Taxation and trusts; Living wage week, Talk money week and Job Retention Scheme updates.
Technical article
Publication date:
01 December 2020
Last updated:
25 February 2025
Author(s):
Technical Connection
Taxation update from 12 November 2020 to 25 November 2020
- Living wage week: The real living wage increases
- Talk money week: 21 million money secrets kept from loved ones
- Business relief denied for a furnished holiday letting business
- Coronavirus: Grants for businesses affected by lockdowns - Update
- £1 Million annual investment allowance extended until 1 January 2022
- Probate delays are getting steadily worse but HMCTS insists they have sufficient resources to clear the backlog
- The latest IHT receipts provide another reminder of the need for planning
- Job Retention Scheme – Update
- Tax-free virtual Christmas parties given the green light by HMRC
- Significant increase in the number of divorces in England and Wales last year
Living wage week: The real living wage increases
The Living Wage Foundation has announced that from 9 November 2020 the Real Living Wage will increase to £9.50 per hour in the UK and £10.85 per hour in London. The Real Living Wage is paid voluntarily by almost 7,000 UK employers. It is separate from the National Living Wage which is a legal minimum rate set by the Government.
The Real Living Wage is an hourly rate of pay calculated by the Living Wage Foundation charity based on what people need to live on. It is increasing by 20p from £9.30 to £9.50 per hour across the UK, and by 10p from £10.75 to £10.85 per hour in London.
Employers who are already part of the scheme will have six months to bring in pay rises. However, as the increased Real Living Wage rates are effective from 9 November an employee receiving the increased Real Living Wage rate now will earn 78p per hour more than someone earning the Government's current National Living Wage for the over-25s, while a worker in London will earn £2.13 per hour more.
The National Living Wage and National Minimum Wage rates usually rise in April. However, here's how the increased Real Living Wage rates compare with the current National Living Wage and the National Minimum Wage rates:
Real Living Wage |
Real Living Wage (London) |
National Living Wage |
National Minimum Wage |
||||
All ages |
All ages |
Aged 25+ |
Aged 21-24 |
Aged 18-20 |
Aged under 18 |
Apprentices |
|
|
£ |
£ |
£ |
£ |
£ |
£ |
£ |
Current rates |
9.50 |
10.85 |
8.72 |
8.20 |
6.45 |
4.55 |
4.15 |
Potential annual salary* |
17,290 |
19,747 |
15,870 |
14,924 |
11,739 |
8,281 |
7,553 |
*Based on 35 hours per week for 52 weeks.
It should be noted that in his Spending Review the Chancellor announced an increase in the National Living Wage by 2.2% to £8.91 per hour from next April and that it would apply to those aged 23 and over. In addition, he announced that there would be an increase in the National Minimum Wage Rates.
Laura Gardiner, Living Wage Foundation Director, said:
“It’s an incredibly challenging time for us all, but today’s new Living Wage rates will give a boost to hundreds of thousands of UK workers, including thousands of key and essential workers like cleaners, care workers, and delivery drivers who have kept our economy going. Since the start of the pandemic employers have continued to sign up to a real Living Wage. During Living Wage Week it’s right that we celebrate those employers that have done right by workers and families, providing them with much needed security and stability even when times are hard. These are the employers that will allow us to recover and rebuild from this crisis.”
Sources:
- Living Wage Foundation: Real Living Wage increases to £9.50 in UK and £10.85 in London as cost of living rises – dated 9 November.
- Money Saving Expert: Over 250,000 workers are set to receive a pay rise as the 'real living wage' has increased to £9.50/hour - dated 9 November.
Talk money week: 21 million money secrets kept from loved ones
UK adults have kept at least 21 million financial products secret from their loved ones, according to a new study of people’s financial behaviours from the Money & Pensions Service (MaPS).
The research, which surveyed over 5,200 people across the UK, was been launched to mark Talk Money Week (9-13 November), a public awareness campaign run by MaPS to improve financial wellbeing by encouraging people to open up about their finances, from pocket money through to pensions.
The study revealed that people in a relationship tend to underestimate the extent of money secrets their partner keeps from them. While 23% of people in a relationship suspect their spouse/partner has kept a money secret, hidden products were found to be even more common, with nearly half of those in a relationship (45%) admitting to having an undisclosed money product.
