To help companies realising losses as a result of the Covid-19 pandemic, the loss relief rules were amended to provide for an extended carry-back window. Where companies are making a claim for relief under the extended carry-back rules, the claim can be made online rather than waiting until the company tax return is filed.

Extended relief

Under the normal rules, a company that incurs a trading loss can set that loss against total profits of the same accounting period. Where the loss is not relieved in this way, it can either be carried back and set against total profits of the previous 12 month period, as long as the company was carrying on a trade in that period, or carried forward and set against future profits of the company. If the company ceases trading, a claim for terminal loss relief can be made, allowing the loss to be set against profits of the previous three years.

The 12-month carry-back window was extended to three years in respect of losses for accounting periods ending between 1 April 2020 and 31 March 2022. Where a loss is carried back under the extended rules, it must first be set against profits of a more recent year before it is set against profits of an earlier year. The amount that can be relieved under the carry-back provisions is capped at £2,000,000 for all accounting periods ending in the period from 1 April 2020 to 31 March 2021. A separate cap of £2,000,000 applies to losses of accounting periods ending between 1 April 2021 and 31 March 2022. The claim is limited to trading losses (and excludes capital losses). Losses which are carried back one year under the usual rules are not subject to the £2,000,000 cap – it only applies to losses carried back two or three years.

Making a claim under the extended carry back rules can be very beneficial and may generate a much-needed tax repayment for companies facing cash flow difficulties as a result of the impact of the Covid-19 pandemic.

Making the claim

As with the usual carry back claim, the claim can be made in the company tax return. This must be filed no later than 12 months from the date on which the accounting period ends.

However, there is also an option to make a claim for extended loss relief online. This can be done on the Gov.uk website.

Making an online claim can be advantageous as it can speed up the repayment. The claim can be made as soon as the loss-making accounting period has ended – there is no need to wait until the company tax return is filed.

Case Study

Food Ltd runs a small restaurant and bar. The company prepares accounts to 31 March each year. It was badly affected by the pandemic, realising a loss of £60,000 for the year to 31 March 2021 and a loss of £35,000 for the year to 31 March 2022.

Prior to the pandemic, it had made profits as follows:

• Year to 31 March 2020: profit £50,000.
• Year to 31 March 2019: profit £80,000
• Year to 31 March 2018: profit £40,000

The company makes a claim under the normal rules to carry back £50,000 of the loss of the year to 31 March 2021 to the previous year (the year to 31 March 2020), and makes a claim under the extended rules to carry the remaining loss of £10,000 back against the profits of the year to 31 March 2019, reducing them to £70,000. The combined claims generate a tax repayment of £11,400 (£60,000 @ 19%).

The company cannot carry the loss of £35,000 for the year to 31 March 2022 back one year -as there are no profits for the year to 31 March 2021. It makes a claim under the extended carry-back rules. As the profits for the year to 31 March 2020 have been eliminated by a previous claim, the company can carry the loss of £35,000 and set it against the remaining profits of £70,000 for the year to 31 March 2019 (the earliest year to which the loss can be carried back). This reduces the profits of that year to £35,000, and generates a repayment of £6,650 (£35,000 @ 19%).

The claim can be made online from 1 April 2022 onwards.

A lot of time and paperwork can be saved by claiming expenses using the simplified rates, rather than recording and deducting actual costs. However, if the deduction is considerably higher using actual costs, the additional time investment may be worthwhile. Given current high cost of fuel, where mileage is high, a deduction based on actual costs may be preferable.

Use of the simplified rates is optional and is available to sole traders and partnerships that do not have any corporate partners.

Motor vehicles

Businesses can claim a fixed rate per business mile deduction for the vehicle expenses. The fixed rate deduction covers the cost of buying, running and maintaining the vehicle (including the cost of fuel, oil, servicing, repairs, insurance, VED and MOT). The fixed rates per mile are as follows:

Type of vehicle	Flat rate per business mile
Cars and goods vehicles: First 10,000 miles Subsequent business miles	45p per mile 25p per mile
Motorcycles	24p per mile

Once a business elects to use the flat rates, they must continue to do so while the vehicle remains in the business. Capital allowances cannot be claimed where the simplified rates are used and if capital allowances have been claimed in respect of the vehicle in question, it is not possible to use the flat rates.

