Below I have summarised all the main tax related updates we have seen this week.
• UK Officially in Recession
• Business asset disposal relief update
• CGT Reporting Deadline
• How to Claim Money Back Through The Eat Out to Help Out Scheme
If you have any queries regarding this week’s content, please do not hesitate to contact me.
I hope you have a great weekend!
Steven Hillman ACA
Tel: 01934 444100
UK Officially in Recession
The headlines this week were about the economy being in recession for the first time in 11 years and the UK suffering its biggest slump on record between April and June as coronavirus lockdown measures pushed the country officially into recession. The economy shrank 20.4% compared with the first three months of the year.
This is not really a surprise to anyone as household spending dived as shops were ordered to close, while factory and construction output also fell.
There is however some good news - The Office for National Statistics (ONS) said the economy bounced back in June as government restrictions on movement started to ease. On a month-on-month basis, the economy grew by 8.7% in June, after growth of 1.8% in May. Growth is expected to continue although some sectors of the economy will not recover as fast as others. It will take time for the retail and hospitality sectors to get anywhere near where they were in March.
For all of us in business now is the time to be flexible and resilient with planning forward. Some of our clients have already repurposed their businesses and pivoted into new areas, these businesses are now seeing signs of recovery and what is clear to us is the need to take time to think about new ways of doing business.
Please talk to us about our planning resources to help you think about your future, we are here to support you!
Business asset disposal relief update
The Government has announced a significant restriction on future availability of entrepreneur's relief (ER) for individuals who dispose of all or part of their business, individuals who dispose of shares in their personal company, and trustees who dispose of business assets.
Broadly, the changes will increase the amount of tax payable by a business sold at a profit of over £1m. For potential sale profits at or around this limit, careful planning may be needed to extract value from the business prior to sale, for example through increased employer pension provision, to bring the chargeable gain within the revised limit.
Entrepreneur's relief is to change its name to business asset disposal relief (BADR).
When an individual disposes of an asset at a gain, capital gains tax may be due. Ordinarily, for gains falling above the higher-rate threshold (£50,000 in 2020/21), this will be charged at a rate of 20%. However, if certain conditions are met, BADR may be available and the chargeable rate be reduced to 10%. Broadly, the lifetime limit of £10m is reduced to £1m for disposals on or after 11 March 2020 (for disposals between 6 April 2011 and 10 March 2020, the lifetime limit on gains qualifying for ER was £10 million). The measure also provides that the lifetime limit must take into account the value of ER claimed in respect of qualifying gains in the past.
The limit is a lifetime threshold and claims may be made against it on more than one occasion.
Selling all or part of a business
To qualify for BADR, both of the following conditions must apply:
- the individual must be a sole trader or business partner; and
- the individual must have owned the business for at least two years before the date they sell it.
The same conditions apply if the business is closing rather than being sold. The business assets must be disposed of within three years to qualify for relief.
Selling shares or securities
To qualify, both of the following conditions must apply for at least two years before the shares are sold:
- the individual is an employee or office holder of the company (or one in the same group); and
- the company's main activities are in trading (rather than non-trading activities like investment) or it's the holding company of a trading group.
There are other rules depending on whether or not the shares are from an Enterprise Management Incentive scheme (EMI).
Selling assets previously lent to the business
To qualify, both of the following must apply:
- the investor sold at least 5% of their part of a business partnership or their shares in a personal company and
- they owned the assets but let their business partnership or personal company use them for at least one year up to the date they sold the business or shares - or the date that the business closed.
CGT Reporting Deadline
Capital gains tax (CGT) on disposals of UK residential property between 6 April and 1 July 2020 had to be reported to HMRC by 31 July to avoid a penalty.
Finance Act 2019 made certain changes regarding payment of CGT, which took effect from April 2020 and broadly align the position of UK residents and non-UK residents. 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 owed. Failure to notify HMRC within 30 days of completing a sale may result in penalty and interest charges.
However, in response to the COVID-19 pandemic the government extended the reporting deadline so that no late filing penalty will be charged for any transactions completed between 6 April 2020 and 1 July 2020 which were reported by 31 July 2020.
The extended deadline applies only to UK resident taxpayers for whom the requirement is new - non-residents have to file within 30 days of completion.
The requirement to pay any CGT due within 30 days of completion was not deferred and interest will be charged on any tax not paid within 30 days of completion.
UK residents are required to report gains on UK residential property only where tax is due.
A CGT report and accompanying payment of tax may be required where the taxpayers sells or otherwise disposes 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 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.
HMRC have launched a new online service that allows taxpayers to report and pay any CGT owed: https://www.tax.service.gov.uk/capital-gains-tax-uk-property/start/report-pay-capital-gains-tax-uk-property
How to Claim Money Back Through The Eat Out to Help Out Scheme
The Government has announced details on how to claim the reimbursement for discounts given to diners with the Eat Out to Help Out Scheme.
We've put together a blog post which takes you through how to claim money back through the scheme.
Read our blog post here for more information: https://blog.hillmans.co.uk/2020/08/how-to-claim-money-back-through-eat-out-to-help-out-scheme.html