Cryptoassets - the view from HMRC
A review of cryptoassets and their treatment by the taxman.
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Although cryptoassets are still a relatively new asset class and they remain mysterious to many people, there is no doubt they are becoming ever more mainstream.
They continue grow in popularity with investors appearing to overlook pricing volatility in the hope of gaining a profit if valuations soar. Cryptoassets are not just an asset class for investments either, increasingly they can be used as a form of currency too.
However, HMRC takes an interest when trades and gains are made. The tax authority can access data from crypto exchanges, so it is important to ensure that all activity is fully compliant and reported where appropriate. Here, we take a look at cryptoassets and their treatment by the taxman.
What are cyrptoassets?
Cryptoassets – it's a broad term, encompassing cryptocurrency and tokens. HMRC defines cryptoassets as cryptographically secured digital representations of value or contractual rights that can be transferred, stored, traded electronically and use some form of distributed ledger technology (DLT).
HMRC guidance recognises four main types of cryptoassets: exchange tokens (which include cryptocurrency, like Bitcoin), utility tokens, security tokens and stablecoins. Exchange tokens are the main focus of its guidance.
HMRC's view of crypto
HMRC aims to cut through to the underlying transaction, rather than getting hung up on crypto terminology. And it reserves its right to amend its guidance as cryptoassets themselves evolve.
It's important to be clear that there are no bespoke rules for cryptoassets: the existing tax provisions flex to accommodate them. In practice, this means that depending on the circumstances, the sale or purchase of cryptoassets could bring any of a number of taxes into play. For individuals, this could include capital gains tax (CGT), income tax and national insurance contributions (NICs). For businesses carrying out activities involving exchange tokens, it could mean corporation tax, corporation tax on chargeable gains, payroll taxes and VAT.
Businesses may increasingly need to consider the tax position where they receive occasional payment in cryptoassets in the course of an existing, non-cryptoasset trade: the glamping site owner who accepts a one-off payment in bitcoin, for example. If a business accepts exchange tokens as payment from customers or uses them to pay suppliers, the tokens should be accounted for within the taxable trading profits.
An asset class
HMRC does not consider cryptoassets to be money or currency. This means, for example, the corporation tax foreign currency rules don't apply. HMRC's view is that cryptoassets don't create a loan relationship for corporation tax purposes.
HMRC does not consider buying and selling cryptoassets to be gambling. This has implications for how proceeds are treated. With gambling winnings, profits are not taxable, and losses are not relieved. This is not the case with cryptoassets.
According to HMRC, most individuals hold cryptoassets as a personal investment, with a view to capital growth. This means there is the normal CGT regime to consider, with its annual exemption (currently £12,300) and rules on taxation of gains above this threshold.
With many crypto investors taking their first steps in the world of CGT and self assessment, it's important to be alert to the possibility that there's a liability to CGT any time assets are disposed of. Details should always be recorded and may need to be reported to HMRC in due course.
Trading in cryptoassets
If purchases and sales of cryptoassets are considered to amount to a financial trade, profits or losses come under income tax rules, with income tax and NICs potentially due. But to constitute trading, HMRC expects considerable frequency, organisation and sophistication in the activity, and treatment as a trade will be the exception rather than the rule.
Where goods or services are sold for exchange tokens by a VAT registered business, VAT is due in the normal way. The value of the supply on which VAT is due is the pound sterling value of the tokens at the point the transaction takes place. Exchange tokens received for mining are generally outside the scope of VAT. This, however, is an area to watch. HMRC flags up the possibility of change, pending other regulatory developments.
How we can help
If you trade, invest or accept cryptoassets as payment for services then there may well be tax implications. Please don't hesitate to contact us to discuss any matters related to cryptoassets and tax.
What will the 2021 Autumn Budget have in store?
A review of what the Chancellor may have in store.
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Chancellor Rishi Sunak will deliver the 2021 Autumn Budget on 27 October. The Budget will follow the Spending Review and is expected to set out how the government will deliver on its promises to the British public. These include leading the transition to net zero across the country; ensuring strong and innovative public services; levelling up across the UK to increase and spread opportunity; and delivering its Plan for Growth.
Here, we take a look at what the Chancellor may have in store in the Autumn Budget.
The UK's trajectory
The Confederation of British Industry (CBI) says the decisions made this autumn at the Budget and Spending Review will 'define the UK's trajectory for the decade ahead'. These will bring an opportunity to generate higher investment and growth with lower carbon emissions and provide UK leadership in new markets.
According to the CBI, corporate cash reserves are now over £900 billion, creating 'a wall of investment waiting to be invested'. However, it says the government must create the right environment to unleash it.