Use of home

It is also possible to claim a fixed rate deduction for the use of home for the purposes of the business. The flat rate provides an allowance for additional household running incurred as a result,  and covers the additional costs of cleaning, heat, light, power, telephone, broadband etc.

The deduction is based on the total number of business hours spent working in the home on core business activities in the month and is as follows:

Number of hours spent on core business activities	Flat rate per month
25 or more	£10
51 or more	£18
101 or more	£26

Core business activities are providing goods or services, maintaining business records, marketing and obtaining new business.

Case study

Betty is a dog groomer. She provides a mobile service and also works from home. In 2022/23 she spent 60 hours a month working in her home on core business activities and she drove 15,000 business miles.

To save the work involved in determining the actual additional costs, she claims flat rate deductions in respect of the use of her car and her business use of home.

For the car she claims a deduction of £5,750 being 10,000 miles at 45p per mile (£4,500) plus 5,000 miles at 25p per mile (£1,250).

For use of her home she claims a deduction of £18 per month – an annual deduction of £216.

Claiming fixed rate deductions saves the time and effort of keeping records of actual costs and calculating the deductible amount.

Employers who provided their employees with taxable expenses and benefits  in 2021/22 need to report these to HMRC by 6 July 2022, unless they have been payrolled or included within a PAYE Settlement Agreement.

Taxable expenses and benefits should be reported to HMRC on form P11D. A P11D is needed for each employee for whom benefits and expenses need to be notified to HMRC. A P11D(b) is also needed. This is the employer’s declaration that all required P11Ds have been filed, and also the Class 1A National Insurance return. A P11D(b) must be filed even if all benefits have been payrolled as payrolled benefits must be taken into account when working out the Class 1A National Insurance liability.

Filing options

Employers can file their P11Ds and P11D(b) returns electronically or in paper format. HMRC encourage electronic filing and for most employers this will be the preferred option. However, the electronic filing options are reduced this year as HMRC have decommissioned their Online End of Year Expenses and Benefits Service and consequently it cannot be used to file 2021/22 returns. However, employers can instead use HMRC’s PAYE Online Service, or file using commercial software package.

PAYE Online

HMRC’s PAYE Online service can be used by employers to undertake a number of tasks, such as accessing tax codes and notices about employees, checking what they owe HMRC, paying bills, checking their payment history and appealing a penalty. It can also be used to file expenses and benefits returns. However, it can only be used to file returns for up to 500 employees. Employers who need to make more than 500 submissions will need to file using a commercial software package.

To use the PAYE Online service to file expenses and benefits returns, employers must be registered to use the service and will need to log on via their Government Gateway account. Employers who are not yet registered and who wish to use the service to file their 2021/22 expenses and benefits returns should allow sufficient time to register and submit their returns by the 6 July 2022 deadline.

HMRC stress that the service should be straightforward to use; however, employers who encounter problems can either use the help function or contact HMRC’s Online Services Helpdesk,  via the webchat facility or by phone on 0300 200 3600.

Commercial software packages

Employers can also file online via their expenses and benefits software package. Where they need to make more than 500 submissions, they must use a commercial software package to file online. Employers needing assistance should contact their software provider.

Paper returns

It is not mandatory to file P11Ds and the P11D(b) online; paper returns can still be filed. However, this is only likely to be an option for employers who only have a few returns to file.

Nothing to file this year? Employers who have no returns to file this year but who have been sent a P11D(b) of a notification to one file will need to make a nil declaration online on the Gov.uk website. This is important as a penalty may be charged otherwise.

For 2022/23 only, the rates of Class 1 (employer and employee) National Insurance contributions are increased by 1.25 percentage points, along with the rates of Class 1A, Class 1B and Class 4 contributions. The NIC increases are a temporary increase pending the introduction of the Health and Social Care Levy from 6 April 2023. The levy will raise ring-fenced funds for health and adult social care; the 2022/23 temporary increases in National Insurance contributions will do likewise. The rates are due to revert to their 2021/22 levels from 6 April 2023 when the new levy comes into effect.

