Budget 2021 - some notes
Working from home.The temporary income tax and NI exemptions for reimbursements made by employers to employees who bought equipment they needed to work from home because of the pandemic has been extended by one year. It now covers reimbursements made by employers on or before 5 April 2022.
New VAT penalty.Budget 2021 included a measure for a brand new penalty of 5% which will apply if VAT liabilities deferred under HMRC’s coronavirus deferral scheme between March and June 2020 remain unpaid by 30 June 2021. The penalty won’t apply as long as you opt into HMRC’s new VAT payment scheme or contact HMRC to agree an alternative arrangement to pay by 30 June.
MTD.New legislation will bring all VAT-registered businesses, not just those with a turnover in excess of the registration threshold, within the Making Tax Digital for VAT regime. This will apply from the start of the first VAT return period commencing on or after 1 April 2022.
Remuneration strategies for the old and new tax years
If your company’s profits have fallen or it’s registered a loss you need to take care when deciding whether and how much to pay in dividends. You need to consider both the tax year and your company’s financial year. Remember that your company can only declare and pay you dividends if it has accumulated profits.
The target is to pay a dividend that brings your total taxable income for 2021/22 up to the basic rate threshold of £50,000. Up to this level you’ll only pay 7.5% tax on dividends.
Adequate accounting records
Mr Namaji (N) was the sole director of Miss Pebbles Clothing Ltd. After just over a year of trading, the company was in financial trouble and he placed it into liquidation. The Insolvency Service’s investigation found that N had not kept adequate accounting records, so the liquidator could not trace withdrawals of over £983,000. During its short trading history, the company had failed to pay taxes of more than £301,000, including NI and PAYE contributions that were taken from employees but not passed on to the authorities. £44,000 was left owing to other creditors.
N was sentenced to six months’ imprisonment after pleading guilty to failing to keep adequate accounting records. He was also disqualified as a director for five years.
TheCompanies Act 2006requires every company to keep adequate accounting records that:
- show and explain its transactions, recording daily receipts and expenditure, as well as the company’s assets and liabilities
- disclose its financial position with reasonable accuracy at any time; and
- enable the directors to ensure that the annual accounts comply with the statutory requirements.
Failure to keep adequate accounting records is a criminal offence and can result in directors being imprisoned for up to two years (but this is unusual) and/or given an unlimited fine. A director is in default if they authorised, permitted, participated in, or failed to take all reasonable steps to prevent the offence being committed.
Whether a director is fined or imprisoned, they receive a criminal record.
Failure to keep accounting records is the most common reason for disqualification and can lead to a ban for up to five years. When a company goes into liquidation, its affairs are investigated by the liquidator, who will quickly uncover any deficiencies in the accounting records.
Detailed records and supporting documentation must be kept for up to six years. Failure to do so can result in a penalty of up to £3,000. If HMRC asks you to phone to discuss your accounting records, make sure you respond. If your records are in order, that will be the end of it. If HMRC arranges a visit to investigate further, don’t panic. Even if your records are deficient, HMRC will provide advice on how to comply and give you time to catch up.
Capital allowances incentive for “green” cars extended
The deadline for qualifying expenditure on environmentally friendly cars, goods vehicles and related equipment, e.g. electric charging points, has been extended from 2021 to 2025. Keep a separate record of purchases which qualify so that the special tax deductions can be claimed without eating into your annual investment allowance.