A tax calculation is created by HMRC if you have not paid the right amount of tax. HMRC’s annual reconciliation of PAYE for the tax year 2020-21 is now almost complete. HMRC use salary and pension information to calculate if you have paid the correct amount of tax.
The tax calculation is usually generated automatically by HMRC’s computer systems on what is known as a P800 form. P800s are generally sent out after the end of the tax year and the process is generally completed by the end of November. The P800 form is also used if you have not paid enough tax so be sure to read the document carefully.
If you are due a refund, the P800 form will usually tell you that you can claim a refund online. Once you complete the claim online, the refund will be paid within 5 working days and will be in your UK account once your bank has processed the payment. If you do not claim the refund online within 45 days, HMRC will send you a cheque.
If your P800 tells you that you will be repaid by cheque, then you do not need to take any further action and you should receive a cheque within 14 days of the date on the P800 Tax Calculation.
If you have not received a P800 form but think that you have overpaid tax, you can contact HMRC to inform them. If HMRC agrees that you are due a tax refund they will send you a P800 form.
If you complete a Self-Assessment return, then you should not expect to receive a P800 form as any underpayment or overpayment of tax will be handled by way of your tax return.
Fraudsters are continuing to target taxpayers with scam emails in advance of the 31 January 2022 deadline for submission of Self-Assessment returns. In fact, over the last year, HMRC received nearly 360,000 reports about bogus tax rebate referrals.
A number of these scams purport to tell taxpayers they are due a rebate/refund of tax from HMRC and ask for bank or credit card details in order to send the fake tax refund. The fraudsters use various means to try and scam people including making contact by phone calls, texts or emails. Fraudsters have also been known to threaten victims with arrest or imprisonment if a bogus tax bill is not paid immediately.
HMRC operates a dedicated Customer Protection team to identify and close down scams but continues to advise taxpayers to identify fraud and avoid becoming victims themselves. For example, HMRC will only contact taxpayers due a refund by post and never use emails, text messages or external companies for this activity. Genuine organisations like HMRC and banks will not contact customers asking for their PIN, password or bank details.
If you think you have received a suspicious call or email claiming to be from HMRC you are asked to forward the details to firstname.lastname@example.org and text to 60599. If you have suffered financial loss, you should contact Action Fraud on 0300 123 2040 or use their online fraud reporting tool.
The rules for deciding whether a gift given in the course of business is deductible are complex. The rules for business gifts generally follow those for business entertaining expenditure. This means that HMRC takes the view that in general business gifts are not an allowable deduction from profit for tax purposes.
However, there are exceptions to this rule. Where the following exceptions apply, the expenses incurred in providing the gift are deductible from trading profits. The exceptions are where:
– the gift is of an item which it is the trader’s trade to provide and it is given away in the ordinary course of the trade to advertise to the public – the gift incorporates a conspicuous advertisement for the trader, although there are exclusions relating to the type of gift and the total amount per person – the gift is provided to the employees of the trader so long as this is not incidental to gifts being provided to others – the gift is given to charity or other specific bodies.
HMRC is clear that in some instances, something that appears to be a gift may actually be a part of a sale to a customer. HMRC’s manuals provide the example of a bunch of flowers presented to a customer who has just purchased a new car would effectively have been paid for by the customer – it is a part of the cost of the car. Similarly, gifts offered to customers who purchase a certain level of goods are really discounts on sale and not business gifts. Gifts of this nature are not disallowed by the legislation.
There are now less than 75 days to file your 2020-21 Self-Assessment tax return. Last year over 12.5 million taxpayers were required to complete a Self-Assessment tax return but over 1.8 million taxpayers missed the 31 January deadline.
The deadline for submitting your 2020-21 Self-Assessment tax returns online is 31 January 2022. You should also be aware that payment of any tax due should also be made by this date. This includes the payment of any balance of Self-Assessment liability for the 2020-21 plus the first payment on account due for the current 2021-22 tax year.
If you miss the filing deadline then you will usually be charged a £100 fixed penalty if your return is up to 3 months late, regardless of whether you owed tax or not.
HMRC is encouraging taxpayers to complete their tax returns as early as possible to avoid getting stressed as the filing date looms. In fact, last year over 2,700 taxpayers submitted their tax returns on Christmas Day with a further 8,500 taxpayers completing their tax returns on Boxing Day.
If you are filing online for the first time you should ensure you register to use HMRC’s self-assessment online service as soon as possible. Once registered an activation code will be sent by mail. This process can take up to 10 working days.
Most COVID support scheme grants are treated as taxable income in the same way as other taxable receipts and need to be reported to HMRC. This means that if you received a support payment during the 2020-21 tax year, such as the Self-Employment Income Support Scheme, this needs to be reported on your self-assessment tax return. If you received the £500 one-off payment for working households receiving tax credits this does not need to be reported under self-assessment.
Corporation Tax relief may be available when a company or organisation makes a trading loss. Companies that are eligible for group relief can transfer losses and certain other deficits to companies within the same group by means of Group or Consortium Relief. The use of group relief allows losses arising in the accounting period to be surrendered to a group company for that period.
Companies attempting to either surrender or claim losses for Group Relief or Group Relief for carried forward losses, must meet the required conditions. For companies to be members of the same group, one company must be a 75% subsidiary of the other, or both must be 75% subsidiaries of a third company. The definition of ‘75% subsidiary’ requires one company to have direct or indirect beneficial ownership of at least 75% of the ordinary share capital in another. There are also further qualifying tests that may apply for group relief purposes, and this can be a complex area.