The CBI's recommendations
Smart taxation that rewards investment:
- 'Greening' the tax system and pledging no further increases to the business tax burden to safeguard UK status as a leader in attracting global investment
- Introduce full expensing for capital expenditure beyond 2023 and targeted 'green' investment-focused capital allowance mechanisms
- Reform outdated business rates to reflect green ambitions and reward decarbonisation efforts
- Boost the structures and buildings allowance to incentivise sustainable construction
New skills for new markets:
- Turn the Apprenticeship Levy into a Lifelong Learning Levy to unlock business investment in training
- Turn Job Centres into regionally autonomous Jobs and Skills Hubs to encourage more people to take up lifelong learning and enable closer alignment with changing local jobs markets
- Introduce individual training accounts for unemployed individuals
- Address skills shortages by removing barriers to recruitment
Catalytic public investment:
- Prioritise the UK establishing itself in new and emerging markets by speeding up the development of major infrastructure projects, new industries, and cutting-edge tech
- Designate energy efficiency and heat as a national infrastructure priority
- Provide long-term funding to decarbonise UK transport systems and develop a UK electric vehicle market
- Commit to a new Gigafactory plan to deliver increased capacity by 2040
Government as market maker:
- Deliver on commitments to invest £22 billion in direct domestic R&D funding by 2025
- Grow investment in business-led innovation, while requiring regulators to prioritise innovation, net zero and investment as part of core remits
The CBI says the Autumn Budget is a once-in-a-generation opportunity to change the UK's productivity and growth trajectory, so the government must do what it takes to rapidly unlock private sector investment.
However, failure to act will impact the UK's recovery and ability to level-up. In addition, inaction risks seeing the UK fall behind competitors, lose international investment, and miss out on its global commitments on net zero.
So, all eyes will be on the Chancellor on 27 October to see what he delivers.
How we can help?
The Budget may bring significant changes to the taxation system or bring new opportunities for investment. As your accountants we can help your business through these changes: please contact us.
The path to net zero
A review of what businesses could be doing.
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The recent assessment of the planet's future by the UN's Intergovernmental Panel on Climate Change (IPCC), a group of scientists whose findings are endorsed by the world's governments, made for sobering reading. The first major review of the science of climate change since 2013 revealed a number of worrying statistics. Its release came in the lead up to the UK's hosting of a key climate summit in Glasgow, known as COP26.
The report and conference have pushed the UK's drive to reach net zero by 2050 back up the agenda. However, the route to net zero appears far from clear to both the UK government and businesses.
Although the Confederation of British Industry (CBI) acknowledges the urgency of the problem, a recent survey from the British Chambers of Commerce (BCC) shows that many businesses still don't measure their own carbon footprint. What do businesses need to do to make themselves fit for net zero?
Here, we take a look at the latest climate science and ask what businesses could be doing.
The IPCC's report has been described as 'a Code Red for humanity' as it highlights how human activity is changing the climate in unprecedented and sometimes irreversible ways. The landmark study warns of increasingly extreme heatwaves, droughts and flooding and a key temperature limit being broken in just over a decade.
But scientists say a catastrophe can be avoided if the world acts fast.
There is hope that deep cuts in emissions of greenhouse gases could stabilise rising temperatures. The CBI says that the report must put to bed any remaining doubts as to the scale of the climate crisis.
It called for COP26 to be the trigger for more urgent action from countries around the world and says joint efforts by governments, businesses and consumers are required.
The CBI says that while the UK government must take the lead, by establishing the policy and tax frameworks to make it possible, businesses must play a vital role.
The carbon footprint mystery
However, a worrying recent survey conducted by the BCC found that carbon footprints remain a mystery to the vast majority of UK businesses. In fact, only 11% of businesses are measuring their carbon footprint.
The research also showed that only 13% of businesses have set targets to reduce their emissions – down from 21%, when firms were surveyed before the pandemic in February 2020.
The findings also show that 22% of businesses don't fully understand the term 'net zero,' and almost a third have yet to seek advice or information to help them develop a net zero roadmap or improve their environmental sustainability.
Similarly, a survey carried out by resource management firm Veolia has revealed that 83% of businesses polled were not aware of the Plastic Packaging Tax, which is due to take effect from April 2022.
The Plastic Packaging Tax is a new tax that will apply to plastic packaging manufactured in or imported into the UK that does not contain at least 30% recycled plastic. The government states that the aim of the tax is to 'provide a clear economic incentive for businesses to use recycled plastic in the manufacture of plastic packaging'.
The BCC described its research as a 'real eye-opener' and says change must come as climate challenge affects everyone.
Low carbon economy
The good news for businesses is that the UK's low carbon economy is now worth more than £200 billion according to research by kMatrix, and is continuing to grow.
Experts say the sector not only has the potential to help tackle the climate crisis but also create sustainable jobs and improve people's quality of life – with cleaner transport, reduced air pollution and better insulated homes.
