July 2021
Technical and Client Update
In this issue
Furlough grant reduces to 70% for July
Fifth Self-Employed Income Support grant to be paid in July
Please let us have details of your SEISS grants for your 2020/21 tax return
Pension contribution is tax efficient for both employee and employer
Crowdfunding
Furlough grant reduces to 70% for July
For the month of July the CJRS Furlough grant support from the government via HMRC reduces to 70% of the employee’s usual pay for hours not worked. This is despite the fact that “Freedom Day” in England has been delayed four weeks to 19 July 2021, and is now called “Terminus Day”. The government support to employers will then reduce to 60% in August and September.
Here’s a future claims date reminder:
- for furlough days in July 2021 submit claim by 16 August 2021
- for furlough days in August 2021 submit claim by 14 September 2021
- for furlough days in September 2021 submit claim by 14 October 2021
See: Claim for wages through the Coronavirus Job Retention Scheme - GOV.UK (www.gov.uk)
Fifth Self-Employed Income Support grant to be paid in July
The fifth (and final) SEISS grant will be available for the self-employed to claim towards the end of July.
The eligibility criteria remains broadly the same as the fourth grant. Self-employed profits in 2019/20 must not exceed £50,000 and must be more than 50% of your total income. If that test is not met, then the same £50,000 and 50% tests are applied to average profits and total income over the four fiscal years to 2019/20.
Self-employed traders need not have claimed grants under the previous scheme to qualify for the July payment and will be required to confirm that their business continues to be adversely affected by Covid-19.
The amount that traders will be able to claim will depend on how much their turnover has reduced by. If the reduction is more than 30% the grant will be 80% of average profits capped at £7,500 but if less than 30% only 30% of average profits, capped at £2,850.
HMRC have released guidance on how to work out your turnover so you can claim the fifth SEISS grant which can be found here.
The online service for the fifth grant will be available from late July 2021. HMRC will contact you in mid-July to give you a date that you can make your claim from. It will be given to you either by email, text message, letter or within the online service.
Please provide us with details of your SEISS grants for your 2020/21 tax return
As you are probably aware tax agents were not able to claim SEISS grants on their client’s behalf, and we do not currently have access to the amounts you have claimed.
If you are self-employed and have received any SEISS grants in 2020/21 can you please provide us with details of the amounts received so that we can include the correct amounts in your return. The amounts received are taxable but should not be included in your turnover in order to avoid double counting.
Pension contribution is tax efficient for both employee and employer
Pension contributions to approved pension funds on behalf of employees and directors continue to be a tax-free benefit provided the annual input limit is not breached. The contributions are also deductible for the employer provided they are incurred wholly and exclusively for the purposes of the trade and paid before the end of the accounting period of the business.
For most taxpayers the annual input limit (annual allowance) is £40,000 and this overall limit applies to contributions by the employee plus contributions made by the employer on the employee’s behalf. It is also possible to take advantage of unused relief from the previous three fiscal years.
Payments into the pension fund by the employing business will be deductible against business profits. Currently this will only save 19% corporation tax but from 1 April 2023 will save 25% where profits exceed £250,000 and 26.5% where profits are between £50,000 and £250,000.
Note that these limits are divided by the number of associated companies, i.e. under common control.
Although the contribution on behalf of the employee or director may be tax-free they are generally not able to access the fund until age 55.
Crowdfunding
What is crowdfunding and how does it actually work?
Crowdfunding is a way of raising money for a business venture, personal endeavour, or charitable cause, where a large number of people invest in or donate money to the cause.
Crowdfunding is becoming more popular with start-up and early-stage businesses which can often struggle to secure funding from traditional lenders such as banks or financial institutions.
As the name suggests, crowdfunding is about engaging a crowd of people to co-fund a particular project. Funding for say, a start-up business, can be provided by hundreds or even thousands of individual investors. They all come together to provide money to get a project off the ground and all share in the risk or reward of that project.
Crowdfunding works well in today’s social media driven environment as it’s all about telling a story and inspiring people to invest in your particular venture. There are different types of crowdfunding including donation based crowdfunding, equity crowdfunding and debt crowdfunding.
Donation based crowdfunding is where people simply give some money to a new venture. Those who donate often get something tangible in return, such as being one of the first customers to receive the new product or service.
Equity crowdfunding is popular with business start-ups as it allows the new business to offer some shares in exchange for incoming capital.
Debt crowdfunding allows individuals to act as private lenders. Those lenders can spread risk by pooling their funds to lend to a wide variety of businesses.
The debt must be repaid and the repayments usually happen on a monthly basis.
Popular crowdfunding platforms in the UK include Crowdfunder, JustGiving, Crowdcube and Funding Circle. Different platforms suit different needs so it is worth doing plenty of research before deciding on using a particular crowdfunding platform.