The UK tax system can be complex, and for those who have assets or income in multiple jurisdictions, it can be particularly challenging to navigate. However, for those who are considered non-domiciled (non-dom) in the UK, there are several effective arrangements that can help to minimize their UK tax liability.
What does it mean to be non-domiciled in the UK?
In the UK, individuals who are considered non-domiciled are not considered to have their permanent home or “domicile” in the UK, even if they have been living in the country for an extended period of time. Non-domiciled individuals can be subject to different tax rules than those who are considered domiciled in the UK, which can offer several advantages.
Effective non-dom arrangements
Remittance basis of taxation: One of the most common ways that non-domiciled individuals can reduce their UK tax liability is by using the remittance basis of taxation. This allows non-domiciled individuals to only pay UK tax on income and gains that they bring into the country, rather than on their worldwide income and gains. The remittance basis can be particularly useful for those who have significant income or assets outside of the UK.
Offshore trusts: Another effective arrangement for non-domiciled individuals is to use offshore trusts. By setting up a trust in a jurisdiction outside of the UK, non-domiciled individuals can transfer assets into the trust, which can then be managed and distributed by the trustees. The income and gains generated by the trust can be taxed in the country where the trust is located, which can be a lower tax jurisdiction than the UK.
Dual contracts: Non-domiciled individuals who have employment income in the UK may be able to use dual contracts to reduce their UK tax liability. This involves splitting their employment contract into two separate contracts, with one contract covering their work outside of the UK and the other covering their work within the UK. The income earned under the overseas contract can then be taxed in the country where the work is carried out, rather than in the UK.
Business investment relief: For non-domiciled individuals who want to invest in a UK business, the business investment relief scheme can be an effective arrangement. This allows non-domiciled individuals to bring funds into the UK to invest in a qualifying UK business, without triggering a UK tax liability.
Non-domiciled spouse/civil partner: If a non-domiciled individual is married to or in a civil partnership with a UK domiciled individual, they may be able to take advantage of the spouse/civil partner exemption. This allows them to transfer assets to their spouse/civil partner without triggering a UK tax liability.
For non-domiciled individuals in the UK, there are several effective arrangements that can help to reduce their UK tax liability. By using the remittance basis of taxation, offshore trusts, dual contracts, business investment relief, and the spouse/civil partner exemption, non-domiciled individuals can take advantage of the different tax rules that apply to them. However, it is important to seek professional advice before implementing any of these arrangements, as they can be complex and require careful planning to ensure they are effective.
include elements like annual non dom charges after 7 years of tax residency and compared to recognizing foreign income into the uk for a tax resident that is non dome
Another important aspect to consider for non-domiciled individuals in the UK is the annual non-dom charges that may apply after 7 years of tax residency. Under the current UK tax rules, non-domiciled individuals who have been tax resident in the UK for at least 7 out of the previous 9 tax years are subject to an annual charge. The amount of the charge depends on the individual’s circumstances and can range from £30,000 to £90,000 per year.
However, non-domiciled individuals who have been tax resident in the UK for less than 7 years can still take advantage of the remittance basis of taxation, as described earlier in this article, without being subject to the annual charge. This can be a significant benefit for those who are planning to move to the UK or who have recently arrived in the country.
It’s also important to note that non-domiciled individuals who become tax resident in the UK may have the option to recognize their foreign income and gains in the UK rather than using the remittance basis of taxation. This can be beneficial for those who have foreign income or gains that are taxed at a lower rate in the UK than in the country where they were earned. However, recognizing foreign income and gains in the UK may also increase an individual’s overall UK tax liability, so careful planning is required.
Comparing the two options, recognizing foreign income and gains in the UK may be a more attractive option for non-domiciled individuals who have been tax resident in the UK for more than 7 years and are subject to the annual non-dom charges. By recognizing their foreign income and gains in the UK, they may be able to reduce their overall tax liability and avoid the annual charges.
Non-domiciled individuals in the UK have several options available to them for managing their tax liability, including the remittance basis of taxation, offshore trusts, dual contracts, business investment relief, and the spouse/civil partner exemption. However, it’s important to consider the potential impact of the annual non-dom charges and the option to recognize foreign income and gains in the UK when planning an effective tax strategy. Seeking professional advice can help to ensure that the most appropriate and effective arrangements are put in place.
In conclusion, non-domiciled individuals in the UK have several options available to them for managing their tax liability, including the remittance basis of taxation, offshore trusts, dual contracts, business investment relief, and the spouse/civil partner exemption. However, it’s important to consider the potential impact of the annual non-dom charges and the option to recognize foreign income and gains in the UK when planning an effective tax strategy. Seeking professional advice can help to ensure that the most appropriate and effective arrangements are put in place.
Giving gifts to charitable organizations is a wonderful way to support the causes that you care about. Not only does it benefit the organizations, but it can also have tax benefits for you as well. In the UK, there are specific rules regarding tax deductible gifts. In this article, we will explore how to give tax deductible gifts in the UK.
First and foremost, it is important to ensure that the organization you are giving to is a registered charity in the UK. Only donations made to registered charities are eligible for tax relief. You can check if an organization is registered by searching the Charity Commission’s website.
There are a few different ways to give tax deductible gifts in the UK:
What is Gift Aid;
Gift Aid is a government scheme that allows charities to claim back the basic rate of tax on donations made by UK taxpayers. This means that for every £1 you donate, the charity can claim an additional 25p from the government. To qualify for Gift Aid, you must have paid enough tax in the year to cover the amount being claimed back by the charity.
If you are interested in giving tax-deductible gifts to charities in the UK, here are some key things to keep in mind:
Choose a registered charity To be eligible for tax relief, your gift must be made to a registered charity in the UK. Registered charities are those that have been approved by the Charity Commission for England and Wales, the Scottish Charity Regulator, or the Charity Commission for Northern Ireland. You can check if a charity is registered by visiting the online register of charities.
Determine the type of donation you want to make There are several ways to give tax-deductible gifts to charities in the UK, including one-off donations, regular donations, and gifts in your will. You can also donate shares or property to charity, which can provide additional tax benefits.
Keep records of your donations To claim tax relief on your charitable donations, you will need to keep a record of your gifts, including the date and amount of each donation, the name of the charity, and any confirmation or receipt provided by the charity.
Claim tax relief on your donations If you are a UK taxpayer, you can claim tax relief on your donations through the Gift Aid scheme. This allows charities to claim an extra 25p for every £1 you donate, at no additional cost to you. To use Gift Aid, you will need to complete a Gift Aid declaration form, which can usually be done online or in person at the charity.
Consider other tax benefits In addition to Gift Aid, there are other tax benefits available for charitable giving in the UK.
For example, if you donate land, buildings, or shares to charity, you may be eligible for a reduction in Capital Gains Tax. If you include a gift to charity in your will, the value of the gift will be deducted from your estate before Inheritance Tax is calculated.
Consider leaving a legacy
Another way to give tax-deductible gifts is to leave a legacy in your will. This means leaving a gift to a charity in your will, which can be tax-deductible. This can also be a way to support causes that you are passionate about after you have passed away.
Giving to charity is a great way to support causes you care about and make a difference in the world. By making tax-deductible gifts, you can also reduce your tax bill and make your donations go further. So, choose a charity you believe in, make a gift aid declaration, keep records of your donations, and consider leaving a legacy to support causes you care about for years to come.
