5 post-lockdown tax strategies
With companies closed or with reduced trading during lockdown there have been challenges in just keeping the metaphorical head above the water. The government has done a great deal to help, with furlough schemes, grants and loans and tax deferment, but it's unwise to sail on hoping everything will sort itself out.
Now things are starting to move forwards, businesses are trading more and people are out and about, it's time to do some thinking and planning to ensure you don't hit a financial challenge further down the line. Here are 5 strategies you need to put into practice:
1: Grant or loan?
There have been many different ways that money has been released to businesses and individuals to enable them to survive during this very difficult period. Some were grants - which don't need to be repaid; some were loans - which must be paid back.
Review any monies that you've received and ensure you are clear about what needs to be paid back, by when, and what doesn't. Then start putting a plan in place to fund any amounts that need to be paid back. Even if it's 6 years in the future, it will be a lot easier to pay a small amount each month than wait until the whole amount (and any interest) is due.
Remember, grants may not need to be paid back, but they will need to be taxed as income, so speak to your accountant sooner rather than later so you know what your tax is likely to be and when it falls due.
2: Deferred VAT
VAT that was due in the quarter ending after the commencement of lockdown could be deferred. That doesn't mean it will 'go away', it still has to be paid by 31st March 2021 - and subsequent VAT returns are due to be paid when they fall due.
If you deferred your VAT payment because money was tight, now is the time to start putting a bit away every month so you have the funds to pay your deferred VAT bill by 31st March next year.
3: Personal tax payment on account
If you were due to pay an amount on account in July, that could also be deferred. However, that will be due on 31st January 2021, when your next personal tax bill is due.
Bear in mind that your income tax bill will be based on your earnings up to 5th April 2020, only just into lockdown, so it won't be a vastly reduced bill - and that means you'll have the full payment - and the first 'on account' payment for the year ending 5th April 2021. Again, anything you can do towards putting money aside for that would be sensible. Better still, if you put it in a savings account, it will accrue a little interest too.
4: PAYE on furloughed employees' pay
If you've furloughed any of your staff you will have received payments of up to 80% of their monthly pay. These payments are intended to cover both the payment to the individual staff members on furlough AND the PAYE, national insurance and pension payments on those wages. That means that PAYE must be paid on time.
If you've been putting off making PAYE payments, it's time to catch up - technically it can be classed as fraud if the furlough grant is not solely used to pay salaries and PAYE. HMRC is already tracking down companies who have applied for furlough payments for staff who are still working or fictitious employees and it won't be long before they start reviewing companies with overdue PAYE payments that received the furlough grants.
5: Get your tax done earlier
If your company's year end has occurred since lockdown started, get your paperwork in order and to your accountant as soon as possible. The sooner you know what your tax liability is, the better you can plan for it.
The same applies to your personal tax. Get your tax return done (or get your accountant to do it) as soon as possible so you don't get to the end of January and get a huge shock.