But they warn that if the UK is to make the necessary rapid and fair transition to a low carbon economy, the government must mobilise all sections of society behind a national programme of transformation.
The kMatrix reports how low carbon schemes and projects around the UK are not only helping reduce emissions but also improving communities and creating jobs.
How we can help?
As the push towards net zero takes shape, tax laws may change, while new funding streams become available for eligible businesses and projects.
As your accountants we can help with both your tax and finance requirements: please contact us.
Turnover tests and reasonable belief ? applying for the fifth SEISS grant
The fifth instalment of the grant opened for applications in late July
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The fifth instalment of the Self-employment Income Support Scheme (SEISS) grant opened for applications in late July. This is scheduled to be the last instalment of the SEISS grants and unlike its predecessors it introduces a turnover test, which will determine the amount of grant awarded to self-employed workers whose businesses have been hit by the coronavirus (COVID-19) pandemic.
As well as meeting the turnover test, applicants will also need to show that they have a reasonable belief that there is a significant reduction in trading. Here, we take a look at the application process for the fifth SEISS grant.
How much is the grant?
Unlike SEISS grants one to four, the amount of the fifth grant available is determined by how much a self-employed individual's turnover is reduced.
The fifth grant is 80% of three months' average trading profits, capped at £7,500 for those self-employed individuals whose turnover has reduced by 30% or more. Those with a turnover reduction of less than 30% will receive a grant based on 30% of three months' average trading profits, capped at £2,850.
HMRC began contacting taxpayers in mid-July and claims opened in late July. Claims must be made by 30 September 2021. It is the taxpayer who must make the claim: an accountant or agent cannot submit the claim on their behalf.
Who is eligible?
Self-employed individuals (and members of a partnership) are potentially eligible for the fifth SEISS grant where the taxpayer:
- submitted their 2019/20 self assessment tax return by 2 March 2021
- traded in the tax years 2019/20 and 2020/21
- is currently trading but is impacted by reduced demand due to COVID-19, or has been trading but is temporarily unable to do so due to coronavirus
- intends to continue to trade; and
- reasonably believes there will be a significant reduction in their trading profits due to the impact of COVID-19 in the period from 1 May 2021 and 30 September 2021. HMRC has not provided a definition of 'significant reduction'.
The taxpayer's trading profits must be no more than £50,000 and at least equal to their non-trading income. If there is no eligibility based on the trading profits for 2019/20, then previous years will be considered.
The turnover test
Before making a claim, taxpayers must:
- work out their turnover for a 12-month period starting from 1 April 2020 to 6 April 2020
- find their turnover from either 2019/20 or 2018/19 to use as a reference year.
HMRC advises taxpayers will need to have both figures ready when they make their claim.
A taxpayer can calculate their turnover for 2020/21 in several ways:
- by referring to their 2020/21 self assessment tax return if this has already been completed
- by checking the figures on their accounting software
- by reviewing their bookkeeping or spreadsheet records that detail their self-employment invoices and payments received
- by checking the bank account they use for their business to account for money coming in from customers
- by asking their accountant or tax adviser for help in calculating the figures. However, accountants and agents are unable to make the claim on the taxpayer's behalf.
HMRC has confirmed that the turnover figure should not include anything reported as any other income on the taxpayer's tax return. Also, do not include any COVID-19 support payments. For example:
- previous SEISS grants
- Eat Out to Help Out payments
- local authority or devolved administration grants.
HMRC's guidance is available at: https://www.gov.uk/guidance/work-out-your-turnover-so-you-can-claim-the-fifth-seiss-grant.
Turnover for the previous year
In most cases, a taxpayer must use the turnover reported in their 2019/20 self assessment tax return as a reference year. The figure needs to be based on a 12-month period and include the total turnover for the taxpayer's businesses.
In certain limited circumstances where 2019/20 was not a normal year for the taxpayer's business, they can use the turnover reported on their 2018/19 tax return. HMRC gives examples of the circumstances where this would apply. For example, if the taxpayer:
- was on carers' leave, long term sick leave or had a new child
- carried out reservist duties
- lost a large contract
- is eligible for the fifth grant but did not submit a 2019/20 return.
For further guidance on how an individual's circumstances can affect eligibility visit: https://www.gov.uk/guidance/how-different-circumstances-affect-the-self-employment-income-support-scheme.
Claiming the fifth SEISS grant is not straightforward. Please contact us for advice on determining your turnover figures or eligibility.
Staying safe from scams
It is vital that businesses and individuals are on guard against potential scams.
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Scammers and fraudsters thrive on confusion and instability, so the coronavirus (COVID-19) pandemic and ongoing economic repercussions of Brexit have created opportunities for them to attack businesses, taxpayers and savers. Online scams rose 15-fold last year as criminals exploited national events, according to the National Cyber Security Centre (NCSC).