According to MaPS, Millennials proved to be the most secretive generation, with 59% disclosing they have secret financial products, compared to just 26% of retirees (65+). Of 25-34-year-olds who’d kept a product secret, credit cards, personal loans and overdrafts were most commonly hidden (by 40%, 31% and 23% respectively).
Whilst much of the research focuses on debt and unpaid bills, it also suggests that people in relationships across the UK have significant knowledge gaps when it comes to their partner’s financial situation. According to MaPS, almost a third (30%) said their partner does not know how much their annual income is approximately.
The MaPS research page includes links to press releases setting out which parts of the UK are the most secretive when it comes to money.
The page also includes the following guides to talking about money:
- Talking to your partner about money: https://www.moneyadviceservice.org.uk/en/articles/talking-to-your-partner-about-money
- How to talk about money: https://masassets.blob.core.windows.net/cms/files/000/001/092/original/Difficult_Conversations_-_Talking_about_money.pdf
Talk Money Week also links to the UK Strategy for Financial Wellbeing, launched by MaPS in January 2020, which has ten-year goals to help everyone make the most of their money and pensions.
Source: MAPS: 21 million money S£CR£TS kept from loved ones across the UK – dated 8 November 2020.
Business relief denied for a furnished holiday letting business
(AF4, FA7, LP2, R02)
The First-tier Tax Tribunal has denied business relief for a furnished holiday letting business despite the taxpayer arguing that guests benefited from numerous services.
Generally, furnished holiday lets are treated as ‘trading’ businesses for income and capital gains tax purposes. However, this is not the same for inheritance tax purposes. So, should a furnished holiday letting business qualify for business relief?
HMRC takes the view that furnished holiday lettings will generally not qualify for inheritance tax business relief. However, in its manual it is also stated that there may be cases where the level of additional services provided is so high that the activity can be considered as non-investment and, in light of this, each case will be decided upon based on the facts.
In the case of Cox (Executors) v HMRC [2020] UKFTT 442 TC the property in question is Crail House, a converted manor house on the Firth of Forth in eastern Scotland. The property was owned and operated by Sheriff Graham Cox as a holiday letting business. On his death in 2014, it passed to his son and daughter, Sandra Turnbull.
Mrs Turnbull and her co-executors claimed that the property was eligible for business relief at a value of £562,040 thus resulting in a potential inheritance tax saving of £224,816.
HMRC challenged the claim on the basis that section 104 of the Inheritance Tax Act 1984 states that business relief is not due where the business 'consists wholly or mainly of...making or holding investments.'
While HMRC has successfully used this phrase to deny business relief to many furnished holiday letting businesses, there have been cases where owners of holiday lets have argued that their provision of extensive services means that the business did not consist of 'making or holding investments'.
In the Cox case, Mrs Turnbull lodged a three-page schedule to show the facilities used by guests. She argued that the occupants of Crail House benefited from numerous other services. These services included the use of gardens, facilities, sports equipment, such as tennis and badminton racquets, beach balls, crab lines, fishing nets, book and DVD lending, dog-sitting, baby-sitting, an arts festival, and specially arranged restaurant visits and picnics.
The picture she painted was of a holiday location that was more like a hotel describing the type of holiday Sheriff Cox offered as ‘varied’ and saying that it included things like a relaxing atmosphere - scenic views and well-maintained garden, a reading holiday - books provided, and a beach holiday - buckets and spades, crabbing lines, fishing nets provided.
However, HMRC did not agree and claimed that most activities mentioned were ‘just normal holiday activities that are possible at most holiday accommodation and were not provided by the business.’
The First-tier Tax Tribunal agreed with HMRC.
The judge said there was nothing exceptional about the business to elevate it to the level of the business found in the Graham case where non-investment activities included the use of a swimming pool, games room, sauna, fresh produce from the herb garden, greenhouse and fruit trees, barbecues in each holiday season, receipt of grocery deliveries for guests, fresh seafood at cost price, etc. As such, the judge concluded that the Crail House letting business falls firmly on the investment side and accordingly dismissed the appeal.
COMMENT:
The availability of business relief in the case of Graham was a welcomed decision and offered some hope to those owning furnished holiday lets. However, the Cox case clearly illustrates that each case must be considered, based on its specific facts and in line with the type of services offered by the business, to determine whether or not relief will be granted.
