September 2021
Technical and Client Update
In this issue
September is the last month for CJRS “Furlough” grants
Dealing with redundancies correctly
5% VAT rate on tourism and hospitality ends 30 September
Big tax bills for the self-employed in 2022/23
Accounting for import VAT on your VAT Return
Tax changes for Health and Social Care
Xero pricing changes
September is the last month for CJRS “Furlough” grants
The Government are pulling the plug on support to employers for furloughed staff at the end of September as they anticipate that the economy will be back to normal by October. The grant claims for employees furloughed in the month of September are 60% of the employee’s usual pay up to a maximum cap of £1,875.
Make sure that you make your final claims for the month of September by 14 October and make any adjustments by 28 October 2021.
The end of furlough may be the trigger for many businesses to assess their staffing levels going forward and many may be considering making the tough decision about which staff to make redundant.
Dealing with redundancies correctly
Remember that there are key steps that need to be followed as far as employment law is concerned. It is also important to treat any payments on termination of employment correctly for tax and national insurance purposes. In genuine redundancy situations the first £30,000 paid on termination of employment is tax free but many employers get this wrong.
The £30,000 includes statutory redundancy pay and any enhancement from the employer as well as continuing benefits such as private health insurance.
The excess is subject to income tax and employers national insurance. We can of course, assist you with the process to ensure that the redundancy process is dealt with correctly.
5% VAT rate on tourism and hospitality ends 30 September
The temporary 5% VAT rate that has applied to supplies made in the tourism and hospitality sector since the start of the pandemic comes to an end at the end of September. The rate then increases to 12.5% from 1 October until 31 March 2022 when it reverts to the standard rate.
For those businesses operating in this sector this will mean an amendment to their accounting software and possibly prices. Note that the standard rate of 20% continues to apply to the sale of alcohol.
Where deposits and other payments are taken before 30 September 2021 the 5% rate would apply to that supply as that would be the tax point for the supply.
Big tax bills for the self-employed in 2022/23
Last month we mentioned that draft legislation has been published to change the basis periods for the assessment of self-employed profits to coincide with the tax year. The proposed new rules provide that from 2023/24 onwards profits or losses will be apportioned to tax years where the period of account does not coincide with the tax year. This is intended to coincide with the start of Making Tax Digital for income tax.
The transitional rules proposed for the previous 2022/23 tax year could result in large tax bills for some sole traders and partners, particularly those with an existing 30 April year end. The profits of year ended 30 April 2021 would be taxed in 2021/22 under the current rules with 2023/24 taxing profits arising between 6 April 2023 and 5 April 2024 under the new rules. But what about 2022/23?
The profits taxed in 2022/23 would be those for year ended 30 April 2022 plus the period 1 May 2022 to 5 April 2023 - in total 23 months profits!
The good news is that there would be a deduction for 11 months “overlap relief” which typically arose when profits were taxed twice when the business started trading - but those will often be much lower than the extra 11 months being taxed in 2022/23!
The transitional provisions allow the taxpayer to elect to spread the excess profits over the next 5 tax years to smooth out the excessive tax bill.
We can work with you to advise you on how much to set aside to cover these additional tax liabilities.
Accounting for import VAT on your VAT Return
HMRC have recently updated their guidance on accounting for VAT on goods imported from outside the UK which, since Brexit, includes the European Union.
Businesses registered for VAT in the UK can account for import VAT on their VAT Return for goods imported into:
- Great Britain (England, Scotland and Wales) from anywhere outside the UK
- Northern Ireland from outside the UK and EU
Businesses can also account for import VAT for goods moved between Great Britain and Northern Ireland that are declared into a customs special procedure, when they are removed from that special procedure.
You do not need HMRC approval to account for import VAT on your VAT Return.
Accounting for import VAT on your VAT Return has significant cash flow benefits as you declare and recover import VAT on the same VAT Return, rather than having to pay it upfront when the goods are imported and recover it later.
Tax changes for Health and Social Care
The government has announced tax changes to fund £12 billion a year to be spent on the NHS and social care across the UK.
National Insurance contributions (NICs) will increase by 1.25% for one year only for employees, employers and the self-employed from April 2022. This will cover both Class 1 (employee and employer), Class 1A and 1B and Class 4 (self-employed) NICs. Those above State Pension Age are not impacted by the April 2022 changes.
From April 2023, a new ringfenced Health and Social Care Levy of 1.25% will be introduced which will apply to those who pay Class 1 (employee and employer), Class 1A and 1B and Class 4 (self-employed) NICs and will also be extended to those over State Pension age who are in work. When the new levy comes into effect, National Insurance rates will revert back to current levels.
The levy will also apply to individuals above State Pension age with employment income or profits from self-employment above £9,568.
The levy will be administered by HMRC and collected through the current reporting and collection procedures for NICs – Pay As You Earn and Income Tax Self Assessment.
Like National Insurance, levy contributions will apply UK-wide, people will pay the same in England, Scotland, Wales and Northern Ireland.
From 2023-24, levy contributions will need to appear as a separate item on payslips. Where possible a generic message should be included on payslips for the next tax year (2022-23). More information on payslip requirements will be available in due course.
From April 2022 the government will also increase the rate of income tax paid on dividend income by 1.25%.
Further information on the government’s plan for Health and Social care can be found here.
Xero pricing changes
As a cloud company, Xero continually invests in product development, regularly releasing updates and improvements for its customers. Like many businesses, they periodically review their pricing to ensure it reflects the value of the product as it evolves, while allowing them to invest in what’s next.
From 23 September 2021, Xero’s plan prices for UK business plan customers will be as follows:
|
STARTER Current £10/mo £12/mo change: +£2 |
STANDARD Current £24/mo £26/mo change: +£2 |
PREMIUM Current £30/mo £33/mo change: +£3 |
All pricing is in GBP and excludes VAT and any add-ons.
Continued product development for UK customers
Since the last price increase in 2019, Xero has invested heavily in business critical areas such as cash flow, getting paid faster, automation and security. This year they’re focused on providing greater support for cash flow management and insight tools, and they’re working hard to ensure their software keeps us all one step ahead of any upcoming government changes to compliance.
You can learn more on Xero’s website. If you have any further questions, please let us know.