It is vital that businesses and individuals are on guard against potential scams. Here, we take a look at some of the most common methods used by criminals and highlight the steps necessary to protect against them.
Impersonating the taxman
There has been a significant rise in scam texts, emails and phone calls claiming to be from HMRC. These messages are increasingly sophisticated so it can be difficult to tell the real from the fake.
Self assessment tax return season is always a time to be alert, and the pandemic has given scammers many inviting opportunities to prey on confusion.
Emails mimicking HMRC, with invitations to apply for the Self-employment Income Support Scheme (SEISS) grant, and texts offering refunds or funding because of lockdown are among those in circulation. In the case of the SEISS, it can be even more confusing as HMRC has been contacting some claimants to carry out pre-verification checks. However, if this is the case, HMRC should notify you by letter in advance.
HMRC warns that if a message is unexpected; offers a refund, tax rebate or grant; is threatening; asks for personal information; or tells you to transfer money, it could be a scam.
Sometimes there are tell-tale signs to watch out for, bad grammar and spelling mistakes being two of them. HMRC is not likely to start its emails with a 'hello' or end with a chatty 'thank you for your co-operation'. It will not use WhatsApp or emails to tell you about a tax refund.
Most scams invite you to open an attachment or click on a link. Don't. They are likely to take you to a misleading 'phishing' website in order to get you to enter personal details that can then be exploited, or expose you to malicious software.
Import/export red tape
According to the NCSC, Brexit-themed UK government phishing was low during 2020. However, attempts to clone part of the gov.uk website were identified in December. In addition, the increase in red tape being experienced by importers and exporters this year is expected to create opportunities for scammers.
Devastating pension savers
Pension savers have long been a target of scammers, and losses from pension fraud rose to £1.8 million in the first three months of this year, according to figures from Action Fraud.
Pension scams often include free pension reviews, 'too good to be true' investment opportunities and offers to help release money from your pension, even for under 55s, which is not permitted under the pension freedom rules.
Pension fraud can have a devastating impact, both financially and emotionally, but anyone can fall victim to fraud if they are not careful.
Protecting your pension
Although a ban on cold calling in the UK, including emails and texts, was introduced at the beginning of 2019, the problem continues. Cold calls are a major red flag for scams and unsolicited offers should be ignored or rejected. Cold callers will often offer a free pension review. Professional advice on pensions is not free – a free offer out of the blue is probably a scam.
It is crucial that pension savers know who they are dealing with, so checking the Financial Conduct Authority (FCA) FCA Register is imperative. Dealing with an authorised firm gives access to the Financial Ombudsman Service or the Financial Services Compensation Scheme (FSCS), which can hold firms to account and give financial protection.
A common scam is to pretend to be a genuine FCA-authorised firm (called a 'clone firm'). The contact details on the FCA Register should always be used, not the details the firm gives out.
Pension savers should never allow themselves to be rushed or pressured into making a decision. They should not be afraid to miss out on an 'amazing deal' because of artificial deadlines, and if promised returns sound too good to be true, they probably are. Impartial information, financial guidance and advice are all key to making a good decision before altering pension arrangements.
Individuals and businesses are potential targets for fraudsters and scammers, so always check before you respond to messages, even if they appear genuine at first sight. If in any doubt about suspicious communications, please do get in touch.
Upskilling to level up
We consider some of the solutions being proposed.
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The UK's longstanding skills gap has proved a headache for both the government and employers for a number of years now. Employers often struggle to find potential employees with the required skills for the roles they need to fill. Consequently, the skills shortage has accentuated the divide between London and the south east of England and the rest of the country.
The government recently announced its Lifetime Skills Guarantee, which will create a post-16 and adult education and training system. It is the latest of several schemes aimed at closing the skills gap and levelling up the UK's economy. Here, we consider some of the solutions being proposed.
Damaged labour market
The coronavirus (COVID-19) recession has caused significant damage to the UK labour market and has led to fears of a 'brittle' and 'rigid' UK workforce that lacks the vital skills the economy requires in order to forge a recovery.
This was highlighted recently by research carried out by manufacturers' organisation Make UK, which revealed that a record level of Apprenticeship Levy funds expired in 2020 without being spent by businesses.
The research revealed that £1,039 million in Levy funds expired in the nine months from May 2020 without being spent by firms. Expired funds cannot be used.
Make UK has urged the government to extend the lifetime of the funds from 24 to 36 months for a period of one year in order to help businesses recover from the coronavirus pandemic.
Business groups say that apprenticeships and training schemes are key to unlocking the recovery and building a strong industrial base in the UK.
