The new Fundraising Code of Practice came into effect from 1 November 2025, following a six month transitional period and sees some significant changes with the revised code adopting a principles-based approach, rather than the previous prescriptive format. This more flexible approach is intended to support organisations in applying the code more proportionately. Rather than prescribing how activities must be carried out, the Code now expects charities to make decisions guided by key values, in a similar manner to the Charity Governance Code.

The new Code is also notably shorter (approximately 45% shorter) and more streamlined making it easier to navigate and is focused on a set of core principles – fundraising must be legal, open, honest and respectful.

The code places greater emphasis on ethical behaviour, including avoiding intrusive or persistent fundraising tactics and ensuring donor protection, especially for vulnerable individuals. Oversight of third-party fundraisers has also been strengthened, with clearer expectations around due diligence, written agreements and ongoing monitoring.

Importantly, the code now requires charities to take reasonable steps to protect fundraisers from harm or harassment.

While the legal framework remains unchanged, the new Code increases accountability and encourages better governance, with Trustees reminded of their overarching responsibility to oversee fundraising practices. Charities therefore must ensure their internal policies reflect the new Code and ensure staff and volunteers are trained to meet the updated standards and any fundraising complaints are addressed in line with the new Standards.

A series of support guides accompanies the revised Code, providing further detail on key areas.

Further information: Click here

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It was billed as particularly good news if you have a side hustle, like making extra money through sales on eBay, dog walking, or creating content online. ‘We are changing the way HMRC works to make it easier for Brits to make the very most of their entrepreneurial spirit’, the government said.

But tax wouldn’t be tax if there wasn’t some small print. Not needing to file a tax return is not the same as there being no tax to pay on money received. There are two allowances of £1,000 each, which can be set against trading and property income, but income from a side hustle above this level is likely to be taxable.

What the government is going to do — and it hasn’t happened yet — is put up the Income Tax self assessment reporting threshold for trading income from £1,000 to £3,000. HMRC expects that though 300,000 people may not need to file a return, 210,000 of them may still need to pay tax, and the plan is that they will be able to do so through a new online HMRC service yet to be unveiled.

Umbrellas explained

Umbrella company is not a term defined in statute, but it’s generally taken to mean a company employing temporary workers who work at different end clients’ premises, and HMRC recently described them as employment intermediaries employing workers on behalf of agencies and end clients. The government plans to bring umbrella companies within scope of the legal definition of an employment business through the Employment Rights Bill.

Typically, umbrella companies are used by recruitment agencies to pay temporary workers. The recruitment agency does the business of matching clients with suitable workers, but it may then outsource the employment and payment side of things to an umbrella company. This means the umbrella company acts as the actual employer, and should provide a contract of employment setting out working terms and conditions. Under current legislation, it is also responsible for paying the worker.

Preventing bad operators

It’s thought umbrella companies were used to engage at least 700,000 workers in 2022/23, with non-compliant umbrella companies responsible for engaging a third of this total — and probably more. The government is therefore introducing new rules to drive up tax compliance from April 2026. Broadly, where an umbrella company is used in a labour supply chain to engage a worker, the responsibility to account for PAYE will change.

Rather than the umbrella company employing the worker being legally responsible for operating PAYE, this will fall to the recruitment agency supplying the worker to the end client. They will have the legal responsibility for operating PAYE on the worker’s pay, and will be liable for any shortfall, regardless of whether they operate payroll themselves, or use an umbrella company to run payroll for them. Where there is no agency in the labour supply chain, legal responsibility passes to the end client.

Safe to deal?

As a worker, recruitment agency, or any other person in the labour supply chain, how do you know whether an umbrella company is a reputable and compliant organisation to do business with? HMRC has recently published a guide to good practice for umbrella companies, suggesting the type of behaviours to look for. Safeguarding your position by using guidance like this to carry out due diligence checks is highly recommended. We should be pleased to help if you have any concerns.

The government is extending Right to Work Checks to the gig economy and zero-hours workers. The change will form part of the Border Security, Asylum and Immigration Bill.

Although the Bill is not yet law, businesses should prepare now. The introduction of right to work checks for gig workers and zero-hours staff represents a major shift. Government figures suggest that between 2.5 million and five million additional working arrangements will fall within scope.

What’s Changing

Until now, right to work checks have applied to traditional employment contracts only. Flexible arrangements were not covered. The new rules will affect sectors that rely heavily on non-traditional working models, such as:

• Construction
• Food delivery
• Beauty salons
• Courier services

Some companies, including Deliveroo, already run right to work checks and other verification procedures.

Why the Change Matters

Right to work checks are carried out by employers. They prove a person’s immigration status and confirm they can legally work in the UK.

“To strengthen the entire immigration system, restoring tough enforcement of the rules and undermine people smugglers using the false promise of jobs for migrants.”
The government says the change is part of its wider plan.

Penalties for Non-Compliance

The new rules are backed by strict enforcement. Businesses that fail to comply could face:


• Civil penalties of up to £60,000 per worker
• Business closures
• Director disqualification
• Prison sentences of up to five years for knowingly employing someone without the right to work


Beyond legal risks, reputational damage can also be severe.

Preparing for New Responsibilities

Employment legislation is already complex. A recent Home Office survey showed that 80% of employers got at least one question wrong when asked about right to work checks. The new rules will add yet another compliance layer for businesses to manage.

We are here to help you prepare. Please contact us if you have any questions about right to work checks or your responsibilities under the upcoming rules.

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How and when interest is decided: HMRC charges interest at the Bank of England (BOE) base rate plus a set percentage. For most taxes, interest has jumped from BOE base rate plus 2.5%, to BOE plus 4%, with effect from 6 April 2025. The rate also increased where quarterly instalments of Corporation Tax are paid late, rising from BOE base rate plus 1%, to BOE base rate plus 2.5%. From 28 May 2025, the current late payment interest rate for taxes such as Income Tax, Capital Gains Tax and National Insurance contributions is 8.25%.

The Bank of England makes a decision on interest rate every six weeks, with the next decisions expected on 7 August 2025 and 18 September 2025. If it decides to increase or decrease the rate at these meetings, this will then also impact the rate charged by HMRC.

Other issues: If tax is paid late, interest isn’t the only problem. HMRC also charges penalties for late payment. Under the rules for Income Tax self assessment, there are penalties of 5% of the tax unpaid at 30 days, six months and 12 months. Late payment penalties are different for VAT and Making Tax Digital for Income Tax, and penalties here were increased at the Spring Statement 2025.

Tip: If you are having difficulty paying tax on time, check if you are eligible to set up a Time to Pay (TTP) arrangement with HMRC. If you meet the conditions, TTP should allow you to pay in instalments based on your own individual circumstances. Though late payment interest will still be due, you should avoid late payment penalties if TTP is arranged before the date that the first late payment penalty would have been charged. Take early action if there’s a tax bill you don’t think you can settle in full.

Changes to the interest rate mean that the days when businesses could think of late payment of the tax bill as an informal source of cheap, short-term credit are very much in the past. The government is keen to close the tax gap, and is using the new late payment interest rate as a way to drive up prompt payment. Paying tax on time is no longer just a case of doing the right thing: it makes good commercial sense as well.

Details are yet to be released, but what it’s likely to mean is that you will report Child Benefit payment received — either by you or your partner — to HMRC via a new digital service: and where liability to HICBC occurs, it will be factored into your PAYE code and processed like any other deduction from pay.

At the moment, the system is cumbersome. If you are liable to HICBC, there is an obligation to register for self assessment and complete an annual tax return — even if all other income is taxed under PAYE. The new service will therefore take some people out of self assessment and all the deadlines involved.

The HICBC applies where one of a couple claims Child Benefit payments and either one of the couple has what is called adjusted net income over £60,000. Adjusted net income is broadly income after pension contributions, payments under Gift Aid, and some other deductions. It is the higher earner who is responsible for paying the Charge, even if they are not the one claiming Child Benefit.

Do please contact us for more information.

It may also bring some employees within scope of tax on their benefits in kind for the first time. And for the record, one professional body considers the increase the ‘most significant jump in over thirty years’.

In addition, where the ORI used to be set for a year at a time, it will now be reviewed every quarter. This means the rate could now change in-year, on 6 April, 6 July, 6 October and 6 January, adding further complexity for employers to factor into their calculations.

The ORI is the rate used to work out the taxable benefit of some employment-related living accommodation, and the Income Tax charge when someone has what’s known as a beneficial loan from their employer.

Beneficial loans: Where the employer lends money above a certain amount to an employee either interest free, or at a rate of interest below the ORI, a taxable benefit arises on the difference between any interest paid by the employee and the ORI. Where a tax charge arises, Class 1A National Insurance contributions (NICs) are also paid by the employer on the taxable benefit.

From an employer’s perspective, an ORI of 3.75% is likely to mean an increased cost to the Class 1A NICs bill for 2025/26. This, of course, comes on top of the new 15% rate applying to Class 1A NICs from 6 April 2025, leaving employers with an increased NICs rate to apply to a higher benefit in kind value.

Planning ahead

As a result of the changes, you might want to review whether the remuneration package you are offering as an employer — or the benefits you are receiving as a director or other employee — are as tax efficient as you would like. Where outstanding loans have a total value of less than £10,000 for the entire tax year, no benefit in kind arises, and in the light of the changes outlined here, you may want to keep loans below this level.

We are always happy to advise on the best way to arrange remuneration. Please get in touch to discuss this further.

The cost was in fact £1,200, and the expensive bill arose because Mr Hammant thought he had filed his Self Assessment tax return online, and didn’t discover that it hadn’t been submitted correctly until over a year later.

Mr Hammant had signed up for paperless communication from HMRC, and not realising that anything had gone wrong with the tax return filing, hadn’t seen the need to check his personal tax account for some time. He also mistakenly believed that ‘important’ communications from HMRC would be sent in the post. This meant that penalty notices, reminders and statements were clocking up in his personal tax account, unnoticed. And in the meanwhile, £1,200 accrued in penalties – despite no tax being due on the return itself.

When Mr Hammant finally realised what had happened, he acted at once. The tax return was filed, and he made an appeal against the penalties. But the appeal was not allowed, and the penalties stuck.

It comes as a shock to many people to realise just how inflexible the tax system can be. HMRC did not give up the penalties in this case: and indeed, it has only limited discretion to do so. The First-tier Tax Tribunal weighed up the law, but it, too, has only a certain amount of wriggle room.

The best plan is always to get it right first time: to be on top of the deadlines, and to know how to meet your tax responsibilities. That is what we are here to help with. Please don’t hesitate to contact us at any time.

Our Charity News offers the latest updates on guidance and support for the not-for-profit sector, highlighting new information issued by charity regulators. We also explore the effects of recent legislative changes, reporting obligations, tax updates and other key issues, providing insights into the sector’s most important topics.

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The change affects taxpayers who begin or end self-employment, and directors of close companies. Broadly speaking, a close company is a company controlled by its directors, or by five or fewer ‘participators’, such as shareholders. Most family or private companies are likely to fall within this category.

From April 2025, where a self-employed person begins or ceases trading during the tax year, it will be mandatory to report this, with relevant dates, on the tax return. Previously this was a voluntary requirement. This additional requirement will impact personal tax returns, partnership returns and trustees’ returns.

For company directors, it becomes mandatory, rather than voluntary, to disclose close company directorships. Directors will also have to state the name and registered number of the close company; the value of dividends received from the close company for the year, declaring this separately from other UK dividends; and the percentage shareholding in that company for the year. If shareholding changes during the year, it’s the figure for the highest percentage shareholding that is needed.

Tax compliance: much more than common sense

Keeping up to date with tax isn’t always as simple as it seems, as one taxpayer, Mr Hammant, recently found to his cost.

The cost was in fact £1,200, and the expensive bill arose because Mr Hammant thought he had filed his Self Assessment tax return online, and didn’t discover that it hadn’t been submitted correctly until over a year later.

Mr Hammant had signed up for paperless communication from HMRC, and not realising that anything had gone wrong with the tax return filing, hadn’t seen the need to check his personal tax account for some time. He also mistakenly believed that ‘important’ communications from HMRC would be sent in the post. This meant that penalty notices, reminders and statements were clocking up in his personal tax account, unnoticed. And in the meanwhile, £1,200 accrued in penalties – despite no tax being due on the return itself.

When Mr Hammant finally realised what had happened, he acted at once. The tax return was filed, and he made an appeal against the penalties. But the appeal was not allowed, and the penalties stuck.

It comes as a shock to many people to realise just how inflexible the tax system can be. HMRC did not give up the penalties in this case: and indeed, it has only limited discretion to do so. The First-tier Tax Tribunal weighed up the law, but it, too, has only a certain amount of wriggle room.

The best plan is always to get it right first time: to be on top of the deadlines, and to know how to meet your tax responsibilities. That is what we are here to help with. Please don’t hesitate to contact us at any time.

Despite last-minute delays in the past, there is a confidence that this time MTD IT really will happen. High-level contact with HMRC by the tax and accountancy professional bodies tends to confirm this, and with MTD IT expected to reduce error and help close the tax gap, it seems highly unlikely that the government will back down now. Another strong driver is the fact that MTD IT sits on HMRC’s new Enterprise Tax Management Platform, and moving taxpayer data onto this platform is fundamental to modernising HMRC’s own digital systems.

What’s involved: MTD IT has three key components:

Who is impacted and when: From April 2026, MTD IT will be mandatory for self-employed individuals and landlords, with what’s called gross qualifying income of more than £50,000 from those sources.

From April 2027, it will be mandatory where such income is more than £30,000, and from April 2028 for those with income more than £20,000.  

Not yet in scope: Partnerships are expected to come into MTD IT at a later (unspecified) date.

Exemptions and deferrals: Limited exemptions apply either automatically or with notification to HMRC; we can help you ascertain if any of these apply to you. In addition, certain taxpayers will have a deferred entry to MTD. These include individuals who submit the residence/remittance basis pages with their tax return (SA109), who will not be required to join MTD IT until April 2027.    

Moving ahead: MTD IT is a major change. It impacts the way you interact with HMRC, and how often you interact with HMRC. It also revolutionises the yearly timetable for accounts preparation. The scale of the change can’t be over emphasised, and it will be wise to start making some key decisions now.

If MTD IT is going to apply to you, we will be in touch to discuss what’s needed in more detail. We can also talk through the options for record keeping, and quarterly filing, so you can decide how much input you would like us to have, and how much you want to tackle yourself. We look forward to working with you to find the MTD IT solution that’s right for you.

Claimant support packages

As part of its drive to make sure that companies understand the rules, HMRC is starting to email some claimant companies, on a random basis, on receipt of the R&D Claim Notification and Additional Information Form (AIF). Applicant companies may now receive a ‘guidance package’ by email, with links to online guidance, or other HMRC information sources. HMRC advises that there is no need for recipients to respond, or take any specific action as a result.

In the past, there have been instances where fraudulent R&D claims have been submitted without the knowledge of the company involved, and HMRC’s new guidance packages are partly meant to ensure that companies are aware that an R&D claim is being made in their name.

Dealing with errors

A recurrent theme in HMRC compliance activity is the number of incorrect and spurious R&D claims submitted by rogue firms in the past. This is something that sometimes only comes to light when a company changes its professional adviser.

To address the position where past inaccuracies in an R&D claim emerge, HMRC now has an online disclosure facility, allowing companies to report historic inaccuracies, and to upload relevant calculations. There is also a letter of offer that can be submitted to HMRC as part of a contract settlement.

Use of the facility is voluntary, and is only appropriate where:

Using the disclosure facility should usually qualify as making an unprompted disclosure to HMRC, and this in turn should lessen any penalty involved. However, care is advised where there is a need for disclosure of any kind, and we would strongly recommend professional advice before taking any action.

Keeping up to date

R&D tax relief is a specialist area, and keeping up with the rules is demanding. HMRC has, for example, recently revised its guidance, following two recent decisions at the First-tier Tax Tribunal. These involved technical issues on what counts as subcontracted work and subsidised expenditure for R&D tax relief under the small and medium-sized enterprises scheme which applied before 1 April 2024. In addition, the Spring Statement 2025 announced a consultation on a facility to apply for advance clearance for R&D claims.

We are always on hand to advise on the detail of the rules such as these, to give you confidence that you know which expenses can correctly be included in any claim for R&D. Do please contact us for a discussion.

The move is expected to benefit around 60,000 parents, helping them face the emotional and practical challenges of having a baby in neonatal care, without having to work or use up existing leave.

There are two elements to the new entitlement: neonatal care leave (NCL) which gives additional time off work as a day-one employment right; and neonatal care pay (NCP), for which a minimum period of employment and a minimum earnings test apply.

Conditions

The entitlement is available:

‘Parents’ in this context include adoptive parents, parents fostering to adopt, and the intended parents in surrogacy arrangements. The partner of the baby’s mother is also eligible. Partner here is defined as someone living with the mother or adopter in a long-term family relationship, but who is not related to them. They must also expect to have responsibility to raise the child.

Neonatal care is defined as medical care in hospital; medical care received elsewhere on discharge from hospital, given under the direction of a consultant; and palliative or end of life care.

Leave

Parents can take anywhere from between one to 12 weeks of leave, depending on how long their baby is in neonatal care. Leave must be taken in full weeks. Employers should be aware that each parent has their own entitlement to leave: it doesn’t have to be shared between partners. Note also that NCL is in addition to any right to maternity, paternity or shared parental leave.

Leave must be taken within 68 weeks of the birth. Given that a parent qualifying for NCL is already likely to be on some type of family leave, it is likely that NCL will be added to the end of this.

Pay

To qualify for NCP, someone must have worked for at least 26 weeks for their employer, ending with the relevant week. They must also earn over the Lower Earnings Limit, £125 per week from April 2025. Eligible employees will be entitled to NCP for up to 12 weeks.

Other requirements

Leave is referred to as being in one of two categories: Tier 1 and Tier 2. Tier 1 leave is taken when the child is still receiving neonatal care, and up to a week after discharge, and can be taken in non-continuous blocks, of at least a week at a time. Tier 2 leave is taken at any other time, up to the end of 68 weeks from the child’s birth, and must be taken in a continuous block.

The notice periods for each Tier are different, and only for Tier 2 must an employee give notice in writing. As well as giving the employer notice, the employee also needs to provide certain information to the employer, such as the child’s date of birth.

What employers need to do

Employers will need to update their policies, and make sure that employees are aware of the new rules. Payroll systems will also need adjustment.

We are always on hand to advise on the small print of legal change. Please do contact us with any questions you may have.

The requirement to provide employee data was due to take effect from April 2026, and had already been postponed from April 2025.

Announcing the cancellation, HMRC said: ‘The government has listened to businesses and acted on their feedback about the administrative burden the PAYE… data requirements would bring.’