Source: STEP News: Scottish holiday accommodation loses BPR despite service provision – dated 5 November 2020.
http://www.bailii.org/uk/cases/UKFTT/TC/2020/TC07919.html)
Coronavirus: Grants for businesses affected by lockdowns - Update
(AF2, JO3)
Businesses in England that are required to shut because of local or national interventions will be able to claim up to £3,000 per property every 28 days.
Following a series of different announcements recently covering support grants available to businesses impacted by the various types of lockdown, the Government has now published guidance splitting its support into two sets of rules:
- The Local Restrictions Support Grant ‘(LRSG (Closed))’. This supports businesses that have been required to close due to temporary local restrictions;
- The ‘LRSG (Closed) Addendum’. This supports businesses that have been required to close due to national restrictions
When national restrictions are introduced and businesses are required to close, ‘LRSG (Closed)’ is superseded by ‘LRSG (Closed) Addendum’.
LRSG (Closed) Addendum
LRSG (Closed) Addendum applies where businesses, that were open as usual, were then required to close between 5 November and 2 December 2020 due to the national restrictions imposed by Government.
Businesses in England required to close due to national lockdowns will be able to receive grants worth up to £3,000 every 28 days. To be eligible for the grant, a business must have been required to close because of the national restrictions from 5 November to 2 December 2020.
The grant for each 28-day qualifying restriction period is based on the rateable value of the property on the first full day of restrictions:
- rateable value of £15,000 - £1,334;
- rateable value over £15,000 and less than £51,000 - £2,000;
- rateable value of £51,000 or above - £3,000.
A business may be eligible if it has been unable to provide its usual in-person customer service from its premises. For example, this could include non-essential retail, leisure, personal care, sports facilities and hospitality businesses. It could also include businesses that operate primarily as an in-person venue, but which have been forced to close those services and provide a takeaway-only service instead.
Eligible businesses can get one grant for each non-domestic property.
Businesses excluded from the fund
A business cannot get funding if:
- it can continue to operate during the period of restrictions because it does not depend on providing direct in-person services from its premises (for example accountants);
- it has chosen to close, but has not been required to close as part of national restrictions;
- it has exceeded the permitted state aid limit.
A business that was an ‘undertaking in difficulty’ on 31 December 2019 may not qualify. The undertaking in difficulty test does not apply to small and micro undertakings (fewer than 50 employees and less than €10 million of annual turnover or annual balance sheet), unless any of the following apply:
- the business is already in insolvency proceedings;
- the business has received rescue aid that has not been repaid;
- the business is subject to a restructuring plan under state aid rules.
LRSG (Closed)
Businesses in England, in an area of local restrictions, that were open as usual and were then required to close due to local restrictions (local COVID alert level: Very High) that resulted in a first full day of closure on or after 9 September, may be eligible for a cash grant from their local council for each 14-day period they are closed. The grant is based on the rateable value of the property on the first full day of local restrictions:
- rateable value of £15,000 - £667;
- rateable value over £15,000 and less than £51,000 - £1,000;
- rateable value of £51,000 or above - £1,500.
The grant will be extended to cover each additional 14-day period of closure. If the business is closed for 28 days, or two payment cycles, it will receive £1,334, £2,000 or £3,000, depending on the rateable value of the property.
A business may be eligible if it has been unable to provide its usual in-person customer service from its premises. For example, this could include non-essential retail and personal services that operate primarily as an in-person venue, but which have been forced to close those services and provide a takeaway-only service instead.
Eligible businesses can get one grant for each non-domestic property within the restriction area.
The precise set of businesses eligible for the scheme may vary between each local council area under local restrictions in recognition of the specific conditions in each area.
Businesses excluded from the fund
A business cannot get funding if:
- it can continue to operate during the period of restrictions because it does not depend on providing direct in-person services from its premises (for example, accountants);
- local restrictions are introduced for less than 14 days or the business is closed for less than 14 days;
- it has chosen to close, but has not been required to close as part of local restrictions;
- the business has been subject to national closures, since 23 March 2020, such as nightclubs (these are eligible for other grant support);
- the business has exceeded the permitted state aid threshold.