The Lifetime Skills Guarantee
As part of efforts to upskill the UK's workforce and meet Prime Minister Boris Johnson's levelling up agenda the government is introducing the Lifetime Skills Guarantee. This will create a post-16 and adult education and training system that aims to provide opportunities to train throughout a lifetime.
- a new student finance system, which will give every adult access to a flexible loan for higher-level education and training at university or college, useable at any point in their lives
- employers will have a statutory role in planning publicly-funded training programmes with education providers, through a 'Skills Accelerator' programme
These build on schemes already underway to update the skills and training offer across the country, including the introduction of new T Level courses and access to free, job-relevant 'bootcamp' courses.
The government says the restructured skills system will put local employers at the centre of skills provision through the 'Skills Accelerator programme'.
The programme will build stronger partnerships between employers and their local Further Education colleges, or other local training providers, ensuring that provision meets local needs in sectors including construction, digital, clean energy and manufacturing.
The Kickstart Scheme
The government's £2 billion Kickstart Scheme opened last year for employer applications.
It aims to create work placements for young people who are at risk of becoming unemployed for the long-term. Businesses can join the scheme, with the government paying employers £1,500 to help set up support and training.
Selected out-of-work young people will be offered six-month work placements for at least 25 hours a week to help them gain experience, skills and confidence. The scheme is designed to be a steppingstone to further employment and runs until December 2021.
However, the Confederation of British Industry (CBI) has urged the government to extend the Kickstart Scheme to help young people who are bearing the brunt of the subdued job market.
The CBI says the extra lockdown at the beginning of the year means it needs to stay open for longer to allow businesses the time to deliver opportunities for young people.
In creating a skills system which is fit for the future, the government needs to ensure that the ambitions to drive up the quality of post-16 education and training to meet employer needs are made a reality.
International skills benchmarking shows the UK needs to catch up on other major global economies in valuing high-quality skills to help drive economic competitiveness and productivity.
By raising standards for young people and employers to not only help attract more inward investment to boost job creation and economic recovery but also support the government's levelling up agenda.
As we continue down the roadmap out of lockdown businesses are looking to the future. It is vital they invest wisely, using the available government support, to develop a skilled and motivated workforce.
We are happy to advise on the best approach to suit your circumstances. Please contact us for more information.
Making use of the super-deduction
Reviewing the new tax break for companies.
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The super-deduction is a £25 billion tax break that is intended to spur business investment, aid post-pandemic economic recovery and give a boost to the UK's productivity levels. It was announced by Chancellor Rishi Sunak in this year's Budget as 130% first-year relief on assets. The super-deduction is described by some as the largest tax cut in UK history and by the Chancellor himself as 'bold and unprecedented'.
For two years from April 2021, companies' investments in plant and machinery will qualify for a 130% capital allowance deduction, providing 25p off company tax bills for every £1 of qualifying spending on plant and machinery.
Here we take a look at the super-deduction: what are the terms and conditions? How does it sit alongside the usual rules on capital allowances, and are there any pitfalls?
Who is eligible for the super-deduction?
It is important to note that the super-deduction is not available to every business. It is targeted at companies, not unincorporated businesses. These will have to continue to look to the Annual Investment Allowance (AIA), with its temporarily extended higher £1 million limit, for major capital spending up to 31 December 2021.
How does it work?
It works by giving first-year tax relief in the form of capital allowances for expenditure incurred between 1 April 2021 and 31 March 2023. For assets that would normally qualify for 18% main rate writing down allowances, the super-deduction gives first-year relief of 130%. Assets normally qualifying for 6% special rate writing down allowances (such as integral features in buildings, like lifts and long-life assets) can qualify for a first-year allowance of 50%. But this 50% allowance is likely to be relevant only to companies that have used their AIA. Unlike the AIA, there is no cap on eligible expenditure. The rate of the deduction will be apportioned for a business making eligible expenditure in an accounting period straddling 1 April 2023.
What are the exclusions?
Plant or machinery must be new, not used or second hand. Expenditure incurred on contracts entered into before the Budget on 3 March 2021 does not qualify. The general exclusions that are in existing legislation relating to first-year allowances apply. For example, expenditure on cars and assets for leasing are excluded – the latter point meaning that commercial landlords may benefit less than the initial publicity of the proposals might have led them to expect.
Assets purchased with a view to leasing to third parties do not qualify for the new super-deduction or special rate first-year allowance for capital allowances purposes.
Leased assets make up a significant proportion of plant and machinery used in trading activities and their exclusion would reduce the impact that these temporary allowances have on incentivising commercial investment and growth.
The Construction Plant Hire Association estimates that the UK's plant hire industry is worth £4 billion per annum. Meanwhile, the Construction Equipment Association estimates that between 60% and 65% of all construction equipment sold in the UK goes into plant hire.
