HMRC confirms usual hours calculation for flexible furlough

13th July 2020

HMRC has confirmed to ICAEW how usual hours should be calculated. The answer is not the logical one, but it aligns with the published guidance.

 

On 18 June, ICAEW’s Tax Faculty highlighted the confusion on how to calculate usual hours for partially furloughed employees for claims under the second iteration of the Coronavirus Job Retention Scheme (CJRS V2).

 

Key to getting the answers HMRC expects from its furlough grant claim calculator, are the hours that employers feed in.

 

For the period of the claim the employer must enter:

  • usual working hours, and
  • actual working hours.

The difference between these is the furloughed hours on which the grant claim is based.

 

HMRC has now confirmed that the following approach is the correct one, as applied for July 2020 to Steve who works 35 hours a week and is paid on the last working day of each month:

 

HMRC’s published guidance gives instructions for working out an employee’s usual hours for an employee who is contracted for a fixed number of hours and whose pay does not vary according to the number of hours they work, as follows:

 

“You need to calculate the usual hours for each pay period, or part of a pay period, that falls within the claim period.

 

“To calculate the number of usual hours for each pay period (or partial pay period)”:

 
INSTRUCTION AS APPLIED TO STEVE 
1.Start with the hours your employee was contracted for at the end of the last pay period ending on or before 19 March 2020.

35

2.Divide by the number of calendar days in the repeating working pattern, including non-working days. 35/7=5
3.Multiply by the number of calendar days in the pay period (or partial pay period) you are claiming for.5×31=155
4.Round up to the next whole number if the outcome isn’t a whole number.155

 

The answer, confirmed by HMRC, is 155 usual hours in July for Steve.

 

HMRC has confirmed that the guidance to software developers which gave alternative answers is out of date although the Tax Faculty understands that it has not actually been withdrawn or superseded.

The common sense answer, which you would get if you look at a calendar and count the hours, is 161 hours for July (23 working days Monday to Friday days x 7 hours), but HMRC has confirmed that this is wrong.

 

Following HMRC’s guidance means that for many employers the grant they receive will be slightly less than they may have expected if they were working on an employee returning to work for a percentage of their usual working week.

 

However, the legislation covering the implementation of the CJRS has been published and, as with earlier debates about working versus calendar day calculations, HMRC is sticking to its position.

Employers to receive £1k bonus for bringing staff back from furlough

9th July 2020

Chancellor Rishi Sunak has announced a £1,000 “job retention bonus” for employers that bring workers back from furlough.

 

If an employer brings someone back who was furloughed and continues to employ them between November and January, the government will award a £1,000 bonus for each worker.

 

Employees must earn at least the lower earning limit for national insurance (£520 per month) between November and January in order for employers to be eligible for the pay-out.

 

Sunak said that if the government paid the bonus for every one of the 9 million workers who have accessed the job support scheme since its inception, “this would be a £9bn policy to retain people in work”.

 

“If you stand by your workers, we will stand by you,” he said.

 

Announcing its Plan for Jobs package of measures, the government said the UK was entering its second phase in post-pandemic recovery, and would now turn its attention to supporting jobs through skills development, creating jobs through infrastructure investment and protecting jobs through incentives for consumers to support tourism and hospitality businesses.

 

Sunak added that it would be “irresponsible” to keep the furlough scheme going past the end of October, when it is due to end, pledging to wind it down “flexibly and gradually”.

 

Sunak’s ‘summer statement’ today also confirmed the Treasury’s plan to invest £2bn in a “kickstart scheme” of work placement support for young people aged between 16 and 24.

 

Under this scheme, employers will be able to subsidise the wages of people aged 16-24 that are claiming Universal Credit and at risk of long-term unemployment.

 

Funding available for each six-month job placement will cover 100% of the national minimum wage for 25 hours a week – and employers will be able to top this wage up.