Whilst the decision to abandon the proposal will undoubtedly come as welcome news for employers, it is, of course, important to remember that employers are already under an obligation to keep records of employee hours worked in order to satisfy their responsibilities under the minimum wage regime. With the latest increase to minimum wage rates in effect from 1 April 2025, it is all the more critical to be confident that working time is correctly paid and recorded.

We can help you review any aspect of your PAYE and minimum wage compliance, so please don’t hesitate to contact us for advice.

New thresholds

The new rules alter the thresholds set out in the Companies Act 2006, and are expected to benefit up to 132,000 companies, by moving them into categories with lighter-touch accounting and reporting requirements. The new thresholds take effect from 6 April 2025. 

Previously, a company was classed as being small if it met at least two of these tests for two consecutive financial years:

Under the new rules, a company is classed as small if it meets at least two of the following tests:

Company size and off-payroll working

Off-payroll working rules apply where the client of someone working through an intermediary, such as a personal service company, is in the public sector; or is classed as a medium or large-sized client in the private or voluntary sector. Under the off-payroll working rules, it is the responsibility of the client to make the employment status decision. Where it is decided that the worker is a deemed employee, the client is then likely to have responsibility for PAYE deductions and National Insurance contributions, unless the supply chain is such that another party is the deemed employer.

Where services are provided to what is defined as a small client, the IR35 rules apply instead, and it falls to the worker’s intermediary to make the employment status decision.

In all cases, it’s the company size as set out in the Companies Act 2006 that is the measuring rod.

How the new rules impact this: and when

Those working through an intermediary may therefore find that some of their clients fall into a different size category in future. Where a client falls into the small company category, the responsibility for assessing employment status will also change, and the decision will pass to the worker’s intermediary/personal service company.

But although the new rules on company size have legislative effect from 6 April 2025, in terms of what it means for off-payroll working, it’s slightly different. This is because of the way the two sets of rules mesh together. Since off-payroll working rules kick in from the start of the tax year after the financial year end, the new rules on company size are in fact unlikely to bring change to off-payroll procedures until the year beginning April 2026, and in most cases, April 2027.

Client companies reclassified as small will be able to look forward to a reduction in the admin burden. Those working through an intermediary need to be aware that change and new responsibilities could be on the horizon. Do talk to us to help prepare for what lies ahead.

For some time, the most recurrent challenge cited has been how to deal with economic uncertainty.

But a new trend is starting to emerge, with a growing number of businesses citing tax as a key concern for the immediate future. After falling demand, tax is the most common headache reported by the businesses surveyed, and it’s been steadily rising up the rankings since summer 2024. It’s probably no surprise, in view of developments like the increase in employer National Insurance costs which are now just beginning to bed in after 6 April 2025.

In the current economic climate, it can be valuable to monitor on a regular basis the options that could be available to your business. We are more than happy to help you review costs, pricing, overall profitability and business strategy. We can help you check that you are maximising tax allowances and reliefs available, as well as advising on how best to structure and remunerate your workforce.

Planning is key to navigating uncertainty, and we are always on hand to help. Please don’t hesitate to get in touch.

The Charge and your options

The HICBC now applies where an individual claims Child Benefit, and they or their partner have adjusted net income over £60,000. It claws back Child Benefit at a rate of 1% for every £200 of income between £60,000 and £80,000. From £80,000, all financial benefit of payment is lost. Note that as the Child Benefit recipient isn’t necessarily the same as the person liable to the HICBC, there is potentially the situation where one partner has received Child Benefit, but the other partner effectively has to repay it.

To avoid the hassle of the HICBC, but keep entitlement to National Insurance credits contributing towards State Pension, you can ‘claim’ Child Benefit but opt out of payment. This also ensures the child automatically gets a National Insurance number at age 16.

HMRC has now made the opt-in opt-out process easier with a new online system on gov.uk. It can be used to opt back in to receiving payments for the current tax year or previous two tax years. But you must already be claiming Child Benefit to use the online service: and it can’t be used if payments would be completely clawed back by the HICBC.

Home Responsibilities Protection: HMRC seeks ‘lost’ claimants

State Pension entitlement could be understated for some people who became parents between 6 April 1978 and May 2000 and claimed Child Benefit. Women now in their 60s and 70s are most likely to be impacted.

The mix-up arises because, in some cases, an earlier scheme called Home Responsibilities Protection (HRP), designed to protect State Pension entitlement, wasn’t linked to National Insurance records.

HMRC is trying to identify those affected, writing to those it thinks might be eligible for HRP, with a view to recalculating entitlement to State Pension where needed. Anyone with concerns should check their National Insurance record for gaps. At the end of the day, any ‘missing’ HRP has to be applied for. The page ‘Apply for Home Responsibilities Protection’ on gov.uk outlines what to do.

Whether it’s letting out land or property through an online marketplace; or creating online content and earning through advertising or sponsorship on social media channels, income classed as trading is potentially taxable, and it’s important to make sure you’re on the right side of the rules.

HMRC’s tool can be used if you sell goods or services; rent out land or property; or create online content. It takes users through a series of yes/no questions, signposting to HMRC guidance, and finally suggesting whether they should register for self assessment and complete a tax return.

It’s all part of HMRC’s drive to make sure taxable income doesn’t slip through the net. As such, it sits alongside other developments, like the new rules from January 2024, requiring the operators of digital platforms like Airbnb and Etsy to provide yearly reports on those using them. Reports are now needed unless users earn no more than 2,000 euros, or make fewer than 30 sales per year. It doesn’t follow, however, that where no report is made, there is no tax liability: and while HMRC’s online tool for additional income certainly makes a starting point, we recommend taking professional advice.

If you have any queries in these areas, we are always on hand to help.

In HMRC’s opinion, more than 95% of such claims are wrong. HMRC has highlighted where it thinks the bar really is, and has warned taxpayers not to be misled by repayment agents offering to put in refund claims.

Small minority only

HMRC’s view is that only a small minority of properties are likely to be considered ‘not suitable’. These are essentially properties with structural problems so serious that they are dangerous to live in or work on. Uninhabitable doesn’t mean property in need of repair or renovation. A recent decision at the Upper Tier Tax Tribunal underlined the fact that:

Making it concrete

In HMRC’s view, the following do not make a property unsuitable for use as a dwelling:

The basics

SDLT is paid on the purchase of property over a certain price in England and Northern Ireland. For residential properties, it starts to apply at £250,000: £425,000 for first-time buyers purchasing a residential property worth £625,000 or less: and £150,000 for non-residential land and properties.

Thresholds for residential property fall from 1 April 2025. They become £125,000 for residential properties; and £300,000 for first-time buyers purchasing a property worth £500,000 or less.

A higher 5% rate applies from 31 October 2024 on the purchase of additional properties; and different rules apply again if you are not UK resident. Scotland and Wales have different regimes.

We can help

There can indeed be occasions where a purchase is eligible for a refund of SDLT, although there is always small print to watch. If, for example, you buy an ‘additional’ property before selling what was previously your main residence, it may be possible to apply for a refund for this higher rate of SDLT. Do please contact us for further information.

Each year, many employees claim tax relief for job-related expenses, such as subscriptions to professional bodies, business mileage, or travel and subsistence costs, and evidence of expenses must now be provided when a claim is made. This is part of a clampdown on ineligible expense claims, and the new approach sees HMRC checking and confirming eligibility before claims are progressed.

From 23 December 2024, there is a new online iForm to use both to claim and submit evidence. The online route comes after some months where claimants have had to download form P87 from gov.uk, and submit it postally. Whilst postal claims can still be made, HMRC expects that the online route will make life easier.

Claims for Flat Rate Expenses for uniform, work clothing and tools can be made online, and though not requiring evidence, will also face greater scrutiny.

Employees claiming expenses of more than £2,500 do so via self assessment. Though there is no change to the actual procedure involved for this, HMRC advises that it has begun compliance projects looking at claims submitted under self assessment, checking their eligibility and asking for further evidence. Supporting evidence should therefore be carefully retained in all cases.

‘Help with VAT compliance controls’ aims to help businesses understand HMRC’s expectations and minimise errors. The Guidelines don’t change the law: rather, they give HMRC’s view on complex, widely misunderstood or novel risks.

Though relevant to any VAT-registered business using invoice (rather than cash) accounting, HMRC says the Guidelines are unlikely to apply equally to all businesses. Businesses will need to consider what they mean for them individually, with an eye to the size, structure and complexity of their own organisation.

The Guidelines highlight some of the systems and processes that may impact overall VAT compliance, such as sales, purchases, and preparation of the VAT return. They are split into ten sections. Each highlights potential areas of risk, sets out good practice and suggests actionable control points to reduce the risk of errors.

Aiming to improve compliance

HMRC says its aim is to help any business review its systems, and put controls in place to improve compliance. Where a business identifies risks, HMRC says it expects it ‘to work towards improving compliance and to review those systems and processes more often. This will help to reduce the risk of VAT assessments, interest and penalties’.

Common areas of error

Employee expenses: This section includes three key areas where mistakes are often made: motoring expenses, mobile phones and business entertainment. With regard to business entertainment events, it recommends that appropriate VAT rates should be available and correctly applied so that:

Suggested good controls here are:

Making Tax Digital (MTD): Recommendations for good practice to support MTD reporting are included in the sections on VAT reporting and manual adjustments. Though the VAT account records have to be kept digitally, and any tax adjustments recorded in the functional compatible software, it’s only the total for each type of adjustment that is thus kept: not the details of the underlying calculations. HMRC stresses that calculations made outside the functional compatible software supporting VAT adjustments should still be kept separately for audit trail purposes.

End to end accuracy

Ultimately, the issue is the integrity of the figures on the VAT return. Businesses need to be confident that the VAT compliance process, from end to end, is as risk-free and accurate as possible.

In HMRC’s words, even if a business outsources its VAT compliance obligations, it can’t outsource the risk. ‘Legal responsibility and the potential for reputational damage’ remain with the business.

We should be happy to help you review VAT compliance in the light of the new Guidelines, or to answer any questions you may have. Please do get in touch.

It’s hard. Just how hard, was evidenced by a case at the Supreme Court brought by Professional Game Match Officials Ltd (PGMOL), a company providing referees for top football fixtures.

With no statutory definition of ‘employment’, case law is all-important, and the question ultimately to be decided here is whether the relationship between PGMOL and the referees is an employment relationship. At stake is the question of whether PGMOL is responsible for Income Tax and National Insurance on match fees paid to referees.

Determining factors

Case law has suggested a contract of employment is indicated by a three-stage test:

In practice, the tests are difficult to apply. Here, referees were appointed to a ‘National Group’ on an annual basis. Referees in the group were offered work via a software system, with weekend games usually offered the Monday before. They were free to turn work down, though they might have to explain why, and they could back out of a game before arriving on match day. PGMOL was also free to make changes after a match was accepted. Accepting a match created an individual contract for that match.

How it played out

The Supreme Court remit was confined to mutuality of obligation and control, and only as regards contracts for individual matches, not the season as a whole. The Court found that ‘the minimum requirements of mutuality of obligation and control necessary for a contract of employment were satisfied’ – at least for the aspects of the relationship it was tasked to consider. The verdict, however, set the bar lower than many had expected. As regards control, for instance, it said ‘sufficient control consistent with an employment relationship may take many forms and is not confined to the right to give direct instructions’.

It’s not the end of this particular story, as decisions on other aspects still have to be made. But it will be important to keep this case in view when making employment status decisions. For further help in this finely balanced area, please contact us.

If you hire someone who is neither self-employed, nor paid through an agency, you’re likely to be considered their employer.

This creates legal rights for the employee and responsibilities on your part. The rules apply to anyone working for you, from nannies to gardeners; and carers to personal assistants. Even where direct payments are received from the NHS or local council to pay for a carer, you can still be considered an employer.

As an employer, you are required to check that your employee has the right to work in the UK, and to register as an employer with HMRC. Auto-enrolment pensions duties can also apply. Paying at least the minimum wage; providing a payslip; and deducting tax correctly also become your responsibility. Rules on minimum wage eligibility have changed from 1 April 2024 for live-in workers, such as au pairs. The previous exemption from minimum wage entitlement has been removed and these workers are also now eligible for payment at minimum wage rates.

It is always important to take care over any question of employment status, and we are on hand to advise.

The property and the problem

This was the story of an appeal by taxpayer, Mr Bevan, against penalties for not having notified HMRC of a tax liability in relation to property letting income: and in the event that the penalties were correctly issued, whether he had a reasonable excuse.

The property in question had been bought in 1999. It was owned jointly by Mr Bevan and his wife, and kept for personal use for seven years before being let out, at less than market rent. Rental income was paid into Mr Bevan’s bank account. In 2022, HMRC wrote to Mr Bevan asking for details of his property income.

Mr Bevan thought that he had no tax liability in respect of the property. He explained that his income was taxed under PAYE and that the couple considered that all rental monies belonged to Mrs Bevan. She had no other income, and it seemed a sensible way to make use of her Personal Allowance. Since net rental income was less than the Personal Allowance, they did not appreciate that they had to declare it to HMRC.

Unfortunately, no professional advice had been taken to check that these assumptions were right. This was particularly important because the Bevans did not realise that HMRC automatically treats income from jointly-let property as being split equally between spouses, unless an election is made to the contrary.

Muddles and mistakes

The Tribunal was sympathetic, finding Mr Bevan ‘a very honest and open witness who fully acknowledged that he did not appreciate all of the subtleties of the issues concerning property income… split between joint owners ’. But that was not enough.

‘What is clear is that there was a muddle and a bona fide mistake was made. We all make mistakes. This was not a blameworthy one. But the Act does not provide shelter for mistakes, only for reasonable excuses. We cannot say that this confusion was a reasonable excuse.’

Its verdict? ‘We have found that the Appellant failed to seek the appropriate advice and proceeded on the basis of a misguided assumption.’

Jointly-owned property: the rules

There are special rules for the letting out of property owned jointly by spouses or civil partners. These apply a default 50:50 split of rental income, whatever the actual beneficial ownership of the property. This won’t necessarily produce the best outcome for tax purposes, and if the actual beneficial interests in the property are different, an election can be made to change the split. It’s done using HMRC Form 17. Evidence of the actual division of the beneficial interests in the property, such as a declaration or deed, will be needed as part of the process.

Take-away message

The case can be summed up quite simply: if in doubt, ask. Should push come to shove, it will always put you in a better place with HMRC. Though as a First-tier Tribunal case, the verdict is not binding, it’s a stark reminder of the importance of being up to speed with the rules — and the need to take appropriate professional advice.

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The tool can help you see what registering for VAT could mean for your business in terms of pricing and profits. It also signposts to a range of other VAT guidance.

To use it, you input details of business income and costs — though these can be approximate — and select the appropriate VAT rate(s). You can then model what would happen if you added VAT to your current prices: if you absorb some of the VAT into your prices: or if you absorb all the cost. You can also experiment with different income and cost figures.

The tool is accessed through gov.uk guidance pages, by searching ‘Check what registering for VAT may mean for your business’. It’s free to use and HMRC has no record of the details you provide.

HMRC thinks there are widespread instances of failure to pay tax on such income, and it’s writing to those it believes are involved.

How does it know?

HMRC actively looks for evidence of undisclosed commercial activity. If it’s on social media, HMRC can find it. Added to that, it has extensive information-gathering powers that mean it can access data from other government departments; online sales platforms; the Land Registry; DVLA — the list goes on.

The cherry on top is its computer system, Connect. Connect has been described as ‘terrifyingly efficient’. It’s said to hold more data than all the thousands of shelves in the British Library put together, and it enables HMRC to process huge amounts of information, identify patterns and highlight the sort of inconsistencies that might point to tax evasion. It’s this background that the current round of letters should be set against.

Where someone has income more than the £1,000 tax free trading allowance — from the sale or breeding of animals, or from any other source — they may need to declare that income to HMRC. There are, of course, other factors to consider, such as whether there is other taxable income.

Anyone receiving a letter like this from HMRC should take action within the time limits set out in the letter. Even where someone believes they have no undeclared income to disclose, it’s important that this is actively communicated to HMRC to avoid the possibility of penalties or further investigation.

In this case, HMRC is sending out two versions of the letter. One invites the recipient to use HMRC’s online voluntary disclosure service if they have income to declare from a previous tax year. The other also refers to HMRC’s Contractual Disclosure Facility (CDF). But using the CDF is only appropriate where someone admits to tax fraud, and great caution is needed.

HMRC does not send copies of these letters to us, so do please contact us as a priority if you receive one. We should be pleased to help.

The latest tax gap figures show a black hole of more than £3 billion for PAYE. This gap is being put down to employer errors.

The gap that HMRC is talking about is the difference between the amount that is actually paid, and what should, in theory, be collected through PAYE on earnings; other income from employment; and the tax due on occupational pensions taxed through PAYE.

So what do employers have to do to make sure they don’t accidentally end up on the wrong side of HMRC’s statistics? Good record keeping is always key. So, too, is prompt payment of PAYE and National Insurance contributions, and timely filing of RTI returns and P11Ds. Making sure that employee information is accurate; and knowing what to do to correct an error as soon as it is discovered — these are also important. Mistakes can get in where a business miscalculates someone’s employment status. Where a payroll system hasn’t been updated. Where employee records didn’t note a change to salary, hours or personal details.

There’s more than enough to prove challenging, and with the risk of penalties, mistakes can soon become expensive. We can help you check that you are operating PAYE correctly. Please do talk to us if you would like help or advice in this area.

Where properties have qualified for FHL treatment, income has essentially been counted as trading income, giving access to a range of favourable provisions. The change impacts both individuals and companies, and has effect from 6 April 2025 for Income Tax and Capital Gains Tax and from 1 April 2025 for Corporation Tax.

What’s changing?

Other points to note

How will it impact me?

If the changes make remaining in the market less attractive, you do have options. Selling the property is one possibility, though there are also tax implications to take into account here. It might be that the disposal is eligible for BADR, and a 10% tax charge. Where BADR is not available, gains would be chargeable at the new 24% rate for residential property. Another possibility is passing property on, perhaps to the next generation. Again, there are tax consequences to think about, and we can advise further here. In some cases, incorporation may be appropriate. This would have to be balanced against the cost of stamp duty and CGT on the transfer.

Finally, if you decide to continue in the holiday market, be aware that tax bills are likely to increase and that scope for pension provision falls.

Working with you

There is a small window of opportunity in the run-up to April 2025 to take stock of these changes and consider whether you might want to restructure your affairs. In this article we have only been able to look at some of the headline issues involved, but we can advise more fully on exactly what the change will mean for you. Please do get in touch.