Employer and employee rates for 2022/23

As a result of the temporary NIC increases, for 2022/23, the main rate of primary contribution (payable on earnings that fall between the primary threshold (£190 per week; £823 per month; £9,880 per year) and the upper secondary threshold (£967 per week; £4,189 per month; £50,270 per year)) is set at 13.25% and the additional primary rate (payable on earnings in excess of the upper earnings limit) is set at 3.25%.

Employers will pay secondary contributions at the rate of 15.05% on earnings in excess of the secondary threshold (set at £175 per week; £758 per month; £9,100 per year). Where an upper secondary threshold applies, employers will pay secondary contributions on contributions at 15.05% above the relevant secondary threshold (£967 per week; £4,189 per month; £50,270 per year where the employee is under the age of 21, an apprentice under the age of 25 or an armed forces veteran in the first year of their first civilian employment since leaving the armed forces and £481 per week; £2,083 per month; £25,000 per year where the employee is a new Freeport employee). The 1.25% increase does not apply to earnings charged at the zero rate.

Employers will also pay Class 1A and Class 1B National Insurance contributions at 15.05% for 2022/23.

Identifying increases on the payslip

In the December 2021 issue of their Employer Bulletin HMRC asked employers to include a message for employees on all payslips between 6 April 2022 and 5 April 2023 to explain that their increased National Insurance contributions are being used to meet health and social care costs. They instructed that the payslip message should read ‘1.25% uplift in NIC funds NHS, health & social care’.

HMRC reiterated this request in the February 2022 issue of Employer Bulletin. The article notes that while HMRC have been in contact with payroll software providers to request that they include it in their software packages, they realise that some employers will need to amend payslips directly in order to include this message. HMRC will also be sending out emails to employers to remind them to include this message.

Under Making Tax Digital (MTD) for VAT, VAT-registered traders must keep electronic records and file their VAT returns electronically using software that is compatible with MTD for VAT. Prior to 1 April 2022, MTD for VAT was only mandatory for VAT-registered traders whose turnover for VAT purposes was above the VAT registration threshold of £85,000. VAT-registered traders whose turnover was below the VAT registration threshold could choose whether to join or not.

Extension to all VAT-registered traders

MTD for VAT is extended from 1 April 2022 to all registered traders. VAT-registered traders whose turnover is below the VAT registration threshold of £85,000 and who have not already joined MTD for VAT must do so from the start of their first VAT accounting period beginning on or after 1 April 2022.

Example

John is a VAT-registered trader with turnover for VAT purposes of £50,000. His VAT quarters run to 31 January, 30 April, 31 July and 31 October. He has not yet joined MTD for VAT.

John must start complying with MTD for VAT from 1 May 2022. This is the first day of the VAT quarter to 31 July 2022 and the first day of his first VAT accounting period that begins on or after 1 April 2022.

He must file the return for the period by 7 September 2022 using MTD-compatible software.

Need to register

Traders who are joining MTD for VAT from 1 April 2022 will need to sign up. They can do this via their Government Gateway Account. Alternatively, if they want to use an agent to submit their returns on their behalf, their agent can sign them up, but will need authorisation from the trader  to do so.

Traders who pay by direct debit should avoid signing up too close to the return deadline as they may end up paying their VAT twice. The window to avoid is the period from seven days before the return is due until five days after the return is due.

Electronic records

Under MTD for VAT, the trader must keep their VAT records electronically. This can be done via a software package. Alternatively, spreadsheets can be used. However, where spreadsheets are used, these must be linked to the return – figures should not be entered manually.

Return software

VAT returns must be filed using software that is compatible for MTD for VAT. HMRC publish details of software packages that can be used (see www.gov.uk/guidance/find-software-thats-compatible-with-making-tax-digital-for-vat). However, it should be noted that HMRC do not recommend particular products. Traders should find a product that they are happy with in advance of the deadline

Worth de-registering?

Traders whose turnover is under the VAT registration threshold may wish to review whether, in light of the need to comply with MTD for VAT, it remains beneficial to be VAT-registered.

Plastic packaging tax is a new tax that comes into effect from 1 April 2022. The tax has a green agenda – its aim is to reduce the amount of plastic packaging that does not contain at least 30% recycled plastic.

Liability

The tax applies to packaging that it predominantly plastic by weight and which does not contain at least 30% recycled plastic by weight. It is levied on those who manufacture or import plastic packaging. The tax arises when the packaging component is finished, or where it is imported, when it is imported.

