Homeworking flat rate allowances increased
HMRC have announced that it will increase the maximum flat rate tax deduction available where employees incur additional household costs where they work at home under homeworking arrangements, from £4 per week to £6 per week. This will take effect from April 2020.
Broadly, no tax liability arises where employers make payments to employees for reasonable additional household expenses, which the employee incurs in carrying out duties of the employment at home under ‘homeworking arrangements’.
‘Homeworking arrangements’ are arrangements between the employee and the employer under which the employee regularly performs some or all of the duties of the employment at home. There is no requirement for any part of the employee’s home to be used exclusively for the purposes of the employment – in fact, if any part of the home is used exclusively for work, problems could arise on the future sale of the house as part of the capital gains tax exemption on private residences may be lost.
HMRC have stated that they will accept that homeworking arrangements exist where:
– there are arrangements between the employer and the employee; and
– the employee works at home regularly under those arrangements.
The HMRC guidance also advises that:
‘the arrangements need not be in writing but usually will be. They do not need to apply to all employees. The exemption does not apply where an employee works at home informally and not by arrangement with the employer. For example, it will not apply where an employee simply takes work home in the evenings. It applies where an employee works at home by arrangement with the employer instead of working on the employer’s premises.’
HMRC accept that the ‘regularly’ condition is met if working at home is frequent or follows a pattern. The fact that the days spent at home vary from week to week is not a bar to claiming the exemption.
Reasonable household expenses
‘Household expenses’ are defined as expenses connected with the day-to-day running of the employee’s home. The exemption applies to additional household expenses, and HMRC have given the following guidance:
‘Typically this will include the additional costs of heating and lighting the work area or the metered cost of increased water use. There might also be increased charges for Internet access, home contents insurance or business telephone calls. Where working at home leads to a liability for business rates the additional cost incurred can also be included.
The additional household costs must be reasonable and must be incurred in carrying out the duties. This excludes costs that would be the same whether or not the employee works at home, for example mortgage interest, rent, council tax or water rates. It also excludes expenses that put the employee into a position to work at home, for example building alterations or the cost of furniture or office equipment.’
Amount of exemption
To minimise the need for record-keeping, employers can pay up to £6 per week (2020/21 rate, previously £4per week) without supporting evidence of the costs the employee has incurred. If an employer pays more than that amount, the exemption will still be available but the employer must provide supporting evidence that the payment is wholly in respect of additional household expenses incurred by the employee in carrying out his duties at home.
If an employer wishes to pay more than the guideline rate per week tax-free, then it is recommended that the employer should agree in advance with HMRC a scale rate. Failing that, records will need to be kept of the actual additional costs incurred by each employee.
Reduction in the lifetime limit for entrepreneurs’ relief
At Budget 2020 the Chancellor of the Exchequer announced that the lifetime limit of entrepreneurs’ relief (ER) would be reduced from £10 million to £1 million for ER qualifying disposals made on or after 11 March 2020.
Rules will also apply the revised limit to certain arrangements and elections that seek to apply the earlier £10 million lifetime limit. These rules are:
– forestalling arrangements involving uncompleted contracts; and
– elections made under TGCA 1992, s 169Q in connection with a share reorganisation or exchange.
There are no transitional rules for disposals that take place after 11 March 2020, including where:
– negotiations were in progress up to 11 March 2020 but a contract for the disposal is entered into on or after 11 March 2020;
– the business ceased to trade prior to 11 March 2020;
– the disposal is ‘associated’ with an earlier disposal; or
– the gain is a deferred gain that accrues on a chargeable event on or after 11 March 2020.
The legislation contains rules that counter certain forestalling arrangements that seek to ‘lock-in’ to the pre-Budget day lifetime limit. Those arrangements make use of:
– unconditional contracts entered into before Budget day,
– the time of disposal rule at section 28(1) of TCGA 1992, and
– contractual completion of the disposal after Budget day.
The arrangements normally include the creation of a company or other vehicle that ‘stands on contract’ until such time as a further purchaser is found.
The rule being introduced maintains the date of disposal for the contracts but applies the new lifetime limits to these disposals unless:
1. The parties to the contract demonstrate that they did not enter into the contract with a purpose of obtaining a tax advantage by reason of the timing rule in TCGA 1992, s 28; and
2. Where the parties to the contract are connected, that the contract was entered into for wholly for commercial reasons;
and a claim is made.
Company reconstructions and elections under TCGA 1992, s 169Q
Shareholders in a company may not be treated as making a disposal of their shares when the shares are exchanged for alterative shares in the company or those in another company. However, section TCGA 1992, s 169Q allows, on election, a claim for ER to be made as if the exchange involved a disposal of the original shares for capital gains purposes.
Special rules will apply where an election under section 169Q is made following a share reorganisation or share exchange. The effect of these rules is that the new lifetime limit will apply to gains that result from the making of the election.
Further details on the changes to ER can be found in HMRC’s Technical Note on the subject.
Changes to off-payroll working rules delayed until 2021
Amid concerns about their potential impact during the coronavirus pandemic, the government has announced a one year delay to changes to the off payroll working rules, due to take effect from April 2020.