Again, a business may not qualify if it was an ‘undertaking in difficulty’ on 31 December 2019.
For more information on LRSG (Closed), please see here.
(Originally, these grants were announced as being up to £1,500 every three weeks, for businesses that had been required to close due to local Covid-19 restrictions.
On 22 October, the Government also announced that businesses in Tier 2 areas which are not legally closed, but which are severely impacted by restrictions on socialising, will be able to receive grants worth up to £2,100 per month, backdated until the point at which these restrictions began.
As with other Covid-19 business grants, these grants will be treated as taxable income.
Local Authorities are responsible for delivering funding to eligible businesses. They will then be reimbursed by the Government. Devolved nations will be given the equivalent funding for other nations, under the “so-called” Barnett Formula.
Source: BEIS Guidance: Check if your business is eligible for a coronavirus grant due to national restrictions (for closed businesses) – dated 12 November 2020.
£1 Million annual investment allowance extended until 1 January 2022
(AF2, J03)
The Government has extended the £1 million Annual Investment Allowance (AIA) to stimulate investment in UK manufacturing
Since April 2008, companies, individuals and partnerships consisting only of individuals have been able to claim the AIA in respect of their qualifying expenditure on plant and machinery. The AIA is effectively a 100% upfront allowance that applies to most qualifying expenditure up to an annual limit or cap (with expenditure on cars being the most notable exception). Also, it is not possible to claim the AIA on assets which were owned and used for another reason (such as for personal use) before using them within the business. Where businesses spend more than the annual limit, any additional qualifying expenditure is dealt with in the normal capital allowances regime, attracting annual writing-down allowances.
The AIA is an incentive for businesses to invest because it accelerates the tax relief available, so it can all be claimed in the year of investment, rather than over a number of years, helping a business's cash flow.
The extension of the temporary £1 million cap was originally due to revert to £200,000 on 1 January 2021.
This announcement means that businesses, including manufacturing firms, can continue to claim up to £1 million tax relief through the AIA for capital investments in plant and machinery assets until 1 January 2022.
The amount of AIA available has changed frequently over the years:
Sole traders/partners |
Limited companies |
AIA |
6 April 2008 - 5 April 2010 |
1 April 2008 - 31 March 2010 |
£50,000 |
6 April 2010 - 5 April 2012 |
1 April 2010 - 31 March 2012 |
£100,000 |
6 April 2012 - 31 December 2012 |
1 April 2012 - 31 December 2012 |
£25,000 |
1 January 2013 - 5 April 2014 |
1 January 2013 - 31 March 2014 |
£250,000 |
6 April 2014 - 31 December 2015 |
1 April 2014 - 31 December 2015 |
£500,000 |
1 January 2016 - 31 December 2018 |
1 January 2016 - 31 December 2018 |
£200.000 |
1 January 2019 - 31 December 2021 |
1 January 2019 - 31 December 2021 |
£1,000,000 |
From 1 January 2022 |
From 1 January 2022 |
£200,000 |
Where a business has an accounting period which spans either the 1 April/6 April or 31 December dates (where applicable), transitional relief is available on a time apportionment basis.
For example, take a company with an accounting period 1 April 2021 to 31 March 2022. The maximum AIA would be:
1 April 2021 to 31 December 2021 - £1,000,000 x 9/12 = £750,000.
1 January 2022 to 31 March 2022 - £200,000 x 3/12 = £50,000.
Total AIA = £800,000.
Source: HM Treasury News story: Government extends £1 million tax break to stimulate investment in UK manufacturing – dated 12 November 2020.
Probate delays are getting steadily worse but HMCTS insists they have sufficient resources to clear the backlog
(AF1, JO2, RO3)
According to HM Courts & Tribunals Service (HMCTS) there are now 29,000 probate applications in the system, an increase of about 5,000 since March. In our last article on this we reported that between 4,000 and 5,000 probate applications were being processed each week and that it took on average 5-6 weeks to process. The latest figures come from a letter that HMCTS sent to representatives of the charity sector (The Institute of Legacy Management and Remember a Charity). The backlog, of course, started in 2019 and, unfortunately, but not unexpectedly, things got worse as a result of the increase in the number of deaths due to Covid-19.