Under the rules, every employer in the UK has an obligation to put specific staff into a workplace pension scheme and contribute towards it. There is no minimum threshold to being an employer: if you employ at least one person, you’re classed as an employer for these purposes.

The first step is to check whether you need to provide a pension scheme and make contributions into it. And the answer is yes, if anyone working for you is between the age of 22 and State Pension age, and earns more than £192 a week, or £833 a month. The rules apply equally to short-term, seasonal, temporary or other staff who are not on regular hours or incomes. Any new staff taken on — including seasonal workers —should then be assessed every time they are paid, to see if they need to be put into the scheme. Where staff work irregular hours or receive irregular payments, they will also need to be enrolled the first time they earn over these thresholds.

Employer option

But there is a potential workaround where you know staff will be working for you for less than three months. Called ‘postponement’, it essentially puts the need to assess staff on hold for three months. Postponement can be used for as many or as few staff as you prefer, and the postponement period doesn’t have to be the same length for everyone. During this period, you won’t be required to put staff into a pension scheme, or make contributions into it. There is no need to notify The Pensions Regulator if you want to use the process.

There is still considerable small print to get right, however. Staff need to be kept informed: if you intend to use postponement, you must write to staff to say so. There are also time limits to be aware of. You have six weeks from the date postponement starts to write to your staff.

Staff also have rights, and may ask to join or opt into the employer scheme, even during the postponement period. Staff choices over opting in, opting out and joining form a complex area of their own, and we should be pleased to advise further.

Finally, bear in mind that it’s only a short-term fix. It’s compliance as usual on the last day of the postponement. At this stage, you will have to assess staff to see if they are eligible; put those eligible into your pension scheme; and start to make contributions.

Compliance

Employers will be aware that The Pensions Regulator monitors compliance very carefully, and where an employer doesn’t carry out their workplace pensions duties, it may issue a warning notice and deadline for compliance. Where there is continued failure to comply, employers can be fined.

Working with you

The auto-enrolment rules have a long reach and can be daunting to navigate. Please do contact us with any queries or concerns you may have.

TTP can be used for business taxes, such as VAT and employers’ PAYE, as well as self assessment liabilities. It can cover all outstanding amounts overdue, including penalties and interest.

You can set up a repayment plan online, without any need to phone HMRC, where the total debt is below a particular threshold. Businesses can apply online where up to £100,000 is owing and individuals owing up to £30,000. To use the online application service, there are also certain other conditions. These can be found on gov.uk, on the page ‘If you cannot pay your tax bill on time’. If you fall outside these criteria, it may still be possible to arrange TTP, but a phone call to HMRC will be needed.

There is no standard TTP arrangement. Monthly repayments are always worked out on an individual basis, with reference to specific financial circumstances. They can be varied over time, again based on individual circumstances. The length of the arrangement depends on how much is owed, though the aim is always to repay as quickly as possible. HMRC generally expects repayment within 12 months. Anything longer than this is viewed as ‘exceptional’.

Interest still runs on any overdue tax, even where there is a TTP arrangement.

Note, too, that HMRC normally expects any new debt to be paid in full and on time.

With records showing that some contractors are making incorrect Construction Industry Scheme (CIS) deductions, HMRC is currently taking a keen interest in the construction sector.

HMRC’s latest compliance drive sees contractors on the receiving end of nudge letters from the tax authority. The letters require contractors to make sure they are making the right CIS deductions from payments made to subcontractors, and briefly recap the rules. Any business that gets a letter from HMRC should make action a priority. If a letter is ignored, HMRC may start a compliance check. If it then turns out that HMRC finds mistakes in CIS returns, a higher penalty scale could apply.

In outline, contractors need to:

Contractors can verify the CIS status of subcontractors using HMRC’s free CIS online tool on gov.uk, or using commercial software. Commercial software will be needed to verify more than 50 subcontractors.

As construction businesses will know, the CIS status of subcontractors impacts how they are paid. In some cases, contractors are required to make withholding deductions, representing advance payment of tax and National Insurance by the subcontractor.

There has already been change to the process around applying for GPS this year. Since 6 April 2024, VAT has been put on the list of compliance areas that HMRC will check when someone applies for or wants to renew GPS. HMRC also has more bite when it comes to cancellation of GPS. It can now cancel GPS immediately if it has reasonable suspicion of fraud relating to VAT, PAYE, Corporation Tax or Income Tax.

It is more important than ever that businesses using the CIS are up to date with the scheme rules and confident that they are applying them correctly. We are happy to help you check that your business is fully compliant. Please get in touch for more advice.

The annual Creative Industries Statistics Commentary has recently been released, covering the various ‘Tax Reliefs’ up to March 2023 (remember that companies have 12 months to make a claim, so that there is a lag in accurate data until all claims have been filed). The impact of the shift towards On-Demand TV and increased percentage rates available to ‘live’ events (Theatre, Orchestra etc) appear to be the main drivers in the various trends. This very much reflects what we at Nyman Libson Paul are witnessing, with our broad involvement across the Creative Sectors and the various Tax Credits on offer.

In respect of the 2022/23 period, £2.2 billion was paid out (up from £1.9bn) with the overall increase particularly attributable to increased rates for Theatre Claims and an increase in High End Television Productions.

The most claims were made for Theatre Productions (3,980 projects, £178m paid), but many are for smaller amounts reflecting claims by smaller productions. Although Theatre Tax Credit claims were, naturally, severely affected by COVID, the increase in the amounts claimed is quite phenomenal due to the increase in rates available. Nevertheless, the number of claims is also above pre-COVID levels too. Orchestra Tax Credits (400 projects, £33m paid). depict a similar scenario, as do Museums and Galleries Exhibitions (2,755 projects, £29m paid).

But it is High End TV that tops the payout amounts (505 projects, £1,107m paid) with Film in second place (815 projects, £553m paid). If one adds in Animations and Children’s TV, the overall number of screen productions collectively accounted for only 16.1% of projects whilst receiving a huge 76.6% of payouts (1,470 project, £1,713m paid).

Of course, to claim a High End TV Tax Credit the production’s budget must be at least £1m per hour, so the vast majority of TV Shows are not eligible and the amounts claimed will be high in respect of those that are eligible to claim. In contrast, Theatre Productions may make large claims for big productions, but many smaller theatres host relatively lower budget productions whose claims may be numerous but don’t match the larger expenditure on big ‘spectaculars’. Unlike High End TV, small productions can claim.

If there is one sector that is probably going through some uncertain times, it is film. Naturally, a lot of filmmakers have moved over to TV production as ‘On-Demand’ TV and Streaming continues to displace visiting cinemas in the way consumers behave. Increasingly, cinema chains rely on blockbusters and distribution for Independent Film remains an industry concern. The value and number of Film Tax Credit claims are currently below pre-COVID levels whilst the value of High End TV claims is up 13% on the previous year.

The more ‘niche’ claims for Animations (85 projects,£26m paid) and Children’s TV (65 projects, £27m paid) remain steady.

With regard to Video Games (485 projects (5.3%), £282m paid (12.6%), there is a steady increase, as has been seen in previous years. The payouts increased 10%, year on year, which is in line with growth since the incentive’s inception in 2014-15.

This article was written by Dave Morrison and Anthony Pins.

It’s anticipated that 2025/26 will be the last tax year for which HMRC will accept P11Ds and P11D(b)s, but there are still points to clarify. At present, for example, there’s no detail on what will happen to benefits that currently can’t be payrolled: employer-provided living accommodation and interest-free or low interest (beneficial) loans. This is presumably something HMRC will work on before 2026. Draft legislation is expected later in the year, but there is a lot of work to be done to bring the change into reality, and it remains to be seen how the upheaval of the general election will impact timetabling.

What the change means in practice is that employees receiving a taxable benefit — a company car, for example — will have the taxable value of the benefit added to taxable pay. Tax is then paid through payroll in real time, instead of via an adjustment to the PAYE tax code, or paying under self-assessment, as at present.

It’s all part of the push to increase digital interaction with HMRC, and HMRC is majoring on the fact that by eliminating the need to file some four million end of year returns, it will reduce the administrative burden on employers. 
But this isn’t quite the whole story, and in the short run, employers have a lot of work to do. Even employers who already payroll benefits will need to gear up to make sure their systems can handle a shift into real-time reporting for all employees. And for employers who don’t currently payroll, there is obviously more preparation to do — not least making sure that they have appropriate payroll software in place.

Wherever on the scale your business sits, there’s also a considerable communications exercise ahead. Staff will need to adapt too, as tax is collected in real time. This is likely to be a particular issue in 2026/27 when, as well as adjusting to the new system, some employees may also still be catching up on PAYE code adjustments from previous years.

If you don’t already payroll benefits, do talk to us about how to get ready. One option is to register to payroll ahead of the planned implementation date, to give time to get used to the new system. To do this, advance registration with HMRC is needed.

Registration is required before the start of the tax year in which you want to payroll benefits. So to payroll benefits for the tax year 2025/26 — the earliest this can now be done — means registering before 5 April 2025. It is now possible for us to register to use HMRC’s payrolling service as your authorised agents with HMRC, and we are happy to discuss this with you. Please don’t hesitate to get in touch.

The new regime was set to come into force on 1 July 2024, following approval by parliament, but is now pushed back to 1 October 2024. Whether the general election will mean another slide to the timetable remains to be seen.

Employers have, however, been urged by the government to follow the new requirements now, even before they have legal force. Certainly, the run-up to October would be well used to check that everything that’s needed for compliance is in place and ready for the point at which the legislation finally gets over the finishing line.

Change stems from concerns that employees are losing out on tips, gratuities and service charges left by customers, and the new measures make it unlawful for businesses to retain tips rather than passing them on to employees without deductions. This will be particularly relevant in the hospitality, leisure and services sectors, but will apply across the board to all industries.

What’s coming?

Setting out ‘overarching principles on what fairness is’, the new Code must be taken into account by employers when designing and implementing tipping policies and practices. Compliance with the Code matters, because, for example, where a case is taken to the Employment Tribunal in a dispute over tipping, employer compliance with the Code will be considered.

Briefly, under the new requirements, employers must:

Arrangements where tips are received by workers without employer control or involvement are not impacted by the new rules. Note, too, the rules apply in England, Scotland and Wales, but not Northern Ireland, where employment matters are devolved.

Working with you

None of the new measures change the existing rules for tax and National Insurance. These can be tricky to deal with in themselves, and we are always happy to provide guidance here. We are also on hand to help with preparation for the changes expected in October.

There are two basic conditions for deductibility:

In practice, it can be difficult to decide. Following many years of a more restrictive approach, HMRC’s new guidance suggests training costs should usually be treated as revenue expenditure if the aim is to update your skills for a current business. Deductibility may also extend to acquiring new skills to keep you up to speed with advances in science and technology relating to your existing business. And in another subtle shift of emphasis, it may likewise extend to training courses ‘ancillary to the main trade’, such as basic bookkeeping or digital skills. What it rules out, on the other hand, are costs for training to enable you to start up a business; or if you are already in business, to branch out into a new, unrelated line of trade.

Much will depend on the facts of your individual circumstances, and we are happy to advise further.
 

The plan is to lower the age limit to participate in auto-enrolment to 18 from 22. In addition, pension contributions are to be calculated from the first £1 earned, essentially doing away with the lower earnings threshold (£6,240 per year for 2024/25) and introducing contributions from £1 to the upper limit (£50,270 per year in 2024/25).

When they take place, these developments will certainly mark a major milestone. For employers, they will come with a price tag, as pensions contributions are paid for more employees, and on a bigger slice of earnings. For workers, there’s also a cost, and it’s possible that some will want to opt out of auto-enrolment or stop contributions. Communicating all this to your workforce will be particularly important.

The question is — when? Though legislation enabling the Secretary of State to make regulations bringing in the changes received Royal Assent in 2023, no timetable for implementation has been announced. A lack of clarity is never good news for employers, and we will do all we can to update you here. Please do keep in touch with us for details of further developments.

The relief means that any gain on the disposal of your main residence is usually exempt from CGT, provided you meet certain conditions:

Home is …?

What, though, does it mean to occupy somewhere as your residence? The word residence isn’t defined in the legislation, so HMRC will be on the lookout for evidence that a dwelling is actually your home. This, HMRC says, is a test of ‘quality rather than quantity’, involving a degree of ‘permanence, continuity and the expectation of continuity’. Above all, it’s a question decided on the facts of the individual case. That, regrettably, was where one taxpayer fell the wrong side of the rules at the Tax Tribunal, and was faced with a CGT bill of over £43,000 as a result.

Taxpayer, Mr Patwary, lived with his parents in London before purchasing a property in April 2010. He claimed that he had lived at his newly-purchased property with his girlfriend (subsequently his wife) until 2013, a friend also moving in from 2011. On the breakdown of his marriage, Mr Patwary moved back to his parents in 2013. The property was then sold in 2016. He lost his appeal, however, for lack of evidence proving he had actually lived in the property— as opposed to simply owning it.

What sort of evidence was the Tribunal looking for? Registering to vote at the new address; getting council tax bills in his name at that address; a television licence or parking permit for the address; sight of his marriage certificate giving the relevant address — any of these might have been persuasive evidence.

Mr Patwary said, quite plausibly, that he had not changed his address in various instances because he worked with his father and could therefore pick up his post daily. However, changing his address with the bank or HMRC might have helped his case. Ultimately, the Tribunal concluded that it had seen ‘remarkably little evidence . . . to demonstrate a period of residence in the property of over three years’.

So, if HMRC asks — can you prove that you are occupying your home as your main residence? Though not mentioned in Mr Patwary’s case, other helpful indicators include: registering with a local doctor or dentist; a spouse or civil partner registering to vote at the address: using the address for bank and building society correspondence, for credit cards and utility bills; registering and insuring a car at the address. It will always help to have the paperwork to hand, should you ever need it.

Recap

The position has always been that an employee cannot receive tax relief for the cost of a journey which is either ordinary commuting or private travel; and the terminology used is very precisely defined.

Ordinary commuting, for example, means travel between a permanent workplace and home. For most employees, this would refer to the journey made, most days, between home and the normal place of work. For some employees, however, the position will be more complicated.

When it comes to working from home, HMRC’s position is that even if the employee’s home is accepted as constituting a workplace, it does not necessarily mean they are eligible for tax relief for the cost of travel between their home and a regular workplace. This is because where they live is ordinarily a matter of personal choice. The cost of travelling from home is thus the consequence of that personal choice, rather than an objective requirement of the job. HMRC will not accept that home working is an objective requirement of the job if the employer provides appropriate facilities elsewhere that could be used by the employee, or the employee works from home as a matter of choice.

Latest guidance

HMRC has recently updated its guidance on ordinary commuting and private travel, adding a new section to clarify the rules on claiming tax relief for flexible and hybrid workers.

It says: ‘Modern information and communications technology has allowed many more employees to work from home on a flexible or hybrid basis. Under such arrangements, the employee will have a base office and journeys from home to that location will be ordinary commuting.’ Or put another way, tax relief will not be available for travel between home and office.

In fact, as the sheer number of different scenarios given in HMRC’s guidance demonstrates, there isn’t a one size fits all solution. There are likely to be many cases in which employers will have to make a judgement call on the basis of individual employment contracts. Be aware, too, that what holds good for one employee, may not hold good for another. An employee working from home by choice, for instance, would be ineligible to claim tax relief on travel expenses; but what about a colleague working from home on the basis of reasonable adjustment under the disability provisions of the Equality Act — rather than choice?

Employer options

Of course, regardless of tax relief, it is still open to an employer to foot the travel bill for ordinary commuting for employees. Where an employer reimburses for travel costs, this should be put through the payroll and taxed as additional salary. Where the employer pays the cost directly, a benefit in kind will typically arise. Please don’t hesitate to contact us with any queries you may have.

HMRC is publicising common areas of error where businesses trip up when they claim plant and machinery allowances. It’s not new guidance, just a nudge to help businesses keep on the right side of the rules, and it’s intended to be read alongside other HMRC guidance.

The importance of good record keeping is an area particularly highlighted. Good records not only help ensure that claims are accurate; if HMRC comes back with questions, it should also mean any issues are resolved more speedily.

HMRC recommends that a record is kept of capital allowances claimed, either for the specific asset or as part of a pool. In particular, it is suggested that there are records of all acquisitions and disposals, including: the name of the asset; the date of acquisition; acquisition cost; date of disposal; disposal receipts or value on disposal. It is also suggested that it is useful to record how the plant or machinery was acquired: whether purchased, received as a gift, or already in use for another purpose.

Where an asset is not just used for the qualifying (business) activity, but also for other purposes, records should be good enough to show how use is split between the two. This is particularly relevant for vehicles. The key differentiation here is between business and private mileage.

Claims for capital allowances are usually made in the tax return and it should be remembered that supporting records should normally be kept for five years from the normal filing date for the tax return. Incorporated businesses will usually need to keep records supporting their returns for six years from the end of the relevant accounting period. Records may need to be kept for longer where HMRC opens an enquiry.

Plant and machinery claims are a complex area, and getting record keeping right is just the tip of the iceberg. For help and advice, please get in touch.

Izabela has extensive tax knowledge with a specialised focus on private client matters such as UK personal taxation, property tax, residence, and domicile issues. Her expertise and strategic insights have made her a trusted advisor for a diverse range of clients, including Hollywood actors, sports stars and established organisations.

As well as this, Izabela is highly skilled in corporate tax matters. She offers bespoke solutions tailored to meet the unique needs of her corporate clients, managing complex international tax issues and providing transaction assistance.

As one of the principal contacts for Morison Global at NLP (UK), Izabela has actively participated in European and international conferences, contributing to working groups that align with her areas of expertise.

We are proud to be part of the Morison Global network, one of the leading accounting associations in the world. Our membership grants us unlimited access to like-minded professionals who are committed to their clients’ global success, allowing us to better meet the complex and varied needs of our clients.

We look forward to seeing Izabela’s continued success and the positive impact she will bring to Morison Global.

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What it’s interested in is income from distributions or dividends. It has been looking at company accounts, and where it has identified a large drop in the profit and loss account reserves, which might suggest payment of a distribution or dividend, it has been writing to taxpayers to ask them to check that any such income has been declared on their self assessment tax returns. It does not necessarily follow that tax is owing in such cases. It may be, for example, that any such dividend or distribution was covered by the personal allowance or Dividend Allowance.

It is, however, always important to take notice of correspondence of this type from HMRC, and act within the timescale indicated. This letter, for instance, advises that failure to respond may open the door to a compliance check by HMRC, with the potential for higher levels of penalties for any non compliance.

Capital Gains Tax explained

CGT applies where you dispose of particular capital assets at a profit. The rates charged depend on your level of income and the type of disposal, with gains from disposals of residential property being charged at higher rates.

