May 2022

Technical and Client Update

In this issue

Trading losses - carry back or carry forward?

Super-deduction for equipment runs for one more year

ATED returns and revaluations due

Possible changes to SDLT multiple dwellings relief

Countdown to register on TRS – less than four months to go before the 1st September 2022 deadline

Home working tax relief warning

SEISS grants – HMRC assessing overclaimed grants

Inflation, it's personal!

Partner Paul Potter Retires

Exam success

Trading losses - carry back or carry forward?

Content accurate as at 28.04.2022

In the March 2021 Budget, it was announced that the normal one year carry back for trading losses would be extended to three years. That means that many businesses that have made losses during the COVID-19 pandemic may be able to obtain a repayment of tax paid in that earlier three-year period. This enhanced carry back applies to unincorporated businesses as well as limited companies and will provide a much-needed tax refund.

However, with the corporation tax rate increasing to 25% from 1 April 2023 for profits over £250,000 it may be more beneficial to carry the loss forward. Note that the marginal rate is 26.5% where profits are between £50,000 and £250,000 a year. So, there is a trade-off between a tax refund now and a possible bigger tax saving in the future.

For the enhanced carry back the company’s loss-making accounting period must end between 1 April 2020 and 31 March 2022. For unincorporated businesses the trading loss must be incurred in 2020/21 or 2021/22.

For corporation tax purposes, it is no longer necessary to finalise the company accounts and file the CT600 corporation tax return to claim loss relief where the loss is no more than £200,000. HMRC will however require evidence of the loss to process the claim such as management accounts for the period.

Super-deduction for equipment runs for one more year

The 130% super-deduction for companies that invest in new plant and machinery applies where the expenditure is incurred between 1 April 2021 and 31 March 2023. Many companies recovering from the coronavirus pandemic have not had the resources to commit thus far and the war in Ukraine may have made them reluctant to invest until the political and economic situation stabilises.

Thankfully the special tax relief announced in the Spring 2021 Budget will be available for expenditure up until 31 March 2023 potentially saving £247 for every £1,000 invested in new equipment.

It is hoped that the current £1 million Annual Investment Allowance (AIA) will continue to be held at that level once the super-deduction ends. Note that the AIA is available to unincorporated businesses as well as limited companies and for second hand as well as new equipment.

ATED returns and revaluations due

The Annual Tax on Enveloped Dwellings (ATED) was introduced in April 2012 and is charged where certain residential properties are owned within a corporate structure. This tax not only catches UK properties owned by wealthy oligarchs via offshore companies but also applies to UK resident companies. Originally the charge only applied where the value of the property exceeded £2 million but that threshold has been subsequently reduced to £500,000.

The charge for 2022/23 starts at £3,800 and rises to £244,750 where the property value is more than £20 million.

Properties need to be revalued every five years and the latest valuation date is 1 April 2022. With significant increases in property values in recent years this may mean that more companies may be required to complete an ATED return.

There are numerous exemptions and reliefs from ATED but companies still need to submit an ATED Relief Declaration Return.

Main ATED Reliefs

The main situations where there is a relief from ATED are where the property is:-

  • let to a third party on a commercial basis
  • being developed for resale by a property developer
  • owned by a property trader as the stock of the business for the sole purpose of resale
  • a farmhouse occupied by a farm worker or a former long-serving farm worker

Possible changes to SDLT multiple dwellings relief

HMRC have been consulting on changes to the relief from stamp duty land tax (SDLT) when two or more dwellings are acquired at the same time. This indicates that a change in the rules is imminent, and purchasers should take advantage while the relief continues to apply.

Currently where at least two dwellings are purchased in a single transaction, or as part of a series of linked transactions between the same vendor and purchaser, the purchaser can choose to have the rate of SDLT determined by the average value of the dwellings purchased, rather than their combined value. Purchasers can therefore benefit from multiple nil-rate and lower percentage bandings, significantly reducing the amount of SDLT payable. Multiple dwellings relief doesn’t apply automatically; it must be claimed in a land transaction return and your solicitor may not be aware of this important relief.

Countdown to register on TRS – less than four months to go before the 1st September 2022 deadline

Further to our previous e-news update in March 2022 it is estimated that up to 1 million trusts will need to be registered and it is expected that HMRC will experience an influx of registrations over the coming months as the deadline fast approaches.

Whilst HMRC are still formulating the penalty system for late submissions, initial indications are that trustees who fail to register could be penalised for up to 5 percent of the trust’s tax liabilities or £300, whichever is greater. Whilst penalties may be waived for first offences, this has not yet been confirmed.  It is therefore advisable to ensure registrable trusts are registered without delay.

Another important update further to our e-news update in March 2022; HMRC have recently confirmed that Junior ISAs, like Child Trust Funds, are not trusts and therefore not required to register on TRS.

Home working tax relief warning

During the pandemic the government temporarily relaxed the rules regarding home office working and the associated eligibility for claiming home office relief for the 2020-21 and 2021-22  UK tax years. The relaxation allowed employees, who were required to work from home for a limited period in each of these tax years, to claim £6/week tax relief in full for each of these years for the additional cost of working at home. Ordinarily, the relief would only be available to those working from home on a permanent basis.

The updated HMRC guidance from 6 April 2022 states that you can claim if your employer has not already paid your expenses and you have additional household costs as a result of working from home.

One of the following must also apply:

  • there are no appropriate facilities available for you to perform your job on your employer's premises;
  • the nature of the job requires you to live so far from the employer's premises that it is unreasonable for you to travel to those premises on a daily basis;
  • you are required, under government restrictions, to work from home.

You cannot claim tax relief if you choose to work from home.