However, at a time when some businesses can ill-afford to make large capital expenditures, leasing or short-term hire are particularly attractive routes to acquiring newer and more productive plant and machinery. For others, these options make good business sense because the assets will only be used for limited periods or need to be updated regularly.
Good record-keeping is essential
Rules on what happens when the assets are disposed of make the picture more complex. Disposal proceeds will be treated as a taxable balancing charge. So, companies that dispose of the assets before the end of the regime could find that it ends up costing more in tax than the super-deduction originally saved them. It will be important to keep records of assets on which the super-deduction is claimed so they can be correctly treated on sale.
Whether the super-deduction significantly benefits your company will depend on the forecast level of capital expenditure, the type of asset, financing method and your expected corporation tax rate.
This is complex area, and the right decision for your business will be unique to your firm. Please contact us for further advice.
Creating green growth
Reviewing the push towards a greener economy.
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This year will see the UK host COP26, where parties from around the world will gather together to find ways to work towards the goal of a low-carbon future. The UK government itself must accelerate the reduction of carbon emissions in order to hit the country's climate target by 2050. The desire to reach these goals has been further fuelled by the coronavirus (COVID-19) pandemic, with many people urging governments to 'build back better' and businesses assessing their own roles in the 'Green Industrial Revolution'. For this to happen, the government will need to deliver fundamental change to help the UK meet its net-zero target while aiding an economic recovery. Chancellor Rishi Sunak has already laid out some steps towards creating a greener economy. Here, we take a look at what could be done to drive these ambitions further.
Committing to green growth
In the 2021 Budget the Chancellor made a number of commitments to green growth. This included the first ever UK Infrastructure Bank, which will have an initial capitalisation of £12 billion and will invest in green public and private projects.
The Chancellor also unveiled a retail savings product to give UK savers the chance to support green projects to sit alongside a Sovereign Green Bond that was announced last year. Mr Sunak also committed investment to offshore wind, with funding for new port infrastructure to build the next generation of projects in Teesside and Humberside.
The Confederation of British Industry (CBI) has urged the government to go further in order to encourage the green industrial revolution.
It says that greening the tax system must go beyond simply looking at different environmental taxes – transport, pollution and energy taxes – as one-offs. Instead it should deliver fundamental change with a holistic, coherent tax plan to help the UK meet its net-zero target.
The CBI has put forward guiding tax principles to work towards this, including:
Polluter pays – in simple terms, green taxes should be targeted to a pollutant or a polluting behaviour, especially when there are viable low-carbon alternatives. Taxes should be designed to introduce a price signal into the supply chain to promote alternative, less environmentally damaging behaviour by making alternative options more economically viable.
'Carrot and stick' – in line with the 'polluter pays' principle, the government should tax a 'bad', such as generating pollution, but also reward a 'good', such as actions that will reduce pollution. Incentives should continue to be offered, particularly when we are seeking to grow the demand that can help fuel a green recovery from the pandemic.
Greenhouse gas hierarchy – taxation must focus on incentivising carbon reduction ahead of carbon offsetting. Offsetting allows businesses and consumers to continue with a carbon producing behaviour in a way that will potentially slow a step change in a sustainable reduction of the carbon emissions.
A Just Transition – it is important that tax policies are designed in a way that the costs of the net-zero transition do not fall unfairly on those least able to pay for them. This is vital not only for fairness but also to maintain public acceptance of the actions needed to achieve net-zero.
International co-operation – the UK must fully utilise its leadership role at COP26 and the G7 in imploring other countries to bring forward their plans to cut emissions and set net-zero targets. For example, collaborating on carbon pricing by linking the UK and EU Emissions Trading Systems.
Bumps in the road
However, the UK government has also come in for criticism for cutting electric vehicle grants by £500 while continuing to freeze fuel duties of petrol and diesel vehicles. The Department for Transport will now provide grants of up to £2,500 for electric vehicles on cars priced under £35,000. This is a reduction from the previous £3,000 available for vehicles costing up to £50,000.
The government says this means the funding will last longer and be available to more drivers. However, critics say the cut in grants sends the wrong message, while the fuel duty freeze highlights the challenge facing the government as it seeks to assist the post-COVID recovery whilst also building back better.
How we can help
As the push towards a greener economy takes shape, tax laws may change while new funding streams become available for eligible businesses and projects. As your accountants we can help with both your tax and finance requirements: please contact us.
How does the 2021 Budget benefit you?
A review of measures announced.
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On Wednesday 3 March, Chancellor Rishi Sunak presented the 2021 Budget, pledging to 'do whatever it takes' to support UK jobs and workers in the wake of the coronavirus (COVID-19) pandemic and promising to fix UK public finances and begin building the future economy.
