Your Monthly Tax Update – December 2020
New penalties for overclaimed CJRS, SEISS and “eat out to help out” grants
HMRC have announced that they will be imposing penalties of up to 100% of the amounts over claimed on businesses so make sure that your claims are correct.
The penalties depend on whether or not the over claim is the result of a deliberate error and whether or not the disclosure was prompted by HMRC. The penalty may be reduced where the taxpayer assists HMRC in correcting the error.
Many over claims may be the result of careless errors or a misinterpretation of the rules which have changed many times in the last 9 months, so we hope that HMRC will apply the rules with a light touch and focus on those that have abused these schemes.
We understand that HMRC are writing to 4,000 catering establishments that they suspect may have over claimed under the “Eat out to help out” scheme that ran in August. Traders are being asked to check their claims and respond within 60 days or face an HMRC compliance check.
Make a Claim if you are Working From Home
We wrote about this a while back in our March blog “When can employees claim for work from home”. This is a great little claim for employees to cover some of their costs while they are working from home.
The previous rule for employees was that there had to be a home working arrangement with their employer under which they were required to work from home on a regular basis to be paid £6 a week tax free (£4 a week up to 5 April 2020). This rule has now been relaxed as a result of COVID-19 so that such arrangements are not currently required and employees can also claim tax relief directly from HMRC where their employer does not make the payments.
£312 a year tax-free is equivalent to £538 gross for a higher rate taxpayer. The payments are tax deductible for the employer and not liable to national insurance contributions.
Where the employer does not make the payments to the employee there is a new claims portal on the HMRC website so that the employee who is working from home can claim to deduct £312 from their employment income. That would generate a £124.80 tax refund for a higher rate taxpayer or £62.40 if basic rate.
There is a similar tax break for the self-employed which provides a deduction from profits of up to £26 a month.
How about a Virtual Christmas Party?
HMRC have recently announced that employers may arrange a “virtual” Christmas party this year and there will be no taxable benefit for employees provided that all staff are invited and the cost per head does not exceed the normal £150 limit. We have already arrange ours and are doing a murder mystery evening. Not quite the same as usual but who knows when we will all be able to get out again as a team!
Please note however you may want to make this a modest affair and have a big bash when the Coronavirus pandemic is over as we are allowed more than one event a year within the £150 limit.
Christmas Gifts of up to £50 to employees
Remember that certain gifts to staff at Christmas are also tax free if structured correctly. Employers are allowed to provide their directors and employees with certain “trivial” benefits in kind tax-free.
This exemption applies to small gifts to staff at Christmas, on their birthday, or other occasions and includes gifts of food, wine, or store vouchers. Check out our past blog on how to maximise tax free trivial benefits where we explore the conditions that need to be satisfied to qualify for the exemption.
Gifts to Charity
Where possible taxpayers should “Gift Aid” any payments to charity to provide additional benefit to the charity. Higher rate taxpayers obtain additional tax relief on the grossed up amount donated.
For example, where an individual makes a £20 cash donation to charity the charity is able to reclaim a further £5 from HMRC making a gross gift of £25. Where the individual is a 40% higher rate taxpayer he or she is able to claim a further £5 tax relief under self-assessment, reducing the net cost of their donation to £15.
Note that the donor is required to make a declaration that they are a UK taxpayer and those that have not suffered sufficient UK tax to support the Gift Aid amount will be taxed on the shortfall.
Remember that Gift Aid does not just apply to gifts of cash. Many charity shops will now sell donated items on your behalf and are able to treat the sale proceeds as Gift Aided donations. It is also possible to gift quoted securities and land and buildings to charity and claim Gift Aid on the market value of those assets.
If you need any more information in respect of any items in this tax update please contact the team.