 

In addition, the chancellor announced that the government would give companies £2,000 each to encourage them to hire apprentices, and £1,500 if they hire apprentices over 25.

 

This comes on top of recent announcements to triple the scale of traineeships, to invest £17m in sector-based work academy placements and a £900m pledge to double the number of work coaches available, and invest more in the National Careers Service.

 

It has also pledged £1bn in additional investment in the Department for Work and Pensions to help jobseekers, including doubling the number of people who work in job centres.

 

In tourism and hospitality – where numbers on furlough have been the highest – the government said it would protect jobs through a six-month cut to VAT from 20% to 5%, encouraging customers to book holidays or eat out and stimulate employment.

 

An “eat out to help out” scheme – where consumers will receive vouchers to eat out at restaurants – will also support 2.4 million staff in more than 150,000 businesses, Sunak added.

 

A £3bn green investment package will help stimulate employment in upgrading buildings and reducing emissions, creating around 140,000 jobs.

 

Sunak said he had never been “the prisoner of ideology”; that the plan was “never just a question of economics, but of values”.

 

He said: “We believe in the nobility of work. We believe in the inspiring power of opportunity. We believe in the British people’s fortitude and endurance.

 

“Our plan has a clear goal: to protect, support and create jobs. It will give businesses the confidence to retain and hire. To create jobs in every part of our country. To give young people a better start. To give people everywhere the opportunity of a fresh start.”

 

Shadow chancellor Anneliese Dodds, in response to the announcements, pointed out that the benefits claimant count topped 3 million in June. She accused the chancellor of “putting off big decisions” and said that he should have announced a “back to work budget”.

 

She added that the Kickstart Scheme is very similar to the Jobs Future Fund – a scheme implemented by a Labour government and cancelled by the Conservatives.

 

Stephen Ratcliffe, employment partner at Baker McKenzie, said that the job retention bonus was a “welcome and surprising development”, but said urgent guidance was needed on how it would work. He said: “Those facing cash flow issues will also need comfort that the bonus will be paid promptly, without unnecessary administration.

 

“Both those making use of this scheme, and those who have used and continue to use the furlough scheme, also need reassurance that that the government will not later seek to recoup those funds due to minor or inadvertent errors in applying the rules, particularly given the contradictory and uncertain guidance we have seen in respect of the furlough scheme.”

 

The Institute for Employment Studies said there would be four key challenges in ensuring the proposed measures are effective. 

 

  • Private recruiters (many of whom are being paid not to work through the furlough scheme) are needed to help mobilise the employment response; 
  • No clarity on how local authorities would help to co-ordinate and lead responses locally;
  • No clarity on how those with health conditions and disabled people would be supported to return to work; and 
  • Whether the funding would be enough, “even with the scale of the response today”. 
  •  

“To take one example, the maximum value of the “kick-start” subsidy for young people will be a third lower than that offered through the Future Jobs Fund, but is intended to create four times as many jobs,” said the IES.

 

“While £100 million investment in support for 18 to 19-year-olds will repair just a fraction of the cuts in further education funding in recent years.” 

Budget to go ahead on 11th March

21st February 2020

The Budget is to go ahead as planned on 11 March, despite the upheaval following the resignation of Sajid Javid, new chancellor Rishi Sunak has confirmed.

Tax changes see private landlord numbers slump

20th February 2020

The NIC threshold changes for 2020-21 set the level taxpayers start to pay NICs at £9,500 per year for both employed and self-employed people, effective from 6 April 2020.

 

As a result, typical employee will save around £104 in 2020-21, while self-employed people, who pay a lower rate, will have £78 cut from their bill.

 

All the other thresholds for 2020-21 will rise with inflation, except for the upper NICs’ thresholds which will remain frozen at £50,000, as announced at Budget 2018.

 

Sajid Javid, Chancellor, said: ‘We are determined to do what we promised and put more money into the pockets of ordinary hard-working people. That is why we are starting this government as we mean to go on, by cutting their bills.’