Amongst the announcements was an extension to the Coronavirus Job Retention Scheme (CJRS) until 30 September; confirmation of fourth and fifth grants for the self-employed under the Self-employment Income Support Scheme (SEISS); an extension of the stamp duty holiday in England until 30 September; and £5 billion in 'restart' grants to boost businesses once the lockdown in England ends. Mr Sunak also announced an increase in the rate of corporation tax to 25%, effective in 2023, and a capital allowances super-deduction providing allowances of 130% on most new plant and machinery.
Here, we take a look at these measures in greater detail.
Rise in corporation tax rate
The main rate of corporation tax is currently 19% and it will remain at that rate until 1 April 2023, when the rate will increase to 25% for companies with profits over £250,000. The government stressed that this is still the lowest rate compared to other G7 countries. The 19% rate will become a small profits rate payable by companies with profits of £50,000 or less and companies with profits between £50,000 and £250,000 will pay tax at the main rate reduced by a marginal relief providing a gradual increase in the effective corporation tax rate.
Meanwhile, companies have been encouraged to invest in new plant and machinery in order to take advantage of the super-deduction, which provides allowances of 130%.
COVID-19 financial support schemes
From 6 April 2021 the Recovery Loan Scheme will provide lenders with a guarantee of 80% on eligible loans between £25,000 and £10 million to give them confidence in continuing to provide finance to UK businesses. The scheme will be open to all businesses, including those who have already received support under the existing COVID-19 guaranteed loan schemes. The Bounce Back loan scheme (BBLS), Coronavirus Business Interruption Loan Scheme (CBILS) and the Coronavirus Large Business Interruption Loan Scheme (CLBILS) will be accessible until the end of March 2021.
Additionally, to support businesses in re-opening following the current lockdown in England £5 billion in 'restart' grants will be made available. Non-essential retail businesses re-opening first will be eligible for up to £6,000 and the leisure and hospitality sectors, which have been worse affected and will re-open later, will be eligible for up to £18,000.
Extension of the CJRS
The Chancellor confirmed the extension of the CJRS until 30 September 2021. The level of grant available to employers under the scheme will stay the same until 30 June 2021.
From 1 July 2021, the level of grant will be reduced and employers will be asked to contribute towards the cost of furloughed employees' wages. To be eligible for the grant an employer must continue to pay furloughed employees 80% of their wages, up to a cap of £2,500 per month for the time they spend on furlough.
The reduction in the level of the grant means that the percentage recovery of furloughed wages will be as follows:
- for July 2021, 70% of furloughed wages, up to a maximum of £2187.50; and
- for August and September 2021, 60% of furloughed wages, up to a maximum of £1,875.00.
Employers will need to continue to fund employer national insurance contributions (NICs) and mandatory minimum automatic enrolment pension contributions.
Confirmation of fourth and fifth grants under the SEISS
Budget 2021 confirmed details of a fourth SEISS grant. This will be 80% of three months' average trading profits to be claimed from late April 2021. Payment will be in a single instalment and capped at £7,500 in total and will cover the period February to April 2021. The scheme has been extended to those who have filed a 2019/20 self assessment tax return prior to 3 March 2021, meaning that newly self-employed from April 2019 now qualify subject to satisfying the other conditions.
A fifth and final grant was announced and can be claimed from late July 2021 to cover the period May to September 2021. This grant will be determined by a turnover test.
The Chancellor announced an extension of 100% business rates relief for eligible retail, hospitality and leisure properties in England. The extension is valid until 30 June 2021. Following this, business rates relief of 66% will apply for the period spanning 1 July 2021 to 31 March 2022. This will be capped at £2 million per business for properties that closed on 5 January 2021 and £105,000 per business for other eligible properties.
Reduced VAT rate for hospitality sector
In July 2020, the government introduced a temporary 5% reduced rate of VAT for certain supplies of hospitality, hotel and holiday accommodation and admissions to certain attractions. In September 2020 the Chancellor extended the reduced rate to 31 March 2021.
The government announced an extension of the reduced rate until 30 September 2021. To help businesses manage the transition back to the standard 20% rate, a 12.5% rate will apply for the subsequent six months until 31 March 2022.
In 2020 the government consulted on proposals to create up to ten Freeports across the UK. A UK Freeport will be a geographical area with a diameter up to 45km which is closely linked to a sea port, airport or rail port. East Midlands Airport, Felixstowe and Harwich, Humber, Liverpool City Region, Plymouth and South Devon, Solent, Teesside and Thames have been successful in the Freeports bidding process for England.
The government is now proposing a range of measures covering customs, tax reliefs, planning, regeneration funding and innovation to create Freeports as national hubs for global trade and investment across the UK.
Stamp duty land tax
The stamp duty nil rate band on residential properties in England up to £500,000 will continue until the end of June. It will taper to £250,000 until the end of September, and then return to the usual level of £125,000 from 1 October.