A personal service company (PSC) is a type of business structure that has become increasingly popular in recent years, particularly in the UK. A PSC is essentially a limited company that is owned and operated by an individual who provides services to clients. This structure has a number of benefits, including tax efficiency and liability protection, which make it an attractive option for many freelancers and contractors.
For example, a PSC can pay its owner/director a salary, which is subject to income tax and National Insurance contributions (NICs) at the usual rates. However, the PSC can also pay dividends to its shareholders, which are taxed at a lower rate than income tax.
The tax savings from using a PSC can be significant. For example, an individual earning £50,000 a year through a PSC could save around £3,000 in tax compared to if they were a sole trader. This is because they can take a combination of salary and dividends, which reduces their overall tax liability.
Another benefit of using a PSC is that it can help to reduce the impact of IR35 rules. IR35 is a set of regulations that are designed to prevent people from using a PSC to avoid paying tax and NICs. Essentially, IR35 applies when a person provides services to a client through a PSC, but would be classed as an employee if they were working directly for the client. In these cases, the PSC is required to pay tax and NICs as if the individual were an employee.
However, IR35 does not apply to genuine self-employed individuals who use a PSC to provide services to clients. This means that if you can demonstrate that you are genuinely self-employed and are not simply using a PSC to avoid tax, you can avoid the impact of IR35. This can be particularly beneficial if you work in a sector where IR35 is a significant issue, such as IT or finance.
There are some other tax-saving measures that can be used in conjunction with a PSC. For example, you can claim tax relief on expenses such as travel, accommodation, and equipment. You can also make pension contributions through your PSC, which can help to reduce your overall tax liability. Additionally, you can choose to pay yourself a lower salary and retain profits in the company, which can be reinvested or paid out as dividends in future years.
However, it is important to note that using a PSC is not always the best option for everyone. There are some downsides to this business structure, including the administrative burden of running a limited company, the costs involved in setting up and maintaining the company, and the fact that you may be required to pay corporation tax on profits.
If you are considering using a PSC to save on tax, it is important to seek professional advice from a tax specialist or accountant. They can help you to understand the pros and cons of this approach, and can advise you on the best way to structure your business to ensure that you are compliant with all relevant regulations.
You may already be self-employed, running a small business as a sole trader, or evaluating options for a new business idea you have. Whatever stage you’re at, it is worth considering forming a limited company. This type of business structure has several advantages attached to it – limited liability for company debts being the primary one.
When operating as a limited by shares company, the financial liability of the owners (aka ‘shareholders’ or ‘members’) is limited to the nominal value of their shareholdings. Therefore, if a company issues 100 ordinary shares, each with a nominal value of £1.00, the collective liability of the shareholders is limited to £100.
When operating a limited by guarantee company, however, the liability of the owners (aka ‘guarantors’ or ‘members’) is limited to the amount they ’guarantee’ to pay towards the company’s debts, if required. This is because this type of limited liability company does not have shareholdings.
In contrast to the limited company structure, sole traders and partners working within a traditional partnership are personally liable for all debts if the business gets into financial trouble.
Tax efficiency is not far behind limited liability in terms of advantages. The likelihood is that you’ll pay less personal tax as a director-shareholder of a limited company than you would as a sole trader or a partner within a traditional partnership.
Whether you end up paying less tax or not, one thing is certain – you will enjoy greater flexibility in your tax planning with a limited company than you would operating as a sole trader. So, what’s the fundamental difference?
In a nutshell, a sole trader pays Income Tax as well as Class 2 and Class 4 National Insurance contributions on all taxable business profits. No other options are available. By contrast limited companies pay Corporation Tax at a flat rate of 19%. This is lower than the varying rates of Income Tax in UK, which range from 20% to 45%.
Additionally, with regards withdrawing money from a limited company, director-shareholders can do this in three ways: as a salary through PAYE; by taking dividends; and as a director’s loan. These options provide a number of opportunities for implementing effective tax-planning strategies.
A common practice is to take a minimal director’s salary each month to cover personal bills and living expenses, combined with a higher sum of money withdrawn from the company each quarter in the form of dividends. This strategy legally minimises Income Tax and NI contributions because dividends are subject to dividend tax, which is only 7.5% for basic-rate taxpayers. There is also a £2,000 tax-free dividend allowance, which further reduces the overall personal tax liability of director-shareholders.
Another limited company tax benefit is to withdraw money in the form of a directors’ loan. This is tax-free, provided the loan is repaid within 9 months of the end of the company’s accounting period.
There is also more scope to offset business expenses against profits through a limited company than as a sole trader, which would enable you to further reduce your tax bill. However, we would recommend that you speak to an accountant with regards allowable expenses.
Separate legal entity
When you register a limited company, your business becomes a separate legal entity that is entirely distinct from you. This means that your company will have its own legal personality, thus all business income will belong to the company, all business debts beyond the limited liability of members will be the responsibility of the company, it will have its own credit score, it will be able to enter into contracts, and it can own property and other assets.
Third parties, therefore, will enter into contracts with your company, not you or any other directors or shareholders as individuals. This creates a level of security, particularly in relation to privacy and finances.
Reputation, credibility and trust
The reputation, credibility, and trust that arise from trading as a registered company inspires confidence in customers, suppliers and potential investors. Indeed, many larger companies simply refuse to deal with any business that is not incorporated at Companies House.
These benefits primarily come from the fact that anyone dealing with a registered company knows implicitly of the reporting and transparency obligations that exist under the Companies Act 2006.
In many ways, a sole trader entity is viewed as a one-person business with no formal structure, which may raise concerns with regards longevity and trustworthiness. It’s an unfair assumption, but it is a common one nevertheless.
How much does it cost to form a limited company and how long does it take?
The cost of forming a limited company is £12 if you avoid the services of company formation companies. The form is very easy to complete on the Companies House Website, and takes approximately 10 to 15 minutes.
After company registration, you will have to pay £13 to Companies House when you file a Confirmation Statement every 12 months. You will also need to submit company accounts each year. Whilst you will not have to pay any filing fees, you may benefit from using the services of an accountant. This will likely be a bit more expensive because company accounts are often more complex than sole trader accounts.
Who are Companies House and what is their role?
Companies House is the UK’s registrar of companies and the official governing body responsible for incorporating companies, collecting and storing company information, and making this corporate data available to the public. As an executive government agency, Companies House also enforces corporate compliance under the Companies Act 2006.
Shareholders (aka ‘members’) usually pay for their company shares when they are issued or transferred, but some companies allow members to partly pay or pay at a later date.
Payment for company shares is in the form of cash, which is paid into the company’s bank account, or in exchange for non-cash consideration, such as providing services to the business.
When do I have to pay for my company shares?
A company’s articles of association (and shareholders’ agreement, if one has been drawn up) will state when shares have to be paid. Depending on the provisions set out in the articles or shareholders’ agreement, members may be required to pay for their company shares at the following stages:
upon allotment (issue) or transfer after incorporation
at a specified or unspecified date in the future
when the director issues a ‘call’ on shares, i.e. payment demand, perhaps if the company is facing financial difficulty
In a few limited scenarios, members may not have to pay for their shares, for example:
when they are issued as part of an employee share scheme
when they are issued as part of a ‘bonus issue’
and when fully paid shares are gifted or inherited
In such circumstances, there may be tax implications for both the company and the shareholder.
