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Business Tax  •  Coronavirus Advice  •  Personal tax

Post-Covid tax year resolutions for the ‘new normal’

By RJP LLP on 13 May 2021

The Covid-19 pandemic has created a very different environment for businesses and individuals alike. Some people in industries such as hospitality and leisure will have been very heavily affected by lost income, whereas for some lucky people, business will have never been so good. Regardless of what your exact circumstances are, there are some considerations for tax planning now that the 2021-22 tax year is underway.

Are you claiming deductions for WFH?

If you are working from home – employers and employees – it is possible to claim a monthly tax deduction of up to £26. This is a flat rate covering the cost of using your home as a workplace and it saves having to keep track of expenses and specific charges.  If you have employees, you may choose to pay WFH staff members a set allowance which is tax and NIC free. Note that as with all allowances, the payment must be wholly and exclusively used for their working from home expenses, or it will be taxable. For instance, if you are paying for broadband, the service should only be used for work purposes.

Could you carry back gift aid tax relief and reduce your tax bill?

Relevant for higher rate taxpayers who have made donations that qualify for gift aid, there may be some flexibility over when your claims for tax relief can be made. It is possible to either claim in the year the donation is made or carry it back to the preceding year. Depending on income levels, this may help to reduce the year’s tax liability and potentially result in a rebate.

Is your PAYE code correct given changed circumstances due to Covid?

Each year taxpayers are issued with a PAYE code to determine their personal allowances, based on the preceding year’s figures. If your income has been significantly affected by Covid, if you have losses due to a drop in the value of investments or if your income is likely to drop in the future, the 2021/22 code you receive may not be correct. It is worth highlighting this to HMRC to see if any adjustments can be made to avoid having to pay more tax than you need to – even if you will receive a repayment in the future.

Self-assessment payments on account

Your 2020/21 self-assessment income tax payments on account due on 31 January and 31 July 2021 are based on your 2019/20 income and tax liability.

If you expect your liability for 2020/21 to be lower than for 2019/20 a claim to reduce your payments on account can be made, not only reducing the July payment but also producing a repayment of the excess payment made in January.

Has your share portfolio dropped in value?

If you own shares, has the value of them changed in the past year due to the Covid pandemic? If you are lucky, the value might have gone up, but for some investors, the value of their shareholdings will have dropped. In some cases, the value may have become ‘negligible’ which can create a loss for CGT purposes. If the shares were EIS (Enterprise Investment Scheme) approved, you may also be entitled to income tax relief, even if you have not claimed tax relief for EIS in the past. If the share value can be proven to have become negligible within the last two years of this tax year, it may be possible to claim tax relief for an earlier period too.

Are you keeping records of capital losses?

The impact of Covid-19 has created a number of opportunities to claim losses against future capital gains. This is especially relevant given that it is anticipated that the CGT regime will be reformed in the medium term. To be able to take advantage of this tax planning opportunity all capital losses in the year ended 5 April 2021 should be identified and reported. This will enable them to be carried forward and claimed against future gains if they cannot be offset against gains in the 2020/21 tax year.

Are you planning to buy residential property?

Chancellor Rishi Sunak extended the temporary stamp duty (SDLT) holiday for acquisitions of residential property until 30 September 2021. This is a generous tax relief opportunity that is also available to property investors, although they will still be required to pay the surcharge. Buyers should be aware that no tax relief will be available if completion takes place after 30 September. If the property becomes a main residence within three years of purchase and the former main residence is sold, any surcharge can be reclaimed.

Are you planning a summer works party?

Many companies opted for a virtual Christmas party last year and did not use all their annual tax-free allowance of £150 per employee. Alternatively, they may have decided to postpone the celebrations altogether. Since we are now in a new tax year, caution should be taken because if you intend to have a summer party and then the traditional Christmas bash, these may exceed the allowance. HMRC’s £150 per person limit applies to the total spend on any annual employee hospitality events held in any tax year and is not per event. So £75 per head spent on an annual Summer event followed by £75 per head spent on an annual Christmas event would qualify in full, however if the cost of the Christmas event in this example was £80 per head, the whole amount of £80 per head (or £75 per head) would be taxable on each employee as a benefit in kind, unless the liability was paid by the employer under a PAYE agreement.

If you would like to discuss any of these tax planning ideas in more detail please contact RJP via partners@rjp.co.uk.

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6 July 2021 - Important filing deadlines

Company directors take note. The deadline for filing share transfer and benefits in kind (P11D) paperwork is fast approaching. Ensure your forms are with HMRC by no later than 6th July 2021.