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Calculating Minimum Wage if paid annual salary

New National Minimum Wage and National Living Wage rates will come into effect on 1 April 2021. These changes will see the National Living Wage increase by 19p to an hourly rate of £8.91 and the National Minimum Wage will increase to £8.36 (a rise of 16p). There are also increases in the other minimum wage thresholds.

There are special rules to check that salaried workers who receive an annual salary are being paid at least the equivalent of the minimum wage.

HMRC’s guidance states that someone is undertaking salaried hours work if all of the following apply:

– their contract states how many hours they must work in return for their salary (their basic hours)
– they’re paid in equal, regular instalments through the year, for example monthly or every 4 weeks
– there is no more than a month between each payment
– they do not get paid more than once a week
Once you know how many basic hours are relevant you can calculate if the employees are being paid at least the minimum wage to which they are entitled.

There are penalties for employers that are found to have underpaid their workers and, in some cases, there may be criminal prosecutions.

Source: HM Revenue & Customs

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Have you claimed too much from furlough scheme?

HMRC’s guidance makes it clear that any business that makes an error in making a Coronavirus Job Retention Scheme (CJRS) claim must pay back any amount overclaimed. Any claims based on inaccurate information can be recovered by HMRC.

If you’ve overclaimed a grant and have not repaid it, you must notify HMRC by the latest of :

– 90 days after the date you received the grant you were not entitled to
– 90 days after the date you received the grant that you were no longer entitled to keep because your circumstances changed
It is important to note that there may be interest and penalties if overclaimed grants are not repaid within the stated timeline.

The CJRS claim form allows businesses to advise HMRC if they have identified previous errors and over-claimed. If you use this form to confirm that your business has been overpaid, the new claim amount will be reduced to reflect this overpayment.

If you have made an error in a CJRS claim and do not plan to submit further claims, then you should request a payment reference number and pay HMRC through their card payment service or by bank transfer.

The same options can also be used by employers who would like to make a voluntary repayment because they do not want or need the CJRS grant.

Having to repay HMRC is unlikely to be a cost that employers will have thought about, so it is important to ensure that all claims made for furloughed employees are accurate. Employers are required to keep full records relating to any CJRS claims (including adjustments) for a period of six years. HMRC has said that they will not be actively looking for innocent errors in their compliance approach.

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Flat Rate Scheme limited cost trader check

The VAT Flat Rate Scheme has been designed to simplify the way a business accounts for VAT and in so doing reduce the administration costs of complying with the VAT legislation. The scheme is open to businesses that expect their annual taxable turnover in the next 12 months to be no more than £150,000.

A limited cost trader check was introduced in April 2017 and can increase the VAT flat rate percentage used by VAT registered businesses that use the Flat Rate scheme. Businesses that meet the definition of a ‘limited cost trader’ are required to use a fixed rate of 16.5%. The highest ‘regular’ rate is 14.5%.

A limited cost trader is defined as one whose VAT inclusive expenditure on goods is either:

– less than 2% of their VAT inclusive turnover in a prescribed accounting period;
– greater than 2% of their VAT inclusive turnover but less than £1,000 per annum if the prescribed accounting period is one year (if it is not one year, the figure is the relevant proportion of £1,000).
For some businesses – for example, those who purchase no goods, or who make significant purchases of goods – the outcome of the test will be self-evident. Other businesses need to complete a simple test, using information they already hold, to work out whether they need to use the higher 16.5% rate. If required to use the 16.5% rate, continuing use of the flat rate scheme will probably not be beneficial.

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Reminder of eight-step export routine

Following the end of the Brexit transition period, the process for exporting goods to the EU mirrors the process for all other international destinations.

Businesses, especially those that only trade with EU should by now be aware of the rules and be working accordingly. Businesses can make customs declarations themselves or hire a third party such as a courier, freight forwarder or customs agent to do the paperwork.