Furthermore, it may be the case that members never have to pay for the shares if the company’s articles do not demand immediate payment on the issue and no ‘calls’ for payment are ever made (we discuss ‘calls’ on shares later on).
Before we delve further into the intricacies of paying for company shares, it’s worthwhile understanding the difference between the nominal value and market value shares.
The nominal value of shares
Company shares have a nominal (or ‘par’) value, which represents their minimum worth. As prescribed by Section 580 of the Companies Act 2006, a company may not issue shares at a discount. Therefore, the nominal value is the minimum sum that members must pay for company shares.
The nominal value of shares is determined by the company. In most private companies, the nominal value of a share is £1, although it is possible to have a nominal value of £0.01 or even £100. The nominal value can also be expressed in a different currency. Companies can only issue shares at one nominal value and currency for every class of shares they issue.
Furthermore, the nominal value of a share represents the extent of the shareholder’s liability to cover the debts of the company. This means that shareholders are only responsible for the company’s debts up to the nominal value of their shares.
This concept is known as ‘limited liability’, which is one of the many advantages of running a business as a limited company. You should note, however, that this does not apply to unlimited companies, where the liability of the shareholders is unlimited.
The market value of company shares
Shares also have a market value, which may or may not be the same as the nominal value. When the market value is greater than the nominal value, the difference is known as the ‘share premium’.
If new shares are issued after a company has been set up, or an existing member wishes to sell their shares, the current value of the business should be ascertained to determine their market value, thus the premium payable by the new shareholder. For example:
A company issues 10 shares when it is incorporated at Companies House
These shares are assigned a nominal value of £1 each
One year later, the company is valued at £50,000. Each of the 10 shares now has a market value of £5,000
If the company wishes to bring in new members by selling existing shares or allotting new ones, the price payable by the new shareholder will be negotiated around the current market value of £5,000 per share
If a share is issued or transferred at £5,000, it will still have a nominal value of £1, but the share premium will be £4,999
What are unpaid and partly-paid shares?
If a member receives company shares but does not pay any of the required nominal value (and premium) to the company, the shares are ‘unpaid’. If some of the nominal value (and premium) is paid to the company, those shares are ‘partly paid’. Members with unpaid or partly-paid shares remain liable to the company for the outstanding amount.
However, not all companies can issue unpaid or partly paid shares. The company’s articles will state whether these options are permitted. For example, if you adopt Model articles, shares must be fully paid up at the time of their issue, with the exception of shares taken by subscribers (the first shareholders) at the time of incorporation.
A company may make a ‘call’ on shares at a later date. A call on shares is when the directors send a ‘call notice’ to shareholders stipulating their requirement to pay the company a specified sum of money, which may be some or all of the unpaid amount, in respect of any shares they hold.
The call notice will state the payment deadline (or ‘call payment date’). Should a shareholder fail to make the payment within the specified timeframe, the directors should send a reminder.
Subsequently, a ‘forfeiture notice’ may be sent to the members if payment remains outstanding. Interest on the call payment will usually be applied until the debt is settled. Following a forfeiture notice, failure to pay will likely result in the shareholder losing entitlement to their shares.
Issuing a call on shares requires the directors to consult the company’s articles of association and pass a resolution at a board meeting. The resolution should include details of the call amount and payment due date.
Once payments have been received, new share certificates should be issued, the register of members should be updated accordingly, and the company’s share capital should be updated on the next Confirmation Statement.
Do unpaid or partly-paid shares impact the rights of a shareholder?
Whether or not the status of company shares is paid, partly paid, or unpaid, shareholders’ rights are unaffected, provided there has been no failure to respond to a forfeiture notice following a call notice. The shareholder will still be entitled to the prescribed particulars attached to their share class, such as voting rights, dividend rights, and distribution rights.
Furthermore, members retain the right to transfer unpaid or partly-paid shares, provided the articles of association and shareholders’ agreement allow it, and on the condition that the new shareholder accepts the ongoing liability to pay for the shares when the company issues a call notice.
As part of the share transfer process, a J10 stock transfer form should be completed and signed by the relevant parties (as opposed to form J30, which is used when the shares are fully paid).
Why would a company allow shares to be paid at a later date?
There are a number of reasons why a company would allow members to pay for their shares at a later date, rather than demanding payment in full upon their allotment or transfer, for example:
if the company has not yet set up a business bank account to receive payments
to allow for greater flexibility and convenience – e.g., a potential investor or business partner may be unable to pay immediately but agrees to pay at a later date
if a pre-planned payment schedule has been set up, enabling a member to pay for shares in instalments
as part of a business strategy – e.g., to implement a merger or acquisition
to ensure the company can forfeit issued shares if required
Do shares require being paid for in cash?
Payment for shares is called a ‘consideration’. Most shares are paid for in cash. However, companies can issue shares in exchange for non-cash consideration (or ‘money’s worth’), including services, property, assets, shares in another limited company, goodwill, know-how, or discharge of a debt.
a cheque received by the company in good faith that the directors have no reason to suspect will not be paid
a release of liability of the company for a liquidated sum
an undertaking to pay cash to the company at a future date
payment by any other means giving rise to a present or future entitlement to a payment, or credit equivalent to payment, in cash
In most instances, members pay for their shares in cash by transferring the nominal value (and share premium, if applicable) to the company’s business bank account.
Where is it shown that shares are unpaid?
The unpaid status of shares must be shown on share certificates and the company’s statutory register of members. It is also a requirement to record unpaid shares on the statement of capital, which should be completed when:
the company is registered at Companies House
a Confirmation Statement is filed
new shares are allotted
there is a reduction in the company’s issued share capital
the value of shares is altered
splitting or subdividing shares
changing the currency of shares
unpaid or partly-paid shares are paid
Directors are also responsible for ensuring that share capital (whether unpaid, partly paid, or paid) is shown on the balance sheet as part of the company’s annual accounts.
I hope you are well and keeping safe during this outbreak.
As you are aware that JRS (furlough scheme) will be finishing from 31 October 2020 which is why the government has announced numerous schemes to avoid mass redundancies.
One of that schemes is Job support scheme (JSS), which is slightly different for a business which is still open and for the businesses which is forced by the government to be closed down.
On this email, we will focus only on the job support scheme for the business which is still open.
The new job support scheme announced by the government for businesses which are open requires the employee to work a minimum of 20% of their usual hours and the employer will continue to pay them as normal for the hours worked. Alongside this, the employee will receive 66.67% of their normal pay for the hours not worked – this will be made up of contributions from the employer and from the government.
I understand that this could be confusing which is why we have used a worked example at the bottom of this email. You will also need to ensure that an agreement with an employee is an place which we have also drafted at the bottom of this email.
The employer will pay 5% of reference salary for the hours not worked, up to a maximum of £125 per month, with the discretion to pay more than this if they wish. The government will pay the remainder of 61.67%, of reference salary for the hours not worked, up to a maximum of £1,541.75 per month. This will ensure employees continue to receive at least 73% of their normal wages, where they earn £3,125 a month or less.
We have used an example at the bottom of this email.
Eligibility for JSS Scheme:
Employers can only claim for employees that were in their employment on 23 September 2020
Employees must still be working for at least 20% of their usual hours
Employees do not need to have been furloughed under the Coronavirus Job Retention Scheme to be eligible for the Job Support Scheme i.e. employees who were not previously furloughed are also eligible for this scheme To be eligible for the grant, employers must have reached written agreement with their employee make sure that the agreement is consistent with employment, equality and discrimination laws keep a written record of the agreement for 5 years keep records of how many hours employees work and the number of usual hours they are not working this agreement must be made available to HMRC on request The Job Support Scheme grant will not cover National Insurance contributions (NICs) or pension contributions. These contributions remain payable by the employer. Employers must have paid the full amount claimed for an employee’s wages to the employee before each claim is made.