However, to ensure that the administrative burden is not disproportionate, it only applies to those who manufacture or import at least 10 tonnes of plastic packaging within the scope of the tax each year. Guidance on what constitutes plastic packaging for the purposes of the tax can be found on the Gov.uk website (see https://www.gov.uk/guidance/work-out-which-packaging-is-subject-to-plastic-packaging-tax).

Where the tax applies, it is charged at the rate of £200 per tonne.

Registering

Manufacturers and importers who are liable for the tax will need to register with HMRC from 1 April 2022. This can be done online. A business must register when they have manufactured or imported 10 or more tonnes of plastic packaging within the scope of the tax, or if they plan to do so in the next 30 days. Therefore, when determining whether a liability to register arises, it is necessary to look both backwards and forwards. As the tax only applies from 1 April 2022, in the first year of the tax, there is no need to look back before 1 April 2022.

Where the threshold of 10 tonnes in the previous 12 months is reached, the liability to register arises from the first day of the month following that in which the threshold was reached. Registration must be done within 30 days.

Example

A business manufactures 4 tonnes of plastic packaging containing less than 30% recycled plastic each month. By 30 June 2022, they have manufactured 12 tonnes of packaging since 1 April 2022. As the 10 tonne threshold has been exceeded on 30 June 2022, the liability to register arises on 1 July 2022. The business must register by 30 July 2022.

Where a business expects to exceed the 10 tonne threshold in the next 30 days, the requirement to register arises from the date that the business expects to be liable to register. Again, the business must register within 30 days.

Example

A business normally manufactures 2 tonnes of plastic packaging a month. On 4 May 2022 it receives an order for 15 tonnes of plastic packaging that contains less than 30% recycled plastic. The liability to register arises on 4 May 2022 and the business must register by 2 June 2022.

Planning tips The tax is payable by the manufacturer or importer, not by the end user. However, depending on price sensitivity, they may be able to pass the cost on. As the tax only applies where the plastic packaging does not contain at least 30% recycled plastic, increasing the recycled element to at least 30% will remove liability of the tax. Likewise, moving away from plastic packaging so that the 10 tonne threshold is not breached will also take a business outside the tax, increasing its green credentials in the process.

The Employment Allowance is a National Insurance allowance that eligible employers can claim and set against their secondary Class 1 National Insurance liability.

The allowance is set at £4,000 for 2021/22 (capped at the employer’s secondary National Insurance liability for the year where this is lower).

Can you claim it?

Not all employers are able to claim it. At the lower end of the scale, it is not available to companies where the sole employee is also a director. This means that most personal companies cannot benefit. However, a company with more than one employee or one where the sole employee is not a director can benefit from the allowance.

It should be noted here that HMRC guidance stipulates that the allowance is not available if there is only one employee ‘paid above the National Insurance secondary threshold’ and that employee is also a director. However, there is no requirement in the legislation for employees to be paid above the secondary threshold to be counted, and the allowance is (in accordance with the legislation) available unless all the payments of earnings in the year are made to the same person and that person is a director. Thus, companies with at least two employees at some point in the tax year should be eligible for the allowance.

At the other end of the spectrum, companies whose Class 1 National Insurance liability for the previous tax year is £100,000 or more do not qualify for the allowance.

Impact of claim on optimal salary

The availability or otherwise of the employment allowance determines the optimal salary level in a family company scenario. Assuming that the personal allowance is not used elsewhere, for 2021/22, the optimal salary where the employment allowance is not available is one equal to the primary threshold of £9,568. However, where the employment allowance is available, the optimal salary for 2021/22 is equal to the personal allowance of £12,570.

Not too late to claim

The employment allowance has to be claimed through the payroll. If a claim has not yet been made for 2021/22 it is not too late.

In a family company scenario where the alternative arrangements are used for National Insurance (such that NIC is assessed each pay period as for other employees, rather than on an annual basis), it may be easier to pay the director a salary equal to the secondary threshold of £737 per month for the first 11 months of the tax year. This prevents the need to pay any National Insurance over to HMRC. If the company is eligible to claim the employment allowance, they can claim it in March and make a final payment for the tax year of £4,463 to take pay up to £12,570, the level of the personal allowance for 2021/22 (£12,570 – (11 x £737) = £4,463). There will be some primary Class 1 National Insurance on earnings for the year above the primary threshold of £9,568 The primary NIC bill is £360.24 ((£12,570 – £9,568) @12%). However, this is offset by the corporation tax savings on the higher salary at 19%.

