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Exempt beneficial employee loans

An employee can obtain a benefit when provided with an employment-related cheap or interest-free loan. The benefit is the difference between the interest the employee pays, if any, and the commercial rate the employee would have to pay on a loan obtained elsewhere. These types of loans are referred to as beneficial loans.

There are scenarios where beneficial loans are exempt and employers might not have to report anything to HMRC or pay tax and National Insurance. The most common exemption relates to small loans with a combined outstanding value to an employee of less than £10,000 throughout the whole tax year.

The list also includes loans provided:

– in the normal course of a domestic or family relationship as an individual (not as a company you control, even if you are the sole owner and employee)
– to an employee for a fixed and invariable period, and at a fixed and invariable rate that was equal to or higher than

HMRC’s official interest rate when the loan was taken out:

  • under identical terms and conditions to the public as well (this mostly applies to commercial lenders)
  • that are ‘qualifying loans’, meaning all of the interest qualifies for tax relief
  • using a director’s loan account if it is not overdrawn at any time during the tax year.
    HMRC’s official interest rate is currently 2%.
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Childcare top-up to cover summer activities

As the school holidays fast approach, many parents face having to organise extra school holiday childcare over the summer months.

HMRC is reminding working families that the Tax-Free Childcare (TFC) scheme can help if you have children aged up to 11 years old (17 for those with certain disabilities). The TFC scheme helps support working families with their childcare costs and can be used to pay for accredited holiday clubs, childminders or sports activities during the school holidays. There are many registered childcare providers including school, football, art and tennis clubs signed up across the UK. Parents can pay into their account regularly and save up their TFC allowance to use during school holidays.

The TFC scheme provides for a government top-up on parental contributions. For every £8 contributed by parents an additional £2, top-up payment will be funded by the Government up to a maximum total of £10,000 per child per year. This will give parents an annual savings of up to £2,000 per child (and up to £4,000 for disabled children until the age of 17) in childcare costs.

The TFC scheme is open to all qualifying parents including the self-employed and those on a minimum wage. The scheme is also available to parents on paid sick leave as well as those on paid and unpaid statutory maternity, paternity and adoption leave. To be eligible to use the scheme parents will have to be in work at least 16 hours per week and earn at least the National Minimum Wage or Living Wage. If either parent earns more than £100,000, both parents are unable to use the scheme.

HMRC’s Director General for Customer Services said:

‘We want to help kids stay active this summer, whether they are going to summer holiday clubs or a childminder. A childcare top-up will go a long way towards helping parents plan and pay for summer activities to keep their kids happy and healthy.’

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Building a new home and VAT

The VAT DIY Housebuilders scheme is a special scheme that enables someone building their own home to benefit from special VAT rules that allow the qualifying construction costs of new homes and certain conversion works to be zero-rated. The scheme has been designed to effectively place DIY housebuilders in a similar VAT position to a property developer.

A claim can be made for qualifying building materials on which VAT has been charged. Qualifying materials include most materials incorporated into a new building or conversion which cannot be easily removed. There are exceptions including fitted furniture, carpets, and certain domestic appliances.

It is not possible to claim the VAT for any professional or supervisory services associated with the development. There are also time limits that should be adhered to when making a claim. A claim must usually be made within three months of the completion of the conversion or new building using the appropriate form. A repayment is usually made within 30 days of a claim being submitted.

There are two main forms for making a claim. The first form (VAT 431NB) is designed for new builds and the second form (VAT431C) is designed for qualifying conversions i.e., the conversion of a non-residential property to residential.

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Agent Dedicated Line relaunched

HMRC has confirmed that the Agent Dedicated Line (ADL) that offers priority access to HMRC staff has been relaunched on a trial basis from 14 June 2021.

HMRC has also made it clear that the ADL is not expected to be used to handle certain types of calls where digital services are available or where the pertinent information could have been obtained directly from clients.

The ADL will be available Monday – Friday 8am – 6pm on 0300 200 3311 and calls are anticipated to be answered within 10 minutes. HMRC is also asking agents to space out their calls to the dedicated line throughout the day rather than phoning as soon as the helpline opens.

HMRC is also working to develop more digital services for agents, with a view to materially reducing their need to phone. This is expected to include changes to forms processing, agent authorisation processes and the agent income record viewer.

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Temporary trade credit insurance scheme to end

Trade credit insurance is a contract bought by suppliers to make sure they get paid even if their customers default and cannot pay the bills. This gives businesses the confidence to trade with one another.

Early in the pandemic, the government introduced a temporary Trade Credit Reinsurance scheme, which was agreed following extensive discussions with the insurance sector. This scheme ensured that the vast majority of Trade Credit Insurance coverage was maintained throughout the pandemic with the government providing financial guarantees.

The government and the Association of British Insurers (ABI) have now confirmed that the scheme will end on 30 June 2021 as planned.

The scheme has directly benefitted over half a million businesses, providing certainty to firms across the UK and safeguarding jobs. It protected more than £575 billion of business turnover by providing approximately £210 billion in cover.

Insurers working under the temporary scheme have confirmed to the government that the scheme is no longer required and that they wish to revert to full underwriting control. The government and participating insurers will continue to work together to ensure there is a smooth transition to the private sector resuming its normal role of providing cover.