In an announcement at the end of the parliamentary debate on the Budget speech, Steve Barclay, chief secretary to the Treasury, said that the government is postponing the reforms to the off payroll working rules (known as the IR35 rules) from April 2020 to April 2021.
Off-payroll working rules, known as IR35, were introduced in 2000 to ensure that someone working like an employee, but through their own limited company, pays broadly the same tax as someone employed directly.
The reforms, announced in the 2018 Budget, are designed to tackle non- compliance with the off-payroll working rules. The reforms make medium and large organisations in the private and third sectors responsible for determining the tax status of contractors and ensuring that the right employment taxes are paid. The reforms have previously been implemented in the public sector.
The government continues to believe that it is right to address the fundamental unfairness of non-compliance with the existing off-payroll working rules, however the government also recognises that the reforms would be a significant change for both businesses and contractors. Delaying means changes will not need to be implemented until next year.
The new introduction date will be legislated in the Finance Bill 2020.
HMRC urge people to prepare for CGT payment change
Property owners are being urged to get ready for changes to the deadline of capital gains tax (CGT) payments.
Broadly, from 6 April 2020, a UK resident who sells a residential property in the UK will have 30 days to tell HMRC and pay any CGT Tax owed.
HMRC are currently developing a new online service to allow taxpayers to report and pay any CGT owed.
A CGT report and accompanying payment of tax may be required where the taxpayer sells or otherwise dispose of:
– a property that they have not used as their main home;
– a holiday home;
– a property which has been let out for people to live in;
– a property that has been inherited and not used as a main home.
There is no requirement to make a report and/or make a payment of tax when:
– a legally binding contract for the sale was made before 6 April 2020;
– the individual satisfies the for Private Residence Relief (generally a main residence);
– the sale was made to a spouse or civil partner;
– the gains (including any other chargeable residential property gains in the same tax year) are within the tax free allowance known as the annual exempt amount (£12,300 in 2020/21);
– the property is sold for a loss; or
– the property is outside the UK.
Subject to certain exceptions, where there has been a disposal of a residential property, payment on account of the CGT will be due on the filing date for the return, which is generally within 30 days of the day after the date the property sale is completed.
The payment on account required is the amount of CGT notionally chargeable at the filing date. This is the tax that would be due if, under the normal rules for calculating chargeable gains for a tax year, the tax year ended at the time the disposal is completed.
In calculating the amount, any unused allowable losses for capital gains purposes incurred by the time the disposal is completed can be used. Available reliefs and the annual exempt amount are applied in the normal way.
The amount of CGT payable on account is the amount after applying the applica-ble rate of tax to the net gain.
Since the 30-day payment window can make it difficult for some people to pro-vide exact figures, HMRC allow for certain estimates and assumptions to be made. The taxpayer can make a correction once the exact figures are known. If the resulting amount is higher than the amount previously paid, the difference becomes payable to HMRC and interest may be due. If the amount is lower, the difference becomes repayable along with repayment interest from HMRC.
April questions and answers
Q. My business imports goods from the EU. What is the current position regarding postponed accounting for VAT?
A. There is now a transition period until the end of 2020 during which the UK and EU negotiate additional arrangements. The current rules on trade, travel, and business for the UK and EU will continue to apply during the transition period. In broad terms, new rules will take effect on 1 January 2021.
HMRC have confirmed that from 1 January 2021, postponed accounting for VAT will apply to all imports of goods, including from the EU. This will allow businesses to account for VAT on imports through their periodic VAT return as opposed to having to pay that VAT at the UK border.
Q. My business produces digital publications. I am aware of the decision in the recent case of News Corp UK and Ireland Ltd (UT/2018/0065), following which HMRC maintained that the zero rate of VAT only applies to the sale of printed matter (that is, supplies of goods). However, I understand that this policy has now changed. Is this true?
A. Yes. The government will apply a zero rate of VAT to e-publications, which will make it clear that e-books, e-newspapers, e-magazines and academic e-journals are entitled to the same VAT treatment as their physical counterparts. This will take effect from 1 December 2020.
Q. I have recently sold a buy-to-let property in the UK, which generated a capital gain. Can I off-set this gain against a rental property development in France?
A. Unfortunately not! There is no rollover/holdover relief, or deferral of capital gains tax, caused by the sale of a UK residential property, by investing in another property, regardless of whether the new property is in the UK or overseas. The only exceptions to this rule are: (a) the sale relates to a compulsory purchase order; or (b) in the case of a qualifying furnished holiday letting.
April key tax dates
5 – End of 2019/20 tax year. Last day to use up annual exemptions for capital gains tax, inheritance tax and ISA’s
6 – Start of the 2020/21 tax year
14 – Return and payment of CT61 tax due for quarter to 31 March 2020
19/22 – PAYE/NIC, student loan and CIS deductions due for month to 5/4/2020 or quarter 4 of 2019/20 for small employers. Interest will run on any unpaid PAYE/NIC for the tax year 2019/20
30 – Additional daily penalties of £10 per day up to a maximum of £900 for failing to file self-assessment tax return due on 31 January 2020