords, VAT isn’t something to worry about. Standard rental income from residential properties is exempt for VAT. This is not the case for furnished holiday lets and some commercial property income where, if the VAT thresholds are exceeded, you will need to register for VAT.

If you do have a VAT registered property business, and owe a payment between 20th March 2020 and 30th June 2020, you can defer this until 31st March 2021 at the latest. Similarly to the July payment on account deferral, there is no application required as it is an automatic offer.

In addition, the government’s announcement that it would reimburse local authorities for giving 100% business rates relief for certain types of properties, include self-catered holiday homes for 2020/21. The ultimate decision on business rates relief is down to the discretion of the local authority.

Other Tips

The most important thing to do in the current situation is to try and stay as up to date as you can.  New changes have been announced frequently and we are still waiting for full guidance on some of schemes that have been announced. Good sources of information include:

• Your own tax advisor if you are represented.
• Relevant documents from the government website.
• Minister briefings on the daily update.

In the government briefings, either when the Chancellor of the Exchequer - Rishi Sunak - or the Business Secretary - Alok Sharma - have been speaking, are usually when relevant financial announcements have been made.

The final tip is to be wary of HMRC scam communications, because they are on the increase. They usually offer refunds or financial support, or claim to be able to support you in obtaining refunds from the government.

HMRC made special mention of this in the new guidance published on the self-employed support scheme. The only way to apply for the self-employment income support is through the gov.uk website, so be wary of texts, emails and phone messages pretending to be from HMRC.

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Free Webinar "Financial Support for Small Businesses".
More info about the financial supports available to small businesses during the COVID-19 outbreak. This is hosted by The Department for Business, Energy and Industrial Strategy (BEIS) at 11am on 5 May. https://bit.ly/2Yppj4A

Main points of interest from the Self Employed Income Support Scheme:

• The government will pay self-employed people who have been adversely affected by the Covid 19, a taxable grant worth 80% of their mean average monthly profits over the last 3 years, up to £2,500 per month. That is; tax years 2016/17, 2017/18 and 2018/19. It will be open for at least 3 months, possibly more.
• These grants for Self Employed will most likely not be available until June, backdated until March. If it's paid in June, it will be a lump sum for 3 months, based on the average of your profits. e.g. If your average yearly profit is deemed to be £40,000, you will get ¼ of that in a lump sum - £10,000, in June.
• Those Self-Employed who have not yet filed their 2018/19 tax return in January have been given 4 weeks to get it completed, in order to avail of help from the new Self Employment Income Support Scheme
• You need to be Self Employed for at least the last year, and have completed your 2018/19 Self Assessment tax return to avail of the new scheme. If you set up in the last year, since April 2019, you are not eligible.
• This scheme is only available to you if 50% or more of your income is from self-employment.
• You do not need to contact HMRC to access the scheme. They will use existing tax information to contact those who are eligible over next few weeks.
• This is a grant. You do not have to pay it back. However, it is taxable, and if the payment of it pushes you into a higher tax bracket, you will be paying higher rate taxes and NIC's on this.
• If you cannot manage to stay afloat until June, you can still apply for help using some of the measures listed at the bottom of this article - Universal Credit etc.

Freelancers / Contractors / Owner-Directors

• Freelancers, paid under PAYE scheme, contact the employer/ employers you worked for in February 2020. It may be possible for them to furlough you so you can avail of the Corona Virus Job Retention Scheme.
• If you are a contractor paid through an Umbrella Company operating a PAYE scheme, the umbrella company may furlough you so you can avail of the Corona Virus Job Retention Scheme.
• Contractor's or Owner- Director's who pay themselves a basic salary + dividends are not covered by the Self Employment Income Support Scheme announced today. They may be able to access the Corona Virus Job Retention Scheme if they are operating PAYE schemes. Note that they will only be eligible to use the amount declared for PAYE, and not the amount claimed in dividends.