If you are not eligible to claim the tax relief in 2022-23 you should contact HMRC to get the notice of coding corrected or you will need to pay additional tax at the end of the tax year. Check if you can claim here.

SEISS grants – HMRC assessing overclaimed grants

If an amendment to your self assessment tax return made after 2 March 2021 means your entitlement to the fourth or fifth SEISS grant has reduced by more than £100 you must inform HMRC. HMRC is writing to taxpayers that this affects, they are also checking whether any amendment means that the taxpayer is entitled to the lower level (30%) rather than the higher level (80%) fifth grant. The letter includes a formal assessment and details of how the amount due has been calculated.

Amendments include HMRC corrections, taxpayer amendments and HMRC amendments made as a result of an enquiry. Contract settlements, revenue assessments or charges raised are not included as these are considered not to modify the tax return. Note that entitlement to the first three SEISS grants is not affected by subsequent amendments to tax returns.

If you have any queries regarding your SEISS grant please contact us. Further information is available here.

Inflation, it's personal!

We are in a period of high inflation of prices for goods and services. The Office for National Statistics (ONS) shows one of the inflation indices has increased by 6.2% in the 12 months to March 2022.

This is the highest that CPIH (Consumer Prices Index including owner occupiers' housing costs) has been since 1992. Among the main components of this increase are transport costs, such as petrol and diesel and the price of second-hand cars.

The Government Actuary’s Department offer commentary on the reasons and recently stated that: 

“During the pandemic prices for some goods and services fell, such as for eating out and holidays abroad. This reflected a rapid fall in demand which quickly shifted with demand gradually returning and supply then becoming challenging. Lockdown and workforce availability were key causes, but another factor was the reliance of so many products on semiconductors.

They feature in ever more numbers of products such as computers, cars and even kettles. The demand for semiconductors has been increasing faster than the supply can keep up with.”

This has been compounded by other factors, such as the surge in early retirements during the pandemic and increasing energy prices due to the geopolitical situation and war in Ukraine.

These factors and increasing semiconductor production can be managed with a view to bringing prices back down again. However, solutions such as building new semiconductor manufacturing facilities take time, so until then, prices increase.

The BIG question is where's next for inflation?

Inflation also poses a risk for business and financial institutions (such as pension funds and insurance companies) as we do not know how it will evolve. There will be scenarios, which may seem unlikely but nonetheless plausible and which could lead to financial difficulties.

Mitigations may be available but will usually come at a cost. This could be purely financial, such as buying insurance. Or it could be more complex, like carefully balancing how much inflation can be passed onto consumers in the form of higher prices.

See: Inflation, it's personal - Actuaries in government (blog.gov.uk)

If you own a business, then:

  1. Take time to review your personal objectives – the business is there to provide you with what you want from life, and this is the most important element of any plan.
  2. Look at where the business is now, its strengths, weaknesses, opportunities and threats and get a clear understanding of its position in the marketplace, the competition, the systems and the way things are done and the improvements that could be made.
  3. Focus on what the business is to look like when it is “complete” or running profitably and successfully. Then you can determine priorities – the big issues that need to be focussed on – this is the plan!

It is also a good idea to look at where you are now and plan for a range of scenarios “good and bad” so that you can be flexible about the direction you should take. 

Partner Paul Potter Retires

Following 37 years of loyal service Paul Potter retired as Partner of the firm at the end of April.

Paul qualified as a Chartered Accountant in 1981, and subsequently spent over two years working in Jersey. He joined Humphrey & Co in 1985 as a Manager and became a Partner of the firm in 1988.

As well as dealing with all aspects of general practice, Paul developed specialisms in working with our older retired clients and the charities sector. This team will now be led by Craig Manser, Partner, and Emily Smith, Associate.

Paul’s attention to detail was renowned throughout the firm and greatly assisted him (and us) in his role as the firm’s Compliance Partner. This ensured all ICAEW guidelines were followed to the appropriate standard and beyond.

Paul also took the time to get to know members of staff personally and was always willing to lend an ear and offer what advice he could. The door was always open, and it was no surprise that Paul acted as our Staff Partner.

The last 37 years have been a period of constant change. IT and technology improvements have seen a move from adding machines with till rolls through to automation using excel and computers. The introduction of emails and mobile phones has changed the way we work considerably. Paul continued to use some of the more traditional and personal methods where he could, which we know was appreciated by a lot of his clients (and our admin team).

As a long standing Partner, Paul’s expertise and sense of humour will be missed by both staff and all the clients that he acted for.

Paul comments “Throughout this period I am very grateful for the continuing support and friendship provided by all those that I have had the opportunity to work with. Many clients that I have acted for over the years have become good friends as well as professional clients. I would like to also thank everyone for the working relationships we have maintained, which have been an enjoyable part of my professional life. I wish everybody in the firm and all my business/client contacts the very best for the future”.

Everyone at Humphrey & Co wishes Paul a very long and happy retirement.

Exam success

We are pleased to announce that Harry Turner has passed his exams to qualify as a Chartered Accountant (ACA).

Harry joined the firm in 2018 after achieving a BSc (Hons) in Business Management with Finance at Brunel University. He went on to study towards his Chartered Accountancy qualification (ACA) which he achieved in May of this year. Harry works for Partner Karen Wicks assisting with her portfolio of dental clients.

“I am delighted to qualify as a Chartered Accountant and I am grateful for the support provided by Humphrey & Co along the way. I look forward to using the knowledge I have gained to help assist our clients even further” said Harry.

Senior Partner Anthony Smith comments “We are delighted that Harry has now qualified, studying during the past couple of years hasn’t been easy for any of our trainees. Harry has shown true resilience and determination to succeed, and we are confident that this will set him up well for his future progression at Humphrey & Co. Well done Harry!”