HMCTS state that they have recruited extra staff, and more staff are now being trained. Waiting times have reduced for online applications (now compulsory in most cases for professionals) and the overall completion time for a grant of probate is now on average between 2 and 5 weeks. Of course, there are numerous cases where probate takes longer and many delays are caused by either incorrect or incomplete details submitted in the probate application. Another issue that causes delays are the inheritance tax (IHT) queries, although HMRC has denied that there have been delays in HMRC meeting probate requests. HMRC advised those seeking IHT clearance to submit applications digitally where possible.
While any delay in obtaining probate is regrettable to anybody at what is always a difficult time anyway, delays are particularly felt by charities who often depend on legacies to carry out their work. The problem is more acute at the moment as most charities have reported a drop in donations during the pandemic.
HMCTS say that “subject to a further spike in applications for probate” they are sufficiently resourced to handle the rise in applications expected in 2020 Q4.
Source: STEP News: Increase in a backlog of probate applications awaiting grant in England and Wales – dated 16 November 2020.
The latest IHT receipts provide another reminder of the need for planning
(AF1, RO3)
The latest HMRC statistics for tax receipts show inheritance tax (IHT) receipts for October 2020, at £570 million, were 17% higher than October last year’s £489 million.
However, IHT receipts for April to October 2020 (£3,003 million) were only 1% (£33 million) higher than for the same period last year (£2,970 million), partly as HMRC hasn’t been accepting cheques for payment of IHT due to Covid-19. This has caused a temporary delay in HMRC receiving IHT payments.
According to HMRC, this has now been resolved, and it expects this effect to unwind over the remainder of the year. However, at the time of writing, HMRC is still not accepting cheques for payment of IHT (please see here).
IHT planning
Before considering any steps to mitigate IHT, it’s important for clients to consider some fundamental questions, such as:
- What should any surviving spouse or civil partner inherit? Often the simple answer is ‘everything’, leaving many decisions about wealth distribution to other potential beneficiaries until the second death.
- Who are the other intended beneficiaries?
- Are there specific items – from jewellery to shares in a family business – that the client wants to leave to particular individuals?
- What framework – if any – is needed for their bequests? They might be happy to leave capital outright to a 40-year old architect daughter, but the same may not be true of a 19-year old student son.
Answers to these questions will help a client to shape their will, and provide them with a structure for their IHT planning. It may also prompt a client to consider whether making some lifetime gifts is a sensible option.
Certain gifts made during lifetime will be altogether exempt from IHT and so will fall out of a client’s estate for IHT purposes as soon as they are made, such as the:
- Annual exemption: gifts of up to a total of £3,000 each tax year. To the extent that this exemption wasn’t used in the last tax year, it can be carried forward and used in the current tax year, but only once the current year’s exemption has been fully used.
- Small gifts exemption: gifts of up to £250 each to as many people as desired. However, the exemption does not apply to gifts to anyone who, in the same tax year, has received a gift covered by the £3,000 annual exemption.
- Normal expenditure gifts exemption: regular gifts out of surplus income that do not reduce the donor’s standard of living.
And other lifetime gifts, particularly if made outright, will, in most instances, attract no IHT when they are made and IHT will be avoided altogether if the donor survives for the following seven years.
Transfers during lifetime or on death between UK domiciled spouses/registered civil partners are generally exempt without limit. And each person is allowed to leave up to £325,000 (taking account of any such transfers made in the immediately preceding seven years) to anyone other than their spouse/civil partner free of IHT (taxed at a nil rate). To the extent any of the £325,000 nil rate band is not used on death it can be "inherited" by (i.e. transferred to) a surviving spouse/registered civil partner, and, subject to a claim made within two years, used on the death of that surviving spouse/registered civil partner.
The same is largely true (but with important limitations on who can inherit, and how, within this allowance) of the residence nil rate band of £175,000.
Trusts can, of course, provide a way of controlling gifts by interposing a third party, the trustees, between the settlor and their beneficiaries to deal with the gifted property in accordance with the terms of the trust that the client creates. Trusts can be as rigid or as flexible as the client would like and can offer a range of tax and non-tax benefits.
The payment of regular contributions to a life assurance policy held in trust for those who will inherit the donor’s estate on death would normally qualify as being exempt. The sum assured under such a policy would not usually be treated as part of the donor’s taxable estate and would be payable free of IHT to the beneficiaries who could then use the money to pay the IHT arising on the death of the life or lives assured.