 

Government figures indicate the typical basic rate taxpayer now pays over £1,200 less income tax compared to 2010-11.

 

The threshold changes will not affect low earners’ entitlement to contributory benefits such as the state pension, with the lower earnings limit and small profits threshold, above which individuals start building entitlement to contributory benefits, rising with the CPI measure of inflation.

 

In addition to increasing the NICs threshold the government has said it will also end the freeze to working age benefits, which has been in place since 2016.

 

From April 2020 the majority of working-age benefits will be uprated in line with inflation.

 

The changes have been passed by parliament and will be introduced through three separate statutory instruments (SIs): Social Security (Contributions) (Rates, Limits and Thresholds Amendments and National Insurance Funds Payments) Regulations 2020; Social Security Benefits Up-rating Order 2020; and Tax Credits, Child Benefit and Guardian’s Allowance Up-rating Regulations 2020.

HMRC trials online CGT payment system for 30-day change

13th February 2020

The NIC threshold changes for 2020-21 set the level taxpayers start to pay NICs at £9,500 per year for both employed and self-employed people, effective from 6 April 2020.

 

As a result, typical employee will save around £104 in 2020-21, while self-employed people, who pay a lower rate, will have £78 cut from their bill.

 

All the other thresholds for 2020-21 will rise with inflation, except for the upper NICs’ thresholds which will remain frozen at £50,000, as announced at Budget 2018.

 

Sajid Javid, Chancellor, said: ‘We are determined to do what we promised and put more money into the pockets of ordinary hard-working people. That is why we are starting this government as we mean to go on, by cutting their bills.’

 

Government figures indicate the typical basic rate taxpayer now pays over £1,200 less income tax compared to 2010-11.

 

The threshold changes will not affect low earners’ entitlement to contributory benefits such as the state pension, with the lower earnings limit and small profits threshold, above which individuals start building entitlement to contributory benefits, rising with the CPI measure of inflation.

 

In addition to increasing the NICs threshold the government has said it will also end the freeze to working age benefits, which has been in place since 2016.

 

From April 2020 the majority of working-age benefits will be uprated in line with inflation.

 

The changes have been passed by parliament and will be introduced through three separate statutory instruments (SIs): Social Security (Contributions) (Rates, Limits and Thresholds Amendments and National Insurance Funds Payments) Regulations 2020; Social Security Benefits Up-rating Order 2020; and Tax Credits, Child Benefit and Guardian’s Allowance Up-rating Regulations 2020.

NICs threshold increases by £104 from April

30th January 2020

The NIC threshold changes for 2020-21 set the level taxpayers start to pay NICs at £9,500 per year for both employed and self-employed people, effective from 6 April 2020.

 

As a result, typical employee will save around £104 in 2020-21, while self-employed people, who pay a lower rate, will have £78 cut from their bill.

 

All the other thresholds for 2020-21 will rise with inflation, except for the upper NICs’ thresholds which will remain frozen at £50,000, as announced at Budget 2018.

 

Sajid Javid, Chancellor, said: ‘We are determined to do what we promised and put more money into the pockets of ordinary hard-working people. That is why we are starting this government as we mean to go on, by cutting their bills.’

 

Government figures indicate the typical basic rate taxpayer now pays over £1,200 less income tax compared to 2010-11.

 

The threshold changes will not affect low earners’ entitlement to contributory benefits such as the state pension, with the lower earnings limit and small profits threshold, above which individuals start building entitlement to contributory benefits, rising with the CPI measure of inflation.

 

In addition to increasing the NICs threshold the government has said it will also end the freeze to working age benefits, which has been in place since 2016.

From April 2020 the majority of working-age benefits will be uprated in line with inflation.

 

The changes have been passed by parliament and will be introduced through three separate statutory instruments (SIs): Social Security (Contributions) (Rates, Limits and Thresholds Amendments and National Insurance Funds Payments) Regulations 2020; Social Security Benefits Up-rating Order 2020; and Tax Credits, Child Benefit and Guardian’s Allowance Up-rating Regulations 2020.