Reliefs and exemptions: Key CGT reliefs are Business Asset Disposal Relief (previously known as Entrepreneurs’ Relief) and Private Residence Relief (PRR). PRR takes the disposal of the main residence out of CGT for most people. There is also an annual exemption.

Rates: CGT is charged at 10% on gains (including any held over gains coming into charge) where your net total taxable gains, plus income, fall below the Income Tax basic rate band threshold. Broadly, gains or any part of them, above the basic rate band are charged at 20%. For gains on disposal of residential property, the position to 5 April 2024 meant higher rate taxpayers paid CGT at 28%, and basic rate taxpayers at 18%.

Budget surprise for top rate of CGT: In an unexpected move, intended to prime transactions in the property market, Spring Budget 2024 announced a cut to the top rate of CGT on disposals of residential property. As a result, the higher rate falls to 24% from 28% from 6 April 2024. The 18% rate remains unchanged.

Reduction in annual exemption: The annual exemption has been cut in stages from £12,300, in a move announced at Autumn Statement 2022. From 6 April 2024, for individuals and personal representatives, it is £3,000, and £1,500 for most trustees, and is now considered to be fixed at this level. Overall, the reduction means that more trusts and individuals will be brought within scope of CGT for the first time. It also makes it increasingly important to maximise the potential of what is still available.

With an annual exemption each, couples should plan to utilise both exemptions as far as possible. Where, for example, there are assets to dispose of, and one spouse is a higher rate taxpayer, and the other has yet to make full use of their basic rate band, there may be the possibility of transferring the assets between them, on a no gain, no loss basis. The lower rate taxpayer can then make the disposal for CGT purposes. This gives the potential to access the 10% rate band, rather than the 20% rate.

To make sure that arrangements are likely to achieve the desired result, do please discuss them with us beforehand. It is an area that needs considerable care, and it is important that such transfers are outright and unconditional.

Letters from HMRC: HMRC sometimes issues what are called one-to-many letters when it thinks particular types of income or gains are slipping through the net. This year, for example, HMRC has done so where it looks as if information on the disposal of shares has been left off the tax return. It’s not the case, though, that everyone getting the letter will have a CGT liability. It might be, for instance, that total gains are less than the annual exemption.

What does HMRC want to know about? HMRC’s letter campaign suggests some public uncertainty about the need to tell HMRC about sales and gifts of assets, particularly personal belongings.

CGT applies to most valuable personal possessions, from furniture and jewellery, to works of art and shares (unless within an ISA). Even personalised car number plates come under HMRC’s watchful eye. Here value stems from the right to use a particular combination of numbers and letters (an intangible asset), with any gain arising on the disposal of a registration number treated as a chargeable gain. The physical number plate on the other hand, is considered to be a chattel, and likely to be of negligible value.

It’s also important to be aware of the rules on cryptoassets. For most people, buying and disposing of cryptoassets is likely to fall within scope of CGT, and from 2024/25, the self assessment tax return will specifically ask for information on income and gains from crypto transactions.

The rules on calculating gains (and losses), reporting to HMRC, and payment of tax, are complex. Separate rules apply to disposals of residential property, for example, especially as regards timescale. The position for non-residents also needs separate treatment. We should be pleased to provide more information.

AI generates cocktail of fake cases against HMRC

And finally, a case at the tax tribunal where HMRC sought penalties for a taxpayer’s failure to notify liability to CGT on the disposal of a residential property.

The property had been let out to tenants and the taxpayer held that they had a reasonable excuse for not notifying HMRC. During the hearing, it emerged that they had — unknowingly — based their argument on fake cases generated by an AI system like ChatGPT. This had picked up frequently-occurring surnames from past tribunal cases, frequently-occurring phrases, and created a cocktail blend of different first names, different dates and different verdicts.

The judge noted that this appeared to be an instance of ‘hallucination’, where an AI system produces ‘highly plausible but incorrect results’. Unsurprisingly, HMRC won the case.

We are always here to provide the correct answers to your problems. Please don’t hesitate to get in touch.

It was a case about commodity codes, and the dispute turned on whether they were dolls representing human beings; non-human toys; toys in sets — or, possibly, statuettes. Then there were minor complications like fangs, and animal ears. Did they tip the balance in favour of a non-human classification?

If your business imports goods from abroad, you won’t need any reminder of the importance — or the difficulties — of getting customs classifications right. This was exactly where one business, importing licensed collectible toys and figurines, ran into problems with HMRC. In a dispute which pre-dated Brexit, it had applied a zero rate for import duty, whereas in most instances, HMRC wanted to reclassify using a 4.7% code.

For the record, the judge decided that the figure of Grey Worm ‘clearly represents only a human being but we considered it was not classifiable as a Doll as it is affixed to a non-removeable base. The . . . figure is very detailed and we have concluded that its ornamental value outweighs its recreational value and it should be classified according to its constituent parts (plastic) to 3926 40 Statuette with a duty rate of 6.5%.’

Commodity codes are clearly not child’s play: for assistance, don’t hesitate to get in touch.

VAT registration limit

Having been frozen at £85,000 since 2017, the VAT registration threshold wasn’t expected to change until at least March 2026. The Chancellor decided otherwise.

With effect from 1 April 2024, the VAT registration threshold has increased to £90,000. Also with effect from 1 April 2024, the threshold for taxable turnover determining whether you can apply for deregistration, has increased from £83,000 to £88,000. For Northern Ireland, the registration and deregistration thresholds for EU acquisitions increased from £85,000 to £90,000, effective from the same date.

In business terms, the VAT registration threshold can be a cliff-edge, especially for predominantly customer-facing businesses, like coffee shops and sandwich outlets. Business performance and profitability can feel comfortable where turnover is just below the VAT registration threshold, but take the step beyond, into the VAT regime, and viability can change considerably.

We are more than happy to help you assess the impact on your business of registration or deregistration — or indeed, any aspect of the VAT rules. If you have any queries, please do get in touch.

What employers need to know

In England, Scotland and Wales, new rules impact the following areas:

Holiday pay and entitlement: irregular hours and part-year workers

Almost everyone classed as a ‘worker’ — a definition going wider than just employees — is legally entitled to 5.6 weeks’ paid holiday each year. This includes workers with irregular hours (such as zero-hours contracts) and part-year workers (such as those only working in term time).

For leave years beginning on or after 1 April 2024, new rules apply to these workers, and the government has provided a definition of ‘irregular hours’ and ‘part-year’ to help employers assess which workers are impacted. Points to note are:

The use of RHP isn’t something workers can request: it is at the employer’s discretion, and involves including an additional amount with every payslip to cover holiday pay, rather than paying holiday pay when the worker takes annual leave. Note that RHP is in addition to the worker’s normal payment, which should be at or above minimum wage. RHP for irregular hour and part-year workers should be calculated at 12.07% of total pay in a pay period. Payments of RHP should be clearly marked as separate items on each payslip.

Paternity Leave and Pay, and other family-leave issues

Changes to Paternity Leave and Pay took effect from 6 April 2024, allowing fathers and partners to take leave in non-consecutive blocks, rather than in one block. Leave and pay can now be taken at any point in the first year after the birth or adoption of the child, and a shorter period of notice is required (four weeks) before leave is taken. Note, also, new rules come in which extend redundancy protection for pregnant employees and those returning from family-related leave.

Carer’s leave 

A new right to carer’s leave took effect from 6 April 2024. It’s a day one employment right, and means any employee can take up to one week of unpaid leave, every 12 months, to give, or arrange care for a dependant with a long-term care need. Maximum entitlement is one week in the 12-month period: it is not per dependant. Leave isn’t restricted to caring for family members and can be used for anyone reliant on the employee for care. Employees should request leave in advance, but do not have to do so in writing. No evidence of care needs has to be supplied to the employer.

Right to request flexible working

The right to ask for flexible working as a day one right came into force on 6 April 2024. Having 26 weeks’ continuous service before making a request is no longer needed. It is still only a right to request, not a right to receive, however. Employers must now respond within two months, rather than three. A new Code of Practice, with guidance for employers, has been published by Acas, the arbitration and conciliation service.

Note: none of these changes apply in Northern Ireland.

The new hourly rates are: £11.44 for workers aged 21 and over (this rate is referred to as the National Living Wage); £8.60 for those aged 18 to 20; £6.40 for those under 18 and over school leaving age. This is a major jump for those aged 21 and 22, who fall into the higher National Living Wage category for the first time. The new apprentice rate is £6.40 and the daily accommodation offset is now £9.99.

Employers continue to be named as part of the government’s minimum wage enforcement activity. Of the 524 named in February 2024, 82 had made errors over payment to apprentices. It should be remembered that the £6.40 apprentice rate is now the appropriate rate to use when paying apprentices aged under 19, as well as those aged 19 or over who are in the first year of their apprenticeship.

Where an apprentice is aged 19 and over, and has also finished the first year of their apprenticeship, they become entitled to age-related minimum wage. So, for example, an apprentice who is 21, and has finished year one of their apprenticeship, would now be entitled to the minimum wage hourly rate of £11.44.

Another prime problem area is making deductions which take payment below minimum wage. 183 employers were named for errors over deductions for items such as food and meals; travel; uniform; childcare and salary sacrifice schemes. Incorrectly calculating working time was also high on the list of problem areas.

It’s the second cut announced, and impacts employees — including company directors — and the self-employed. We outline the effects here.

First of all, there’s no change for employers. They continue to pay Class 1 secondary NICs at 13.8%. Commentators have suggested that this is likely to continue to push employers towards engaging workers who don’t fall into the category of ‘employee’.

For employees, the main rate of Class 1 NICs falls to 8% from 10% from 6 April 2024, for earnings between £12,570 and £50,270. The 2% charge for employees on earnings above the upper earnings limit continues to apply. In summary, the position for Class 1 NICs is as follows:

For company directors, the NICs position after the first round of cuts announced in the Autumn Statement 2023, became slightly more complicated because their contributions are calculated on an annual basis. This meant that for 2023/24, director liability was at a blended annualised rate of 11.5%. Fortunately, the Spring Budget change doesn’t create this issue, and directors’ NICs from 6 April 2024 are 8%, as outlined above.

The change does bring company directors more to think about, though, when it comes to remuneration strategy. The latest cut to NICs makes paying a bonus less expensive, for example. Crunching the numbers in your specific circumstances becomes all the more important.

The NICs cut also impacts the self-employed. The drop in Class 4 NICs, from 9% to 8%, set out in the Autumn Statement 2023, was already due to take effect from 6 April 2024. As a result of the Spring Budget, the rate becomes 6%, rather than 8%, from this date. There is also a 2% charge on earnings above the upper profits limit (£50,270).

In addition, from 6 April 2024, there is no longer a requirement to pay Class 2 NICs, though it’s still possible to make voluntary Class 2 contributions. This option means those with profits less than what’s called the small profits threshold of £6,725, can build entitlement to contributory benefits, including State Pension.

The effect of a cut in National Insurance is felt throughout the UK, and so can have particular impact for Scottish taxpayers, for whom the higher rate threshold is reached at £43,662 of net income, rather than £50,270, as in the rest of the UK. 

As always, we are on hand to provide any further advice needed.

As a result, Core Production Expenditure on an Independent Film of say £1 million could potentially receive Government cash of £318,000 towards the budget …. a great boost for the sector. It will be available for films that start production after 1 April 2024, with certain other conditions attached.

There is also a Business Rates Relief package for eligible film studios with more details to be announced.

Following a recent consultation, the Chancellor also announced the new Visual Effects Additional Relief package, as part of the Audio Visual Expenditure Credit. Consultations and details will be forthcoming, but essentially, whatever it is concluded qualifies as Visual Effects Expenditure will attract a rate of 39% Expenditure Credit unaffected by the 80% expenditure cap, which should, therefore, translate into cash of 29.25% after tax.

Theatres, Orchestras and those qualifying for Museums and Galleries Exhibitions Tax Relief will also be delighted with the new permanent rates of Tax Credits of 40%, and 45% for touring productions.

Against an improving economic backdrop, the Chancellor is keen to stimulate economic growth and highlighted 110 measures for businesses. In addition, there were significant statements relating to National Insurance changes and also the reform of work-related state benefits.

Read our summary of the Autumn Statement

For advice on any of the topics covered within and how they may have an impact on your business or personal finances, please do not hesitate to contact us.

EPR aims to make manufacturers and importers more responsible for the environmental impact of their products. There are a range of reporting requirements, as well as fees that push the cost of recycling packaging onto organisations in the UK that import or supply packaging. The rules have wide reach, impacting materials that the Plastic Packaging Tax, for instance, doesn’t.

Organisations affected by EPR must report packaging data, beginning from this year, 2023. In due course, EPR for packaging fees will apply. These were due to start in October 2024, but have now been delayed until October 2025. Any fees due under previous regulations continue to apply in the interim. The new EPR fees will vary depending on the materials reported, and at present there is no further detail. The waste management fee will vary depending on how easily packaging can be recycled.

Who is affected?

EPR applies to all UK organisations importing or supplying packaging that:

‘Carrying out packaging activities’ is widely defined, and includes supplying empty packaging; and hiring out or loaning reusable packaging, such as wooden pallets for transporting goods.

What you need to do

The rules mean your organisation may need to:

The exact responsibilities vary depending on the size of the organisation (defined according to specific rules), how much packaging is supplied, and which nation of the UK is involved. You can find out more and check your obligations on gov.uk.

The law

Employers must respond to a SAR from a worker without delay, and within one month from receiving the request. If it’s a complex issue, you might be able to extend this for up to two months. But if you don’t respond within the right timeframe, or at all, there’s the possibility of fines or reprimand from the ICO.

In the ICO’s own words: ‘The right of individuals to access information that organisations hold on them is one that is vital for transparency and is enshrined in law. What we’re seeing now is that many employers are misunderstanding the nature of subject access requests, or underestimating the importance of responding to requests.’

Getting it right

In practice, though, what does compliance look like? It might sound straightforward, but reality doesn’t always fit text-book scenarios.

To help your staff recognise a request, they need to know that SARs can be made in all sorts of ways: there’s no formal procedure needed. Contact can be verbal, in writing – even via social media. Questions as simple as ‘what information do you hold on me?’ or ‘can I have a copy of the notes from my last appraisal?’ count as SARs and need an appropriate response. There’s no necessity even to use the words ‘subject access request’ – it’s up to your organisation to identify that this is what is being made.

It’s important, too, that staff know how to respond and who to pass the request to. A valid request can be made by means of contact with any part of your organisation: it doesn’t have to be addressed to a specific person. But the employer’s side of the equation is different, and the ICO does expect you to have a designated person, team and email address to deal with SARs.

With more than 15,000 complaints in this area made to the ICO last year, it’s important that businesses and employers get it right. Further details can be found on the ICO website.
 

In its own words: ‘The government has not yet taken a decision on whether to merge and intends to keep open the option of doing so from 2024. A decision on whether to merge will be made at the next fiscal event.’

Flashing amber

Though the government hasn’t yet given the green light, there’s a lot of activity to suggest it’s at least on flashing amber. Draft legislation has been published and details of how the merged scheme might work are being consulted on.

It’s a challenging outcome for companies involved in R&D, because change, if it comes, could come soon. The aim is to replace the existing Research and Development Expenditure Credit (RDEC) and the small and medium-sized enterprise (SME) relief; and the new rules could apply for expenditure incurred on or after 1 April 2024. As many of those who replied to the recent government consultation pointed out, this is a very ambitious timeline.

What is likely to come next?

The merged scheme is set, broadly, to operate along the lines of the RDEC, rather than the existing SME scheme. The headline rate of tax relief is expected to be 20%, with relief given via an expenditure credit, based on a percentage of R&D costs, offset against the company’s tax liability. But there are variations from the current RDEC rules, notably as regards costs for subcontracted R&D work. These are subject to considerable restrictions with RDEC, but it’s anticipated that the new merged scheme will generally allow claims for such costs.

The draft legislation uses the more generous version of the PAYE/NICs payable credit cap which is included in the existing SME scheme. A restriction on some overseas expenditure, mostly ruling out relief for outsourced overseas R&D costs, has already been announced, and was originally intended to take effect from 1 April 2023. It now takes effect from 1 April 2024 and will also apply under the new merged scheme. Two other changes being kept under review are the introduction of a minimum expenditure threshold, and reform to the rules on qualifying indirect activities.

Not quite a single scheme

The provisions for additional relief for R&D-intensive loss-making SMEs (companies where qualifying R&D spending is 40% or more of total expenditure), which have applied for expenditure incurred on or after 1 April 2023, look set to stay. These rules will continue to sit alongside the merged scheme.

Be prepared

R&D is fairly fizzing with change at the moment. The past year has already seen major changes to the rules around claims procedure, which are only just starting to bed in. HMRC’s latest Annual Report and Accounts continues to flag up concerns about ‘unacceptable’ levels of error and fraud – particularly in the SME scheme, suggesting there is likely to be little let up in its increased compliance activity. Now, with the proposed merged scheme, it looks like off with the old, and on with the new – all over again. Rarely has it been more important to be on top of the R&D rules.

We should be only too pleased to help you review R&D claims and procedures, and take stock of the impact that the latest proposals might have on your business.

High income for these purposes is lower than you might think. The charge applies if you, or your partner, individually have income more than £50,000, and

The charge applies regardless of whether the child living with you is your child, or not. Note, too, that for the HICBC, partner doesn’t just mean spouse or civil partner, but includes someone you live with as if you were married.

The threshold to watch is what’s called ‘adjusted net income’. This is taxable income after deducting Gift Aid payments and pension contributions, but including interest from savings and dividends. If both you, and your partner, have income over the £50,000 threshold, the one with the higher income is responsible for paying HICBC.

The HICBC claws back Child Benefit at a rate of 1% for every £100 of income between £50,000 and £60,000. By the time income reaches £60,000, all Child Benefit payment is effectively lost. You can disclaim the actual Child Benefit payments, so you don’t pay the charge.

The danger zone

What takes many people unawares is that it’s your responsibility to tell HMRC if your income is over the HICBC limit, making you liable to the charge. What’s more, there are time limits involved. If you don’t already submit a self assessment tax return, you need to tell HMRC within six months of the end of the tax year: that’s by 5 October of the following tax year. If liable to HICBC, you need to file a self assessment tax return each year – even if you are an employee and usually pay tax through PAYE.

Many people are also taken aback by the fact that if you don’t tell HMRC within the relevant timescale, it can charge a penalty for non-notification. This is worked out with reference to what’s called the potential lost revenue, and hinges on two factors: whether it considers your behaviour was deliberate or not; and whether it gets the information because it has ‘prompted’ you, or you provided it voluntarily.

