March 2022

Technical and Client Update

In this issue

VAT rates for hospitality sector due to increase from 1 April

Changes to accounting for VAT on imports

Don’t lose your 2021/22 personal allowance

Missing out on help with childcare costs?

Buy new equipment before 6 April?

2022/23 National Insurance bands

Amendments to UK IHT Regulations

Trust Registration Service (TRS)

Passing on your business to the next generation

Spring Statement

Final claims for the statutory sick pay rebate scheme

Anthony is going to jail! (for charity)

VAT rates for hospitality sector due to increase from 1 April

Early in the COVID-19 pandemic, the Chancellor reduced the rate of VAT for the leisure and hospitality sector to just 5%. This reduced rate applied from 15 July 2020 until 30 September 2021 when the rate was increased to the current rate of 12.5%. However, the rate is scheduled to revert to the normal 20% rate from 1 April 2022.

The businesses affected by the temporary rate reduction are those:

  • supplying catering services including restaurants and takeaways
  • operating hotels and providing holiday accommodation and
  • operating leisure attractions such as zoos and theme parks

Businesses should listen to the Chancellor’s Spring Statement on 23 March in case he announces an extension of the 12.5% rate.

If there is a change announced on 23 March, there will only be a limited amount of time to implement changes to prices and VAT accounting.

For businesses using the VAT Flat Rate Scheme, the flat rate percentages will revert to the pre 15 July 2020 amounts if the VAT rate reverts to 20% from 1 April 2022.

Changes to accounting for VAT on imports

HMRC have recently updated their guidance for VAT registered importers. These traders must account for postponed import VAT on their VAT returns for the accounting period which covers the date they imported the goods. The normal rules apply for what VAT can be reclaimed as input tax and the trader’s monthly statement will contain the information to support their claim.

HMRC is aware of the problems some importers are having when trying to access their monthly VAT statements. If you cannot access your statement or you’re having problems when viewing your statement, you can estimate your import VAT figures for the months you cannot access statements for. Your estimate should be as accurate as possible, based on the amount you’ve paid for the goods and any other costs you agreed to cover. As long as you take reasonable care to follow the guidance, there will be no penalty for errors.

There are also important changes from 1 June 2022 for small businesses using the Flat Rate Scheme who are importing goods and using postponed VAT accounting.

Don’t lose your 2021/22 personal allowance

For every £2 that your adjusted net income exceeds £100,000 the £12,570 personal allowance is reduced by £1. Pension contributions and Gift Aid can help to reduce adjusted net income and save tax at an effective rate of 60%. The restriction applies between £100,000 and £125,140 adjusted net income.

Another way that you could avoid the personal allowance trap and also reduce income tax and national insurance would be to agree with your employer to sacrifice some of your salary in exchange for a tax free, or low tax benefit in kind. Common examples would be additional pension contributions or providing an electric company car in exchange for a lower salary.

Missing out on help with childcare costs?

The government are concerned about the lack of take up of tax-free childcare accounts, with HMRC estimating that only about 25% of families eligible for the scheme had joined.

With many parents returning to work following the pandemic, they should be encouraged to set up a tax free childcare account to help with their childcare costs. For every £8 paid into an online account, the government will add an extra £2, up to £2,000 per child per year and that money must be used to pay eligible childcare costs.

Tax-free childcare is available for working families (including the self-employed) who are not receiving tax credits, universal credit or childcare vouchers.

It can also be used at the same time as the 15 or 30 hours of free childcare in England. The couple (or single parent) must earn at least £142 per week each. Their children must be under 12 (or under 16 if disabled).

The account can be used to pay for nursery fees, breakfast clubs, after school clubs, summer camps and OFSTED registered childminders.

Note that the tax-free childcare scheme is not available if either partner expects to individually earn more than £100,000 a year.

Buy new equipment before 6 April?

Your business year end, not 5 April, is relevant for capital allowances purposes.

