Corporate Tax Newsletter – May 2021
The super-deduction, as announced in the budget on 3 March 2021, allows companies who invest in qualifying new plant and machinery assets which normally fall into the main pool to claim capital allowances of 130%. This compares to the standard writing down allowance (WDA) of 18% and will take effect from 1 April 2021 to 31 March 2023. This enables companies to reduce their tax bill by up to 25p for every £1 they invest. Purchases that can be eligible for these new allowances could include computer equipment, electric vehicle charging points, tractors and lorries or office chairs and desks.
In addition to this, a 50% first-year allowance (FYA) is also being introduced for special rate pool purchases that would normally have a WDA of 6%. Purchases that can be eligible for these new allowances are heating, ventilation, and electrical equipment.
Some points to note regarding the new allowances:
- Contracts entered into before 3 March 2021 are excluded from obtaining the super-deduction even if the spending is subsequently incurred during the scheme.
- Hire purchase contracts continue to be qualifying expenditure as long as the claimant acquires legal ownership of the asset at the end of the contract.
- These new allowances are only available to companies that pay corporation tax. This means that sole traders, unincorporated companies, and partnerships are ineligible to claim.
- The super deduction assets are not pooled, meaning the disposal of an asset that has previously been subject to a super deduction may result in a balancing adjustment.
Annual Investment Allowance (AIA)
For those businesses who are not able to claim the Super-deduction, the AIA is still available. This allowance permits a 100% first-year deduction for qualifying plant and machinery which would otherwise be subject to the WDA rules, either at 18% or 6%. The AIA allowance is currently £1 million and was extended to 31 December 2021 however will reduce £200,000 from 1 January 2022.
All the above extensions to the capital allowance regime are very valuable and can result in significant reductions in tax payments for all types of businesses and the team at MHA Henderson Loggie are available to answer any questions you may have.
Recent developments on R&D claims
Research & Development tax relief can provide valuable support for Small or Medium Enterprises (SMEs) by either reducing their corporation tax liability or paying out an R&D tax credit of 14.5% of the available surrenderable loss in the company.
However, from 1 April 2021, new rules limit the payable R&D tax credit to £20,000 plus 3 times the company’s total PAYE and National Insurance Contributions for the period of the claim.
The new rules were brought in to tackle situations where an SME claims R&D relief but the company doesn’t have substantial UK payroll costs and subcontracts R&D activities.
Another important issue is the interaction between the Coronavirus Job Retention scheme (CJRS) and R&D relief claims.
Staffing costs are a major element of many R&D claims. Under the CJRS, employees placed on furlough were not permitted to work and, therefore, were not taking part in qualifying R&D activity. The calculation of the relevant salary costs which should be excluded from the claim can be complicated, especially for periods where flexi-furlough was used.
If the company has received funds from the coronavirus business interruption loan scheme (CBILS) and have used these funds for research and development expenditure, there may further complications for companies making claims under the SME scheme as the funds are classed as state aid.
It should also be noted that there is a HMRC consultation for R&D so there may be future changes. If you think the new rules on the PAYE cap or furloughed employees could affect your R&D claim, or if you have received CBILS funds and used these for R&D purposes, please get in touch.
Any share transactions to report? Returns due 6 July
There are wide-ranging tax rules on shares/securities acquired by employees and directors (“employment-relates securities”). These require a “share scheme” to be registered with HMRC, and a return filed, by 6 July 2021 for any “reportable transactions” in the 2020/21 tax year.
As you can imagine, there is a lengthy list of things that would be “reportable” (and thus require a return by 6 July) – the requirement is much broader than just formal “share schemes”. Any transfer, sale or issue of shares/securities to an employee or director, is likely to need to be reported – even where the employee or director paid full market value. The grant or exercise of options is also generally included. Even shares/securities of another company would be covered if the acquisition is by reason of employment.
In addition, if a return was filed last year, one must be filed again by 6 July this year (nil returns are required if there was nothing to report in 2020/21) unless the scheme was closed with a final date before 6 April 2020).
There are penalties for failure to comply with this reporting regime, and it can take time to get a scheme set up. If you think you may have a reporting requirement and you need assistance, please contact Diane Wright as soon as possible to ensure the 6 July deadline is met.
VAT changes to construction domestic reverse charge
Operators in the construction sector are getting to grips with accounting for the VAT Domestic Reverse Charge introduced by HMRC from 1 March 2021 in respect of supplies covered by CIS. The change shifts VAT accounting in the sub-contract chain to the buyer rather than the seller and can impact VAT cashflow. There have been a variety of queries on mixed developments for commercial and residential and end-user status.
Our guidance is here and our VAT team would be pleased to discuss any practical issues you may have encountered.
There have been some instances recently where there has been issues around dividends made by a company to its shareholders. In particular, the waiver of a dividend (in terms of documentation) may not be as straightforward as it initially seems.
Each time a dividend is made, it is worth considering the following:
- Who is entitled to a dividend?
- What is the financial position of the company?
- Have we got the relevant documentation in place for both dividends issued and any waivers?
- How frequent are these dividends?
Our recent experience has demonstrated that this is an area under increasing scrutiny from HMRC with significant consequences to the shareholders in terms of a tax exposure should HMRC take an opposing position.
We would be happy to have a discussion with you if you have any concerns or further questions.
Car and fuel benefit contributions for private use
Now that we have passed 5 April, it is time for employers to complete forms P11d for employees who are provided with benefits in kind. A popular benefit is the provision of a company car and, for some employees, also fuel for private use. We are often asked, what impact does a contribution towards the benefit have on a car and car fuel benefits charged.
In order to reduce the car benefit the following applies:
- Contributions towards the private use of a car can only be made if there was an agreement to do so before the employee starts using the car.
- These payments can be either monthly or annual payments.
- Only applies to car benefits reportable on form P11D, it does not apply to payrolled car benefits.
- Any payments made can only reduce the benefit to nil.
Although these payments reduce the benefit the tax savings would depend on the tax band the individual is in i.e. a 41% taxpayer would see a reduction in tax of 41p for every £1 contributed.
Car fuel benefit
To reduce the fuel benefit the following conditions apply:
- The employee is required to make good the full cost of the fuel relating to private use.
- If all private miles are not reimbursed, then no deduction can be made from the fuel benefit.
- Again, there would need to be a requirement (contractual obligation) to make these payments.
- The deadline for making payment is 6 July following the end of the tax year to which the benefit relates
- If HMRC were to review this and sufficient records of private mileage has not been kept, interest and penalties can be charged on the company.
Business travel only includes journeys to carry out the duties of the employment or in relation to specific attendance. It specifically excludes commuting; these journeys and all other journeys will be classed as private use.
A fuel benefit charge can still arise on an employee’s fuel use if applicable, even where there is no company car taxable benefit, i.e. where an employee pays for the private use of the car and no amount is taxable as a result, but is provided with fuel for private use.
Employee’s can reimburse the employer via:
- payment to the employer either directly or via a payroll deduction from wages
- replacement of the private fuel provided by a corresponding amount of fuel purchased out of his own pocket (HMRC refers to this as reinstatement), or
- a combination of the two
If no private fuel is provided to an employee but instead is paid HMRC advisory mileage rates in respect of their business mileage, no fuel benefit charge will arise.
In conclusion, taxable car and car fuel benefits can be reduced by contributions by employees. There has to be an obligation to do that, and payments need to be made by 6 July after the tax year to be deductible. Care with contributions towards the car fuel benefit is important as all private mileage has to made good to reduce the benefit to nil; otherwise the fuel benefit is still charged.
If you have any further questions, please get in touch and we will be happy to get back to you.