Covid-19
Furlough pay
For this month’s furlough claims the government will pay 70% of wages up to a cap of £2,187.50 for the hours the employee is on furlough. Employers will pay ER NICs and pension contributions and top up employees’ wages to ensure they receive 80% of their wages up to a cap of £2,500, for the time they are furloughed.
Working from home
You may be able to claim tax relief for some of the bills you have to pay because you have to work at home on a regular basis.
You can only claim for things to do with your work, for example, business telephone calls or the extra cost of gas and electricity for your work area.
You cannot claim for things that you use for both private and business use, for example, rent or broadband access.
From 6 April 2020, your employer can pay you up to £6 a week (£26 a month) to cover your additional costs if you have to work from home. For previous tax years, the rate is £4 a week (£18 a month).
If you provide equipment, services and supplies to an employee who works from home, you do not have to report or pay anything if they’re only used for business purposes, or any private use is insignificant.
Self Employed Income Support Scheme (SEISS)
If you’re eligible and your business has been adversely affected on or after 14 July 2020, you must make your claim for the second grant on or before 19 October 2020.
Taxes
Finance charges restriction
Since 6 April 2017, the tax relief that landlords of residential properties get for a proportion of finance costs has been restricted to the basic rate of Income Tax. This has been fully in place from 6 April 2020.
How the tax reduction is worked out
The reduction is the basic rate value (currently 20%) of the lower of:
- finance costs – costs not deducted from rental income in the tax year (this will be a proportion of finance costs for the transitional years) plus any finance costs brought forward
- property business profits – the profits of the property business in the tax year (after using any brought forward losses)
- adjusted total income – the income (after losses and reliefs, and excluding savings and dividends income) that exceeds your personal allowance
The tax reduction can’t be used to create a tax refund.
If the basic rate tax reduction is calculated using the ‘property business profits’ or ‘adjusted total income’ then the difference between that figure and ‘finance costs’ is carried forward to calculate the basic rate tax reduction in the following years.
You’ll still be able to deduct some of your finance costs when you work out your taxable property profits during the transitional period. These deductions will be gradually withdrawn and replaced with a basic rate relief tax reduction:
| Tax year | Percentage of finance costs deductible from rental income | Percentage of basic rate tax reduction |
|---|---|---|
| 2017 to 2018 | 75% | 25% |
| 2018 to 2019 | 50% | 50% |
| 2019 to 2020 | 25% | 75% |
| 2020 to 2021 | 0% | 100% |
PAYE
As an employer, you normally have to operate PAYE as part of your payroll. PAYE is HM Revenue and Customs’ (HMRC) system to collect Income Tax and National Insurance from employment.
You do not need to register for PAYE if none of your employees are paid £120 or more a week, get expenses and benefits, have another job or get a pension. However, you must keep payroll records.
Payments to your employees include their salary or wages, as well as things like any tips or bonuses, or statutory sick or maternity pay.
From these payments, you’ll need to deduct tax and National Insurance for most employees. Other deductions you may need to make include student loan repayments or pension contributions.
You can see the current and historic national insurance rates and thresholds here.
You can see the current income tax rates and thresholds here.
Redundancy Pay
You’ll normally be entitled to statutory redundancy pay if you’re an employee and you’ve been working for your current employer for 2 years or more.
You’ll get:
- half a week’s pay for each full year you were under 22
- one week’s pay for each full year you were 22 or older, but under 41
- one and half week’s pay for each full year you were 41 or older
Length of service is capped at 20 years.
Your weekly pay is the average you earned per week over the 12 weeks before the day you got your redundancy notice.
If you were paid less than usual because you were ‘on furlough’ because of coronavirus, your redundancy pay is based on what you would have earned normally. Tel: 0121 783 5392 www.sigmatax.co.uk
If you were made redundant on or after 6 April 2020, your weekly pay is capped at £538 and the maximum statutory redundancy pay you can get is £16,140. If you were made redundant before 6 April 2020, these amounts will be lower.
Redundancy pay (including any severance pay) under £30,000 is not taxable.
Your employer will deduct tax and National Insurance contributions from any wages or holiday pay they owe you.
You’re not entitled to statutory redundancy pay if:
- your employer offers to keep you on
- your employer offers you suitable alternative work which you refuse without good reason
- Being dismissed for misconduct does not count as redundancy, so you would not get redundancy pay if this happened.
Notice periods and pay
You must be given a notice period before your employment ends.
The statutory redundancy notice periods are:
- at least one week’s notice if employed between one month and 2 years
- one week’s notice for each year if employed between 2 and 12 years
- 12 weeks’ notice if employed for 12 years or more
As well as statutory redundancy pay, your employer should either:
- pay you through your notice period
- pay you in lieu of notice depending on your circumstances
Other
Cycle to work scheme
In essence, your employer buys a bike for you to ride to work and you ‘hire’ it through salary sacrifice (which is where you save by not paying tax and National Insurance contributions on the monthly fees). At the end of the ‘hire’ period, you are usually offered the option to buy the bike from your employer. In other words, your salary sacrifice is made from your gross salary, not your net salary.
Because it was set up to promote work journeys rather than cycling in general, your employer technically remains the owner of the bike once you finish the hire period. Everyone knows that in practice the employee is ‘buying’ the bike, but that isn’t legally the case until the salary sacrifice ends and the employer ‘sells’ the now heavily depreciated equipment to the employee.
Since your monthly payments on your bike reduce your gross salary, you’ll save the tax and National Insurance contributions you’d pay on that chunk of your pay packet over the term of the Cycle to Work agreement. So, for a basic rate taxpayer, that will amount to 32 per cent of the purchase price. For a higher rate taxpayer that increases up to 42 per cent, with the 40 per cent tax rate currently kicking in at £50,000. In some places, you’ll see savings of 47 per cent mentioned – but they don’t kick in until you’re earning over £150,000.