Employers will be able to claim from 8 December, covering salary for pay periods ending and paid in November. For employees who are paid a fixed salary, the Reference Salary is the greater of: the wages payable to the employee in the last pay period ending on or before 23 September 2020 the wages payable to the employee in the last pay period ending on or before 19 March 2020, this may be the same salary calculated under the CJRS scheme
Example 1 of UK Government JSS
John normal hours are 30 hours per week or 130 hours per month and is paid £8.75 per hour i.e. £1137.50
Step 1 – In order for John to be eligible for the scheme, he will need to work for a minimum of 26 hours in a month (20% of 130 hours)
Step 2 – The company will have to pay 5% of John’s remaining normal hours which is 5.20 hours (130 – 26)
Step 3 – JSS grant should cover the cost of 61.67% of the total 104 non-working hours (130-26) which will be 64.14 hours
John’s salary will look like as follows:
26 hours worked @ £8.75 = £227.50
5.20 hours paid by the company @ £8.75 = £45.50
64.14 JSS grant @ £8.75 = £561.22
Total gross salary payable to John would be £834.23 out of which grant will be claimed of £561.22
Example 2 of UK Government JSS
Doe’s normal hours are 40 hours per week or 174 hours per month and is paid £20 per hour i.e. £3480
Step 1 – In order for Doe to be eligible for the scheme, she will need to work for a minimum of 35 hours in a month (20% of 174 hours)
Step 2 – The company will have to pay 5% of Doe’s remaining normal hours which is 7 hours (174 – 35)
Step 3 – JSS grant should cover the cost of 61.67% of the total 139 non-working hours (174-35) which will be 85.72 hours
Doe’s salary will look like as follows:
35 hours worked @ £20 = £700
7 hours paid by the company @ £20 = £140 (maximum is £125)
85.72 JSS grant @ £20 = £1714.42 (maximum is £1541.75)
Total gross salary payable to John would be £2366.75 out of which grant will be claimed of £1541.75
Letter to agree to the Job Support Scheme
Dear [insert name]
As you may be aware, we have been receiving financial assistance from the Government to pay wages via the Coronavirus Job Retention Scheme during the Coronavirus pandemic.
We found it necessary to use the Scheme, and place employees on furlough, because of the challenges we faced because of the pandemic, which were [insert details]. This assistance has been vital in helping the company avoid the need for redundancies during recent months.
The Job Retention Scheme is coming to an end on 31 October 2020 which means we will no longer be able to have employees on furlough. However, the Government has announced a new wage assistance scheme, called the Job Support Scheme (JSS) that will start on 1 November 2020 and is expected to run until 30 April 2021.
[Select from the paragraphs below and delete as appropriate]
As you know, you have been on furlough since [insert date] / As you know, you were placed on furlough between [insert date] and [insert date] and have been working according to your normal hours of work since then / As you know, you were placed on furlough on [insert date], after which we were able to bring you back to work on a part-time basis under the flexible furlough scheme/other. As mentioned above, it is no longer possible to furlough you from 1 November 2020. We continue to face challenges presented by Coronavirus, namely [insert details], so we intend to apply to the JSS in order to receive assistance to pay your wage.
Although you have not previously been furloughed, we have identified a need to apply for wage assistance for your role. This is because [insert reasons]. To access the JSS, it is not a requirement that you have previously been furloughed.
We discussed our current circumstances on [insert date]. [Select from the paragraphs below and delete as appropriate]
During that discussion, you agreed to work the following part-time hours with effect from [insert date]:
[insert details – hours must be at least 20% of normal working hours] [OR] During our discussion, you agreed to work part-time hours with effect from [insert date]. We agreed that we would notify you of the hours you would be required to work on a week-by-week basis [optional] but anticipate that in most weeks your working hours will adhere to the following pattern: [insert details – hours must be at 20% of normal working hours] Although your working hours may fluctuate according to demand, you will never be required to work less than 20% of your normal working hours for the duration of our use of the JSS to help cover your wage.
You will receive full pay for the hours that you work. You agreed that, for the remaining hours you would normally have worked, your pay will be reduced out of which 5% on unworked hours will be paid by us and 61.67% of the unworked hours will be paid by the government. The maximum amount that will be paid by us will be the lower of 5% or the £125 while the maximum amount paid by the government will be the lower of 61.67% or £1541.75.
We anticipate that this arrangement will last for [insert details]. We continue to monitor the situation and in the event that the position changes, you will be notified.
I have attached two copies of this letter. Please confirm your agreement to this change in your working hours and pay by signing both copies where indicated below and returning one to me by return.
We are doing everything we possibly can to ensure we are able to survive the challenges we are facing. We appreciate that this is a difficult period for everyone, and I would like to thank you, once again, for your continued loyalty to the business.
[Insert job title]
Let us know if we could be of any further assistance
Coronavirus Job Support Scheme – FAQs for UK employers
The government’s new Job Support Scheme replaces the furlough scheme and starts on 1 November 2020. It comprises two wage support schemes – a scheme to support businesses required to close as a result of coronavirus restrictions and a scheme to support businesses that can stay open but are facing lower demand. These FAQs cover eligibility, how the Job Support Schemes work, what you need to agree with employees and alternative resourcing options for employers.
The Job Support Scheme for businesses that can remain open (JSS Open) will provide ongoing wage support for people in work, provided that the employer meets certain access conditions, the employee is working a proportion of their usual hours, and the employer also provides additional wage support. Through the Job Support Scheme for businesses that are required to close (JSS Closed) the government will provide ongoing wage support for people who are unable to work because of the restrictions imposed on their employers. Both JSS Open and JSS Closed will start on 1 November and continue until the end of April 2021. The furlough scheme will come to an end on 31 October 2020 as planned.
The latest position regarding the Job Support Scheme is as follows:
The government published a Winter Economy Plan on 24 September which provided a brief outline of what it is now calling JSS Open and a factsheet that explained its key components.
The factsheet has now been updated to reflect the most recently announced changes which reduce both the proportion of usual hours an employee must work from 33% to 20% and the percentage of additional wage support required from employers for hours not worked from 33% to 5%.
On 9 October, the Chancellor announced an extension to the JSS aimed at supporting businesses which are legally required to close their premises as part of local or national restrictions. The extension will sit alongside JSS Open and the Job Retention Bonus. A separate short factsheet has been published explaining how JSS Closed will work.
On 22 October, the government released a policy paper containing further details about how both job schemes will work.
Further guidance is to be released at the end of October 2020.
Eligibility for the JSS explained
Is the scheme only open to employers in defined sectors?
No, the JSS is not limited to any sectors or settings. It is open to all employers with eligible employees, a UK bank account and a UK PAYE scheme (with the exception of fully publicly funded bodies).
Importantly, the JSS Open will only be available to larger employers (with 250 or more employees) if they meet a financial impact test. SMEs will not have to meet any financial test.
The JSS Closed seems to apply to all employers, without any financial impact test. However, they will be expected not to make capital distributions while claiming the grant.
Do we need to prove that our trading conditions have been impacted?