Where couples keep their financial affairs separate, the stakes can increase. It’s not unusual to find that someone is faced with a demand for HICBC for a run of years, plus failure to notify penalties, when they weren’t even aware that their partner was claiming Child Benefit. This happened to taxpayer, Mr Ashe, who got a ‘nudge’ letter from HMRC, telling him to check whether he ought to pay the charge – eight years after he had started living with his partner. He simply hadn’t known that his partner claimed for her two children. In Mr Ashe’s case, HMRC raised an assessment for more than £4,000 for HICBC, and just over £300 in penalties. Fortunately, on this occasion, all the penalties were ultimately cancelled.

Working with you

The HICBC is set to impact more couples than ever before, as wages rise with inflation, while the HICBC income limit remains fixed. Please do contact us if you have any concerns in this area.
 

Apple iPhone users have now been given the functionality to store the NINO in their Apple Wallet: online, or through the HMRC App. This means that new employees may increasingly provide proof of their NINO by using their Apple Wallet, rather than giving the employer the traditional NINO confirmation letter from HMRC.

HMRC is reassuring employers that this makes valid proof, and can be accepted in just the same way that the traditional letter would be. At the moment, it’s a service only available to Apple users, but HMRC is working to extend it to Android phone users in due course. It will provide an update when it’s made provisions for the NINO to be saved to the Google Wallet.

Employers should check that the employee’s name matches what they see in the Apple Wallet. If a record is needed, HMRC advises asking the employee for a screenshot.

It’s all part of HMRC’s continuing push towards digital service. Issuing confirmation letters by post can take HMRC up to 15 days: on the other hand, HMRC says that using its App to confirm the NINO should only take a matter of minutes. The Personal Tax Account can also be used to view or download, print, save or share a letter showing the NINO.
 

Gaps in the contributions record can occur for all sorts of reasons. They can happen, for example, if you are self-employed, but have not paid contributions because of small profits; or are employed with low earnings; are unemployed and didn’t claim benefits; or have been living or working outside the UK.

It is possible to make voluntary contributions to fill in gaps in the record, though time limits and eligibility requirements apply. Usually, you can only pay for gaps in the National Insurance record for the past six years. But as part of the transitional arrangements introduced alongside the new State Pension, there is a more generous deadline, applying for certain specific tax years.

For the tax years from April 2006 to April 2017, the deadline for contributions is 5 April 2025. This is a further extension: the government’s original intention had been to allow contributions only until 31 July 2023. The provision particularly impacts men born after 5 April 1951, or women born after 5 April 1953, for whom retirement planning will be on the horizon. The new deadline gives them more time to decide whether voluntary contributions will be of benefit, and allow them to access State Pension entitlements. But it could also benefit anyone looking to make good a gap in the contributions record for the past six years.

Voluntary contributions don’t always increase the State Pension, so it’s important to check the position before making a decision. You can find out how to check your NI record, get a State Pension forecast, decide if making a voluntary contribution is worthwhile, and make a payment on gov.uk. You can also check your NI record through your Personal Tax Account.
 

On the one hand, someone with a day job and a sideline on eBay, who didn’t think he had any trading income. On the other hand, a bill for over £28,000 from HMRC. This was the dispute that recently came before the Tax Tribunal.

The taxpayer in question worked as a security officer. He hadn’t told HMRC he was trading and claimed that he was being harassed by the tax authority. His case rested on the argument that his eBay and PayPal accounts had been repeatedly hacked, and that many of the PayPal transactions under investigation were personal transactions, not trading transactions. HMRC looked at his various eBay names and his presence on another trading platform, noted what he offered for sale, and totted up 793 feedback entries in one twelve-month period alone. It investigated his bank account, which showed payments from Amazon and PayPal, and payments to delivery companies, like Parcel Monkey: and it drew its own conclusions.

The Tribunal did not accept the taxpayer’s version of events. ‘The explanations… are not credible given the volume of transactions, the period over which they are recorded and the transfers involving his Barclays account.’ In fact, it considered that HMRC’s treatment was bordering on the generous. HMRC’s reading of the case won the day: online sales were held to amount to trading.

The case shows HMRC’s capability when it comes to trawling data in pursuit of transactions it thinks are taxable. With new rules set to apply from 1 January 2024, giving the tax authority greater access to information on the income of those using digital platforms to sell goods and services, HMRC looks set to turn digital detective more often.

It’s still checking that claims under schemes like the Coronavirus Job Retention Scheme (CJRS or furlough scheme), met all necessary conditions.

Any employers who used the furlough scheme, and have yet to review details of their claim, are advised to make time to do so. If this brings any errors or uncertainties to light, it is best to contact HMRC at once. Repayment of any money received in error will be needed, but it is just as important that HMRC is formally notified that support has been overclaimed. Where errors are disclosed voluntarily (rather than at HMRC prompting), and HMRC is satisfied as to the full cooperation of the taxpayer, it can reduce the amount of any penalty it may seek to charge.

Cases over eligibility to Covid support are already starting to come before the Tax Tribunal, and they make useful reminders of the key points to check. One area where HMRC has picked up many errors is around eligibility in the first phase of the furlough scheme, when employees were not permitted to do any work at all for their employer. 

This was the area where one small business, which ran parent and baby groups, children’s events and after-school clubs, was held by the Tribunal to have fallen the wrong side of the rules. The company relied heavily on generating interest via social media posts: and the question was whether the fact that a director/employee posted on the business Facebook account while she was on furlough, meant she was ‘working’. Because if it did, it made the furlough claim invalid. Although the Tribunal voiced considerable sympathy for the business, it pointed out that its job is to look at the facts of a case, and apply the law to the facts involved. It has ‘no jurisdiction to consider the fairness of the legislation or of HMRC’s behaviour’.

In this case, though the number of social media posts fell off dramatically during the period in question, the Tribunal held to the letter of the rules. And in its own words, the rules were ‘all or nothing… An employee who was turning out 100 widgets a day would still be working if they only turned out three widgets a day.’ The verdict was in HMRC’s favour and meant that the business had to repay furlough monies of nearly £9,500.

The case is a reminder of the complexity of the furlough rules, and the possibility of quite unintentional error. For help reviewing past claims, or concerns about pandemic support received, do please contact us

Our Charity News includes the latest guidance and support available for the not-for-profit sector, with a range of new guidance being published by the charity regulators. We also consider the impact of recent legislative, reporting and tax developments and other pertinent issues, giving you the inside track on the sector’s current hot topics and latest guidance.

Charity Newsletter PDF

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Export declarations: CHIEF closes

HMRC has a new customs platform, the Customs Declaration Service (CDS). Businesses making import declarations have already made the change to CDS from the old Customs Handling of Import and Export Freight (CHIEF) system. Export declarations go next. On 30 November 2023, CHIEF closes and all export declarations will be made through CDS. Some groups will be able to use CDS before this date.

The two systems are not identical and it’s recommended that businesses take steps now to prepare. Some information is captured differently on CDS, and the way you input data is different, for example. This particularly impacts the way you use the Trade Tariff and the way declaration payments are processed.

HMRC suggests businesses can get ready by:

HMRC launches advance valuation service

Getting the right method to work out the customs value of goods you import is complex. There is now a new HMRC service that you can use – before the import declaration is made – to make sure that things are in order.

HMRC’s advance valuation ruling service (AVRS) checks that the valuation method proposed is correct, and gives businesses a legally binding decision. The decision can then be used for any further imports of these goods for up to three years.

As the name suggests, you apply in advance – before goods are imported or declarations made: HMRC can’t give a ruling retrospectively. It’s done by signing up through the business tax account. On the business tax account homepage, select ‘Get online access to a tax, duty or scheme’. For those without a business tax account, application is made online using your Government Gateway user ID. It can take up to 30 days for HMRC to ‘accept’ the application and a further 90 days for HMRC to give the ruling. If an agent acts for you, they can apply on your behalf, but only if they have been added to the business tax account as a team member.

The service is not mandatory: but there are clear advantages. A ruling can help make sure the right duty is paid, minimising business risk and helping steer clear of HMRC challenge at a later date.
 

A common problem area highlighted by HMRC is the creation of duplicate employments for employees. Where an extra employment record gets set up that’s identical to an existing live (or ceased) employment, things can get messy. Quite apart from employee tax coding issues, there’s the potential for apparent understatement of employer PAYE liability, and the possibility that HMRC might start debt collection activity.

Duplicate employments can be triggered in a number of ways. Key areas to watch are:

Getting the starter notification and first Full Payment Submission (FPS) right, with accurate personal details, will avoid the need to file updates to employee name, date of birth and gender. Making sure that information is consistent will also help. If the initial FPS gives the name Zachary O’Keefe, make sure that’s the name used in future, and that it doesn’t get abbreviated to Zak O’Keefe, or Z O’Keefe, for example. HMRC notes that different payroll solutions give different capability and levels of control. But it still expects employers to understand what’s going on. It’s the payroll software that usually generates employee payroll numbers (sometimes known as employee numbers or employee unique payroll ID), for instance: but HMRC expects employers to understand how they’re generated.

We are always on hand to help you steer clear of payroll problems. Whether advising on appropriate software, or carrying out payroll for you, we are here to help.
 


The Annual Allowance (AA) increased from £40,000 to £60,000. The AA is a yearly limit, and pensions contributions up to this limit attract tax relief. The AA applies to personal, employer and employee contributions.

Rules around the tapered AA. If what’s called your ‘threshold’ income (broadly, income less personal pension contributions) is more than £200,000 in a tax year, the AA is restricted and falls by £1 for every £2 of ‘adjusted’ income (broadly, income plus occupational and employer pension contributions) above a particular limit. In the past, the limit was £240,000. This has changed to £260,000. In the past, your minimum AA could be reduced to as little as £4,000. The minimum is now £10,000.

The Lifetime Allowance (LTA). This has been the total that you can build up in pensions savings without incurring a tax charge. The LTA has been £1,073,100, and in some cases, higher, if you have special LTA protection. If your pension fund is more than the LTA, in the past, there has been a charge on the excess. This would usually come into play when you first accessed pension income, or reached age 75. ‘Excess’ amounts taken as a lump sum have been taxable at 55%, and ‘excess’ amounts left in the fund at 25%, with further withdrawals taxed at your marginal rate of tax. The Budget has removed the charge, and the LTA itself will be abolished from the 2024/25 tax year. This is clearly a significant advantage to those with larger pension pots.

The amount of the pension fund which generally can be taken as a tax free lump sum remains £268,275 (calculated as 25% of the LTA). The legislation will be amended to set the tax free amount specifically, rather than being calculated by reference to the LTA.

The Money Purchase Annual Allowance (MPAA). This impacts people, over the age of 55, who have already started to access their pension fund, and it’s a limit on how much can then be paid into a pension without attracting a tax charge. It rises from £4,000 to £10,000.

What happens next?

Much press coverage focussed on the very highest earners, but there is potential benefit in many cases. The ripples go much further than just the size of the pension pot: they can also affect when you plan to retire, and are aimed at making it more feasible to continue working whilst still making pension provision for the future. Pensions could also have a role in inheritance tax planning, helping you pass capital to the next generation without a tax charge. We recommend reviewing plans in the light of all these changes – with a prudent eye, also, to the possibility of a future government taking a different approach.

Your tax liability may be higher

Basis period reform is a change that affects unincorporated businesses only – not companies. Within that group, it only affects businesses that don’t use a 31 March or 5 April year end. You may have seen it called a change to the ‘tax year basis’ – because what it does is change the way that your trading income is allocated to tax years:

In short, if your business doesn’t have an accounting year ending on 31 March or 5 April, the tax calculation this year is based on a longer period than usual. It’s based not just on the profits to the end of your normal accounting period: but also on a proportion of the profits from the end of your accounting year up to 5 April 2024 – the date that the new tax year basis begins. Clearly this is likely to mean higher tax bills in 2023/24. It also affects the following four years. The impact of this on cash flow will need consideration.

Example
PQR has an accounting year running to 30 September 2023
he’s taxed on profits for the year to 30 September 2023 plus
a proportion of the profits for 1 October 2023 to 5 April 2024 as well.


This isn’t necessarily the end of the story. Your individual mix of income will also affect how much tax you pay. For some people, the change could also mean the need to think about the possibility of the personal allowance being restricted, as occurs if adjusted net income is more than £100,000.

What can be done about it?

The good news is that routine tax planning strategies such as pension planning, Gift Aid donations and careful allocation of profits between family members, may all be available to help.

There are also two primary reliefs to help lessen the impact of higher tax bills:

Getting the appropriate figure for overlap relief may not be straightforward in every case: for example, where HMRC does not have a record of this from previous tax returns; or where businesses have changed their accountants. Partnerships have their own complications, with each partner having their own figure for overlap relief. These are all things we will discuss with you.

It doesn’t stop there

The change also affects the yearly preparation of accounts and tax returns. In future, information from two sets of accounts, not one, will have to feed into the tax return, adding to the work done. Many businesses in this position will need to submit provisional figures, with adjustments made later, probably in the following year’s return.

The solution for some businesses is a change of accounting year end, moving to 31 March. It will not be the case for every business, particularly where there are compelling commercial reasons to use a different year end, such as 31 December. This is also something we will review with you.

Basis period reform will be experienced as quite a disruption for many businesses. We will do all we can to help you through the change.

Full expensing can be used for expenditure incurred by companies on or after 1 April 2023 and before 1 April 2026. At present, it’s temporary though the government aims to make it permanent as soon as it can. It permits a 100% claim for capital allowances on the purchase of qualifying plant and machinery, so that the cost of investment gets written off in one go, in the year of purchase. It applies to qualifying new main rate plant and machinery: in particular, plant and machinery must be new and unused; must not be a car; must not be given to the company as a gift, or bought to lease to someone else.

For certain other types of plant and machinery, long life assets, and integral features of buildings, which don’t qualify for full expensing, a 50% first-year allowance can be claimed. This allowance comes with the same conditions as full expensing. Relief on the balance of expenditure comes in subsequent accounting periods and is given at the 6% rate of writing down allowances for special rate expenditure.

In practice, full expensing will impact only a limited number of businesses. It’s a tax relief for companies, not unincorporated businesses or partnerships. And it’s a change that matters almost exclusively to companies planning capital expenditure over £1 million – the Annual Investment Allowance (AIA) limit.

It’s not just companies that have to get to grips with new rules on capital allowances. There’s change as well for unincorporated businesses and partnerships. For some years, the AIA limit has been set temporarily at £1 million. This has put pressure on businesses to get major capital expenditure into the window before the £1 million limit fell.

The good news is that the limit is now permanent. Most businesses should now be able to claim 100% first-year relief for expenditure on qualifying plant and machinery. It’s worth noting in passing that tax relief on the purchase of cars doesn’t come via the AIA. It’s given through writing down allowances, with rates determined by CO2 emissions and date of purchase. Enhanced capital allowances are available for new and unused electric cars.

What’s the right way to sort out the VAT if you sell goods or services as a package or bundle? There’s a single price – but the different parts of the package have different VAT liabilities. It’s all about apportioning the amount the business receives – the ‘consideration’ – and the problem is that there’s more than one way to tackle the calculation. The most common methods are based on selling price or the costs incurred in making the supplies. However it’s done, the principle is that ‘a fair proportion’ of the total payment gets allocated to the different parts, and the business needs to be able to justify its calculations.

It’s complex and HMRC knows businesses make mistakes. Concerned that not all methods of apportionment currently in use are ‘fair and reasonable’, it’s published updated guidance. The aim is to ‘encourage’ apportionment based on selling price – although it’s not mandatory.

We should be pleased to help you review and risk assess your policy on apportionment in the light of HMRC’s latest thinking.

In a recent survey, 41% of those who replied said they had no information about tax and their cryptoassets. In the light of this, it’s perhaps no surprise that the Spring Budget saw an announcement that the design of the self assessment tax return is going to change. From 2024/25, the capital gains tax pages will specifically ask for information on income and gains from cryptoasset transactions. This is meant to serve as a reminder that crypto transactions are within scope of the tax rules and should form part of the yearly review of the tax position.

The buying and selling of cryptoassets is usually treated as a personal investment. This brings it within the capital gains tax regime. However, with the capital gains tax annual exemption currently falling, more people are likely to come within scope of the tax. The exemption is currently £6,000 and by April 2024 – when the new look tax returns are issued – will be £3,000. If these changes are relevant to you, do please get in touch for an in-depth discussion.
 

Our Charity News includes the latest guidance and support available for the not-for-profit sector as the cost of living crisis starts to bite. We also consider the impact of recent legislative, reporting and tax developments and other pertinent issues, giving you the inside track on the sector’s current hot topics and latest guidance.

Charity Newsletter PDF

To receive future editions of our newsletters please subscribe here.

After strong lobbying from the theatre industry, still recovering from the aftershocks of Covid, the higher rates of relief previously introduced in October 2021, due to taper down from 1 April 2023,  have now been extended for a  further 2 years, until 31 March 2025. Stand-alone productions will continue to benefit from a rate of 45%, and touring productions 50% – these will now taper down to 30%/35% for 12 months from 1 April 2025. Similar rates will apply to orchestra, museums and galleries relief. As practitioners, we will no longer need to worry about apportioning costs pre and post 1 April, at least for another 2 years!

One other expected change to theatre relief and orchestra relief, post Brexit, sees EEA spend excluded from eligibility from 1 April 2024, but the minimum UK core spend is reduced from 25% to 10%. In practice we expect this to have little impact.

Following a widespread consultation, we will see very substantive changes to the audio-visual reliefs from 1 January 2024. The detail will be published later in the year. The whole system will change to a “refundable expenditure credit” – in other words a simple subsidy delivered by a cash payment based on eligible costs. This will replace the current system of enhancing the costs for tax purposes to create a loss, which can be surrendered for cash or used to reduce taxable profits. We anticipate this will be much easier to understand and to operate. We hope this change in the system will be extended to theatres and orchestras in future in order to streamline the entire suite of creative industry reliefs.

The rates of relief under the new system for film, high-end TV and video games will be 34%, and for children’s TV and animation 39%. However the payments will be treated as taxable receipts so the effective rates will not be dissimilar to the present rates of relief. The entry point for high-end TV relief will remain at £1m per hour – there had been fears that this would be raised.

Finally, there will be some anti-abuse legislation in relation to payments between connected parties. Whilst in our experience the reliefs work very well and are not abused, clearly HMRC felt the need to address this point to remove some bad apples, and we welcome the change.

For more information about Creative Industry Tax Reliefs please contact Anthony Pins or Dave Morison.

We were very proud to support the Critics Circle Film Awards, held on Sunday 5 February 2023 at the May Fair Hotel, sponsoring the award for Best Actress. The award was given to Cate Blanchett for her performance in Tár, pictured above with NLP Managing Partner Anthony Pins and Robbie Collin, film critic of The Telegraph.