The allowance can be claimed after the end of the year if a claim is overlooked. In this situation, you can ask HMRC to use it to pay other tax that the company may owe, including VAT and corporation tax if you do not owe any PAYE and National Insurance. If you have no tax to pay, you can ask for a refund.

You cannot carry forward any unused amount of the allowance to later tax years. If your secondary NIC bill is less than £4,000, the employment allowance is capped at this level.

The nature of a gift is that it is something that is given to some without receiving a payment in return. Consequently, as nothing is received in return it would, at first sight, seem unlikely that making a gift could trigger a capital gains tax liability.

However, unfortunately that is not the case and the making of a gift can indeed, in certain circumstances, give rise to a capital gains tax liability.

Market value

The making of a gift is a disposal for capital gains tax purposes. As the disposal is not by way of an arm’s length bargain (i.e., the price in a free market), the disposal proceeds are the market value at the time the gift was made, rather than the amount received by the person making the gift (i.e. nothing). From a capital gains tax perspective, unless the gift is to a spouse and the no gain/no loss rules apply or is exempt from capital gains tax, rather than the donor making a loss equal to the cost of the gift, a gain may be realised instead.

Example

Dolly has a painting which her niece has always loved. She purchased the painting many years ago for £100. The artist is currently very popular and the painting is now worth £20,000.

On giving the gift to her niece, Dolly is treated as if she had disposed of the painting for its market value of £20,000. Consequently, she makes a capital gain of £19,900. Assuming her annual exemption of £12,300 remains available, she must pay capital gains tax on a gain of £6,800.

Gifts to spouses/civil partners

Transfers between spouses are deemed to be at a value that gives rise to neither a gain nor a loss. If instead of giving the painting to her niece, Dolly had given it to her husband David, the deemed consideration would be £100 (the value that creates neither a gain nor a loss) and David would be treated as having acquired the painting for £100. In this situation there is no capital gains tax liability on the gift.

Gifts to a charity

Capital gains tax is not payable on a gift to a charity.

Relief for gifts of business assets

The relief for gifts of business assets allows the capital gains tax that might arise on the gift of a business asset to be deferred by ‘rolling over’ the gain so that the recipients base cost is reduced by the deferred gain. However, while this means that there will be no capital gains tax to pay at the time of the gift, the recipient will realise a larger gain when they dispose of the asset. The relief effectively shifts the liability from the donor to the recipient.

It is prudent to plan ahead for retirement and tax breaks are available to encourage savings into a registered pension scheme.

Contributions into a registered pension scheme attract tax relief as long as the contributions are covered by the available annual allowance and are not more than 100% of earnings (or £3,600 if higher).

Tax-relieved lifetime pension savings are capped by the lifetime allowance, currently set at £1,073,100.

Annual allowance

The annual allowance places a ceiling on the amount of tax-relieved contributions that can be made to a registered pension scheme each year. Contributions made by an employer count towards the annual allowance.

The annual allowance is set at £40,000. However, it is reduced where both adjusted net income is more than £240,000 (broadly income including pension contributions) and the threshold income (broadly income excluding pension contributions). Where this is the case, the annual allowance is reduced by £1 for every £2 by which adjusted net income exceeds £240,000 until the minimum amount of the annual allowance is reached. For 2021/22 this is £4,000. Consequently, where a person has adjusted net income of at least £312,000 and threshold income of at least £200,000, they only receive the minimum annual allowance of £4,000.

A lower annual allowance – the money purchase annual allowance (MPAA) – applies where a person has flexibly accessed their pension pot having reached age 55.

If contributions are made in excess of the annual allowance, a tax charge applies (the annual allowance charge) which effectively claws back the relief that was not due.

If the annual allowance is not used in full in the tax year, the unused amount can be carried forward for up to three years. However, the current year’s allowance must be used up before using allowances from earlier years. Where brought forward allowances are utilised, those from an earlier year are used before those of a later year.