Once the scheme has ceased, the government will conduct a review of the Trade Credit Insurance market to ensure continued support for businesses in future.

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Apportionment and duality


When deciding whether an expense is allowed or disallowed it is important to consider that the expenditure must be incurred wholly and exclusively for the purposes of your trade or employment.

Under the legislation any expenditure not incurred wholly and exclusively for the purposes of the trade, profession or vocation should be disallowed. HMRC takes a slightly more relaxed view that a strict reading of the legislation would suggest.

One of the main points HMRC examines when considering the application of the ‘wholly and exclusively’ test relates to apportionment and duality.

In this regard, HMRC’s internal manuals state that:

When you consider the application of the ‘wholly and exclusively’ test, it is important that you distinguish between cases where:

– a definite part or proportion of an expense has been laid out or expended wholly and exclusively for the purposes of the trade, profession or vocation. That part or proportion should not be disallowed on the ground that the entire expense is not laid out or expended wholly and exclusively for the purposes of the trade, profession or vocation,
– an expense has been incurred for a dual purpose. Such expenditure should be disallowed.
For example, when considering the running costs of a car used partly for the purposes of the trade and partly for other purposes, HMRC’s position is that the costs apportioned to the business use of the car would be deductible.

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Apportionment and duality

When deciding whether an expense is allowed or disallowed it is important to consider that the expenditure must be incurred wholly and exclusively for the purposes of your trade or employment.

Under the legislation any expenditure not incurred wholly and exclusively for the purposes of the trade, profession or vocation should be disallowed. HMRC takes a slightly more relaxed view that a strict reading of the legislation would suggest.

One of the main points HMRC examines when considering the application of the ‘wholly and exclusively’ test relates to apportionment and duality.

In this regard, HMRC’s internal manuals state that:

When you consider the application of the ‘wholly and exclusively’ test, it is important that you distinguish between cases where:

a) a definite part or proportion of an expense has been laid out or expended wholly and exclusively for the purposes of the trade, profession or vocation. That part or proportion should not be disallowed on the ground that the entire expense is not laid out or expended wholly and exclusively for the purposes of the trade, profession or vocation,
b) an expense has been incurred for a dual purpose. Such expenditure should be disallowed.
For example, when considering the running costs of a car used partly for the purposes of the trade and partly for other purposes, HMRC’s position is that the costs apportioned to the business use of the car would be deductible.

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Tariff suspension on certain imports

The UK government has announced plans to introduce a new tariff suspension scheme. This new scheme will help UK firms become globally competitive.

This will be done by allowing companies to request that duties be partially or wholly reduced for a set period. This in turn will result in lowering the cost of importing raw materials and decreasing production costs. Once a suspension has been introduced, all UK importers will be able to benefit from the reduced rate.

The new scheme will be launched from 1 June 2021 and will allocate suspensions based on the needs of firms in the UK and the wider economy. Prior to Brexit, firms had to submit applications to the EU bloc to request suspensions, which then had to be assessed by all member states.

The government has also confirmed that existing duty suspensions that the government has rolled over from the EU will be extended beyond 31 December 2021.

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The 7-year rule

Most gifts made during a person’s lifetime are not subject to Inheritance Tax at the time of the gift. These lifetime transfers are known as ‘potentially exempt transfers or ‘PETs’. These gifts or transfers achieve their potential of becoming exempt if the taxpayer survives for more than 7-years after making the gift. If the taxpayer dies within 3-years of making the gift, then the Inheritance Tax position is as if the gift was made on death. A tapered relief is available if death occurs between 3 and 7 years after the gift is made.

The rules surrounding PETs have resulted in many people wanting to make gifts long before they die. The problem in practice is that they do not want to give up control over the assets concerned.

The effective rates of tax on the excess over the nil rate band are:

0 to 3 years before death 40%
3 to 4 years before death 32%
4 to 5 years before death 24%
5 to 6 years before death 16%
6 to 7 years before death 8%
7 or more years before death 0%
These tapered rates cannot reduce the tax due on a lifetime chargeable transfer below the amount chargeable when the transfer was made and so are of no benefit to a transfer within the nil rate band.

We would strongly recommend that you keep a list of any PETs that you make. It is also important to keep a record of any exemptions that are used as well as details of any regular gifts made from surplus income.

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Tax Diary June/July 2021

1 June 2021 – Due date for Corporation Tax due for the year ended 31 August 2020.

19 June 2021 – PAYE and NIC deductions due for month ended 5 June 2021. (If you pay your tax electronically the due date is 22 June 2021)

19 June 2021 – Filing deadline for the CIS300 monthly return for the month ended 5 June 2021.

19 June 2021 – CIS tax deducted for the month ended 5 June 2021 is payable by today.

1 July 2021 – Due date for Corporation Tax due for the year ended 30 September 2020.

6 July 2021 – Complete and submit forms P11D return of benefits and expenses and P11D(b) return of Class 1A NICs.

19 July 2021 – Pay Class 1A NICs (by the 22 July 2021 if paid electronically).

19 July 2021 – PAYE and NIC deductions due for month ended 5 July 2021. (If you pay your tax electronically the due date is 22 July 2021)

19 July 2021 – Filing deadline for the CIS300 monthly return for the month ended 5 July 2021.

19 July 2021 – CIS tax deducted for the month ended 5 July 2021 is payable by today.

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