Not if you are an SME or if you are required to close your premises and therefore claiming under the JSS Closed.
If you are a large employer, however, claiming under the JSS Open you will need to complete a financial impact test which is completed once before your first claim. Provided you can demonstrate that your turnover has stayed level or has decreased compared to the previous year, you will qualify.
What’s the definition of a larger employer for these purposes?
A large employer is defined as a legal entity with 250 or more employees across its payrolls as of 23 September 2020. Charities (registered or those exempt from registration) with 250 or more employees do not count as a large employer for the purposes of the scheme.
How do we do a financial impact test?
This depends on how often you file VAT returns.
Quarterly VAT returns: Compare the total sales figure on the return (box 6) between 31 August 2020 and 7 November 2020 with the same quarter in 2019.
Monthly VAT returns: Compare the three consecutive months (due to be filed and paid by 7 November) with the same period in 2019.
Infrequent VAT returns: Compare the three consecutive months (due to be filed and paid by 7 November) with the same period in 2019. However, the company must have submitted a VAT return between 31 August 2020 and 7 November 2020 to be eligible.
Turnover figures for the whole VAT group should be used where a large employer is part of a VAT group.
Large employers who are not VAT registered can expect guidance by the end of October.
What if some parts of our business have been impacted but not others?
If you are an SME, you won’t need to pass any financial impact test and you can access the JSS Open even if the pandemic has only had an impact on a small part of your business. Similarly, if you are required to close your premises then you will be able to apply under the JSS Closed without passing any financial impact test.
The policy paper on the JSS states that further guidance on the conditions for eligibility for JSS Closed will be published by the end of October.
If you are a larger business claiming under the JSS Open, you’ll need to pass a financial impact test (see above).
Which employees can we put on the scheme?
To be eligible for the JSS, employees must have been on your PAYE payroll on or before 23 September 2020. This means a Real Time Information (RTI) submission notifying payment to that employee to HMRC must have been made on or before 23 September 2020. Grants can only be made in respect of employees who were in employment on 23 September 2020. It will however be possible to claim in respect of an employee whose employment ended after 23 September and who has since been rehired – perhaps directed at employers who recently made staff redundant having concluded they would not be able to sustain their employment based on the previous (less generous) version of the JSS Open, but who may now conclude that they can do so after all. Under the JSS Open, the employee must work at least 20% of their usual hours. The government’s factsheet says that the minimum hours threshold might be increased in February 2021.
Under the JSS Closed, the employee must have stopped work altogether.
The policy paper also confirms that an employer can use both the JSS Open and Closed schemes at the same time, provided they are claiming for different employees. This will presumably help employers one part of whose business is the subject of compulsory closure and another part of whose business isn’t but has nevertheless been adversely affected.
Does the employee need to have been furloughed to be put on the JSS?
No. The JSS is open to employers even if they have not previously used the furlough scheme and employees do not necessarily have to have been furloughed in order to be put into the JSS. This is the case for both the JSS Open and the JSS Closed.
This means that, unlike the furlough scheme, the JSS is open to employees who have continued to work throughout the pandemic but on reduced hours. (The furlough scheme has allowed for part-time work since 1 July 2020 but is only available to employees who were fully furloughed with no work at all for at least three weeks before 1 July.) Unlike the furlough scheme, the JSS is also open to employees who started work after March 2020 (although they need to have been on your payroll by 23 September 2020 – see above).
What if there’s just no work at all for some employees but we are not legally required to close?
The minimum hours requirement is a key component of the JSS Open. If you don’t have enough workto provide even 20% of an employee’s usual hours, you will not be able to put them into the scheme.
This has led to criticism of the scheme from industries such as live entertainment and sport, where jobs may be perfectly viable in the long run but in the short term due to Covid restrictions there is simply no work. Other possible resourcing arrangements are covered below.
We have some work but we don’t think we can guarantee 20% of usual hours every week – can we still use the JSS Open?
It is currently unclear if employees must be working at least 20% of their hours every week or if this is an average over a month or longer period. However, the factsheet says that employees will be able to cycle on and off the scheme and do not need to be working the same pattern each month – although each short-time working arrangement must cover a minimum period of seven days. This suggests that you may be able to move employees out of the JSS Open for periods in which they are not working 20% of their usual hours (although you would need to agree with your employees what will happen in those periods). We await further guidance.
Do training hours count towards 20% of an employee’s usual hours?
Yes. The policy paper has confirmed that any hours spent in training and paid for by the employer at full pay will count towards 20% of their usual hours.
If we put employees into the scheme, do we need to promise that we won’t make them redundant for six months?
No, it does not appear that there will be any ban on making redundancies for the whole six months of the scheme. The policy paper and factsheet say that employees cannot be made redundant or put on notice of redundancy “during the period within which their employer is claiming the grant for that employee”. This suggests that you would be able to move an employee out of the JSS and stop claiming the grant for them if you needed to make them redundant before the scheme closed. (See “How the JSS Open works in practice” for further discussion of what this may mean in practical terms.)
Can we claim the £1,000 job retention bonus while also claiming under the JSS?
Yes.You can claim your £1,000 bonus for bringing a furloughed employee back to work in addition to claiming ongoing support for that employee under the JSS. To qualify for the bonus, the employee would need to remain continuously employed through to the end of January 2021 and earn at least £1,560 (gross) during that period. Grants from the JSS will count towards meeting the lower earnings limit.
Is it true that we can’t pay dividends to shareholders while claiming under the JSS?
The details released so far state that the government “expects” that large employers will not make capital distributions (such as dividends or equivalent for partnerships) while using the scheme. The policy paper confirms that it is not the intention of the government to make this a binding condition of the scheme but instead “encourage business to reflect on their responsibilities and that tax payers should be able to rely on public money only being claimed where it is clearly needed.”
HMRC plan to publicise the list of employers claiming grants under the JSS and press scrutiny can be expected as a result.
What about Covid-vulnerable employees who say it’s not safe for them to come back to the workplace?
It is not clear how many employees there are who are currently on full furlough who feel unable to return because they are Covid-vulnerable or someone they live with is Covid-vulnerable. It seems that the 20% minimum hours requirement is a must for the JSS Open, which will be an issue for these employees if they cannot work from home. This may generate disputes about whether it is safe for those employees to come back to work, but many may feel they have little choice.
Employers should make sure that the workplace is Covid-secure and they have carried out a thorough risk assessment that addresses the risks to such employees. If you have taken all reasonably practicable steps to reduce the risk to an acceptable level and the employee is still unwilling to return, you could consider a period of unpaid leave as an alternative to the JSS Open, or redundancy. Potentially, you could take the view that this is not a redundancy situation but rather a failure by the employee to obey reasonable instructions, although there may be some risks with taking that approach depending upon the employee’s circumstances.
How the JSS Open works in practice
What does the grant cover?
For every hour not worked by the employee, they will be paid a total of two-thirds of usual hourly wage, up to a cap.
Who pays what under the scheme?
Our infographic provides an at-a-glance summary of how the JSS Open will work. The idea is that employees working at least 20% of their usual hours can have their pay topped up.
The unworked time is essentially split into three. The employer pays for 5% of the unworked time (up to a cap), the government pays for 61.67% of the unworked time (up to a cap) and the remaining unworked time is unpaid unless the employer chooses to top it up (see below). These caps are based on a monthly reference salary of £3,125 per month.