An IHT/estate planning review could be worthwhile to ascertain what, if any, planning and provision may be possible.
This is especially so because the £325,000 nil rate band will remain frozen until the end of 2020/21 and thereafter increase by CPI.
Careful consideration should also be given to the residence nil rate band and its use in planning, and the fact that it is reduced by £1 for every £2 when the deceased’s estate exceeds £2 million.
The future of IHT?
Earlier this month, the Resolution Foundation published a paper examining how to repair public finances, in which it suggested a freeze in the IHT nil rate band and bringing inherited pensions within the ambit of the tax (and applying income tax on death benefits where death occurs before age 75). On business and agricultural reliefs, it suggested applying an overall cap of £2.5 million.
In October, the Centre for Policy Studies suggested abolishing IHT totally and instead of replacing the capital gains tax exemption on death with holdover relief. As an alternative, it suggested raising the nil rate band to £1 million per person and scrapping the residence nil rate band.
And, of course, it has been more than a year since the Office for Tax Simplification put forward its suggestions to Government on the reform of IHT.
Source: HMRC National Statistics: HMRC tax receipts and National Insurance contributions for the UK – dated 20 November 2020.
Job Retention Scheme - Update
(AF1, RO3)
The Job Retention Scheme (furlough) “CJRS” was recently extended to run through until the end of March 2021.
Essentially, the rules for the period from 1 November until 31 March are those that existed as for August.
However, there are now monthly deadlines for claims. Claims for periods starting on or after 1 November must be submitted within 14 calendar days after the month they relate to unless this falls on a weekend in which case the deadline is the next weekday. The deadline to make claims for employees furloughed in November is Monday 14 December.
And, for claim periods from 1 December, employers cannot claim CJRS grants for any days that their employee is serving a contractual or statutory notice period, including notice of retirement or resignation.
Who can be furloughed?
To be eligible for the extended CJRS from November, the employee must have been on their employer’s PAYE payroll on 30 October 2020. The employer must also have made a PAYE Real Time Information (RTI) submission to HMRC between 20 March 2020 and 30 October 2020, notifying a payment of earnings. The employee can be on any type of contract, including a zero-hours, fixed-term or temporary contract. And there is no maximum number of employees an employer can claim for from 1 November 2020.
Employees who were made redundant or stopped working after 23 September can also qualify for the scheme if the employer re-employs them.
Originally it was necessary for an employee to do no work for the employer during a period for which a CJRS grant was claimed. From 1 July, though, the CJRS included an added level of flexibility to allow employers to bring employees back to work on a part-time basis, if it is safe to do so. So, if an employee were to go back to work for two days a week, for example, their employer would pay them for the hours they’ve worked, and the furlough scheme would continue to pay them for the remaining three days a week when they’re on furlough.
Employers can now:
- fully furlough employees - they cannot undertake any work for the employer while furloughed full time;
- flexibly furlough employees - they can work for any amount of time, and any work pattern but they cannot do any work for the employer during hours that the employer records them as being on furlough.
The employer does not need to have previously claimed for an employee before 30 October 2020 to claim for periods from 1 November 2020.
How about directors and office holders?
If you’re an office holder
An office holder who is remunerated by PAYE can be furloughed and receive support through this scheme. The furlough, and any ongoing payment during furlough, will need to be agreed between the office holder and the party who operates PAYE on the income they receive for holding their office. Where the office holder is a company director or member of a Limited Liability Partnership (LLP), the furlough arrangements should be adopted formally as a decision of the company or LLP.
If you’re a company director
As office holders, salaried company directors are eligible to be furloughed and receive support through this scheme. Company directors owe duties to their company which are set out in the Companies Act 2006. Where a company (acting through its board of directors) considers that it is in compliance with the statutory duties of one or more of its individual salaried directors, the board can decide that such directors should be furloughed.
Where furloughed directors need to carry out particular duties to fulfil the statutory obligations they owe to their company, they may do so provided they do no more than would be judged reasonably necessary for the purposes, i.e. they should not do work of a kind they would carry out in normal circumstances to generate commercial revenue or provide services to or on behalf of their company.
