January 2020 Newsletter

OFF-PAYROLL WORKING RULES EXTENDED

From 6 April 2020, the off-payroll working rules that apply where the end client is a public sector organisation are being extended to the private sector.

The amended rules will apply where services are provided via an intermediary, such as a personal service company, to an end client which is a medium or large private sector organisation. The rules bite if, ignoring the personal service company, the worker would be classed as an employee of the end client. Prior to 6 April 2020, the personal service company had to operate the IR35 rules and work out the deemed payment. However, from 6 April 2020, responsibility for working out whether the rules apply will shift to the end client and, where they do, the fee payer must deduct tax and National Insurance from payments made to the worker’s personal service company.

Where the end client is a small private sector organisation, the existing IR 35 rules apply. A private sector organisation is not small if at least two of the following apply:

  • turnover of more than £10.2 million;
  • balance sheet total of more than £5.1 million;
  • more than 50 employees.

To prepare for the changes, HMRC recommend that medium and large private sector companies should:

  • look at their current workforce (including those engaged through agencies and intermediaries) to identify those individuals who are supplying their services through personal service companies;
  • determine whether the off-payroll rules will apply for any contracts that extend beyond 6 April 2020 (HMRC’s Check Employment Status for Tax (CEST) tool can be used to determine a worker’s status);
  • start talking to contractors about whether the off-payroll rules apply to their role; and
  • put processes in place to determine if the off-payroll working rules will apply to future engagements. These may include assigning responsibility for making a determination and determining how payments will be made to contractors who fall within the off-payroll working rules.

Workers affected by the changes should also consider whether it is worth remaining ‘off-payroll’.

If you are medium or large private sector organisation engaging workers who provide their services through an intermediary, such as a personal service company, or if you are a worker providing services via an intermediary, speak to us understand what the changes to the off-payroll working rules mean for you.

COMPANY CARS AND CO2 EMISSIONS

The amount charged to tax where an employee has the private use of a company car is a percentage of the car’s list price. The percentage (the appropriate percentage) depends on the car’s CO2 emissions.

For all cars registered on or after 6 April 2020, the CO2 figure will be based on the Worldwide Harmonised Light Vehicle Test procedure (WLTP). For cars registered prior to 6 April 2020 the CO2 figure is determined by reference to the New European Driving Cycle (NEDC).

The appropriate percentages are adjusted for cars measured under the WLTP. For 2020/21 the figures are reduced by 2 percentage points compared to those for cars measured under the NEDC and for 2021/22 they are reduced by 1 percentage point. From 2022/23 the appropriate percentages for cars measured under the WLTP are aligned with those for cars measured under the NEDC.

The appropriate percentage for zero-emission cars is reduced to 0% for 2020/21 and to 1% for 2021/22. It will be increased to the published rate of 2% from 2022/23.

If you provide employees with company cars, speak to us to understand the tax implications of the changes.

CLASS 1A NICS ON TERMINATION PAYMENTS AND SPORTING TESTIMONIALS

Class 1A National Insurance contributions are employer-only contributions charged on most taxable benefits in kind.

From 6 April 2020 the Class 1A charge is extended such that from that date it will apply to taxable termination payments in excess of the £30,000 tax-free limit and to sporting testimonial payments in excess of the £100,000 lifetime limit. Currently, such payments are taxable but not liable to National Insurance.

The new Class 1A charge on termination payments will apply to the extent that the termination payment exceeds the £30,000 tax-free limit. The normal Class 1A percentage of 13.8% will apply. However, unlike Class 1A National Insurance contributions on benefits in kind, any liability on termination payments will be notified to HMRC via real time information (RTI) and paid with PAYE tax and Class 1 National Insurance contributions. Termination payments in excess of the £30,000 threshold will remain free of employee’s National Insurance contributions.

Non-contractual, non-customary sporting testimonials are taxable to the extent that they exceed a £100,000 lifetime tax-free allowance. From 6 April 2020, Class 1A National Insurance contributions will also be payable to the extent the lifetime allowance is exceeded. The Class 1A charge will fall on the sporting testimonial committee and it will be the responsibility of the sporting testimonial committee to report and pay the Class 1A liability to HMRC.

As with the new Class 1A charge on taxable termination payments, the liability will be reported and paid via the PAYE/RTI process, rather than through the P11D(b) process.

Speak to us to understand how the timing of a termination payments will affect whether any employer-only National Insurance contributions are due.