If you are not covered by either the Corona Virus Job Retention Scheme or the Self Employed Income Support Scheme

• Check out the various options offered by banks through the Business Interruption Loan Schemes.
• Deferral of the next VAT payment - you must cancel your direct debit to HMRC.
• Defer your July Tax payment until January 2021.
• Apply for Universal Credit. Changes in Universal Credit mean it is now available to all self employed. It has also been increased in the new measures announced in the last week and is tax free. If you have less than £16,000 in savings, you will be eligible.
• Various changes in Housing Benefit have been brought in for those who are renting, - greater amounts available in payments, depending on where you live.
• Contact your bank about mortgage relief.

New HMRC helpline number for self employed/SME's 0800 024 122

Please note that this advise is what is recommended at this point (26/3/2020). As advice keeps changing and updating, so may the recommendations suggested here.

Full published details of the Self Employed Income Support Scheme here.  https://bit.ly/3ahlVf3

Self-Employed Income Support Scheme Summary

• You must have completed your 18/19 tax return
• 80% of profits up to £2,500 per month
• Profits on 3 years average, there will be nothing available if over £50,000
• Payment will be made in June

The self-employed have now been passed their life-line amidst the Covid-19 pandemic from Chancellor Rushi Sunak as he announced a new self-employed income support scheme, this will cover up to 80% of self-employed workers’ average taxable monthly profits.

Self-employed should not contact HMRC now, eligible taxpayers will be contacted by them directly.  They will use existing information to check potential eligibility and invite applications once the scheme is operational.

If you have not yet filed your 18/19 tax return – you have four weeks to do so. First you will need your UTR…

A Unique Taxpayer Reference (UTR) number is required by all sole traders, partnerships and limited companies in the UK. It’s unique to that individual or organisation and remains unchanged forever.

You will also need a UTR if you have other forms of income or expenses that require you to file a Self Assessment tax return.

If you don’t have a UTR, you won’t be able to submit a Self Assessment tax return.

What is a UTR?

A UTR helps HMRC identify and process tax returns against the correct taxpayer’s records.

If you have income outside of PAYE or own a business and don’t act compliantly when it comes to your Self Assessment tax return, you could face criminal prosecution.

Who uses them?

Any individual with self-employed income or income from rental property probably forms the biggest group that will need a UTR.

These individuals will need to perform a Self Assessment tax return. For other taxpayers, it may also be relevant when registering for the Construction Industry Scheme or working with an accountant.

How can I get one?

As you won’t receive a UTR number unless you’re registered as either self-employed or a new business, you’ll need to do so on HMRC’s website. Alternatively, you can call them on 0300 200 3310. There is no cost to doing either.

Register as soon as you can with all the below information to hand:

• Full name
• Date of birth
• Email address
• Home address
• Phone number
• National Insurance number
• The date you started self-employment

Double-check that you have fully completed the process if you’re still waiting on your UTR following registration.

What if I’m already registered?

You should already have a UTR code somewhere. If you’ve misplaced it, start by checking any correspondence that you may have received from HMRC. All previous tax returns will reference it, along with any notices you may have had to file a return, payment reminders or statements of account.

In addition, your HMRC online account will also display the code, provided you can access it. If none of these options prove fruitful, contact the Self Assessment helpline.

More details on help for the self-employed here.

About GoSimpleTax

Getting your UTR is the easy part. What trips up most UK taxpayers is submitting the Self Assessment tax return itself. With GoSimpleTax software, filing has never been easier as it does all the calculations for you and thanks to features that allow you to take a picture of expenditure and upload it to your records, as well as log all forms of income.

With the documentation you need in one place and learning resources to help minimise your tax liability further, all that’s left for you to do is press submit.

Has Covid 19 had an impact on your company?

Wondering how to ask Companies House for an extension for your annual company return?

If COVID-19 has affected your company either financially, or through disruption in staff availability, resources, etc. you may need more time to file your annual accounts with Companies House.

Company accounts fall due for filing nine months after the companies financial year end. If your company return is due in the next few months, you may find it difficult to make this deadline.

If you can complete these returns on time, you should. In case you cannot, you can apply to Companies House for an immediate three month extension.

This extension is not automatic applied to all companies. You must apply for it.