Photo by Dave Bennett

Our latest Charity News includes the latest guidance and support available for the not-for-profit sector as the cost of living crisis starts to bite. We also consider the impact of recent legislative, reporting and tax developments and other pertinent issues, giving you the inside track on the sector’s current hot topics and latest guidance.

Charity Newsletter PDF

To receive future editions of our newsletters please subscribe here.

At present, the capital gains tax (CGT) rules mean such couples can transfer certain chargeable assets between them without CGT on a ‘no gain, no loss’ basis within certain time limits. This window is only open until the end of the tax year of separation. After that, transfers are treated as normal disposals for CGT purposes. 

Under the new proposals, couples will have up to three tax years from the year that they stop living together to make no gain or no loss transfers of assets, and unlimited time when the assets are the subject of a formal divorce agreement. There are also modifications to the private residence relief rules as they apply when a spouse or civil partner moves out of the former shared home. These aim to ensure that private residence relief operates more fairly, allowing relief for the period between moving out and sale to a third party.  If this is an area of relevance to you, please do contact us.

November 2022
2 Deadline for submitting P46(Car) for employees whose car/fuel benefits changed during the quarter to 5 October 2022.
19 PAYE, Student loan and CIS deductions are due for the month to 5 November 2022.
December 2022

1

New Advisory Fuel Rates (AFR) for company car users apply from today.
19 PAYE, Student loan and CIS deductions are due for the month to 5 December 2022.
30 Online filing deadline for submitting 2021/22 self assessment return if you require HMRC to collect any underpaid tax by making an adjustment to your 2023/24 tax code.
31

End of CT61 quarterly period.

Filing date for Company Tax Return Form CT600 for period ended 31 December 2021.
January 2023
1 Due date for payment of corporation tax for period ended 31 March 2022.
14 Due date for income tax for the CT61 quarter to 31 December 2022.
19

PAYE, Student loan and CIS deductions are due for the month to 5 January 2023.

PAYE quarterly payments are due for small employers for the pay periods 6 October 2022 to 5 January 2023.
31

Deadline for submitting your 2021/22 self assessment return (£100 automatic penalty if your return is late) and the balance of your 2021/22 liability together with the first payment on account for 2022/23 are also due.

Capital gains tax payment for 2021/22.

Balancing payment – 2021/22 income tax and Class 4 NICs. Class 2 NICs also due.

We will find out what the OTS recommends in due course, but what can businesses look at in the meantime?

The tax rules on areas like travel and subsistence are a prime area to review, taking stock of where working practices have changed post-Covid. Particularly important is the concept of the ‘permanent workplace’, something that has specific meaning in tax law. It has a direct bearing on the allowability of travel expenses. 

If employees are working remotely or in a hybrid arrangement, where they work both on site and at home, special care is needed: tax relief for travel from home to the employer’s premises will be available only in very limited and specific circumstances. In most cases, HMRC will hold that the employer’s normal workplace is the permanent workplace. Where this is so, the ordinary commuting rules work to deny tax relief. 

The position regarding home working expenses and employer provided equipment is another area to check. There were a number of temporary changes, which applied specifically during the pandemic. Employers should now take the opportunity to engage with staff to make sure that expectations are set at a realistic level. 

The OTS is also looking at the increasing trend in cross-border working, where employees work overseas for employers based in the UK, or work in the UK for overseas employers. It notes: ‘These arrangements are different from traditional expatriate assignments, where individuals moved to a different country to work for a set period. Hybrid arrangements may typically involve an individual working in two or more countries, often in residential accommodation, where the location is chosen by the employee and not by the employer.’ 

Employers potentially need to deal with many different issues arising here. They range from where someone is considered resident for tax purposes, to consideration of what are called double tax treaties – treaties between the UK and other countries establishing how an individual is taxed. Areas like share schemes and pension contributions also require appropriate attention.

Whether your employees are internationally mobile or footloose within the UK, there’s a lot of complexity. We can help with advice tailored to the requirements of your business.

You may be able to reduce your annual tax bill by reviewing your business’s structure, as there are often significant tax savings to be made. During the early years of a business, it may be preferable to operate as a sole trader or in a partnership. However, as your profits increase, you may find it more beneficial to form a limited company. 

Incorporating your business also has many non-tax advantages. Incorporated companies enjoy legal continuity, as they are legal entities in their own right. In addition, if a business owner ever wished to transfer ownership, as an incorporated company this can be achieved with greater ease than if trading as a sole trader or in a partnership. 

Please contact us for more information. 

The new income tax framework for MTD for IT will be mandatory from 6 April 2024. HMRC is now asking for users to sign up for the test phase.

The new system will replace self assessment tax returns for anyone who qualifies for MTD for IT as they will have to submit all non-qualifying income through the Personal Tax Account (PTA) system instead. The new deadline for end of year statements will be 31 January after the end of each tax year.

HMRC will use data from self assessment tax returns to calculate qualifying income in the first instance and will contact all affected taxpayers directly to inform them that they fall under the mandatory MTD for IT rules.

HMRC states: ‘Your qualifying income is the combined income that you get in a tax year from self-employment and property income sources. We assess this before you deduct expenses (that is, your gross income or turnover). All of your qualifying income must be reported through MTD compatible software.

‘All other sources of income reported through self assessment, such as income from employment, dividends or savings, do not count towards your qualifying income. You will need to report income from these sources using either your MTD compatible software (if it has the functionality) or HMRC’s online services account.’

In his first statement as Chancellor, Mr Hunt announced a reversal of almost all of the tax measures set out at the Mini Budget that have not been legislated for in parliament.

He also signalled major changes to the government’s energy support packages for businesses and households.

The Chancellor announced that the following tax policies will no longer be taken forward:

The Chancellor also cancelled the VAT-free shopping scheme for non-UK visitors to Great Britain and the freezing of alcohol duty rates scheduled for next February.

Mr Hunt says that these measures will raise £32 billion for the government.

The changes follow previous decisions not to proceed with proposals to remove the additional rate of income tax and to cancel the planned rise in the corporation tax rate.

The Energy Price Guarantee and the Energy Bill Relief Scheme will continue as previously announced until April, they will be reviewed for beyond that date.

In a nutshell

Since 1 April 2022, there’s been something of a U turn in HMRC policy. HMRC’s interpretation had been that charges to end a contract early did not attract VAT. This was on the grounds that the charges were not generally for a supply, and so fell outside the scope of VAT. Then along came some key judgments in the Court of Justice of the European Union, with the result that HMRC policy has shifted ground. 

The new position is that if there’s an early termination or cancellation fee, and the goods or services supplied in the original contract were subject to VAT, then the fee to exit the contract is subject to VAT as well. HMRC guidance gives the example of the fee charged to leave a mobile phone contract or terminate a car hire contract early. In each instance, the fee will attract VAT. HMRC stresses that it’s not the wording that’s important, so that even where payments are described as compensation or damages, a VAT liability is likely to arise.

Essentially, the charges are treated as additional consideration for the supply of goods or services. For this to be the case, however, there must be a direct link between the customer’s payment and the supply made. Where the fee charged looks ‘punitive’, as for example, in the case of additional fees where someone overstays at a car park, the link with the original supply may be lacking. In this scenario, the fee may fall outside the scope of VAT. 

Landlords

The land and property sector is one area particularly impacted by HMRC’s clarification. There had been some doubt as to what stance HMRC would take on dilapidation payments to landlords – payments at the end of a lease to cover costs if property isn’t handed back in the specified condition. Change to the status quo had been widely expected.

This latest guidance, however, states that dilapidation payments will still normally be outside the scope of VAT: the existing regime continues to apply. HMRC’s updated VAT manual nonetheless highlights the potential for grey areas: ‘We might depart from that view if in individual cases we found evidence of value shifting from rent to dilapidation payment to avoid accounting for VAT.’

VAT: working with you

This new guidance means a significant number of payments that were previously deemed to be outside the scope of VAT may now need different treatment, and we should be pleased to give in-depth advice relevant to your business sector. If you have any queries, do please raise them with us.

The answer is – they all demonstrate HMRC’s approach to claims made under the Coronavirus Job Retention Scheme (CJRS or furlough scheme). 

Risk profile

It’s an approach summed up in a recent policy paper on errors and fraud in Covid support schemes generally: ‘We are not writing anything off and will continue to prioritise the most serious cases of abuse. HMRC has legal powers to recover this money up to 20 years after the event.’

HMRC is heavily involved in the Taxpayer Protection Taskforce investigating this area. Although HMRC stresses that it is not actively looking for innocent errors, CJRS compliance activity is very much live and it is important for businesses to look back and check past claims and supporting calculations. 

FAQs

HMRC has published FAQs showing its position with regard to common errors in furlough calculations. It focuses on instances where calculations were made using methods other than those set out in HMRC guidance, and highlights areas where an error means a claim should be corrected, and where, with certain provisos, it doesn’t. 

High on the ‘must correct’ list are errors where an employer failed to take reasonable care following HMRC guidance available at the time of the claim. On the other hand, if an employer relied on incorrect HMRC advice, in certain specific circumstances, claims may not require correction. Please contact us for further details.

Clear bright line

One of the first cases involving HMRC clawback of CJRS payments has recently come to the tax tribunal. 

It’s important because even though the tribunal had every sympathy with the taxpayer business, finding it ‘honest and straightforward’ and noting that it had managed ‘extremely competently through very difficult times’, in the final analysis, none of this was enough. 

The case turned on the issue of furlough payments for two members of staff who started employment just as the pandemic hit. Though they began work in February 2020, it wasn’t until 25 March 2020 that they were included on an RTI return. 

The problem was that to be eligible for furlough, staff not only had to be on payroll on or before 19 March 2020, they also had to be notified to HMRC on an RTI submission on or before that date. The view from HMRC’s corner, therefore, was that claims for these employees were invalid and should be repaid. The view from the taxpayer’s corner was that, having followed the guidance as best it could in a rapidly moving commercial and legislative environment, it had done nothing but claim in line with the ‘spirit’ of the scheme. 

The tribunal, however, held that the rules drew ‘a clear bright line to determine eligibility for the scheme’ and regrettably, the taxpayer fell the wrong side of them. It’s a cautionary tale – and it cost the taxpayer more than £20,000 in repayments. 

Working with you

When put under scrutiny, many claims under the CJRS are turning out to contain errors – as this one did. Latest HMRC analysis in fact suggests that error was a bigger driver of problem claims than fraud. It also highlights that the greatest area of risk came from employers claiming for employees who were working. 

We strongly recommend that businesses take a proactive approach, going back over claims with a view to making disclosure of any issues arising. We can help you review compliance, to help minimise potential exposure to demands for repayment or penalties.

The Data Protection and Digital Information Bill is set to amend existing legislation – such as UK GDPR. The government says this will reduce the burden on businesses, replacing a ‘one-size-fits-all’ approach with risk-based compliance. As well as updating and simplifying the data protection framework, the aim is to give the flexibility to drive greater innovation. Headline issues include:

A change to the regulatory body, the Information Commissioner’s Office, is planned, with its powers transferred to a new body, the Information Commission. 

Whilst a broad outline of proposals is starting to emerge, at this stage, there are two things to bear in mind. The first is that details may yet change before the Bill becomes law. The second is the European dimension. UK businesses operating in both the EEA and the UK will need to make sure they are compliant in each. Further, the free flow of personal data from Europe is currently guaranteed by the EU’s ‘Adequacy’ decision, but the government acknowledges that ‘As the UK diverges from EU GDPR, the risk that the EU revokes its Adequacy decision increases.’ This is a point businesses engaging with the EU will want to keep under review. 

Easing into new rules is always a concern and we are on hand to assist. Please don’t hesitate to get in touch.

New tax

Designed to increase use of recycled plastic, while minimising landfill and incineration, the PPT came into force on 1 April 2022. It applies to what are called finished plastic packaging components containing less than 30% recycled plastic. Packaging designed for use in the supply chain, as well as packaging for single use by the consumer is impacted. It’s not just the import of unfilled plastic packaging that’s within scope: so, too, is filled plastic packaging, from soft drinks in plastic bottles to plastic tubs containing squid. 

Does it apply to you?

Significant complexity lies behind the broad overview.

Businesses importing or manufacturing plastic packaging components need to monitor tonnage, registering for the PPT if a specific 10-tonne limit is passed. It should be stressed that businesses may need to register even when they don’t ultimately have to pay the tax. Registration is carried out through gov.uk, and there is then a requirement to submit returns (even if these are nil returns) on a quarterly basis. Where there is a liability to pay tax, PPT is charged at a rate of £200 per tonne. 

Entry into the regime creates a new area of compliance, with accounts and records needed to support information submitted in quarterly returns. HMRC has produced extensive guidance on what is involved. It should be noted that appropriate records are required even if there is no PPT to pay, and also to support the position where a business is below the registration threshold. An exemption applies if plastic packaging components contain at least 30% recycled plastic as a proportion of the total weight of plastic: but to claim the exemption, appropriate records are needed. 

Even if your business does not need to register for the tax or pay it, it may still need a high level of awareness of the new rules. If manufacturing or importing plastic packaging components, or buying them from another business, there is a requirement to carry out due diligence and record action taken. Failure to do so could result in secondary or joint and several liability for unpaid PPT elsewhere in the supply chain. 

In the long run, it’s anticipated that businesses will need to include a statement with their invoice to show that PPT has been paid. Due to take effect in April 2022, the requirement is currently postponed. Businesses are still, however, encouraged to make PPT paid visible to customers.

Working with you

We have only been able to give an overview of the PPT here. What constitutes plastic and packaging, for example, are precisely defined for the purposes of the tax, and we should be pleased to advise further. Do contact us with any questions you may have.

The Employment (Allocation of Tips) Act 2022 will apply in England, Scotland and Wales (not Northern Ireland), with the start date yet to be announced. It inserts new employer obligations into the Employment Rights Act 1996, meaning all tips, gratuities and service charges which an employer receives, or has control over, must be paid to workers in full, without deductions. Workers should receive such payment by the end of the following month. 

New employer responsibilities come in around fair distribution of tips, potentially even where there’s what’s known as an independent tronc system to allocate them. Look out, too, for a new code of practice on what constitutes fair distribution. Most employers will need a written policy on dealing with tips, plus records of tips received and allocated. Workers will have certain rights of access to these records. A process for complaint to the Employment Tribunal is also set out.

In short, it means additional employer compliance, backed up by worst case scenarios of enforcement and awards of compensation at the Tribunal. We should be pleased to provide further help and advice.

The most common complaint from SMEs was a lack of relevant qualifications, skills and experience among candidates. This shortage is not restricted to small businesses and is harming the growth prospects of many organisations. 

Although there is some help for employers already in place, business groups are demanding that the government takes further action to tackle the problem. 

Perennial issue

According to the FSB, the skills and training deficit is a perennial issue, but far from an insoluble one.

It sets out a roadmap for change on every level, from schools to apprenticeships to workplaces. It warns that apprenticeship starts have tumbled since the introduction of the Apprenticeship Levy. The FSB recommends bringing back the £3,000 incentive to hire an apprentice that existed over the Covid-19 lockdowns, which would encourage firms to hire additional apprentices.

The FSB also wants to see an increase in the corporation tax relief for employers who are training low or medium-skilled employees.

Educational targets

In addition, the business group wants to see the government set targets for education and qualifications into legislation. It says that by 2035 no young person in England should complete compulsory education without at least Level 2 qualifications, and that three-quarters of the working age population in England should have at least Level 3 qualifications. 

Crippling shortages

The British Chambers of Commerce (BCC) also says that rapid reform is needed to tackle the ‘crippling staff shortages’ that have created 1.3 million unfilled jobs in the UK economy.

The BCC has proposed a three-point action plan to tackle the substantial number of unfilled vacancies.

Firstly, it says that firms must be encouraged to find new ways of unlocking pools of talent – by investing more in training their workforce, adopting more flexible working practises and expanding use of apprenticeships.

Secondly, it wants the government to help employers invest in training by reducing the upfront costs for business and providing training-related tax breaks.

Skills wanted

Finally, the BCC says the Shortage Occupation List (SOL) should be reformed to allow sectors facing urgent demand for skills to get what they need. The SOL governs immigration rules according to the demand for skills by both job type and region.

The BCC says the SOL is not currently fit for purpose and should be more flexible to allow it to support firms experiencing recruitment issues.

The Confederation of British Industry (CBI) agrees that the government should urgently update the SOL in parallel to developing genuine strategies for homegrown skills. It says it is time to set out the skills the country needs; consider what talent can be developed at home; and make smart use of immigration to plug the shortfall.

Kickstarting training

The government has introduced some schemes to enable jobseekers to gain the skills they need to get jobs and provide targeted help for young people to get into work. The Kickstart Scheme funds the direct creation of high-quality jobs for young people at the highest risk of long-term unemployment.

It is a £2 billion fund designed to create hundreds of thousands of high-quality six-month work placements aimed at those aged between 16 and 24 who are on Universal Credit and are deemed to be at risk of long-term unemployment. 

Funding available for each job covers 100% of the relevant National Minimum Wage (NMW) for 25 hours a week, plus the associated employer national insurance contributions (NICs) and employer minimum automatic enrolment contributions.

Providing opportunities

Despite the current challenges, many businesses are looking to the future. They must invest wisely using the available government support to develop a skilled, motivated workforce.

We are happy to advise in detail on the best approach to suit your circumstances. Please contact us for more information.

Spotting warning signs

Action Fraud, the UK’s national reporting centre for fraud and cybercrime, recently warned that criminals are exploiting the UK’s cost-of-living crisis to target the public with energy rebate scams. In the two weeks from 22 August to 5 September, it received 1,567 phishing emails purporting to be from energy regulator Ofgem, offering individuals energy rebates.

Action Fraud outlined a handful of steps that the public can follow in order to better protect themselves from scams. These include:

Action Fraud also highlighted its Take Five to Stop Fraud advice, which includes taking a moment to stop and think before parting with personal information or money; challenging a suspicious request; and protecting your accounts by contacting your bank if you think you’ve fallen for a scam.

Keeping personal information private

Many criminals attempt to obtain individuals’ personal information so that they can carry out their scams. Keeping the lid tightly sealed on all personal information is key to prevent it being stolen by fraudsters, who often use it to apply for loans or pay for goods or services.

It is vital to safeguard your sign in credentials and online banking password. Individuals may wish to make use of password managers – these can be great ways of creating strong passwords and keeping track of them. Many online services utilise two-factor authentication (2FA), which only grants the user access to an account once two or more pieces of evidence have been presented. These can be biometric, such as fingerprint and face scanning, or data-based, such as codes and passwords. 

When browsing online, check to ensure websites are secure – these are ones that use https in their URL or display a small padlock symbol at the beginning of the website address. 