This means that an employee working the minimum 20% of their normal hours would receive 73% of their usual pay (where their usual wages do not exceed the monthly reference salary). Out of this 73%, 20% would be pay for hours actually worked, 4% would be employer top-up and 49% would be government top-up.
The government contribution is capped at a maximum of £1,541.75 per month. It is not clear if the cap will be reduced if the employee is working more than 20% of their normal hours. The employer contribution is capped at £125 per month, although employers can decide to top up employee wages above the 5% contribution – see below.
The government contribution is considerably less than it was under the furlough scheme when it first opened, when the government supported 80% of an employee’s wage costs up to a maximum of £2,500 each month.
What about National Insurance Contributions and employer pension contributions?
The grant will not cover Class 1 Employer NICS or pension contributions, although these contributions will remain payable by the employer.
The employer will need to pay these contributions in respect of both the government top-up and the employer top-up, as well as in respect of pay for hours actually worked.
Does the top-up mean that we are paying extra for reduced work?
Yes. Employers need to pay an additional 5% towards unworked hours. There will also be pension and national insurance payments on top of this – see above.
The idea behind the JSS Open, however, is that it is a way to keep jobs going and to retain valuable skills and people over the next six months – in the hope that employees will be able to return to more normal hours by the time the scheme closes. By reducing the employer’s wage support contribution for unworked hours from 33% to 5% the government will be hoping that employers will decide to meet the additional cost of retaining employees rather than incurring the costs of making redundancies and then potentially having to re-hire and train new employees in the future.
We can’t afford the top-up – what are the options?
The employer top-up is a key component of the scheme, so if you will not be able to afford this you will need to look at other options – for example, agreeing a reduced working week without the extra financial support, or redundancies. We look at alternative options in more detail below.
Can we offer extra voluntary top-ups?
Yes. The new policy paper and updated factsheets confirm that employers can top up wages above the 5% contribution if they wish to do so. Employers can top-up in respect of both JSS Open and JSS Closed schemes. This moves on from the original factsheet for the JSS Open which seemed to imply that employees could only be put into the scheme if they agreed to take a wage reduction.
What payments should we include in an employee’s ‘reference salary’?
Similar to the furlough scheme, an employee’s ‘reference salary’ consists of the regular payments they are obliged to receive:
Non-discretionary pay for hours worked;
Non-discretionary commission payments;
Non-discretionary fees; and
Piece rate payments
Payments not included are those made without a contractual obligation or by discretion such as tips, discretionary bonuses and commission payments, non-cash payments and non-monetary benefits in kind.
How do we calculate an employee’s ‘reference salary’?
It depends whether they receive fixed or variable pay.
Fixed: The greater of the wages paid in the last pay period ending on or before 23 September 2020 or the last pay period ending on or before 19 March 2020.
Variable: The greater of the wages earned in the same calendar period in the tax year 2019-2020, the average wages payable in the 19/20 tax year or the average wages payable from 1 February 2020 (or start date if later) until 23 September 2020.
What are ‘usual hours’ for employees who work fixed hours?
Usual hours for an employee who has a set number of hours are calculated based on the greater of the hours that they were contracted for at the end of the last full pay period ending on or before 23 September 2020 or the hours contracted for at the end of the last full pay period ending on or before 19 March 2020.
Full details of sample calculations will be published in guidance at the end of October.
What are ‘usual hours’ for employees who work variable hours?
An employee works variable hours for the purposes of calculations under the JSS where they don’t have a contract with fixed hours, or their pay varies depending on the number of hours worked.
Usual hours are calculated based on the number of hours worked in the same calendar period in the 19/20 tax year, the average number of hours worked in the 19/20 tax year or the average number of hours worked from 1 February 2020 (or start date if later) until 23 September 2020.
The calculation cannot be altered if the employee is expecting to work more or fewer hours in the future. In addition, flexi-time or time in lieu cannot be counted as part of the calculation.
Full rules will be covered in guidance due at the end of October.
Can we agree a different working pattern each week?
Yes, it appears so. The factsheet for the JSS Open says that employees “do not have to be working the same pattern each month, but each short-time working arrangement must cover a minimum period of seven days”. This suggests that you can claim for a different amount of unworked hours each week, subject to the employee working at least 20% of their usual hours.
Can we change employee roles to fit what work we do have or can give to employees?
None of the guidance published to date has covered this point but we do not expect to see this prohibited given the scheme aims to keep people in employment, albeit in viable jobs. You would need to agree any role change (even temporary) with employees.
Can we agree reduced pay for employees working 20% of their usual hours?
Yes provided at least minimum wage rates are paid for all hours worked or treated as worked. Employers should also note that they cannot enter into any agreement with the employee which would reduce their wages below the amount claimed for them.
How the JSS Closed works in practice
What if there’s a local or national lockdown and the employee can’t work at all?
Under the JSS Closed, for businesses who are legally required to close their premises as part of local or national restrictions the government will pay 67% of employee wages, up to a maximum of £2,083.33 a month (employers will need to cover NICs and pension contributions). Businesses will only be eligible to claim the grant while they are subject to restrictions.
The government has said there will be further eligibility conditions for JSS Closed that have not yet been announced. We expect detailed guidance to be published in relation to JSS Closed at the end of October.
What does it mean to be legally required to close?
JSS Closed covers businesses that are legally required to close their premises as a result of restrictions by one of the four UK national governments. This includes premises that have been limited to delivery or collection only services and those restricted to provision of food and/or drink outdoors. But it does not include businesses that are required to close for some other reason (such as those required to close by local public health authorities as a result of specific workplace outbreaks) and will not cover businesses if they decide to close because their trade is significantly affected or they experience very reduced demand.
What if part of our premises are required to close (e.g. a hotel gym) but other parts remain open?
The position is not entirely clear and we expect detailed guidance to be published at the end of October, but it appears likely that a partial required closure will be covered, as the government states that employers can claim under both the JSS Closed and JSS Open for different employees.
Which employees will be eligible?
Employees whose primary workplace is at the premises that have been legally required to close will be eligible. There will be further eligibility criteria which will be published by the end of October.
How long must the employee cease work?
Employees must be instructed to and cease work for a minimum of seven consecutive days.
What if employees can do other work or work from home?
Employers can only use the scheme for employees who cannot work (paid or unpaid) for that employer. This suggests that if you can transfer them to other work or require them to work from home, you should do so rather than claiming under the scheme.
What do employees receive under the JSS Closed scheme?
The grant available from the government covers two-thirds of their “normal pay” up to a cap of £2,083.33 per month. This will be paid by their employer, who can reclaim it from the government. Employers must deduct and pay income tax and employee NICs on any amount paid to the employee.
The government will set out further details on how normal pay is calculated in guidance to be published by the end of October.
What about National Insurance Contributions and employer pension contributions?
The grant will not cover Class 1 Employer NICS or automatic enrolment pension contributions, although these contributions will remain payable by the employer.
Can we offer extra voluntary top-ups?
Yes. The new policy paper and updated factsheets confirm that employers can top up wages in respect of both JSS Open and JSS Closed schemes if they wish to do so.
Can we still use the Job Support Scheme when restrictions are lifted?
When premises re-open, employers can claim under the JSS Open, if eligible. They will no longer be able to claim under JSS Closed.
Other issues to consider when claiming under the JSS
What if the employee takes holiday?