1.13m businesses still to sign up to Making Tax Digital

27th March 2019
Estimates suggest almost 1.2m businesses will be required to file VAT returns digitally. While research carried out at the end of last year suggested 83% of businesses are familiar with Making Tax Digital and had already started to prepare, current uptake is low, although HMRC says more than 3,000 are now signing up every day.HMRC is urging businesses to get ready now and has written to every business that will be mandated with information on what they should do and how.At the beginning of March, HMRC reported just under 30,000 businesses had signed up, a figure which has more than doubled, while the rate of daily signings has risen from 2,000 to 3,000 a day.Theresa Middleton, HMRC’s director of the Making Tax Digital for business programme, said: ‘There are over 220 software products for businesses to choose from at a range of prices, including free ones, offering different levels of functionality.‘I’d urge any business affected by Making Tax Digital to start preparing now, and to join the thousands of others who are already experiencing the benefits Making Tax Digital has to offer.’Most businesses above the VAT threshold have to start keeping their records digitally and sending their VAT return to HMRC direct from their software for VAT periods starting on or after 1 April.However, an HMRC spokesperson emphasised that April 1 is not ‘a cliff edge’.The spokesperson said: ‘Businesses will join as and when it’s right for their VAT period. The first businesses that will be mandated to file through Making Tax Digital won’t have to do so until August.’Those already using software will need to ensure it is Making Tax Digital-compatible then sign up to the new service and authorise their software for Making Tax Digital.Those businesses that are either not represented by an accountant and/or do not already use software will need to select software to use and sign up to Making Tax Digital, then authorise their new software for the online service.HMRC says it recognises that businesses will require time to become familiar with the new requirements of Making Tax Digital, and during the first year of mandation, will not issue filing or record keeping penalties where businesses are doing their best to comply. However, sanctions will remain possible in cases of deliberate non-compliance, and in order to safeguard VAT revenue.Anyone who is already exempt from online filing of VAT will remain so under Making Tax Digital.Late paymentSeparately, ATT and CIOT are cautioning businesses that HMRC’s ‘light touch’ on Making Tax Digital penalties will not extend to the late payment of tax.Adrian Rudd, chair of the joint ATT/CIOT digitalisation and agent strategy working group, said: ‘We encourage businesses to prioritise the timely payment of VAT, even if they are struggling to comply with Making Tax Digital.‘Businesses must ensure that they pay the right amount of VAT at the right time even if they struggle or fail to keep their records digitally, or file their VAT returns through Making Tax Digital compliant software.The ATT and CIOT are also concerned that those who pay VAT by direct debit, but have problems filing their VAT returns under Making Tax Digital, may unintentionally be late paying their VAT bill. This is because the VAT return acts as the trigger for payment to be taken from their bank account. As a result, if someone files their VAT return late, their VAT payment will also be late.Direct debit payments are taken either three working days after the payment deadline (if the return is filed on time) or three working days after the date the VAT Return is filed (if late). If a business pays late as a result of filing late, they could incur a default surcharge. An appeal may be brought on the grounds there was a reasonable excuse if the late filing was due to Making Tax Digital problems outside of their control, for example software issues or an HMRC system crash.

Pensions auto enrolment contributions to rise

20th March 2019
Pensions auto enrolment contributions to riseMinimum pension contributions are set to increase from 6 April 2019:Duration Employer minimum (%) Total minimum contribution (%) Current contributions 2 5 6 April 2019 onwards 3 8The Pensions Regulator has produced guidance for employers on dealing with the increase including a letter template to advise employees of the change.Contact us if you would like help with auto enrolment.