• It must be applied for before the Company's normal filing deadline
• You will need your Company Number to apply.
• If the extension you apply for is on the grounds of disruption due to Covid 19, you will receive an immediate 3 month extension.
• Companies that have already extended their filing deadline, or shortened their accounting reference period, may not be eligible for an extension.
• Penalties: If you do not apply for an extension and your accounts are filed late, an automatic penalty will be imposed.

Apply here for an immediate extension for your annual company return.

More info available from Gov.uk

Job Retention Scheme (updated March 26th)

• Government setting up the Corona Virus Job Retention Scheme. Any employer, including charities,  can access Government grants to cover wages for those workers kept employed, but not working due to the corona virus. The grants will cover 80% of the salary of retained workers, up to a total of £2,500 a month.
• The scheme, open to any employer in the country, will cover the cost of wages backdated to March 1st and will be open before the end of April for at least 3 months.
• Contractors and freelancers paying PAYE may be able to access this scheme by contacting their employers from February and asking this employer to furlough them.

Of specific interest to Self Employed:

• The Universal Credit minimum income floor has been suspended, so it is now accessible to all including the self employed, equal to the statutory sick pay (SSP) for employees.
• Universal Credit will be increased £1,000 a year for the next 12 months
• Tax credits will also increase by £1,000 a year for the next 12 months
• The Self Assessment payment date has been moved to next Jan 2021.
• This next quarter's VAT payment will be deferred. No business will pay VAT from now to mid June. You'll have until the end of the financial year to repay those bills.If you wish to avail of this you will still need to cancel your direct debit to HMRC if you have one.
  
• Coronavirus Business Interruption Loan Scheme that was announced in the Budget will be made available from this coming Mon and will now be tax free for 12 months, instead of the previously advised 6 months.

Rent

• Nearly £1bn of support by increasing the housing benefit and Universal Credit, so that the Local Housing Allowance will cover at least 30% of market rents in your area.

Corona Virus Response

• Statutory Sick Pay to be given to those who have to take time off work for the Corona virus, including those who have to self isolate even if they are not sick. Pay to be given from Day 1 rather than Day 4 from now on.
• Government to refund the cost of Statutory Sick Pay for up to 14 days, for businesses with less than 250 workers.
• Contributory Employment Support Allowance benefit claimants will be able to claim sick pay on day one, not after a week
• Business rates in England will be abolished for the year for small businesses, with a rateable value below £51,000 in the retail, leisure and hospitality industries.
• Small Businesses suffering as a result of the Corona virus can apply to local councils for a £3,000 payment - available to those which qualify for small business rate relief.
• SME's will have access to the new temporary Corona Virus Business Interruption Plan Scheme where banks will make Government backed loans available.
• A dedicated HMRC helpline to be set up for those who need a deferral period on their tax liabilities due to the corona virus crisis.

Personal Taxation

• National Insurance threshold increase from £8,632  to £9,500. This will save the average employed person £104 per year and about £78 for the self-employed.
• No changes to personal tax rates or thresholds.
• The 5% "Tampon Tax" is to be abolished on all women's sanitary products.
• Pensions taper limit increases to £200,000

Fuel and Alcohol Duty

• No increases on fuel duty.
• No increases to duty on beer, wine and spirits.

Business Taxation

• Business rate discounts for pubs to rise from £1,000 to £5,000 this year
• No change to Corporation Tax
• The Employment Allowance will increase from £3,000 to £4,000 per annum from April 2020.
• Vat to be scrapped on digital media publications, such as newspapers and magazines.
• Entrepreneur's relief reduced to £1m lifetime limit.
• R&D tax credit to be increased from 12% to 15%

Environment

• £5bn to be spent on getting gigabit-capable broadband into the hardest-to-reach places
• Increase of taxes on Gas, no increase of tax on Electricity.
• Plastic packaging tax to be introduced from April 2022
• Manufacturers and importers whose products have less than 30% recyclable material will be charged £200 per tonne
• £1bn to promote and develop green transport
• 120m to help winter flood defences and £200m funding for local communities to help with flood defences.
• Subsidies for fuel red diesel will be scrapped in some areas, but will remain for farmers and rail operators
• £640m "nature for climate fund" to protect natural habitats, and creating 30,000 hectares of newly planted trees

Other Announcements