Land and buildings transaction taxes are devolved to Scotland (Land and Buildings Transaction Tax (LBTT)) and Wales (Land Transaction Tax (LTT)). Stamp Duty Land Tax (SDLT) applies to transactions in England and Northern Ireland. All these taxes have had a temporary increase in the nil rate threshold for residential properties. The thresholds were set to return to the previous thresholds from 1 April 2021. Following the Budget, the Welsh Finance Minister confirmed that the LTT temporary reduction period will be extended by a further three months so that it will end on 30 June 2021.
Mortgage guarantee scheme
The government will introduce a new mortgage guarantee scheme in April 2021. This scheme will provide a guarantee to lenders across the UK who offer mortgages to people with a deposit of 5% on homes with a value of up to £600,000.
Under the scheme, all buyers will have the opportunity to fix their initial mortgage interest rate for at least five years should they wish to. The scheme, which will be available for new mortgages up to 31 December 2022, is designed to increase the availability of mortgages on new or existing properties for those with small deposits.
To discuss how these Budget measures may affect you, please get in touch. We would be delighted to speak with you.
What will the Budget bring?
Considering the issues that may be covered in the upcoming 2021 Budget.
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When Chancellor Rishi Sunak gives his second Budget statement on 3 March, he will have to perform a delicate balancing act. The Chancellor will be caught between supporting the businesses and individuals still affected by the coronavirus (COVID-19) pandemic, recouping the billions spent on support schemes over the past 11 months and stimulating an economic recovery. The nature of the tricky task facing the Chancellor has become clear recently as various groups have lobbied for extensions to support or against mooted changes to the fiscal system. Here, we take a look at what the Budget might have in store for businesses and individuals.
The Institute for Fiscal Studies (IFS) has urged Mr Sunak to announce 'well-targeted extensions in emergency support to households and employers' over the coming months. A fourth round of the Self-employment Income Support Scheme (SEISS) grant has already been confirmed. However, no information has been announced on the amount of the grant, or who will qualify, and further details are expected in the Budget.
Similarly, the Coronavirus Job Retention Scheme (CJRS) is due to close at the end of March. The government has repeatedly said that details on any extension or successor scheme will be revealed in the Budget.
However, after running up a record deficit during the pandemic, the Chancellor will be keen to begin the long process of rebalancing the books. This would mean tax reform or increases to taxes, so which areas could Mr Sunak target?
The future of national insurance
When the Chancellor unveiled the SEISS last March, he warned that it would be harder to justify inconsistent contributions from people of different employment statuses.
This has been interpreted to mean that he will increase national insurance contributions (NICs) for the self-employed. However, a simple increase in the rate for the self-employed (or increasing NICs for high earners, which has also been mooted) does not level the playing field unless the issue of directors avoiding NICs is also addressed.
Any quick fix is likely to be controversial, so the question is whether the Chancellor will start the ball rolling on significant reforms to the NICs system on 3 March.
Tax relief and pension contributions
The issue of whether higher and additional tax relief will be cut on pension contributions is often debated in the lead up to a Budget. There is a significant cost to the Exchequer from tax relief on pension contributions and the tax-free growth of pension funds. A reduction in income tax relief or a reduction in the Annual Allowance could reduce these costs.
Speculation of a hike in capital gains tax (CGT) rates has been rife following the publication of the first report in November 2020 by the Office of Tax Simplification (OTS) into its review of CGT. Currently, CGT raises just £8.3 billion a year in the UK from around 265,000 taxpayers. The Chancellor asked the OTS to undertake this review in July 2020, leading to speculation that CGT is one of his target areas for change.
Similar reviews have been undertaken by the OTS on inheritance tax (IHT). Although there is a strong case for reforming these capital taxes there are also genuine concerns about the future of valuable IHT reliefs like Business Property Relief (BPR). Any such reform will require significant consultation so now may not be deemed the right time.
The UK has seen a downwards trend on corporation tax rates for nearly 50 years but rumours in the national press suggest that the Chancellor may be considering reversing this trend. This appears to be at odds with keeping the UK competitive, particularly post-Brexit. However, in a post-COVID world, the need to recoup the enormous cost of the myriad support schemes whilst at the same time supporting the economic recovery for affected businesses and consumers will mean performing a precarious balancing act.
The Institute of Directors (IoD) has urged the Chancellor to put entrepreneurs 'at the heart' of the economic recovery from the pandemic. The IoD called for the creation of a stimulus package to 'unleash investment in start-ups and scale-ups through targeted reliefs', and for the government to provide a grant package to owner-directors who have been without significant financial support for almost a year.
The business group also called for the government to avoid tax hikes and an extension of the COVID-19 business support measures.
We will be analysing the Chancellor's Budget and our 2021 Budget Summary will be available on our website. Please contact us if you require further guidance.