Personal Tax News

27th February 2019
Personal TaxThe UK personal allowance, tax rates and bands for 2019/20 were announced by the Chancellor in the Autumn budget in October 2018. The personal allowanceThe personal allowance is £11,850 for 2018/19 and increases to £12,500 for 2019/20. There is a reduction in the personal allowance for those with ‘adjusted net income’ over £100,000. The reduction is £1 for every £2 of income above £100,000. So for 2018/19 there is no personal allowance where adjusted net income exceeds £123,700. For 2019/20 there is no personal allowance available where adjusted net income exceeds £125,000.The marriage allowanceThe marriage allowance permits certain couples, where neither pays tax at more than the basic rate, to transfer 10% of their personal allowance to their spouse or civil partner.The marriage allowance reduces the recipient’s tax bill by up to £238 a year in 2018/19. The marriage allowance was first introduced for 2015/16 and there are many couples who are entitled to claim but have not yet done so. It is possible to claim for all years back to 2015/16 where the entitlement conditions are met. A recent change to the law allows backdated claims to be made by personal representatives of a deceased transferor spouse or civil partner.Tax bands and ratesThe basic rate of tax is 20%. In 2018/19 the band of income taxable at this rate is £34,500 so that the threshold at which the 40% band applies is £46,350 for those who are entitled to the full personal allowance. In 2019/20 the basic rate band increases to £37,500 so that the threshold at which the 40% band applies is £50,000 for those who are entitled to the full personal allowance.Individuals pay tax at 45% on their income over £150,000. Scottish residentsThe tax on income (other than savings and dividend income) is different for taxpayers who are resident in Scotland to taxpayers resident elsewhere in the UK. The Scottish income tax rates and bands apply to income such as employment income, self-employed trade profits and property income.In 2018/19 and 2019/20 there are five income tax rates which range between 19% and 46%. Scottish taxpayers are entitled to the same personal allowance as individuals in the rest of the UK. The two higher rates are 41% and 46% rather than the 40% and 45% rates that apply to such income for other UK residents. For both 2018/19 and 2019/20, the threshold at which the 41% band applies is £43,430 for those who are entitled to the full personal allowance. Welsh residentsFrom April 2019, the Welsh Government has the right to vary the rates of income tax payable by Welsh taxpayers. The UK government has reduced each of the three rates of income tax paid by Welsh taxpayers by 10 pence. The Welsh Government has set the Welsh rate of income tax at 10 pence which will be added to the reduced rates. This means the tax payable by Welsh taxpayers continues to be the same as that payable by English and Northern Irish taxpayers. Tax on savings incomeSavings income is income such as bank and building society interest.The Savings Allowance, which was first introduced for the 2016/17 tax year, applies to savings income and the available allowance in a tax year depends on the individual’s marginal rate of income tax. Broadly, individuals taxed at up to the basic rate of tax have an allowance of £1,000. For higher rate taxpayers the allowance is £500. No allowance is due to additional rate taxpayers.Some individuals qualify for a 0% starting rate of tax on savings income up to £5,000. However, the rate is not available if taxable non-savings income (broadly earnings, pensions, trading profits and property income less allocated allowances and reliefs) exceeds £5,000. Tax on dividendsThe first £2,000 of dividends are chargeable to tax at 0% (the Dividend Allowance). Dividends received above the allowance are taxed at the following rates:7.5% for basic rate taxpayers 32.5% for higher rate taxpayers 38.1% for additional rate taxpayers.Dividends within the allowance still count towards an individual’s basic or higher rate band and so may affect the rate of tax paid on dividends above the Dividend Allowance.To determine which tax band dividends fall into, dividends are treated as the last type of income to be taxed. Gift Aid – donor benefitsThe donor benefits rules that apply to charities who claim Gift Aid tax relief on donations are simplified from 6 April 2019. The benefit threshold for the first £100 of the donation remains at 25% of that amount. For gifts exceeding £100, charities can offer benefits up to the sum of £25 and 5% of the amount of the donation that exceeds £100. The total value of the benefit that a donor can receive remains at £2,500.CommentThe new limits replace the current mix of monetary and percentage thresholds that charities have to consider when determining the value of benefit they can give to their donors without losing the entitlement to claim Gift Aid tax relief on the donations given to them.Gift Aid Small Donations SchemeThe Gift Aid Small Donations Scheme (GASDS) applies to small charitable donations where it is impractical to obtain a Gift Aid declaration. GASDS currently applies to donations of £20 or less made by individuals in cash or contactless payment. The limit increases to £30 from 6 April 2019.

