November questions and answers

Newsletter issue - November 2020.

Q. I am self-employed and my business has been struggling this year due to the coronavirus. I opted to defer my 31 July 2020 tax payment but I'm worried that I will not have the cash to pay the whole amount by the end of January 2021. What can I do?

A: The government is allowing self-employed people to defer self-assessment payments due, to help them manage their cash flow during the pandemic.

The government allowed taxpayers to defer their second 2019-20 self-assessment payment on account due on 31 July 2020 until 31 January 2021. The deferment was automatic which means that no late payment penalties or interest will be charged for the deferral period.

On 24 September 2020, the government announced that self-assessment payments due on 31 January 2021 (including payments on account deferred from 31 July 2020) can be paid by instalments over the 12 months to January 2022.

Taxpayers can apply for a payment plan by contacting HMRC's time to pay self-assessment helpline (0300 200 3822), or taxpayers with up to £30,000 of self-assessment liabilities can use HMRC's self-service time to pay facility. Interest is payable on time to pay instalments, but if the plan is set up prior to the payments becoming due there should be no late payment penalties.

Q. I am employed and pay tax on my salary at the basic rate through PAYE. I have no other income and do not complete an annual self-assessment return. My wife works part-time and earns £10,000 per annum and does not pay any tax. Can her personal allowances be transferred to me?

A: It is possible for a spouse or civil partner who is not liable to income tax or not liable above the basic rate for a tax year to transfer part of their personal allowance to their spouse or civil partner, provided that the recipient of the transfer is not liable to income tax above the basic rate. The transferor's personal allowance will be reduced by the same amount.

For 2020/21 the amount that can be transferred is £1,250. The person receiving the allowance will be entitled to a reduced income tax liability of up to £250 for 2020/21. Note that married couples or civil partnerships entitled to claim the married couple's allowance (for people born before 1935) are not, however, entitled to make a transfer.

Eligible couples can backdate their claim for the allowance for up to four years. This means that couples will have until 5 April 2021 to backdate a claim to the 2016/17 tax year.

Q. Why it is important to differentiate between items that are zero-rated for VAT and those that are exempt?

A: Although both zero-rated and exempt supplies result in no VAT being applied to the supply, the consequence is very different between them and it is important to get it right.

Zero-rating is a rate of VAT, albeit at zero per cent. The goods and/or services to which it applies are taxable supplies. This in turn renders any supplier of zero-rated goods and/or services liable to register for VAT, where appropriate (see the GOV.uk website at www.gov.uk/vat-registration for further information on registration). The advantage of VAT registration is that VAT can be reclaimed on costs.

However, a business making solely exempt supplies is not making taxable supplies, so cannot register for VAT. Consequently, all VAT incurred upon expenditure becomes an additional irrecoverable cost.

Where a supply could be either zero-rated or exempt, zero-rating takes priority.