If, however you are running a business and making up accounts to 31 March or 5 April you should consider buying plant and machinery to take advantage of the £1 million Annual Investment Allowance (AIA).

The AIA provides a 100% tax write off for new and second hand equipment used in your business. This tax relief extends to fixtures and fittings within business premises such as electrical, water and heating systems. AIA does not apply to motor cars but there is a special 100% tax relief if you buy a new zero-emissions motor car.

If you are running a limited company, remember that new plant and equipment currently qualifies for a 130% tax deduction.

2022/23 National Insurance bands

Unless the Chancellor makes an announcement to the contrary on 23 March, which is very unlikely, the rates of National Insurance Contributions for workers and employers increase by 1.25% from 6 April 2022. This is to provide extra funding for health and social care and will become a separate Levy from 2023/24.

The starting thresholds for employee and employer national insurance contributions (NICs) have also been increased. Employees will be liable to 13.25% NICs between £190 and £967 a week (£50,270 a year). Employer contributions at 15.05% will start at £175 a week.

For 2022/23 the self-employed will pay 10.25% Class 4 NICs on profits between £9,880 and £50,270. Employees and the self-employed will pay 3.25% on earnings or profits in excess of £50,270 from 6 April 2022.

Amendments to UK IHT Regulations

HM Revenue & Customs have announced they will be reducing reporting requirements for probate submissions, thereby exempting many more estates from the need to submit detailed estate returns.  The simplified inheritance tax (IHT) reporting procedure is hoped to ensure that more than 90% of non-taxpaying estates will no longer have to complete the complex IHT forms.

Low value and simple non-taxpaying estates which meet specific rules will not have to prepare an IHT form to obtain probate, these are known as “excepted estates”.

For deaths after 31 December 2021, the following amendments will apply:-

  • The gross value of an excepted estate will be raised from £1 million to £3 million.
  • The value limit on assets held by way of a trust will be raised from £150,000 to £250,000, however where the trust includes assets that pass to a spouse or civil partner the value limit is £1 million.
  • Lifetime transfer limits will be raised from £150,000 to £250,000.
  • Estates where some of the Nil Rate Band was used on an earlier death can qualify as an excepted estate in certain circumstances.
  • If a deceased was never domiciled or deemed domiciled in the UK, the estate cannot be an excepted estate if the deceased made chargeable gifts within 7 years of the date of death (unless the gifts were £3,000 or less per year)

If you would like any further information or have any questions please contact a member of the TESS team.

Trust Registration Service (TRS)

The EUs Fifth Money Laundering Directive (5MLD) requires all express trusts to be registered on HMRCs TRS, with some exceptions. Further to the article in our October e-news on the wider requirements for registration because of 5MLD, HMRC have recently announced an added exclusion to the list of trusts that do not need to be registered.

This relates to bank accounts for minors. This is where individuals (often parents or guardians) open bank or building society accounts for the benefit of a child aged under 16.

Although this typically creates a bare trust, this type of bare trust is specifically excluded from registration on TRS as an express trust. This specific exclusion however only applies to cash deposit accounts so does not extend to investments held on bare trust for a minor child. 

For further information on TRS and whether it means any trust you are involved in requires registration, please contact one of our Trust & Estate Support Services team.

Passing on your business to the next generation

If you do not wish to sell your business but are looking to reduce your involvement, you may be considering passing on your business to the next generation, or maybe your management team.

Where you are passing on the business or some of your shareholding, there are generous tax reliefs that facilitate the transfer of ownership without tax charges arising. These tax reliefs are currently available on the transfer of a trading business although it may also be possible to pass on an interest in an investment business with careful planning. We can of course discuss your plans with you to ensure that you are able to take advantage of all available tax reliefs.

WHAT ABOUT A MANAGEMENT BUY-OUT?

If your family are not interested in taking over your business, have you considered selling the business to your management team?

