Whilst the United Kingdom officially left the European Union (EU) on 31 January 2020, this prompted the start of an 11-month transitional period during which time the UK remains part of the Single Market, the EU Customs Union and the VAT Territory. With the transitional period due to end on 31 December 2020, it is important to prepare for the changes that will take place from 1 January 2021.
The Annual Investment Allowance (AIA) provides a tax write off against profits for expenditure incurred on plant and machinery by businesses and owners of commercial property.
The amount of the AIA was increased to £1,000,000 from 1 January 2019 until 31 December 2020. The government has now announced an extension until 31 December 2021. The extension is intended to boost confidence as companies look to weather the pandemic and plan for the future. The planned reduction in AIA will be £200,000 for expenditure incurred after this date.
The AIA is an annual allowance and the maximum AIA is computed by reference to the accounting period of the business. If the accounting period straddles the date when the AIA is reduced, a pro rata calculation of the maximum entitlement is required.
Looking ahead to the reduction in AIA to £200,000 on 1 January 2022, the maximum allowance for an accounting period straddling that date is the sum of:
Example
A company makes up its accounts to 31 March annually. For the year to 31 March 2022, the limit is calculated as follows:
| April 2021 – December 2021 | 9/12 x £1,000,000 = | £750,000 |
| January 2022 – March 2022 | 3/12 x £200,000 = | £50,000 |
| Total | £800,000 |
Yes, it does. For expenditure incurred before 1 January 2022, there is a limit to the maximum figure available. The maximum allowance is the AIA in the computation above, namely £800,000.
However, if expenditure is incurred on or after 1 January to 31 March 2022, the maximum amount of relief will only be £50,000.
So, the important point to be aware of is the need to incur any substantial capital expenditure before 1 January 2022 irrespective of the accounting period of the business.
How we can help
The timing of capital expenditure is important for determining the accounting period in which relief is given. Please get in touch with us if you wish to help us plan your capital expenditure and the maximisation of tax relief.
On 5 November 2020 the Chancellor, Rishi Sunak, announced changes to the package of support measures being introduced as a consequence of a second national lockdown for England. In the original package the Coronavirus Job Retention Scheme (CJRS) was extended until the planned lifting of the lockdown on 2 December.
The Chancellor has now announced that the CJRS will be extended to the end of March.
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On Thursday 24 September Chancellor Rishi Sunak provided some details of the government’s plan to protect jobs and support businesses over the coming months. We set out the main announcements below.
The existing job support scheme – the furlough scheme – comes to an end on 31 October. The government will be introducing a new Job Support Scheme from 1 November 2020.
For employers to participate in the scheme:
Employees using the scheme will receive at least 77% of their pay, where the government contribution has not been capped. The employer will be reimbursed in arrears for the government contribution. The employee must not be on a redundancy notice.
The scheme will run for six months from 1 November 2020 and is open to all employers with a UK bank account and a UK PAYE scheme. It will be open to such businesses even if they have not previously used the furlough scheme.
All small and medium-sized enterprises will be eligible. Large businesses will be required to demonstrate that their business has been adversely affected by COVID-19. The government also expects that large employers will not be making capital distributions (such as dividends), while using the scheme.
The Job Support Scheme will sit alongside the Jobs Retention Bonus which was announced by the Chancellor in July. The Bonus will provide a one-off payment of £1,000 to UK employers for every furloughed employee who remains continuously employed through to the end of January 2021 and who earns at least £520 a month on average between the 1 November 2020 and 31 January 2021. Businesses can benefit from both schemes.
The Self-Employment Income Support Scheme (SEISS) will be extended under the name SEISS Grant Extension. The grant:
The scheme will last for six months, from November 2020 to April 2021, and will consist of two grants. The first grant will cover a three-month period from the start of November until the end of January. This initial grant will cover 20% of average monthly trading profits, paid out in a single instalment covering three months’ worth of profits, and capped at £1,875 in total. The second grant will cover a three-month period from the start of February until the end of April. The government will review the level of the second grant and set this in due course.
The amount of the first grant under the SEISS grant extension will be significantly less than the grants made under the SEISS. The initial SEISS grant was based on 80% of profits (capped at £7,500) and the second SEISS grant was based on 70% of profits (capped at £6,570).
The government is extending the temporary reduced rate of VAT (5%) from 12 January to 31 March 2021. This will continue to apply to supplies of food and non-alcoholic drinks from restaurants, pubs, bars, cafés and similar premises, supplies of accommodation and admission to attractions across the UK.
Over half a million businesses deferred VAT payments, which were due in March to June 2020, with these payments becoming due at the end of March 2021.
The government has now announced the option for such businesses to spread their payments over the financial year 2021/22. Businesses will be able to choose to make 11 equal instalments over 2021/22. All businesses which took advantage of the VAT deferral can use the spreading scheme. Businesses will need to opt in and HMRC will put in place an opt-in process in early 2021.
Taxpayers were able to defer the income tax self assessment payment on account for 2019/20, due by 31 July 2020, to 31 January 2021. There are also other amounts due on 31 January 2021 – a balancing payment for the 2019/20 tax year and the first payment on account for the 2020/21 tax year.
Taxpayers with up to £30,000 of self assessment liabilities due will be able to use HMRC’s self-service Time to Pay facility to secure a plan to pay over an additional 12 months. This means that self assessment liabilities due in July 2020, and those due in January 2021, will not need to be paid in full until January 2022. Any self assessment taxpayer not able to pay their tax bill on time, including those who cannot use the online service, can continue to use HMRC’s Time to Pay self assessment helpline to agree a payment plan.
The BBLS has provided support to many UK-based small businesses. Loans are between £2,000 and £50,000, capped at 25% of turnover, with a 100% government guarantee to the lender. The borrower does not have to make any repayments for the first 12 months, with the government covering the first 12 months’ interest payments. Under a Pay as you Grow scheme businesses will have options to:
The CBILS provides loan facilities to UK-based businesses with turnover under £45 million. The scheme provides loans of up to £5 million with an 80% government guarantee to the lender. The government does not charge businesses for this guarantee and also covers the first 12 months of interest payments and fees.
The government intends to allow CBILS lenders to extend the term of a loan up to ten years.
The government is extending the BBLS and the CBILS to 30 November 2020 for new applications.
Applications for the Coronavirus Large Business Interruption Loan Scheme and the Future Fund will also be extended.
Further technical details of the schemes will be published by the government but no date has been announced as to when. Please be assured we will be here to provide you with support and please contact us if you have any queries on the measures announced.