Pension regulator’s scam-fighting plan

Pension savers are also being targeted during the cost-of-living crisis leading the The Pensions Regulator (TPR) to unveil a new scam-fighting plan designed to protect savers from scams.

TPR warned that savers could be duped by offers to access their pension savings early in order to cover energy or other household bills. It stated that criminals are also peddling fake investments ‘offering high returns that never materialise’. 

A new scams strategy published by the Regulator sets out to make savers aware of the risks scams pose. The strategy also promises to secure the intelligence needed to pursue and punish scammers.

The TPR’s three-pronged plan aims to educate industry and pension savers on the threats posed by scams; prevent practices which may harm individuals’ retirement outcomes; and combat fraud by disrupting and punishing criminals. 

Care should always be taken to protect your personal details and finances from criminals. Further advice can be found on the Action Fraud website.

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Here, we take a look at the measures put in place by the government to help companies and families cope with the cost-of-living crisis.

Rising inflation

The UK has experienced the highest level of inflation in 40 years in the past few months, with the Consumer Prices Index (CPI) rising by 9.1% in the 12 months to May 2022. Data published by the Office for National Statistics (ONS) showed hikes in prices for everyday food and non-alcoholic drinks during May. Economists expect the rate to stay within the 9%-10% range in the coming months before leaping again in October when the next adjustment to the energy price cap is implemented.

Rising inflation levels, combined with other factors, helped the cost of living skyrocket for many households in the UK. 

Measures for businesses

Windfall tax

Chancellor Rishi Sunak announced that a 25% Energy Profits Levy will be introduced for oil and gas companies in response to the ‘extraordinary profits’ they have made as a result of the cost of energy crisis. The Levy will increase the headline rate of tax on oil and gas companies’ profits from 40% to 65%. 

The Energy Profits Levy will apply to profits arising on or after 26 May 2022: companies with accounting periods that straddle this date will need to apportion their profits. 

Confirming that the new Levy is temporary, the government said that it will be phased out once oil and gas prices ‘return to historically more normal levels’. A sunset clause applies to the Levy, which will remove the tax after 31 December 2025. 

Additionally, the Levy includes a new 80% investment allowance in order to incentivise investment. The allowance means that companies will receive a 91p tax saving for every £1 they invest, which the government hopes will provide an incentive to invest. 

The Energy Profits Levy does not apply to the electricity generation sector. However, the government stressed that it is consulting with the power generation sector to ‘drive forward energy market reforms and ensure that the price paid for electricity is more reflective of the costs of production’. 

The government expects to raise around £5 billion from the tax in the first year, which it stated will go towards easing the burden on families in the UK. 

Measures for households

The Chancellor also announced a £15 billion package of support for UK households, made available from 26 May 2022. The Energy Bills Support Scheme, which was set to provide eligible households with a one-off £200 loan to help families with soaring energy bills, will see the support double to £400 and be given as a grant. 

Government publications state that energy suppliers will deliver the grant to households with a domestic electricity meter over six months, starting from October. Customers who pay by direct debit or credit will see the money credited to their account, and customers with pre-payment meters will see the grant applied to their meter or given as a voucher. 

The government will also provide a one-off payment of £650 for households on means tested benefits. According to the government, eight million households stand to benefit.

In order to support people who require additional help, the government is also providing an extra £500 million in local support via the Household Support Fund. This fund will be extended from October 2022 to March 2023. 

The UK’s cost-of-living crisis looks set to continue into the latter parts of 2022. We will keep you up to date on the latest government support measures

Here, we take a look at diversity in the workplace and consider how a business can implement an effective and successful workplace diversity strategy.

Defining diversity and inclusion

To understand and create a diverse workplace, we must first define the term. The Cambridge Dictionary defines ‘diversity’ as ‘the fact of many different types of things or people being included in something’. Diversity in the workplace can refer to many different characteristics that employees may have, including protected characteristics, such as race, age, gender and sexual orientation, as well as individuals’ experiences, skills, personalities and traits. 

‘Inclusion’ may be defined as ‘the act of including someone or something as part of a group, list, etc., or a person or thing that is included’. Inclusive workplaces are those with established fair policies that enable a diverse workforce to collaborate together in an effective manner. 

The benefits of a diverse workplace

There are a range of benefits associated with ensuring your workplace is diverse and inclusive. Diverse businesses are often more attractive to potential employees: candidates want to work for firms with solid employment practices. Diverse firms also speak to a wider market; and reflect demographics in a more accurate manner. 

Additionally, establishing inclusive workplace cultures helps to ensure employees feel valued and respected. The Chartered Institute of Personnel and Development (CIPD) speculates that culture affects organisational performance, and as such businesses will wish to put effort into molding their workplace culture into one that highly values diversity and inclusivity.   

Diversity strategies and management

The CIPD urges businesses to ‘examine their own people management practices and diversity data to understand where barriers lie’. Doing so will permit firms to take appropriate action and develop a coherent diversity strategy. 

Any strategy implemented should be backed by the business’s values and the behaviour of managers within the firm. A business may wish to create a written diversity and inclusion policy, although this is not currently a legal requirement. 

Businesses should seek to implement an effective diversity strategy to ensure fair people practices. Establishing workers’ roles and responsibilities and offering flexible working are also important factors to consider when implementing your diversity strategy. 

Business leaders must take into account that managing diversity and ensuring inclusivity requires ongoing work and improvement, and that guidelines may need to be drawn up in order to enable managers to appropriately handle the business’s diversity requirements. 

Creating a diverse workforce is crucial for promoting inclusivity and equal opportunities. You may wish to consider your own diversity strategy and how it affects your business.

Part of a European initiative to tackle money laundering and the financing of terrorism, the rules around the TRS now have consequences for many more trusts and trustees than originally anticipated. This means trustees able to disregard the requirements previously should reassess their position. 

Initially, the requirement was for all express trusts with a UK tax liability to register with the TRS. An ‘express trust’, according to HMRC, is a trust deliberately created by a settlor, usually in the form of a document such as a written deed or declaration of trust, rather than, for example, one created by an act of law.

The requirement now, however, is for all UK express trusts to register, whether they have a tax liability or not. The only opt-out is if they fall within specific exclusions. Exclusions cover express trusts considered lower risk by HMRC, such as charitable trusts. Even trusts in the excluded categories, though, must register if they have a liability to UK tax. There are also provisions for non-UK trusts: if this is of relevance to you, we can advise further.

In an administrative quirk, trusts in existence on 6 October 2020, but which have since been wound up, are also within scope. Such trusts must register and then be removed from the register.

We recommend taking stock now. Is it possible that you have been involved in setting up a trust, or acting as a trustee in the past? What constitutes a trust is not always intuitive. Some arrangements may not immediately spring to mind as being in the trust category, such as opening a cash deposit account for a minor. In fact, this could constitute a bare trust: although the good news is that this is one of the TRS exclusions. Investments such as stocks and shares held on trust for the benefit of a minor, on the other hand, are not excluded. For the avoidance of doubt, the rules do not apply to Child Trust Funds, nor Junior ISAs. 

The deadline to register non-taxable trusts created on or before 6 October 2020 is 1 September 2022. Non-taxable trusts created after 6 October 2020 must be registered within 90 days of their creation or becoming liable for tax, or by 1 September 2022 (whichever is later). Please remember we are on hand to assist with the registration process and advise on the information needed to do so.

With the current regime less favourable than some other countries’, the government has put various options on the table. They include increasing the permanent level of the AIA; increasing the rates of writing down allowances; introducing general first-year allowances for qualifying expenditure on plant and machinery; introducing an additional first-year allowance or introducing permanent full expensing. 

The proposal as regards the AIA is to increase it permanently to £500,000. As you know, the AIA allows most businesses to deduct the full amount of qualifying expenditure, up to a set level, to arrive at taxable profits. It can be claimed on most plant and machinery expenditure, but not expenditure on cars. 

It’s worth noting that the AIA is currently due to drop back to £200,000 from 1 April 2023 and if your business has an accounting period that straddles this date, you may need to consider the impact of the transitional rules that will apply. In such cases, the timing of capital expenditure will be particularly important. To effect maximum relief, expenditure will be best incurred before 31 March 2023, and in some circumstances, a claim to the super-deduction (available only to incorporated businesses) may be preferable. If you are looking at significant capital expenditure, do please talk to us about the most tax efficient way to achieve it. 

Planning is always important to get the optimal result when investing in your business. We should be delighted to guide you through any forthcoming change to the rules on capital allowances, or help you maximise the opportunities still available under the current temporary provisions.

In practice

This means that Homes for Ukraine sponsorship payments made by local authorities are exempt from income tax and corporation tax. Neither are they chargeable to National Insurance contributions. 

It is important to remember, however, that as sponsorship payments are not taxable, the consequence is that tax relief is disallowed for expenses that might otherwise have been set off against taxable income. This covers, for example, expenses incurred by landlords in relation to the property. 

Furnished holiday lettings

The rules for properties used as furnished holiday lets (FHLs) are currently unchanged. FHLs benefit from bespoke tax rules, one key qualifying condition being the requirement that property is let at a commercial rate for 105 days each year. A written statement from the Treasury in March indicated that there was, at that stage, no intention to relax this requirement. We continue to monitor the position here and will advise of any developments.

Companies

For those who hold property through a company, the position with regard to relief from the Annual Tax on Enveloped Dwellings (known as ATED), and the higher 15% rate of Stamp Duty Land Tax (SDLT) is also important. Companies which already qualified for such relief for dwellings used in a property development, or property trading business, or because let on a commercial basis, will still be able to claim the reliefs while the dwellings are used in the Homes for Ukraine scheme. 

Further, a company purchasing a property for a purpose that would otherwise be relievable from the 15% rate of SDLT, will still be able to benefit from the relief, even if the property is temporarily used for the Homes for Ukraine scheme. If a dwelling does not currently qualify for relief from ATED before inclusion in the scheme, ATED relief will, nonetheless, be available from the point of occupation where the whole dwelling is used for the scheme. 

The provisions on ATED will have effect from 1 April 2022 and from 31 March 2022 for SDLT. 

Working with you

We are always happy to help you navigate the rules on property tax. Do please contact us to explore tax efficient ways to manage your property portfolio.

The schemes offer significant tax reliefs to individual investors buying new shares in the company. Availability of relief under the EIS was centre stage in a recent case at the tax tribunal brought by Inferno Films Ltd. Inferno, a film production company based in Wales, needed funding to make a psychological thriller, ‘The Ballad of Billy McCrae’. Spoiler alert: Inferno won.

In essence, the EIS offers several forms of relief. Chargeable gains on any asset can be deferred by making a qualifying share subscription. The investment itself can attract income tax relief and a capital gains tax exemption on gains made when the shares are disposed of. Income tax relief is particularly generous, at 30% on investments up to £1 million a year, and £2 million a year, if at least £1million of that is invested in knowledge-intensive companies.

A company must meet stringent conditions for relief to be available to an investor. For example, the investment must generally be made within seven years of the company’s first commercial sale, and the amount of capital raised in any 12-month period is limited to £5 million (£10 million for knowledge-intensive companies). 

For Inferno, the condition under the spotlight was the risk to capital condition. This requires the company to use the money for growth and development, and stipulates that the investment should entail the risk of the investor losing more capital than they are likely to gain as a net return.

HMRC argued that Inferno failed here because it did not have ‘objectives to grow and develop its trade in the long term’. Specifically, it highlighted Inferno’s lack of employees and the fact that it subcontracted many of its activities. It suggested that Inferno was at best, a vehicle to provide finance for a series of individual projects. Inferno said its approach conformed to film industry norms and was the only realistic course of action for a small start-up venture. Its argument was upheld by the tribunal, which found that sufficient long-term aims did exist, as evidenced by its commitment to the Welsh film industry.

Whether you are an investor or a company looking for inward investment, we should be pleased to explain the venture capital schemes in more detail.

HMRC issues £14 million in penalties for minimum wage offences

HMRC issued 580 penalties totalling over £14 million for minimum wage offences during 2020/21, according to a report released by the Department for Business, Energy and Industrial Strategy (BEIS).

The penalties given out for National Minimum Wage (NMW) and National Living Wage (NLW) offences have dropped by £4.5 million from the year before, which saw 992 penalties worth £18.5 million.

Last year, the Low Pay Commission (LPC) – which advises the government on minimum wage rates – released a report that said more needed to be done to build workers’ confidence in the enforcement regime and to support employers to comply with the rules.

The BEIS’s report says that HMRC has adapted its communications to make it clear to workers that they have the option to remain anonymous if they make a complaint, and that they can report a previous employer for minimum wage breaches.

It also says it will be more transparent about the most common minimum wage breaches it finds, which include deductions from workers’ pay and unpaid working time, to help organisations remain compliant.

The report said: ‘The BEIS therefore publishes an educational bulletin with each naming round to help raise awareness of minimum wage rules and improve compliance. Bulletins include analysis of the most common breaches in each naming round; examples to ensure understanding of how such breaches can be avoided; and links to the government’s ‘Calculating Minimum Wage’ guidance for further details.’

FSB finds one in three business owners suffered COVID-related mental health decline

Research carried out by the Federation of Small Businesses (FSB) has found that 34% of small business owners had their mental health adversely impacted by the coronavirus (COVID-19) pandemic.

The FSB’s survey also found that 24% of respondents currently have a mental health condition such as anxiety, depression or post-traumatic stress. 16% of small business owners report having a mild mental health condition; 6% stated that they have a moderate mental health condition; and 2% said that they have a severe mental health condition.

Commenting on the issue, Tina McKenzie, Policy and Advocacy Chair at the FSB, said: ‘Whether it’s the migrant entrepreneur suffering post-traumatic stress, the aspiring start-up creator wrestling with depression as they struggle to find work, or the thousands of business owners who feel isolated and hopeless because of late payment, policymakers should reflect on the challenges faced by entrepreneurs during this Mental Health Awareness week.

‘By building on, and promoting access to, the support that’s already available to business owners and their teams, the government can make a real difference to mental wellbeing.’

Most recently, HMRC compliance activity has focused on claims to the fourth and fifth Self-employment Income Support Scheme (SEISS) grants, and it has been writing to those who received either or both of these grants, if their tax return for any of the years 2016/17 to 2019/20 has been amended after 3 March 2021, and that amendment impacts their entitlement to the grants. Amendments in this context include corrections by HMRC, taxpayer amendments and HMRC amendments following an enquiry, but not contract settlements, revenue assessments or charges raised.

Where such a tax return amendment means the level of grant would fall by more than £100, or would effectively render someone ineligible for the grant, there is a requirement to repay the relevant amount to HMRC. There is an added complication in that there were two payment bands for the fifth SEISS grant: a higher 80% rate and a lower 30% rate. An amendment to the tax return therefore, could potentially move a claimant from one band to the other, resulting in SEISS overpayment.

HMRC’s current letters include a formal tax assessment, and the correct procedures need to be followed in order to avoid penalties. If you receive such a letter and agree HMRC’s figures, payment is needed within 30 days of the due date. In cases of financial difficulty, time to pay may be arranged with HMRC. If you disagree, a formal appeal should be made in writing within 30 days of the date of the letter. In short, if you receive such a letter, it’s important to act, and promptly: please do contact us for further advice.

In these circumstances, a negligible value claim may work to your advantage. The claim allows you to crystallise a capital loss and use it against other capital gains, or potentially against an income tax liability.

How it works

‘Negligible value’ is not defined in statute, but HMRC interprets it as meaning ‘next to nothing’, and the claim means you are treated as having sold an asset, and then immediately reacquired it at the time of the claim, for the value specified in the claim. That value will usually be nil. To make a claim, the asset must, however, have become of negligible value since you acquired it: a claim cannot be made on an asset worth nothing when it was acquired. 

It is possible to specify an earlier date in the claim, potentially giving a more elastic timeframe. The provision can thus have effect for up to two years before the start of the tax year in which the claim is made. To make such a retrospective claim, the asset must have been owned at the earlier specified time, and have become of negligible value on, or by, the earlier specified time. 

There are strict conditions to be aware of. The asset must still be in your ownership at the date of the claim. If the company has been dissolved, you are automatically treated as having made a disposal of the shares at the time of dissolution. In consequence, you cannot make a negligible value claim on or after the date a company has been dissolved, since you no longer own the shares. All of this means that the timing of claims is particularly important. 

Where you want to make a claim for shares and securities for a company in liquidation or receivership, there is specific information HMRC will require to consider the claim, and we can advise further here. HMRC maintains on gov.uk a list of shares and securities in companies previously quoted on the London Stock Exchange that it accepts as being of negligible value. Note however, that a claim is still required even if your shares are on the list. There is no published list for unquoted companies, companies formerly quoted on the Alternative Investment Market and PLUS Market, or non-UK companies. 

Here to help

Claims are made either via the tax return, or by writing to HMRC. We would strongly recommend discussion in advance of the end of the tax year, in view of the importance of timing and the possibility of backdating claims. We are always on hand to provide in depth advice on the optimal approach to any capital loss, whether for an individual or a company.

HMRC research into public understanding of pensions tax relief found considerable lack of awareness as to how tax and pensions fit together. Broadly, an individual is entitled to make pension contributions and receive tax relief on the higher of £3,600 or 100% of earnings in any given tax year – though tax relief is generally restricted for contributions above the annual allowance (£40,000). Higher earners may be impacted by the annual allowance taper, which can in some circumstances reduce the annual allowance to £4,000. 

The maths underlying tax relief means that for every 60p saved by a higher rate taxpayer, the government adds 40p, a 66.6% contribution. For every 80p contributed by a basic rate taxpayer, the government adds 20p, a 25% contribution. 

What HMRC’s research also pinpointed was ‘a clear appetite’ for more information to help taxpayers understand what they need to save to afford the retirement they envisage. 

Pension provision needn’t be a closed book. As your accountants, we are ideally placed to advise on tax efficient planning for retirement. Do contact us for more information.

Good news, bad news?

The new rules take effect from 6 July 2022. They mean that while employees have been able to earn £190 per week before paying Class 1 NICs between 6 April and 5 July 2022, from 6 July 2022, they will be able to earn up to £242 per week.

Because the figures have been adjusted part-way through the 2022/23 tax year, the full annual benefit won’t actually come through until the next tax year, 2023/24. It’s only then that payment of NICs will start when earnings reach £12,570 per year – the figure that you will have seen in the headlines when the measure was first announced. 

For some people, the July 2022 change will counteract the April increase. It won’t, however, do so for everyone. Employees earning more than about £35,000 are still likely to pay more in NICs than in 2021/22, even after the July change. 

The next development to come is the introduction of the Health and Social Care Levy (HSCL) as a standalone charge in 2023. This will not change the overall equation for anyone paying NICs at present, but it will affect a wider range of employees. This is because employees over state pension age do not pay NICs, but they will need to pay the HSCL. 