HMRC lists the following eight-steps that should be considered when exporting goods :

1. Check if you need to follow this process. The process listed below should be if you’re moving goods permanently from: England, Wales or Scotland (Great Britain) to a country outside the UK or from Northern Ireland to a country outside the UK and the EU. There are different rules for goods that move between Great Britain and Northern Ireland or between Northern Ireland and the EU.
2. Check the rules for exporting your goods.
3. Get your business ready to export. This includes ensuring you have an Economic Operator Registration and Identification (EORI) number.
4. Decide who will make export declarations and transport the goods
5. Classify your goods.
6. Prepare the invoice and other documentation for your goods.
7. Get your goods through customs.
8. Keep invoices and records.

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What would a business vaccine aim to prevent?

Now we are getting used to the idea that the various vaccines will provide some defence against COVID outbreaks, what would a vaccine for our businesses attempt to prevent?

We have listed below a few strategies that you might like to consider that would help you survive any more periods of lockdown that governments may be forced to consider.

Retain profits

If you are fortunate and can reopen your business as lockdown restrictions are eased, and you manage to re-establish profitability, try and hang on to some of those profits.

Retained profits (after tax is paid) are the fat on the bone of your business. If retained profits are growing this must mean that your business assets are increasing. Should a further period of lockdown or similar reductions in trade be experienced, these retained profits may provide you with the resources to weather any downturn in trade.

Retain cash

Don’t take this advice literally. What we mean is try and save some of your hard-won profits in your bank.

During periods of low activity these cash reserves will help to maintain liquidity, and during times of rapid increases in turnover, they will insulate you from the down-side of overtrading – when money due from customers does not come in fast enough to meet payments to suppliers and settle other overheads.

These two simple tactics are worth considering as the regional UK governments take steps to ease current lockdown restrictions. And while they are unlikely to immunise your business against all aspects of COVID disruption, they may offer you the resources to fight-off the worst effects.

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Tax-free property and trading income

Two separate £1,000 tax allowances for property and trading income were introduced in April 2017. If you have both or either type of income highlighted below then you can claim a £1,000 allowance for each.

The £1,000 exemptions from tax apply to:

If you make up to £1,000 from self-employment, casual services (such as babysitting or gardening) or hiring personal equipment (such as power tools). This is known as the trading allowance.
If your annual gross property income is £1,000 or less, from one or more property businesses you will not have to tell HMRC or declare this income on a tax return. For example, from renting a driveway. This is known as the property allowance.
Where each respective allowance covers all the individual’s relevant income (before expenses) the income is tax-free and does not have to be declared. Taxpayers with higher amounts of income will have the choice when calculating their taxable profits, of deducting the allowance from their receipts, instead of deducting the actual allowable expenses.

You cannot use the allowances in a tax year, if you have any trade or property income from:

– a company you or someone connected to you owns or controls
– a partnership where you or someone connected to you are partners
– your employer or the employer of your spouse or civil partner
You cannot use the property allowance if you:

– claim the tax relief for finance costs such as mortgage interest for a residential property
– deduct expenses from income letting a room in your own home instead of using the rent-a-room scheme

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New mortgage guarantee scheme

One of the measures announced as part of the March 2021 Budget was the introduction of a new mortgage guarantee scheme to help home buyers purchase a property. The new scheme is designed for prospective home buyers who only have a small deposit and are therefore unable to qualify for a mortgage. Under the new scheme, lenders will be able to offer new 91-95% mortgage products.

The new scheme will be open to first time buyers and home movers across the UK. Home buyers will be able to purchase properties valued at up to £600,000 and both new-build and existing properties are eligible. The scheme will initially run from April 2021 to 31 December 2022. The government has confirmed that the end date of the scheme will be reviewed and may be extended.

The government will provide lenders with the option to purchase a guarantee on the top slice of the mortgage (over 80%). Lenders will also take a 5% share of net losses above this 80% threshold. This will help to ensure that lenders are not incentivised to originate poor quality loans. Lenders will also need to pay the government a commercial fee for each mortgage in the scheme. The mortgage guarantee will be valid for up to seven years after the mortgage is originated.