Under Section 99 – Corporation tax Act 2010 the following losses (when qualifying) can be surrendered and claimed as group relief:
– a trading loss – a capital allowances excess – non-trading deficit on loan relationship – amounts allowable as qualifying charitable donations – a UK property business loss – management expenses – a non-trading loss on intangible fixed assets
There are a number of conditions that must be satisfied in order for an activity to be within the scope of UK VAT. One of the conditions that needs to be carefully considered when deciding whether an activity is within the scope of VAT is the concept that the supply must be made in the course or furtherance of business.
This idea of ‘business’ is one of the less well-known rules. However, this is an important condition that drives the liability of a business to charge VAT on their sales, known as output VAT and on its ability to recover VAT, known as input tax.
In most cases, it will be clear whether an activity is ‘business’ related and should fall within the scope of VAT. However, in cases where the result is less clear cut, HMRC can use a business test to help. The test is based on a historic court case where the court identified six factors or indicators to determine whether an activity was ‘business’ related. The test should be applied to individual activities separately.
HMRC’s internal manuals provide the following example:
Imagine a person registered as a self-employed plumber who now and again renovates old cars. They do not automatically have to charge tax when selling those cars. This is because it would be hard to see the activity of car renovation being included within their business as a plumber.
On the other hand, if the car activity can be seen to have the attributes of a business in its own right then the plumber would have to charge tax on the sales.
The low-emission vehicles plug-in grant can help you save up to £2,500 on the purchase price of new low-emission vehicles. The scheme was first launched in 2011 and is available across the UK with dealers using the grant towards the price of eligible new cars. The paperwork for the grant application is handled by the dealer you purchase your car from. The scheme is open to qualifying purchases by private individuals and businesses.
HMRC publishes a list of qualifying cars and only cars listed are eligible for the grant. There are also grants available for specified motorcycles, mopeds, small vans, large vans, taxis and trucks.
The grant is available for cars with CO2 emissions lower than 50g/km and a ‘zero-emission’ range of at least 112km. To qualify for the grant, the cars must have an ‘on the road’ price cap of less than £35,000. This means that many popular environmentally friendly electric cars are not available under the scheme as they sell for more than the price cap.
There are separate criteria for the other vehicle classes. For example, for motorcycles that have no CO2 emissions and can travel at least 50km (31 miles) between charges.
The vehicle benefit charges were updated following the Chancellor’s Budget speech. Where employees are provided with fuel for their own private use by their employers, the car fuel benefit charge is applicable. The fuel benefit charge is determined by reference to the CO2 rating of the car, applied to a fixed amount. The car fuel benefit charge will increase in 2022-23 to £25,300 (from £24,600). The fuel benefit is not applicable when the employee pays for all their private fuel.
The standard benefit charge for the private use of a company van will increase to £3,600 (from £3,500). A company van is defined as ‘a van made available to an employee by reason of their employment. There is an additional benefit charge for fuel when a van has significant private use. The limit will increase in 2022-23 to £688 (from £669). If private use of the van is insignificant then no benefit will apply.
Since 6 April 2021, the van benefit charge has been reduced to zero for vans that produce zero carbon emissions. This measure supports the government’s climate change agenda by encouraging the uptake up of vans that emit zero carbon emissions.
In the Spring Budget earlier this year, the government announced that the temporary Annual Investment Allowance (AIA) cap of £1 million would be extended until 31 December 2021. The Chancellor, delivering the Autumn Budget revealed that the temporary cap will now be extended further until 31 March 2023.
The government says that this move is intended to have positive outcomes for businesses by supporting and encouraging business investment, particularly those that are ineligible for the super-deduction, and by simplifying the tax relief for such investment. The change should also encourage investment in qualifying plants and machinery over the next 17 months.
The AIA allows for a 100% tax deduction on qualifying expenditure on plant and machinery to be deducted from profits before tax. The relief is normally capped at £200,000 per annum but was initially increased to £1 million from 1 January 2019.
This temporary limit of £1 million is a generous allowance and should cover the annual spending of most small and medium-sized businesses. The AIA is available for most assets purchased by a business, such as machines and tools, vans, lorries, diggers, office equipment, building fixtures and computers. The AIA does not apply to cars.
The extension in the temporary limit means that businesses thinking of incurring large items of capital expenditure will now have additional time to consider their options during these uncertain times. There are complex transitional rules so the timing of any purchase should be carefully considered.
In September, the government announced that the introduction of Making Tax Digital (MTD) for Income Tax Self-Assessment (ITSA) had been delayed by one year until April 2024. There had been widespread concerns about the speed of the MTD for ITSA rollout, and widely welcome the delay.
In tandem with this announcement, the government also announced that proposals for Income Tax basis period reform would also be delayed until the 2024-25 tax year, with 2023-24 being a transitional year. The recommendations change the basis period from a ‘current year basis’ to a ‘tax year basis’. Under the current rules, there can be overlapping basis periods, which charge tax on profits twice and generate corresponding ‘overlap relief’, which is usually given on cessation of the business. The new method of using a ‘tax year basis’ removes the basis period rules and prevents the creation of further overlap relief.
HMRC has published a new policy paper on this change. The report confirms that the measure will only affect businesses that draw up annual accounts to date 31 March or 5 April (mainly seasonal businesses and large partnerships) and businesses that commence from 6 April 2024. On transition to the tax year basis in the tax year 2023 to 24, all businesses’ basis periods will be aligned to the tax year, and all outstanding overlap relief is given.