This is unclear but we would expect it to be dealt with in the guidance due at the end of the month. For example, we don’t yet know whether holidays will “count” towards the 20% minimum working hours required under the JSS Open or if they will be treated as unworked hours. Employers may need to top up holiday pay in some cases to ensure that employees are receiving the correct statutory entitlement.
What if the employee is sick or under official instruction to self-isolate?
The employee would be entitled to statutory sick pay (SSP) in these circumstances, but it is not clear how time off sick will be treated under the JSS
Can we start redundancy consultation or put employees at risk of redundancy?
The policy paper states that no claims (for either JSS Open or JSS Closed) can be made for employees who have been made redundant or are serving a notice period during the claim period. This indicates that you will be able to start redundancy consultation and put employees at risk of redundancy while claiming for them under either JSS, provided that you do not issue notice of termination of employment due to redundancy (see below). Employers who have already issued redundancy notices to staff, but now consider that they may be able to retain them under the terms of the more generous JSS Open, may be able to consider revoking notices by agreement with the employee.
Can we issue notice of redundancy or make employees redundant?
It seems that you will be able to do this, but you will need to move them out of the scheme first. The factsheet says that employees cannot be “made redundant or put on notice of redundancy” during the period within which their employer is claiming the grant for that employee under the JSS. This suggests that you can issue notices of redundancy or make employees redundant so long as you move them out of the scheme first. We await further guidance, but you may need to move them out of the scheme before the beginning of the pay period in which you issue notice of redundancy.
How would we calculate redundancy pay for an employee in the JSS?
This is unclear. The government recently legislated to ensure that furloughed employees have their statutory redundancy payments calculated on the basis of their pre-pandemic pay, rather than the pay they received while in the furlough scheme. It seems likely that the government will extend the new rules to cover employees in the JSS but this has not been confirmed.
Can employees take another part-time job during the hours we don’t need them to work for us?
Furloughed employees have always been allowed to work elsewhere during their furloughed hours (subject to their contractual obligations to their main employer). It is not clear if a similar principle will apply to the JSS, but it seems likely.
How do we claim?
Employers will be able to make a claim under the JSS online from 8 December 2020. Grant payments will be made monthly in arrears, reimbursing the employer for the government’s contribution. This means that a claim can only be submitted in respect of a given pay period after payment has been made and that payment has been reported to HMRC via an RTI return. For many employers, this could create cashflow headaches in these very straitened times, although the government’s array of business support grants and loans may help. More detailed guidance about this process will be published by the end of October.
In what circumstances would we have to repay the grant?
The factsheet says that HMRC will check claims, and payments may be withheld or need to be paid back if a claim is found to be fraudulent or based on incorrect information.
Grants can only be used as reimbursement for wage costs actually incurred so, if you have not paid the government top-up to the employee as wages, you would also be liable to repay it. HMRC have confirmed that employees will be able to see if a claim has been made relating to them via their personal tax account.
What needs to be agreed with employees to put them in the JSS
What agreements do we need in place?
In order to be eligible for the grant, you will need to agree any new arrangements with staff, make any changes to the employment contract by agreement, and notify the employee in writing. This agreement must be made available to HMRC on request and must be retained for at least five years. What should the agreement cover?
The policy paper states that HMRC will publish guidance on the contents of the agreement by the end of October.
In our view, the agreement will need to cover the reduced hours that the employee will be working, the extra top-up pay they will receive through the scheme, and what happens in respect of the unworked hours that are not covered by the top-up. It should also cover the arrangements for moving the employee out of the JSS if necessary. If you are using the JSS Closed, you will need to agree that the employee will stop work together for the period you are claiming for.
Employers may want to wait until the guidance is released and we have further details before finalising any arrangements with employees, although this needs to be balanced against the extremely short remaining window of time that is available before the scheme comes into effect on 1 November, and at the very least it is likely to be sensible to open negotiations with staff (and unions, where applicable) without delay if you have not done so already. Employers who anticipate using the JSS Open on a large scale, or who are already in the course of redundancy consultations in relation to which the scheme may be viewed as an alternative, may feel they have little choice but to move more swiftly.
Alternative resourcing options for employers outside the JSS
If you have some work, but not enough to keep everyone on their pre-pandemic hours, one option is to select some staff for redundancy while keeping others employed on their full hours. There is an argument that it is unfair to make employees redundant when a government-supported JSS is available as an alternative. However, the fairness of a redundancy dismissal depends on all the circumstances at the time, including the employer’s resources. It will not necessarily be unfair to make employees redundant instead of using the JSS, particularly given the additional costs incurred by the employer in making use of the scheme.
Reduced hours working outside of the scheme
Another option is to agree a reduced working week with employees that does not involve putting them into the JSS. For example, it would be possible to agree with an employee that they will work for a 20% of their original normal hours and be paid for those but without seeking recourse to any further top-ups under the JSS. Any proportion of working hours could be agreed under such an arrangement and it would not require a minimum of 20%. The employer could even offer a top-up.
From the employee’s perspective, however, this is a much less attractive arrangement. Unless your underlying agreement with the employee allows for reduced hours or sets no minimum normal hours, this sort of agreement will need to be negotiated with the employee.
It is possible that some employees will prefer a period of unpaid leave to redundancy or reduced hours working – for example, if they are Covid-vulnerable and do not want to go to the workplace at the moment. This might even be a reasonable adjustment if the employee is disabled within the meaning of the Equality Act 2010. For a more detailed discussion of this issue, see our FAQs on staffing decisions when reopening workplaces.
Have you paid enough tax to ‘cover’ your Gift Aid donations?
A client asking why they are being taxed on their gift aid-donation got me to ask, “Have you paid enough tax to ‘cover’ your Gift Aid donations?”
HMRC are very keen to ensure that Gift Aid donors are paying enough tax. In recent times, they have come under pressure from the National Audit Office and the Public Accounts Committee to take steps to reduce the amount of Gift Aid incorrectly claimed. The public therefore need to be better equipped to know if they can or cannot make charitable donations with Gift Aid added.
Most Gift Aid donors will be giving very intentionally and will understand that they will need to have paid enough income (or capital gains) tax in each tax year (6 April to 5 April following) to equal or exceed the Gift Aid tax that we reclaim on their Gift Aided donations.
However, the tax landscape has changed significantly over the last few years. HMRC tell us that around 50% of adults in the UK no longer pay any income tax at all, up from around 42% only a few years back. Why is this? Some reasons are:
The increase in the amount of taxable income that a person can receive before actually being liable to pay a penny of tax. The tax free allowance (also known as the ‘personal allowance’) has been increased by the Government from £6,475 in 2010/11 to £11,000 in 2016/17 with a promise of further increases to £12,500 before the end of the current Parliament in 2020.
Pension contributions can act to further reduce taxable income.
Investment income can be tax free if earned within an Individual Savings Account (or, ISA) and the ISA savings limit for cash investments has increased from £5,100 in 2010/11 to £15,240 in 2016/17.
From 2016/17 the first £5,000 of dividend income is not taxed.
Also, from 2016/17 basic rate taxpayers will pay no tax on savings interest of up to £1,000.
Other changes (for example to the rent a room relief) take more income out of the income tax net.
Example Gift Aid Tax and Income Tax:
Mary (whose husband works full time) earns £250 per week (£13,000 p.a.) from her part time job. She faithfully pays a tithe of 10% of her income into a Gift Aid account. She has also authorised her employer to deduct 15% of earnings to be paid into her personal pension scheme. She has savings interest from a cash ISA and a bank savings account, as well as some good dividend income from shares left to her by her late father. How much tax will she pay in 2016/17?