Year-end planning

Any annual allowance brought forward from 2018/19 will be lost if not used before 6 April 2022. However, the annual allowance for 2021/22 must be used in full before the allowances brought forward from 2018/19 can be utilised.

Example

Richard has earnings of £150,000 for 2021/22. He has an annual allowance of £40,000. He has historically made pension contributions of £25,000 a year and has unused allowances of £15,000 a year for each of the years 2018/19, 2019/20 and 2020/21.

He received an inheritance in January 2022 and is considering making additional contributions.

To prevent his unused allowances from 2018/19 from being wasted, he can make contributions of £55,000 before 6 April 2022. This will fully utilise the annual allowance for 2021/22 and £15,000 unused allowance from 2018/19. He could also make further contributions of up to £30,000 if he wished to use the available allowances for 2019/20 and 2020/21.

He could instead carry these forward. He will have until 5 April 2023 to use the allowances from 2019/20 and until 5 April 2024 to use the allowances from 2020/21. However, to access these allowances he would need to use up his current year annual allowance first.

If he makes contributions of £55,000 on or before 5 April 2022, he will prevent the unused 2018/19 allowances from being wasted. Assuming he is a higher rate taxpayer, the contributions of £55,000 will ‘cost’ him £33,000 as he will benefit from tax relief at 40%.

He will also need to check that making the contributions does not take the value of his pension pot above the lifetime limit.

Corporation tax is being reformed and companies with profits of more than £50,000 will pay corporation tax at a higher rate than they do now. While the changes do not come into effect for a year, applying from the financial year 2023 which starts on 1 April 2023, their impact will be felt sooner where accounting periods span 1 April 2023. Consequently, they will be relevant to accounting periods of 12 months starting after 1 April 2022.

Nature of the changes

From 1 April 2023, the rate of corporation tax that you pay will depend on the level of your profits and the number of associated companies that you have if any.

If your profits are below the lower limit, from 1 April 2023, you will pay corporation tax at the small profits rate. At 19%, this is the same as the current rate of corporation tax.

If your profits are above the lower limit, you will pay corporation tax at the main rate. This has been set at 25% for the financial year 2023.

If your profits fall between the lower limit and the upper limit, you will pay corporation tax at the main rate, but you will receive marginal relief which will reduce the amount that you pay. Marginal relief is calculated in accordance with the following formula:

F x (U-A) x N/A

Where:

• F is the marginal relief fraction (set at 3/200 for the financial year 2023);
• U is the upper limit;
• A is the amount of augmented profits (profits plus dividends from non-group companies); and
• N is the amount of total taxable profits.

Where a company benefits from marginal relief, the effective rate of corporation tax will be between 19% and 25%. A company with profits nearer the lower limit will receive more marginal relief than a company with profits nearer the upper limit and pay tax at a lower rate.

The lower limit is £50,000 and the upper limit is £250,000 for a company with no associated companies. Where a company has one or more associated companies, the limits are divided by the number of associated companies plus 1, so that, for example, the lower limit for a company with one associated company will be £25,000 and the upper limit will be £125,000.

The limits are time apportioned where the accounting period (or pro rata period) is less than 12 months.

Plan ahead

Where the accounting period spans 1 April 2023 the profits for the period are apportioned and those relating to the period prior to 1 April 2023 will be taxed at the financial year 2022 corporation tax rate of 19%, while those relating to the period from 1 April 2023 to the end of the accounting period are taxed at the relevant rate for the financial year 2023 depending on the company’s profits.

Where the company will from April 2023 pay corporation tax at a rate above 19%, now is the time to plan ahead and, where possible, accelerate profits so that they fall in the current accounting period rather than one spanning 1 April 2023. On the other side of the coin, delaying costs so that they fall in a period spanning 1 April 2023 rather than the current period will also reduce the tax that is payable at a rate above 19%.

Example

ABC limit prepares accounts to 30 September each year. It has annual profits of £300,000.

Its profits for the year to 30 September 2022 will be taxed at 19%.

However, its profits for the year to 30 September 2023 will be time apportioned and six months’ worth will be taxed at 19% and the remaining six months’ worth at 25% — an effective rate of 22%. The company accelerates a profitable contract so that it is completed before 30 September 2023 so that the profit is taxed at 19%.