There will be a cap on the size of the government’s contingent liability under the scheme of £3.9 billion although this is not expected to impinge on delivery of the scheme. The scheme is similar to a previous Help to Buy: mortgage guarantee scheme that closed to new applicants on 31 December 2016.

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Rent-a-room relief

The rent-a-room scheme is a set of special rules designed to help homeowners who rent-a-room in their home. The current tax-free threshold of £7,500 per year has been in place since 6 April 2016. If you are using this scheme you should ensure that rents received from lodgers during the current tax year do no exceed £7,500. The tax exemption is automatic if you earn less than £7,500 and there are no specific tax reporting requirements.

The relief applies to the letting of furnished accommodation and can be used when a bedroom is rented out to a lodger by homeowners in their home. The relief also simplifies the tax and administrative burden for those with rent-a-room income up to £7,500. The limit is reduced by half if the income from letting accommodation in the same property is shared by a joint owner of the property.

The rent-a-room limit includes any amounts received for meals, goods and services provided, such as cleaning or laundry. If gross receipts are more than the limit, taxpayers can choose between paying tax on the actual profit (gross rents minus actual expenses and capital allowances) or the gross receipts (and any balancing charges) minus the allowance – with no deduction for expenses or capital allowances.

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Off-payroll working rules from 6 April 2021

The rules for individuals providing services to the public sector via an intermediary such as a personal service company (PSC) changed from April 2017. The new rules shifted the responsibility for deciding whether the intermediaries’ legislation applies, known as IR35, from the intermediary itself to the public sector receiving the service.

During 2017, the government announced plans looking to extend these rules to off-payroll working in the private sector. The new rules were due to come into effect from 6 April 2020 but were delayed until 6 April 2021 because of the coronavirus pandemic.

This means that from 6 April 2021, all medium and large-sized clients will be responsible for deciding the employment status of workers. This includes some charities and third sector organisations.

The changes mainly apply to businesses with an annual turnover of more than £10.2 million (known as the simplified test). If the simplified test does not apply, then the rules still apply if the private sector client meets 2 or more of the following conditions:

– an annual turnover of more than £10.2 million
– a balance sheet total of more than £5.1 million
– more than 50 employees
HMRC has stated that it will focus on ensuring compliance with the new rules, rather than investigating past arrangements (unless they suspect fraud). HMRC has confirmed it will not open a new compliance enquiry into a contractor’s return for tax years before 6 April 2021 in circumstances where:

– a client decides that a contract is within the off-payroll working rules (IR35)
– a contractor changes the way they work from providing and invoicing services through an intermediary entity to now being paid via a client or end user’s payroll
– a contractor ends a contract because they disagree with a client decision on status
This includes any decisions that may have already been made to prepare for the delayed April 2020 changes.

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Reminder of year end payroll chores

It is not long until the current 2020-21 tax year comes to an end and there are a number of year end payroll chores that must be completed. This includes sending a final PAYE submission for the tax year. The last Full Payment Submission (FPS) needs to be submitted no later than the last payday for your employees of the 2020-21 tax year.

It is also important that employers remember to provide employees with a copy of their P60 form by 31 May 2021. A P60 must be given to all employees that are on the payroll on the last day of the tax year – 5 April 2021. The P60 is a statement issued to employees after the end of each tax year that shows the amount of tax they have paid on their salary. Employers can provide the P60 form on paper or electronically. Employees should ensure they keep their P60s in a safe place as it is an important record of the amount of tax paid.

In addition, a P60 is required in order that an employee can prove how much tax they have paid on their salary, for example:

– to claim back overpaid tax;
– to apply for tax credits;
– as proof of your income if you apply for a loan or a mortgage.
Employees who have left their employment during the tax year do not receive a P60 from their employer, as the same information will be on their P45.

The deadline for reporting any Class 1A National Insurance contributions and submitting P11D and P11FD(b) forms to HMRC for the tax year ending 5 April 2021 is 6 July 2021.

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