A reminder that HMRC have set out detailed guidance for the self-employed who may have over-claimed any of their Self-Employed Income Support Scheme (SEISS) grants.

The guidance is reproduced below:

You must tell HMRC if, when you made the claim, you were not eligible for the grant. For example:

• for the first or second grant, your business was not adversely affected.
• for the third or fourth grant, your business had not been impacted by reduced activity, capacity or demand or inability to trade in the relevant periods.
• you did not intend to continue to trade.
• you have incorporated your business since 5 April 2018.

You must also tell HMRC if you:

• received more than we said you were entitled to.
• amended any of your tax returns on or after 3 March 2021 in a way which means you are entitled to a lower grant than you received.

When you must tell HMRC

If you are not eligible and have to pay the grant back, you must tell us within 90 days of receiving the grant.

The process for when and how to tell us is different if amending your return affects your grant amount or eligibility.

If amending your return affects your grant amount or eligibility

You must tell HMRC if there is an amendment to any of your tax returns on or after 3 March 2021 which either: lowers the amount you are eligible for and causes you to no longer be eligible.

If you amend your return before claiming your grant, you must tell HMRC within 90 days of receiving your grant.

If you amend your return after receiving your grant, you must tell HMRC within 90 days of making the amendment.

If you do not tell HMRC you may also need to pay a penalty. HMRC will provide more information about when you may need to pay a penalty by mid May 2021.

You do not need to tell HMRC if the grant amount you are eligible for is lowered by £100 or less.

If you are unsure if you are affected by these rules, please call.

Limited companies are owned by shareholders and managed by directors.

Very often, especially in the case of smaller companies, the owners and managers (shareholders and directors) are the same persons. Unfortunately, each has separate roles and responsibilities. For example, as a director of a limited company you must:

• follow the company’s rules, shown in its articles of association.
• keep company records and report changes.
• file your accounts and your Company Tax Return
• tell other shareholders if you might personally benefit from a transaction the company makes.
• pay Corporation Tax.

You can hire other people to manage some of these things day-to-day (for example, an accountant) but you are still legally responsible for your company’s records, accounts and performance.

Also, you may be fined, prosecuted or disqualified if you do not meet your responsibilities as a director

Taking money out of a limited company

Directors have a few options when considering how they can withdraw money from their company. For example, they can receive a salary, charge rent to the company if their company has the use of personal assets or charge interest if a director lends money to its company.

Directors who own shares in their company or other shareholders have one income producing option, to take a dividend.

A dividend is a payment made to shareholders out of a company’s taxed earnings. Depending on the level of dividends received, shareholders will pay:

• No additional tax on dividends received up to £2,000 a year.

• Dividends that form part of the basic rate band will be charged a hybrid tax rate of 7.5%.
• Dividends that form part of the higher rate band will be charged at 32.5%.
• Dividends that form part of the additional rate band will be charged at 38.1%.

Because dividends are a return to shareholders they are not treated as earnings from employment and consequently, no National Insurance arises. For this reason, there is a tendency for director/shareholders to minimise salary payments and maximise dividend payments.

Planning is key

However, it is rare for the tax position of individuals to be the same and for this reason, working out the most efficient way to withdraw funds from a company is paramount. It is not just a question of considering the strategy that produces the lowest tax bill. For instance, if salaries are to be minimised Living Wage rates and entitlement to benefits – particularly the State Pension – may need to be considered.

If it is some since you consider your options, please call so we can help you create the optimum fit for your circumstances.

For some time now, HMRC have had the power to claw back some or all of the Child Benefits you receive if either parent’s income exceeds £50,000.

The benefit is recovered by the High Income Child Benefit Charge (HICBC). This states that if either parent had income over £50,000 and:

• either partner received Child Benefit, or
• someone else received Child Benefit for a child living with you and they contribute at least an equal amount towards the child’s upkeep.

Then part or all of the Child Benefit received may need to be paid back to HMRC. It doesn’t matter if the child living with you is not your own child.

You may not have considered the HICBC before if your incomes were below the £50,000 cap, but if your income for 2020-21 exceeded this amount you should be aware of the following.

• The parent with the higher income for 2020-21 (more than £50,000) will need to register to submit a self-assessment tax return and pay any HICBC due – unless they are already registered in which case, they will need to enter the amount of Child Benefit received on their return and pay any tax due.
• The parent with the higher income, even if they were not the person claiming the Child Benefit, will need to make this declaration.

How will benefits be paid back?

1% of the Child Benefit received will be recovered by HMRC’s HICBC for every £100 the highest earner’s income exceeds £50,000. Accordingly, once the highest income exceeds £60,000 all the Child Benefits received will be reclaimed.

To avoid the charge, it is possible to decline receipt of Child Benefits. Care should be taken in triggering this option as it can have roll-on disadvantages when claiming future State Benefits or obtaining a National Insurance number for children.

To summarise:

• Parents where the highest income is below £50,000 will not be affected and can continue to claim Child Benefit with no tax claw back.
• Parents where the highest income is above £50,000 but below £60,000 will be affected and will need to pay the appropriate HICBC.

There are strategies that you could use to reduce your taxable income below the £50,000 or £60,000 thresholds as these are calculated net of any allowable deductions.

Please call if you would like more advice regarding these deductions or dealing with your registration for self-assessment, if required.

A special relief is available for creators of literary or artistic works under which they can claim to add together their profits for 2 years and be taxable on the average of those profits if certain conditions are met. This helps to even out fluctuating tax charges for creative persons who may pay little tax one year but perhaps higher rates of Income Tax the following year. The averaging process may help to reduce overall liabilities.

You can claim averaging if your profits come from disposing of works or from royalties you get for allowing people to reproduce your works. So, for example, you can claim if you are:

• an author whose income comes from the sale of your written work – even if a small part of your income comes from personal appearances
• a computer software writer whose income comes from royalties for reproducing the code you write, which is protected by copyright

You cannot claim averaging if your profits come from the services you provide. So, for example, you cannot claim if you’re:

• an architect whose income comes mainly from your services – even if some of your income comes from selling material protected by copyright
• a computer programmer whose income comes from the service of writing scripts or programs, not the actual works

The advisory electricity rate for fully electric cars is 4 pence per mile.

Hybrid cars are treated as either petrol or diesel cars for advisory fuel rates.

The advisory fuel rates for petrol, LPG and diesel cars are shown in these tables.

From 1 March 2021

You can use the previous rates for up to 1 month from the date the new rates apply.