In a typical management buy-out the existing management would set up a new company which would then raise finance to acquire your current business, so this is essentially the same as a sale to a third party, except the management team will know quite a bit about your business already. They would still nevertheless need to carry out due diligence and require you to provide warranties and indemnities as in a third party sale.

An increasingly popular alternative to the classic management buy-out referred to above would be to sell your company to an Employee Ownership Trust (EOT).

SALE OF COMPANY TO EMPLOYEE OWNERSHIP TRUST

This alternative to the classic management buy-out enables the shareholders of a trading company to sell their shares free of CGT to a trust set up for the benefit of the employees. This has become more popular as an exit route since the lifetime limit for CGT business asset disposal relief (formerly entrepreneurs relief) was reduced from £10 million to just £1 million.

This tax break has recently been used by the owners of a number of well-known companies including Richer Sounds and Riverford Organics, and is similar to the structure in place at John Lewis.

Like business asset disposal relief, the company must be a trading company. The outgoing shareholders are only allowed limited participation in the company following the disposal of their shares. There are a number of other conditions that need to be satisfied. If you are interested in going down this route, contact us to discuss whether it would be suitable for you or your company.

COMPANY BUY BACK OF SHARES AS AN ALTERNATIVE EXIT

Another potential exit for shareholders would be for the company to buy back their shares. This would normally be taxed on the shareholder as a dividend unless certain conditions are satisfied resulting in the payment being taxed as a capital gain.

Clearly CGT treatment is preferable as the rate could be just 10% on the first £1million of gain compared to up to 38.1% on dividends.

Consequently, HMRC need to be satisfied that the share buy-back benefits the company’s trade, and a large cash payment may be difficult to justify if that depletes cash flow. With careful planning it may be possible to stage the buy back over a number of years, but it is recommended that you get advance clearance from HMRC to confirm capital treatment.

Spring Statement

The Chancellor of the Exchequer, Rishi Sunak, commissioned the Office for Budget Responsibility (OBR) to produce an economic and fiscal forecast for Wednesday 23 March 2022.

The main Budget is scheduled for Autumn each year, but it is anticipated that the Chancellor will take the opportunity to make a number of tax announcements.

We will be sending an email to all our e-news subscribers after the 23 March with a summary of the announcements.

Final claims for the statutory sick pay rebate scheme

The Statutory Sick Pay Rebate Scheme will close on 17 March 2022. You have until 24 March 2022 to submit any new claims for absence periods up to 17 March 2022, or to amend claims you have already submitted.

You will no longer be able to claim back Statutory Sick Pay (SSP) for your employees’ coronavirus-related absences or self-isolation that occur after 17 March 2022. 

From 25 March, we will return to the normal SSP rules, which means you can revert to paying SSP from the fourth qualifying day your employee is off work regardless of the reason for their sickness absence.

For more information on eligibility and how to make your final claims click here. https://www.gov.uk/guidance/claim-back-statutory-sick-pay-paid-to-employees-due-to-coronavirus-covid-19

Anthony is going to jail! (for charity)

On Friday 18th March Senior Partner Anthony Smith will be arrested for answering too many emails during internal Zoom meetings! Anthony will be issued with a rather fetching stripy prisoner suit, be handcuffed and charged with his crime. He will then undertake the walk of shame facing an angry mob before being locked down in the dark, damp basement of Eastbourne's Historic Wish Tower.

His only hope of freedom lies in raising £1,000 in bail money. Anthony along with several other community leaders and well-known local figures will have from now until the 18th March 2022 to deliver the bond, or else face a lengthy prison stay!

The Jail and Bail event is in support of St Wilfrid’s Hospice and all money raised will help St Wilfrid’s to continue their vital work, supporting local people living with life-limiting illnesses and their families.

If you can spare a moment to help Anthony raise his jail bond please follow the link to the JustGiving Page www.justgiving.com/Anthony-Smith72

Thank you for your support.