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August questions and answers

Q1. My partner has been suffering with “long COVID” for several months, and unfortunately has had to leave her job as a result. As our son is in his second year of university, we can’t really afford the drop in income, and so I am taking a second job. The hours will vary, but I am certain that the additional income will push me into the higher rate tax band for 2021/22. I have heard that the NI contributions I pay should be capped as a result, but I’m not sure how to go about securing this. Do I need to make a claim?

A: You are correct that the amount of NI you pay at the main rate, i.e. 12%, is restricted to your earnings up to the higher rate threshold. For earnings above that, the charge is 2%. The problem is that the NI system is completely separate from the tax system so this won’t automatically be sorted out by your PAYE code or self-assessment tax return (if you file one).

One option would be to contact the NI office to request a deferment on your second employment which will restrict the NI charge to 2%. The problem with this is that if your earnings from your main job are below the higher rate threshold, some of the earnings from the second job should actually be subject to the 12% rate so you may need to make an additional payment after the end of the tax year. If you want to follow this route fill out the application form CA72A and send it back to the address on the form.

If you would prefer not to have a bill later down the line, you can allow the overpayment to occur initially and claim a refund after the year-end by writing to:

Personal Tax Operations

North East England

HMRC

BX9 1AN

You will need to explain the circumstances that led to the overpayment, and preferably include a calculation of the estimated refund due.

Q2. I am very keen on investing in entrepreneurial companies, and over the years have made several investments that qualified for the EIS. Two years ago, I made such an investment, and three months later gifted half of the shares to my wife. Unfortunately, we have recently separated (amicably) and are managing our own straightforward divorce. She has mentioned the possibility of selling the shares I gifted to her, but the minimum holding period has not expired. Will I be subject to income tax relief clawback?

A:Once shares qualifying for EIS relief have been gifted to a spouse or civil partner, in this case your wife, she is treated as subscribing for them in the first place, rather than you. If she subsequently sells them before the termination date, it will be her who must pay any income tax relief clawback. It would obviously be better if she could wait until the termination date has passed before selling the shares, but if she needs the money this may not be an option. Depending on when you separated, it may be possible to effectively swap assets with no CGT consequences, e.g. she transfers the EIS shares back to you in exchange for other shares of a similar value. However, this will only be effective if the transfers take place in the same tax year that the permanent separation occurred. So, if the marriage broke down in a way that was likely to be permanent before 6 April 2021 this won’t be an option. It suggested that you speak with your accountant or tax adviser about this before making any transfers.

Q3. I am a builder who is registered for the CIS. The vast majority of my work is as a subcontractor for a number of large companies. I am VAT registered and so have been subject to the new reverse charge rules since 1 March 2021. However, the changes combined with a downturn in work due to COVID-19 has seriously affected my finances. Could I use the Cash Accounting Scheme to help with this?

A:Unfortunately, you can’t use the scheme for services which are subject to the domestic reverse charge so signing up to the scheme wouldn’t help you there. However, if you now find that you are submitting repayment VAT returns each quarter you can ask HMRC to allow you to submit monthly returns which will obviously speed up your input tax claims and improve your position. The downside is that you will have to submit 12 VAT returns a year instead of four so you will have to weigh up the benefit against the additional administration.

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