CAPITAL GAINS TAX

PRIVATE RESIDENCE RELIEF AND FINAL PERIOD EXEMPTION

Where a property has at some point been the owner’s only or main residence, any gain relating to the final period of ownership is exempt from capital gains tax. Prior to
6 April 2020, the final period is set at 18 months, subject to a period of 36 months where the person making the disposal is a long-term resident of a care home or is disabled.

However, for disposal on or after 6 April 2020, the final period exemption is halved from 18 to nine months. However, it remains at 36 months for disposal by long-term care home residents and disabled persons.

If you are planning to dispose of a property which has not been your only or main residence throughout the whole period that you have owned it, speak to us to ascertain how the timing of the disposal can impact on the capital gains tax payable.

LETTINGS RELIEF

Lettings relief is a valuable relief that applies on the disposal of a property which has been let out and which has at some point been the owner’s only or main residence.

Under the current rules lettings relief applies to shelter part of the gain arising on the sale of a property which has been let out as residential accommodation and which at some time was the owner’s only or main residence. The amount of the lettings relief is the lowest of the following three amounts:

  • the amount of private residence relief available on the disposal;
  • £40,000; and
  • the gain attributable to the letting.

However, from 6 April 2020, the availability of lettings relief is to be seriously restricted. From that date, lettings relief is only available where at some point the owner of the property lets out part of their main residence as residential accommodation and shares occupation of that residence with an individual who has no interest in the residence.

Where the gain would otherwise be chargeable to capital gains tax because it relates to the part of the main residence which is let out as residential accommodation, it is only chargeable to capital gains tax to the extent that it exceeds the lower of:

  • the amount of the gain sheltered by private residence relief; and
  • £40,000.

If the property is let but the landlord does not live in the property with the tenant, lettings relief will not be available for disposals on or after 6 April 2020.

Lettings relief can shelter up to £40,000 of gains. Where a disposal of a property that would currently attract the relief is on the cards, it may be beneficial to dispose of the property prior to 6 April 2020. Speak to us to ascertain the impact that the disposal date has on the available reliefs and the capital gains tax, if any, that will be payable.

RESIDENTIAL PROPERTY GAINS 

Although no capital gains tax will arise on the disposal of a property which has been the owner’s only or main residence throughout the period of ownership, a liability may arise on the disposal of a residential property which is or has at some point been a second home or which has been let.

Prior to 6 April 2020, where capital gains tax is payable on a gain arising on the disposal of a residential property, the gain is notified to HMRC on the self-assessment return and the tax is payable by 31 January after the end of the tax year in which the disposal took place.

However, from 6 April 2020, taxpayers will be required to make a payment on account of the capital gains tax liability arising on the disposal of a residential property. The taxpayer will also be required to make a return to HMRC giving notice of the disposal. The return must be delivered to HMRC within 30 days of the date of completion of the disposal. Payment of any associated tax must be made within the same window.

Capital gains tax on chargeable residential property gains is payable at higher capital gains tax rates of 18% and 28%.

If you are planning on disposing of a second home or buy-to-let property on or after 6 April 2020, speak to us to understand how the new return and payment rules will affect you.

SELF-ASSESSMENT TAX RETURN DEADLINES

The deadline for filing the 2018/19 self-assessment return online is 31 January 2020. Where a notice to file a return was issued after 31 October 2019, a later deadline of three months from the date of issue of the notice to file applies.

A late filing penalty is charged if the return is filed late, even if it is only late by one day and regardless of whether any tax is due.

Speak to us to ensure that you understand what information you need to provide by when to ensure that the filing deadline is not missed.

Any tax that is unpaid for 2018/19 must be paid by 31 January 2020. The first payment on account for the 2019/20 tax year is due by the same date. Payments on account must be made where the previous year’s liability was £1,000 or more unless 80% of your tax liability is deducted at source, such as under PAYE. Each payment on account is 50% of the previous tax year’s tax and Class 4 National Insurance liability. The second payment on account for 2019/20 must be paid by 31 July 2020.

Speak to us to check what needs to be paid by when.

FUEL RATES

Where an employer provides a company car, but the employee pays for the fuel, the employer may pay a mileage allowance for business journeys.  HMRC accepts that payments not exceeding the ‘advisory fuel rates’ are reimbursements of expenses, not subject to income tax or Class 1 national insurance contributions.

These rates may be used to reclaim input VAT in respect of fuel used for business journeys (remembering that VAT receipts to cover the amount claimed are required). These rates are scheduled to change quarterly and the current rates can be found at:   https://www.gov.uk/government/publications/advisory-fuel-rates.