Buy-to-let landlords face shorter CGT payment window

9th July 2018
Where CGT is due, a disposal is normally reported to HMRC in a self-assessment tax return. Under self-assessment, any CGT must be paid by 31 January following the tax year of disposal.The government has noted that (depending on the timing of the sale within a tax year) this allows residential property owners between 10 and 22 months after the sale of the property before the tax is due.Concerned about the length of time before any CGT is paid, HMRC is planning to bring in new rules from April 2020 which will require individuals and trustees disposing of a residential property to make a payment on account of the CGT within 30 days of the completion of the sale. Sellers will have to calculate, report and pay the CGT that they believe is due within that window.As an example, if an owner exchanged contacts for the sale of a house on 15 April 2019 and the sale completed on 15 May 2019, the existing rules would apply and mean that any CGT arising would be due on 31 January 2021. By contrast, under the proposed rules, an exchange of contracts on 15 April 2020 with completion on 15 May 2020 would mean that the CGT had to be paid by 14 June 2020 – over seven months earlier than if the property had been sold in the previous tax year and indeed before any CGT was due for the previous tax year.Jon Stride, co-chair of ATT’s technical steering group, said: ‘The new rules will significantly reduce the amount of time that those selling residential property will have to calculate and pay their CGT bill. CGT computations can be complex and it can take time to establish all the necessary facts to make an accurate computation of the taxable gain. Sellers will need to start gathering information and details of historic costs, or dates of occupation well in advance of the sale.’ATT says such ‘in year’ reporting can create complications as many individuals will not know what rate of tax will apply at the time of disposal. This is because the applicable tax rate for CGT depends on the individual’s total income for the tax year which can only be estimated at the time of disposal.Equally, individuals may make other disposals in the year liable to CGT which might affect the position. After making an ‘in year’ report, individuals will therefore need to review and revise the computation at the end of the tax year, either as part of their usual self-assessment procedures or via new ‘end of year’ reconciliation process. This will increase the compliance burden for taxpayers.A particular area of concern is the treatment of capital losses, says ATT. Under the current proposals, the taxpayer will only be able to take into account of losses which are known about at the time of disposal. If they incur more capital losses later in the same tax year, then it is likely that the original payment on account of CGT will be found to be too large.However, they will not be able to reclaim any overpayment until after the tax year has finished. This could leave the taxpayer out of pocket for some months, warns ATT. The only time that capital losses realised after the disposal of the property can be taken into account is if the taxpayer disposes of further residential property in the same tax year.ATT points out that when similar ‘in-year’ reporting rules were introduced for non-residents disposing of UK residential property, many individuals only realised they should have reported their disposals earlier when they came to complete their self-assessment return after the end of the tax year.The association’s response to a HMRC consultation on how to administer the CGT changes highlights concerns that UK individuals may also miss the earlier deadline and have asked HMRC to consider a ‘soft-landing’ for penalties in the early years of these new rules.Stride said: ‘If the government wants to accelerate tax payments in order to minimise possible loss to the Exchequer, we would like to see a wider debate on the timing of payment of tax rather than payments on account being introduced in a piecemeal fashion over a number of different assets or income sources. A broader debate would enable HMRC to identify clearly the specific areas of concern and the risks to tax collection and thereby enable identification of possible solutions.’People selling their only or main home should not be affected by the new rules provided that they are entitled to full private residence relief1 which exempts them from having to pay CGT on the sale.