This also applies to salaried individuals who are directors of their own personal service company (PSC).
How much will the CJRS provide?
The Government will pay a grant to employers of 80% of furloughed workers’ wages in relation to the hours not worked. The amount of the grant paid will be subject to a maximum per employee of £2,500. Employers will need to pay National Insurance and pension contributions. The amount of the grant may change when the scheme is reassessed at the end of January 2021.
As a result, furloughed workers will continue to receive 80% of their salary in relation to hours not worked throughout this time. Employers may choose to top up their employees’ salaries to 100%, but they’re under no obligation to do so.
If the employee carries out any work for the employer (as they can) then the employer will (of course) pay the employee for the work carried out.
What will the furlough pay be based on?
For employees who were previously eligible for CJRS, the calculation rules will remain the same. If the employee is full-time or part-time on a fixed salary, then the amount their employer will claim will be based on 80% of their salary.
If their pay varies and they’ve been employed (or engaged by an employment business in the case of agency workers) for a full year, employers will calculate the claim based on the higher of either:
- the amount they earned in the same pay period (e.g. month) last year;
- an average of their earnings from tax year 2019/20.
If their pay varies and they’ve been employed for less than a year, employers will claim for an average of their regular monthly wages since they started work.
If an employee was not previously eligible for CJRS, for those on a fixed salary, the claim will be based on 80% of the wages payable in the last pay period ending on or before 30 October 2020.
If their pay varies employers will calculate the claim based on 80% of the average payable between (these dates are inclusive) the start date of their employment or 6 April 2020 (whichever is later) and the day before their CJRS extension furlough periods begins.
In working out the amount on which to base the 80% CJRS grant claim the employer should include: regular wages; overtime that’s already been worked; non-discretionary fees; compulsory commission payments; and piece-rate payments. An employer won’t be allowed to include: payments made at the discretion of the employer or a client including payments such as tips or discretionary bonuses; discretionary commission payments; non-cash payments; non-monetary benefits, such as benefits in kind (a company car, for example) and salary sacrifice schemes (including pension contributions) that reduce an employee’s taxable pay. The 80% salary calculation will be worked out differently depending on the way the employee is paid.
When will the CJRS payments be available?
The CJRS applications for November open on 11 November at 8am and will close on 14 December. Employers can apply online and will need their Government Gateway user ID and password. The Government has provided details online of what you’ll need before you start a claim, along with a link to begin the process.
The Government has also announced that the following temporary loan schemes would be extended to 31 January 2021 for new applications: Bounce Back loan; CBILS; CLBILS; and the Future Fund. And those businesses who have borrowed less than their maximum Bounce Back loan (i.e. the lower of £50,000 or less than 25% of their turnover) will have one opportunity to top-up their existing loan. But it’s important to note that these are loans that must be repaid with interest, whereas furloughed pay won’t need to be paid back.
An important reminder on how payments reach the employee
The employer claims the CJRS grant and it’s treated as taxable income of the employer. It will be offset though by the deductible payment to the employee. So, the tax effect for the employer of receiving the CJRS is neutral.
The payment of the furlough pay is subject to income tax and National Insurance contributions and will be taken automatically from the pay by the employer – as for any payment of salary. That it has a CJRS grant as its source makes no difference.
Of course, any amounts paid by the employer for work actually carried out by an employee will be deductible for the employer and taxable on the employee.
More information on the CJRS can be found here and here.
Source: HMRC News story: Government extends Furlough to March and increases self-employed support – dated 5 November 2020.
Tax-free virtual Christmas parties given the green light by HMRC
(AF2, JO3)
On 20 November, HMRC confirmed that they will accept a virtual Christmas party (particularly one that includes a party box) as an event which is capable of falling within the tax and NIC exemption for annual functions.
HMRC has supplied the Association of Taxation Technicians (ATT) with the following statement:
‘Having considered the scope of section 264 ITEPA03 (annual parties exemption), we are pleased to confirm that the exemption will apply to the costs associated with virtual parties in the same way that it would for traditionally held, parties. Therefore, the cost of providing food, entertainment, equipment and other expenses which may be incurred in hosting a virtual event, will be exempt, subject to the normal conditions of the exemption being met. It is important to note that the intention of the exemption is to allow for costs of provision which are generally incurred for the purposes of the event itself, and that the event, along with any associated provision, is available to employees generally. We will be updating our GOV.UK guidance shortly.’
