Personal Tax Newsletter – April 2021
Working from Home Expenses for Employees in 2020/21
The recent crisis has meant that many have been required to work from home leading to increased expenses.
Where these expenses are a result of forced office closures and not voluntarily vacating your workplace many of the expenses incurred can be offset against your employment income for tax relief.
You can only claim for expenses related to your work, for example, the additional gas and electricity or cost of business calls.
A sensible way to keep a track of these costs is to compare expenses from a previous year prior to working from home with your current charges. The difference can then be claimed against your taxable income.
Alternatively, there is a flat rate expense that can be claimed which is £6 a week. In prior years the flat rate could be claimed for each week you work from home however for the tax year ended 5 April 2021 you can claim the full year if you have been forced to work from home at all, which means £312 is claimable in total.
You will also be able to claim tax relief on any equipment you have had to buy such as a laptop, desk or chair as long as it’s primarily for work and there is no significant private use. If your employer provides equipment but you decide to purchase an alternative, this expense cannot be claimed. Any contribution towards the equipment by your employer will reduce the claimable amount. For example, if you buy a £500 laptop to which your employer contributed £200 you can only claim £300 as an expense. This means that any expenses fully reimbursed are not claimable.
Claims can be made through your self-assessment tax return or online through your government gateway account using a form P87.
Your employer can pay you up to £6 a week to cover your additional expenses if you have to work from home with no tax consequences on you.
Inheritance tax and trusts
What announcements have there been in 2021 and are there any changes coming?
In the 2021 Tax Day documents, the government announced that based on responses to the consultation, they are not planning any comprehensive reform of trust taxation and they recommend stability. In the 2021 Budget, the IHT rules were left unchanged and the nil rate band frozen until 2026. While there has been much speculation about changes to the IHT rules, these two announcements when looked at together would suggest that for now the IHT rules, reliefs and allowances may remain unchanged.
This is good news for those already undertaking IHT planning, as it is much easier to plan effectively when the rules are known.
It is not good news for all. The nil rate band freeze is expected to bring in around £985 million over the next 5 years. This is due to the rising in value of property and other assets while the tax free nil rate band remains at the same level, meaning more people become liable to IHT. Many of those falling into the IHT bracket for the first time would not have considered planning but that does not mean that they cannot. Simple planning can ensure reliefs and allowances are utilised to eliminate or minimise, any IHT liability.
While we speculate that IHT may not change anytime soon, it still seems likely that capital gains tax (CGT) will change. When planning for IHT, CGT can often be a part of the transaction so for those already planning, you may want to consider the timing of your planning to ensure that possible changes to CGT rates are factored in.
Social investment tax relief (SITR)
Investments in qualifying social enterprise companies are similar to EIS, VCT and SEIS investments and are eligible for similar tax reliefs. The relief was due to come to an end in April 2021. In the 2021 Budget, it was announced that this is extended until April 2023.
If you invest in shares or certain bonds issued by a social enterprise before 5 April 2023 you can claim income tax relief of 30% of the amount invested up to a maximum investment of £1m per tax year. Therefore, the maximum relief for 2020/21 and 2021/22 is £300,000.
A social enterprise is a community interest company, a community benefit society or a charity. They will run a business or trade primarily for the benefit of the community. Some examples of these include environmental initiatives such as recycling companies and upcycling and business that help regenerate the high street, reduce isolation, and help people into work through training. There are directories at socialenterprise.scot for a list of social enterprises in Scotland, and for the wider UK investments at socialenterprisemark.org.uk.
Similar to both EIS, VCT and SEIS, there are certain conditions that must be met to qualify for income tax relief:
- You must not own more than 30% of the social enterprise’s ordinary share capital, loan capital or voting rights.
- Associates’ holdings will be taken into account towards the 30% limit.
- You cannot be an employee or paid director.
- The investment must be held for three years (where less, the income tax relief can be withdrawn)
This income tax relief is given as a tax reducer. To gain the full income tax benefit from the investment you must have an income tax liability for the year of investment equal to or greater than the SI relief. You can elect to treat the qualifying investment as if it were made in the immediately preceding tax year, as long as the maximum investment for the earlier year has not been reached.
In addition to the income tax reliefs, capital gains tax reinvestment relief:
- Available for investments acquired in the period starting one year before the disposal and ending three years after the date of the disposal
- the reinvestment must be made before 6 April 2023
- The reinvestment relief is only available if the investment qualifies for income tax relief.
A gain deferred in this way falls back into the charge to capital gains tax when you dispose of the social enterprise investment (other than to your spouse or civil partner) or the conditions for income tax relief on the investment are broken.
Where income tax relief on the investment is claimed, gains arising on the investment are exempt from capital gains tax so long as the investment is held for at least three years. If a loss is made on disposal of the social enterprise investment, that loss is an allowable loss for capital gains tax purposes, although the amount of the loss must be reduced by any income tax relief given which has not been withdrawn. This means there are significant additional tax savings that can be claimed if a loss is made on the investment.
You can claim SITR via your self-assessment tax return, however, a claim can be made out with this up to five years after the end of the tax year of investment. Investments can be made in any number of different social enterprises but will only receive tax relief on investments up to the maximum of £1m per tax year. Investments above this limit are allowed, however, they will not qualify for relief.
Investments can also be made in EIS, SEIS and VCT schemes, these schemes have their own annual investment allowances and the £1m SITR investment allowance is independent from these. When making investments that qualify for relief, it is important to consider the maximum relief available based on the income tax liability in both the year of investment and the preceding year. Relief will be wasted if it exceeds the liability due for the year. You will also need to consider any SITR investments made in the preceding year for both offsetting the relief against the liability and the investment threshold.
Key dates for 2021/22 Tax Year
31st May 2021
Consider sending tax return information to your tax advisor if you would like to consider reducing your payments on account before the payment in July.
31st July 2021
Deadline for 2nd payment on account for tax year ending 5 April 2022.
31st August 2021
Make sure your tax return information is sent to your tax advisor to prepare your tax return.
31st October 2021
Deadline for paper self-assessment returns for 2021/22 tax year if you cannot file electronically.
1st January 2022
If your tax return is not already done, this must now be a priority. For most, the new year should be a time to consider year end tax planning before 5th April.
31st January 2022
The final deadline to file your 2020/21 tax return and make the payment to HMRC.
1st February 2022
Tax planning time – February and March are the ideal time for those looking to top up ISA, make any additional pension contributions or any other tax planning.
5th April 2022
The tax year end.
If you have any further questions, please get in touch and we will be happy to get back to you.