Interest income from Mary’s ISA
Gift Aid donations
Net cash after pension contributions and gifts to charity
Gift Aid donations are deemed to be paid after Mary has ‘deducted’ basic rate tax, which is 25p for each £1 of donation made. It is 25p because the 20% basic rate of tax is calculated on the gross donation of £1.25 (£1 + the 25p tax).
The gross value of her Gift Aid donations (which is the tax deductible amount) is £1,300 + £325 = £1,625. In other words, she has made Gift Aid donations of £1,625 but has ‘deducted’ £325 of tax and paid the balance, £1,300 to the charity. In signing her Gift Aid declaration, she has effectively said that she will have paid at least £325 in income tax, and authorised us to reclaim that £325 from HMRC for charitable use.
But has she paid enough tax?
Let’s see …
Add: ISA income
Add: Dividend income paid gross
Add: Bank interest paid gross
Less: Pension contributions
Taxable earnings before personal allowance
Income subject to tax
Income tax at 20%
Tax paid under PAYE
Tax deducted from Gift Aid donations, reclaimed by Charity
Shortfall in tax paid
So, despite earning £13,000 per year and being left with an average of £206.73 each week before tax but having paid her pension contributions and Gift Aid donations, Mary has not paid sufficient income tax and now owes HMRC £315.00 for the year.
Is that it?
Well, not necessarily. If Mary’s husband earns enough to ‘take on’ Mary’s giving under Gift Aid (in addition to any Gift Aid donations that he may make), he could do so, provided that he has made a Gift Aid declaration, has paid enough tax himself, and the donations are paid out of the bank account that receives his income (for example, a joint account with Mary).
Alternatively, Mary could reduce either her pension contributions or her Gift Aid donations in order to make sure that she has enough tax on her earnings to ‘cover’ the amount of tax that is reclaimed on her Gift Aid donations.
Action Points Concerning Income Tax and Gift Aid
If your taxable income is close to the level of the personal allowance, you should be considering if you have paid enough tax to support your Gift Aid donations, using the example above as a guide. If you pay PAYE tax, your payslip can give you an idea of how much tax you are paying.
If you find that you haven’t paid enough, you should notify the charities that you have supported, immediately. They may be able and willing to adjust a future Gift Aid claim to repay any tax due on your behalf (but they are not obliged to do so, as it is your responsibility as donor to make up any shortfall).
Most high street banks have all got their Bounce Back Loan top-up systems live, however as predicted many people are experiencing all manner of problems trying to top up their loans.
These Banks are Paying Top-Ups
Those of you wondering, these are the banks that are now paying out Bounce Back Loan Top-Ups:
HSBC (Business Accounts not Feeder Accounts)
Bank of Scotland
Royal Bank of Scotland
Santander (some reports not a huge number)
Incorrect Turnover Figure
All banks are playing hardball when it comes to the turnover figure you entered when initially applying for a Bounce Back Loan, and as such it will be that figure they will work on when it comes to you being able to top-up your loan or not.
Many people cannot remember what figure they entered, some now state the figure they entered was incorrect and some are being told they cannot get a top-up as they do not mean the minimum £1000 threshold for a top up.
If you are 100% convinced the lender is wrong, and you are entitled to a top up you are going to venture into the unknown. However, ask the lender for proof of the figure you entered as your turnover when you originally applied for a Bounce Back Loan as mistakes can happen.
Most banks will automatically work out what you can claim as a top-up when you apply for one, however some are not doing.
You can, as the rules stand, only get 25% of your estimated/declared turnover up to a maximum BBL of £50,000 less what you initially got as your Bounce Back Loan.
Example: Your turnover was £100,000 you applied for a BBL of £5,000 that means you can now claim up to £20,000 as a top up. (25% of £100,000 is £25,000, you had £5,000 so you have access to a top up of £20,000).
If you think the lender has messed up, complain, you will be at their mercy and the “no turnover adjustment” rule though.
HSBC Feeder Account Top-Ups
Those accounts closed automatically when used once to fire out your BBL, and as such if you used one to get a BBL from HSBC those accounts need bringing back from the dead, and that is going to take some time. So, expect to wait until HSBC sus out how to do that and get a top up fired out to you. You will have to get a new EchoSign sent out to you once the Zombie Account comes back to life and sign it etc so expect delays.
Original Bank Account Closed
NatWest, Barclays and Lloyds and a few other banks have, over the last few months, been closing accounts of customers who took out a Bounce Back Loan with them.
As such you are going to face a few problems if you got paid out a BBL with any of those banks and was then dumped by them and moved your funds over to a new account with another bank.
The rules state you can only get a top-up with the original lender who gave you a Bounce Back Loan. As to how you go about doing so, speak to the bank in question and if you get no joy ask your MP to step in and contact the bank on your behalf as this is a grey area and one that there appear to be no rules to handle.
Declined for Dubious Reasons
There have seen a few complaints about people getting told they cannot have a top up for all manner of dubious reasons, such as you haven’t been using your business account as often as the bank would have hoped or even you moved out your funds sharpish when your original Bounce Back Loan hit it.
The reason why people moved their funds out was they saw huge numbers of complaints about banks snatching back loans from other people after initially paying them out. No one sane can blame anyone for doing that.
If you do get refused a top up for any reason, other than you are not eligible for one based on the amount you initially claimed, then appeal that decision, and don’t stop badgering the bank until you speak to someone with a brain who can help, once again get your MP involved if needed.
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Work with accountants who understands your business. We know the dropshipping model inside and out. See how we can help your dropshipping business today.
What is dropshipping?
Dropshipping is a retail fulfillment method where a store doesn’t keep the products it sells in stock. Instead, when a store sells a product using the dropshipping model, it purchases the item from a third party and has it shipped directly to the customer. As a result, the seller doesn’t have to handle the product directly.
The biggest difference between dropshipping and the standard retail model is that the selling merchant doesn’t stock or own inventory. Instead, the seller purchases inventory as needed from a third party—usually a wholesaler or manufacturer—to fulfill orders.
We have been working with some of the most successful dropshippers in and outside of the UK for a number of years on escrow platforms such as Fiverr.
We work with sellers operating a broad range of dropshipping models.
We understand the compliance and in particular VAT implications for the various models that apply.
“We are an ecommerce business selling across several platforms and they take care of our accounting, bookkeeping & VAT.
Their knowledge of the intricacies of the ecommerce world as well as their service have been outstanding and we can only highly recommend them.” – Dropshipping client.
VAT for dropshippers
Are you using AliExpress or Walmart to ship directly to consumers through your Shopify store?So are many of our existing clients and we have the expertise and experience to managed your books for you. We understand the Shopify dropshipping model and will accurately account for your business income and associated costs
We have spent countless hours working inside Seller Central for FBA dropshippers.We managed your transactional inputs from Amazon seller central into your books and reconcile your sales to the specific charges by Amazon.See how we can help your business today.
Many accountants incorrectly inform their clients that VAT applies to their dropshipping supplies to end customers.This is incorrect.Without examining the source of product rules or incorrectly interpreting the source rules, affecting the bottom line.
VAT for Dropshippers
One of the most important areas of compliance when it comes to dropshipping is VAT. Many accountants wrongly inform their clients that they need to account for VAT on their dropshipping supplies, when in fact, they do not.
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