Current rules allow employers to spend up to £150 per head (including VAT) towards the costs of an annual function such as a Christmas party without creating a tax or national insurance (NIC) liability for their employees and themselves – provided that certain conditions are met.
For a social event for employees to qualify for income tax and NICs exemption it must be an annual event (for example a Christmas or summer party) which is open to all staff generally or all staff at a location, if the employer has more than one location. No liability to tax or NICs arises provided that the total cost of the event (including travel and accommodation although that is unlikely to be applicable this year) is no more than £150 per head. If the employer has more than one annual event in a tax year, for all the events to be tax-free the combined cost per head of all the events must be under £150.
In addition to the exemption for an annual function, employers can also take advantage of the trivial benefits rules to make seasonal gifts to staff such as a bottle of wine or a Christmas pudding. Under the trivial benefits rules, employers can provide benefits costing up to £50 to an employee without tax consequences - provided that these benefits are intended as genuine gifts and not intended as a reward for their work.
When assessing whether an item falls within the trivial benefits rules all associated costs of the gifts must be factored in, including any VAT and also costs of postage, delivery or courier charges. For events such as cooking demonstrations where fresh food is supplied to the employee in advance, delivery charges could be significant.
For a gift to be trivial, and therefore exempt from income tax and NICs for both the employer and employee, it has to meet all of the following conditions:
- it is not cash or a cash voucher (a normal gift voucher should meet this requirement);
- the cost does not exceed £50 per employee (or average cost if provided to a group of employees and it is impractical to work out the individual cost);
- it is not provided under a salary sacrifice or other arrangement; and
- it is not provided in recognition of particular past or future services performed by the employee (a gift on the occasion of Christmas should meet this requirement).
There is an additional cap of £300 on the aggregate value of trivial benefits that can be paid to directors or office holders of close companies (companies owned and controlled by five or fewer participators, such as typical family companies) or employees related to them in any one tax year. However, beyond this there is no limit on the number of individual trivial gifts that can be given to an employee in any one year, provided each gift individually qualifies for relief and the employer is not trying to divide a larger gift into several smaller ones.
It should also be noted that this is an all or nothing exemption - if the cost of a gift (including VAT) exceeds £50 then the full value is taxable under the usual benefits rules.
Source: ATT News: HMRC confirmed that they will accept a virtual Christmas party as an event which is capable of falling within the rules for annual functions – dated 20 November 2020.
Significant increase in the number of divorces in England and Wales last year
Figures published by the Office for National Statistics (ONS) show that the number of divorces amongst opposite-sex couples in 2019 was 107,599 compared to 90,871 in 2018 – so an 18.4% increase. This is the highest increase since 2014 when 111,169 divorces were granted.
In fact, the number of divorces in England and Wales has seen its largest percentage increase in nearly 50 years.
The figures also show:
- The divorce rate among opposite-sex couples in 2019 increased to 8.9 divorces per 1,000 married men and women aged 16 years and over from 7.5 in 2018.
- There were 822 divorces among same-sex couples in 2019, which is nearly twice the number in 2018 when there were 428 divorces; of these, nearly three-quarters (72%) were between female couples.
- Unreasonable behaviour was the most common reason for divorce, cited by 49% of wives and 35% of husbands in a heterosexual marriage, in 63% of female same-sex divorces and 70% of male ones.
- In 2019, the average duration of marriage at the time of divorce was 12.3 years for opposite-sex couples, a small decrease from 12.5 years in the previous year.
Source: ONS: Divorces in England and Wales: 2019 – dated 17 November 2020. (https://www.ons.gov.uk/peoplepopulationandcommunity/birthsdeathsandmarriages/ divorce/bulletins/divorcesinenglandandwales/2019)
This document is believed to be accurate but is not intended as a basis of knowledge upon which advice can be given. Neither the author (personal or corporate), the CII group, local institute or Society, or any of the officers or employees of those organisations accept any responsibility for any loss occasioned to any person acting or refraining from action as a result of the data or opinions included in this material. Opinions expressed are those of the author or authors and not necessarily those of the CII group, local institutes, or Societies.