Top tax tip

For employers caught between unwelcome inflationary pressures and the need to retain staff, is there anything that can be done to keep NICs costs in check? 

The short answer is yes. Salary sacrifice arrangements still make a useful tool to chip away at a rising NICs bill.

In outline, a salary sacrifice arrangement is an agreement to vary an employee’s terms and conditions of employment, reducing entitlement to cash pay in return for a non-cash benefit. The tax and NI savings do not apply in relation to all benefits, but pension contributions and employer-provided pensions advice; ultra low emission vehicles; cycles and cycling safety equipment, including the cycle to work scheme; and employer-provided childcare are all benefits where substantial savings can be made. Because pay is calculated after the ‘sacrifice’, the arrangement decreases the amount assessed to tax and NICs. Both employer and employee benefit from the NICs saving. 

To obtain the intended tax advantage requires close attention to detail. Salary sacrifice arrangements must be set up correctly, creating the appropriate change in the terms of the employment contract. This is an area that sometimes causes concern. Another area where care is needed is where salary is close to the minimum wage level. Salary sacrifice arrangements must not reduce cash earnings below minimum wage rates, and the position will need monitoring here. 

Working with you

We should be delighted to advise further, giving you confidence that your arrangements will withstand HMRC scrutiny.

August 2022
2 Deadline for submitting P46(Car) for employees whose car/fuel benefits changed during the quarter to 5 July 2022.
19 PAYE, Student loan and CIS deductions are due for the month to 5 August 2022.
September 2022
1 New Advisory Fuel Rates (AFR) for company car users apply from today.
19

PAYE, Student loan and CIS deductions are due for the month to 5 September 2022.
30 End of CT61 quarterly period.
October 2022
1

Due date for payment of Corporation Tax for period ended 31 December 2021.
5

Deadline for notifying HMRC of new sources of taxable income or gains or liability to the High Income Child Benefit Charge for 2021/22 if no tax return has been issued.
14 Due date for income tax for the CT61 quarter to 30 September 2022.
19

Tax and NICs due under a 2021/22 PAYE Settlement Agreement.

PAYE, Student loan and CIS deductions are due for the month to 5 October 2022.

Small employers PAYE quarterly payments due for the pay periods 6 July to 5 October 2022.
31 Deadline for submitting ‘paper’ 2021/22 self assessment returns.

Forming a limited company

Profits paid out as salaries, dividends or bonuses are often liable to the top tax rates, whereas profits kept in the company will be taxed at 19%. 

Funds retained by the company can be used to buy assets or provide for pensions, both of which can be eligible for tax relief.

We can help you set up a company – please contact us for more information.

Do I need to know about this?

Yes, if you operate as a sole trader or in partnership, and your accounting year end is anything other than 31 March or 5 April (or any date between the two). Basis period reform will affect all unincorporated businesses using year ends different from these.

What’s actually happening?

In a nutshell, there’s a change from what is called the current year basis of assessment to the tax year basis. 

With the tax year basis, you are taxed on the profits earned in the tax year, without any reference to your accounting year end. At present, your profit or loss is calculated with reference to your accounting year ending in the tax year: your ‘basis’ period.

Why is it changing?

The new system is being brought in because of another major change: Making Tax Digital for income tax self assessment (MTD ITSA). This is scheduled to begin for most sole traders and landlords from 6 April 2024. Partnerships don’t enter MTD ITSA until later: but they are impacted by basis period reform.

When?

The tax year basis begins properly from 6 April 2024. Change, however, begins in the tax year before this – that’s the year from 6 April 2023 to 5 April 2024: the transition year. 

So?

Add basis period reform to MTD ITSA and you have two big changes landing together at the same time: the impact of this could be considerable, and we shall be pleased to help you review the best strategy going forwards. Unless, for example, there are particular business or other reasons to keep your current year end, there may be a case for looking at changing the accounting year end to 31 March or 5 April, in order to get the best outcome from basis period reform and MTD ITSA. 

Then there’s the impact on tax bills to consider. Calculating your tax bill in the transitional year will be different. It will use two sets of figures: the first using 12 months running from your last set of accounts: and the second using the profit for the period running from the end of your normal accounting period to 5 April 2024.

Introducing this second part to the mix means bringing additional profits into charge to tax. Depending on your year end, it could bring up to 11 months’ more profit into charge. This is likely to result in higher tax bills in 2023/24.

There are other practical implications, as well, in terms of needing two sets of figures to work out transition figures. 

What should I do about it?

Talk to us. We can advise on possible mitigation strategies and the tax reliefs available. There is a new relief, called spreading relief, allowing you to spread transition profits over a period of up to five years. You may also have access to overlap relief. The position here can be complex with partnerships, where each partner stands to have a different amount of overlap relief available. Things will also be more complex where there are losses.

Value added

Basis period reform and MTD ITSA, combined, bring significant change. Some strategies are time-sensitive: the timing of change to accounting year end, for example, could affect availability of spreading relief. Do please get in touch to discuss outcomes for your business. 
 

Report warns ‘millions would struggle’ in cashless society

A report published by the Royal Society of Arts (RSA) has suggested that millions of individuals in the UK would struggle if cash was phased out as a form of tender.

Despite just 17% of payments being made with notes and coins, the RSA said that ten million people would struggle to cope in a cashless society.

An additional 15 million people stated that going cashless would make budgeting more challenging.

The report found that many individuals felt that they have been pushed into a world they’re ill equipped for, despite millions making use of contactless and smartphone payments.

Mark Hall, Project and Evaluations Lead at the RSA, said: ‘For millions of people, their relationship with cash is critical to the way they manage their weekly budget.

‘Despite online banking and shopping becoming more common, our research shows the percentage of the population wholly reliant on cash is unchanged.’
 

Consumer group issues fraud warning on online shopping scams

Consumer group Which? has identified 12 ’emerging fraud threats’. Although online shopping scams and auction fraud are the most reported, investment fraud was responsible for the biggest losses.

Many individuals have lost huge sums of money to online shopping scams, pyramid schemes and rental fraud, Which? found.

People aged between 60 and 79 made up 20% of reports of fraud, and seemed especially vulnerable to computer repair fraud, where they made up 47% of cases.

Which? Money Editor, Jenny Ross, said: ‘The government’s decision to include paid-for scam adverts in the Online Safety Bill, along with promises to make reimbursement mandatory for bank transfer scam victims, was a huge step in the right direction, but it’s now up to the government and regulators to get it right.

‘We will be checking carefully that the Online Safety Bill goes far enough in protecting consumers from fake and fraudulent adverts, and it’s vital that the government swiftly introduces the right legislation for bank transfer fraud that will ensure victims get fair and consistent treatment.’

The employment status and associated rights of the workforce of Pimlico Plumbers Ltd have been battled out at the highest judicial levels for years. There is now another verdict. What is the takeaway message if you run a business with a labour force that doesn’t fit the traditional mould? 

Back in 2018, Pimlico Plumbers lost at the Supreme Court, when it was decided that plumbing and heating engineer, Mr Smith, was not an independent self-employed contractor, as Pimlico argued. Rather, as far as employment law was concerned, he was a ‘worker’. This is a status that opens the door to particular employment rights, such as minimum wage, and the statutory minimum level of paid holiday. 

The 2022 verdict addressed just this point: a worker’s right to paid annual leave, and the fact that the burden lies on the employer to provide the opportunity to take it. 

In Mr Smith’s case, periods of leave had been taken, but always unpaid, and he didn’t put in a claim for payment until his contract terminated. At this stage, he submitted a claim for accrued holiday pay for the whole period. 

The Court held in his favour, highlighting employer responsibility in this area. Employers, it said, must ‘specifically and transparently’ provide workers with the opportunity to take paid annual leave. This would include encouraging the worker to do so, and informing them that the right would be lost at the end of the leave year. Where that is not done, as in this case, there are consequences. The right doesn’t lapse, but carries over and accumulates until termination of the contract, when the worker becomes entitled to a payment in respect of the untaken leave – as happened with Mr Smith.

The case is a clear reminder that while using gig workers, self-employed contractors and other a-typical staffing models can have distinct advantages, it also carries business risk. We are always on hand to advise on holiday pay and other areas of employer responsibility, if they are of relevance to you.
 

HMRC checks

Employers are selected for checks either because of HMRC research, which might alert it to potential issues within a particular sector or local area, or because it’s had a complaint that employees are being underpaid. It does not have to tell employers why their records are being checked, nor give details of information it has received. 

From an employer perspective, checks are bound to create additional work, quite apart from the damage to employee relations likely to follow. There is also liability to arrears of pay or penalties if things have gone wrong, and it’s worth noting that arrears are due at the wage rate in force at the time they are discovered, rather than the rate when the error was made. This may represent a significant increase. Sanctions can include possible criminal prosecution if it’s found that an employer has deliberately broken the law, although this is rare. There is also the now well-established practice of public ‘naming’ by the Department for Business, Energy and Industrial Strategy.

Risk zone

Minimum wage legislation used to be something that tended mainly to impact lower paid employees. The net has since widened considerably. With the minimum wage rate for those aged 23 and over now at £9.50 per hour, the number of employees with pay at about this level will be significantly increased. We recommend monitoring the position even for employees with pay above the minimum, to ensure there’s nothing that would tip their pay below the required threshold.

Deductions from wages are a particular danger area. It is permissible to make a deduction for accommodation taking pay below the minimum wage, but the maximum is determined by what is called the accommodation offset. Other deductions, even if agreed with workers and of benefit to them, are illegal if they reduce pay below the minimum wage. Salary sacrifice arrangements, for instance, need care: it’s the figure after the sacrifice that has to be checked against the minimum wage. Key in HMRC compliance activity for some years to come, will be the interaction of the Covid-19 furlough scheme, flexible furlough in particular. 

We can help you review minimum wage compliance. Please don’t hesitate to get in touch.
 

The government’s aim is that those working ‘like’ employees, but through an intermediary, pay roughly the same income tax and National Insurance contributions as employees, and 2021 saw the responsibility for making the employment status decision pass from contractor to client in medium and large-sized organisations. Contractor engagements with small organisations remained unchanged.

HMRC compliance has changed from 6 April 2022. Initially, it operated a ‘light touch’ approach, meaning penalties were not charged for inaccuracies relating to the new rules, unless there was evidence of deliberate non-compliance. This grace period is now over. 

Contractor or hirer, wherever you fit on the spectrum, we recommend taking stock of your position. Making a status determination is always a finely balanced decision, whoever it falls to. Do please contact us for an OPW/IR35 health check to reduce risk and increase business confidence.
 

With NI contributions in an unusual state of flux, explaining all the ups and downs is likely to mean significant employee communication is needed, as well.

The first change is a one-year, 1.25 percentage points increase to Class 1 employer and employee NI contributions from 6 April 2022. This means that where an employee paid contributions at 12% in the year to 5 April 2022, payment is now at 13.25%. 

A further change takes place from 6 April 2023. The NI charge drops back to earlier levels, and is replaced by the Health and Social Care Levy (HSCL). This is a standalone 1.25% levy, applying to earnings chargeable to Class 1 employer and employee contributions. It will be reported as a new item through payroll, and itemised separately on payslips. The Levy has wider impact than the NI increase: the NI increase doesn’t apply to employees over state pension age, whereas the HSCL does. The HSCL will be administered and collected by HMRC. 

You may have been contacted by HMRC, which is asking payroll software providers and employers to use specific payslip messaging between 6 April 2022 and 5 April 2023, to explain the initial NI increase. Neither messaging, nor wording is mandatory, and given the complexity and pace of change, you might want to consider your own communications strategy, rather than simply adopting HMRC’s. This may be particularly relevant if you are in one of the devolved nations, where health care funding operates differently.

The Spring Statement creates change to NI rules from 6 July 2022. This impacts the Class 1 Primary Threshold (the point at which employees start paying Class 1 NI contributions), and aligns it with the income tax personal allowance. As the adjustment comes part-way through the tax year, the full uplift for employees won’t be felt until

April 2023, but the government estimates that a typical employee will still save over £330 in the year from July. The new threshold is equivalent to £12,570 pa, rather than the current £9,880 pa.

Company directors and the self-employed are also impacted by change to NI rates and thresholds, and the introduction of the HSCL. The position here is covered in our Guide to the Spring Statement.

Do please contact us with any queries on the recent and forthcoming changes, or payroll procedure generally. 
 

Overcomplex

According to research by the British Business Bank (BBB) more than half of senior decision makers in small businesses believe the language, terminology and information around carbon emissions reduction is ‘overcomplex’.

Over three in five say they would find more information and advice about taking action to measure and reduce their business’s carbon emissions helpful.

Misunderstood

The BBB’s survey listed the top five ‘carbon jargon’ terms misunderstood by businesses. They are shown here along with their definitions.

  1. Greenhouse gas emissions
    Emissions from human activities that increase the greenhouse effect, adding to climate change.
  2. Decarbonisation
    The removal or reduction of carbon emissions output into the atmosphere to reduce an organisation’s carbon footprint and impact on the climate. This is the process by which businesses can reach net zero through reducing, eliminating and offsetting carbon emissions.
  3. Net zero
    Net zero is an equilibrium situation where a balance has been achieved between the amount of greenhouse gases emitted and the amount removed from the atmosphere. Achieving net zero requires reduction of carbon emissions as far as possible, combined with carbon offsetting to balance out unavoidable carbon emissions. 
  4. Carbon neutral
    Being carbon neutral means balancing carbon dioxide emissions released into the atmosphere through everyday business activities with the amount absorbed or removed from the atmosphere.
  5. Carbon footprint
    The total carbon emissions created by business activities, such as heating and transport. It is expressed as carbon dioxide equivalent, which can be used by smaller businesses to measure how much their sustainability activities impact their carbon footprint.

Sustainable businesses

Understanding the ‘carbon jargon’ is just the start: learning to create a sustainable business and prepare for green growth is a challenging process. The BBB has created a Finance Hub to provide information and guidance for businesses starting their journey.

Getting to net zero

As the drive to net zero continues, tax laws may change, while new funding streams may become available.

As your accountants we can help with both your tax and finance requirements: please contact us.
 

That was the idea when Spring Statements first appeared on the annual agenda, barely five years ago. Unsurprisingly, economic circumstances this year did indeed give rise to some significant announcements.

Business matters

Fuel duty: There is a temporary 12-month cut to duty on petrol and diesel of 5p per litre, which came into effect on 23 March 2022. This is good news for business motoring, although with sharply rising costs, it may be prudent to review business motoring strategy. Unincorporated businesses, for example, might want to revisit any decision to claim flat-rate expenses rather than a percentage of total running costs in their accounts. Employer arrangements with employees may also need consideration. We are happy to advise further here. 

Employment Allowance: Employment Allowance is a relief allowing eligible businesses and charities (including community amateur sports clubs) to reduce their employer Class 1 NICs. It is available, broadly, where employer Class 1 liabilities are below £100,000. It increases from 6 April 2022, to £5,000 (previously £4,000). We are always happy to advise in this area. 

Zero rate of VAT for energy saving materials (ESMs): At present, only some ESMs attract reduced rate VAT treatment. The Spring Statement introduces a time-limited zero-rate of VAT for the installation of certain types of ESMs in residential accommodation in Great Britain until 31 March 2027. It also permanently brings wind and water turbines back into scope of the relief in Great Britain. It applies from 1 April 2022, and runs for five years, when the current 5% reduced rate of VAT will apply. We should be pleased to advise further if this is of relevance to you.

Northern Ireland is different

This particular provision in the Spring Statement does not directly affect Northern Ireland, because of the unique post-Brexit VAT rules applying there. In Northern Ireland, therefore, the list of qualifying goods and rate of VAT due on installations will remain unchanged, with adjustment to funding made to the Northern Ireland Executive.

Capital allowances regime: April 2023 sees the end of a particularly generous phase of tax relief. Both the super-deduction regime, which provides temporary enhanced first year capital allowances for companies, and the £1 million limit for the Annual Investment Allowance, will then finish. The Spring Statement suggests a variety of potential directions for future policy, so with change in the air, we would be pleased to advise on how best to future proof your plans for capital expenditure.

Research and development (R&D): The definition of R&D for tax reliefs is expanded by clarifying that pure mathematics is a qualifying cost. Additionally, the government confirmed that all cloud computing costs associated with R&D, including storage, will qualify for relief, and gave some clarification on the position with regard to expenditure on overseas R&D activity. It is expected that these changes will take effect from April 2023. Considerable further detail is still forthcoming, however. 

Personal tax matters

Income tax: The basic rate of income tax is set to fall to 19% from April 2024. It should be noted however, that with devolved powers, the position is different for Scottish taxpayers, and potentially also for Welsh taxpayers, depending on the next decisions of the Welsh Assembly. 

There is a knock-on consequence for charitable gifts made under the Gift Aid scheme, reducing the amount that can be claimed back by recipient charities. The government therefore proposes a three-year transition period, during which income tax basic rate relief remains at 20% for charities. This will run until April 2027.

National Insurance: There is considerable change here. We cover the impact for employee and employer NICs on the front page. But there is also change for the self-employed, and company directors. 

For the self-employed, there is an increase in what is called the Lower Profits Limit for Class 4 NICs. This will align it with the personal allowance for income tax, which is set at £12,570 pa. To put the headline figures from the Spring Statement in context, it will help to know that though NICs will change from 6 July 2022, Class 4 is calculated on an annual basis, so the full effect of the Chancellor’s announcement won’t be felt until the following tax year. For the year to 5 April 2023, the Lower Profits Limit is £11,908. 

Self-employed Class 2 NICs will be reduced to nil on profits between the Small Profits Threshold and the Lower Profits Limit, though NI credits for state pension purposes will still accrue. This takes effect from 6 April 2022. Government figures suggest this is equivalent to a tax cut of up to £165 pa for around 500,000 individuals, though obviously this will only impact those with relatively low levels of self-employed income.

Company directors who have an annual pay period will have a Primary Class 1 Threshold of £11,908 for 2022/23 and £12,570 for 2023/24. 

Value added

A regular review of your tax position can often prove beneficial, and we should be delighted to help you take stock of these or any other tax issues.

Outlining cryptocurrencies

The government defines cryptoassets as ‘cryptographically secured digital representations of value or contractual rights that can be transferred, stored and traded electronically’. A range of cryptocurrencies are available, including exchange tokens, utility tokens, security tokens and stablecoins.

HMRC states that the tax treatment of cryptoassets depends on the nature and use of the token and not the definition of the token. It said that most cryptocurrency networks are not controlled by a single body or person, but that a network of users of a specific token helps to verify transactions or make technological changes. 

The most widely-used consensus system for verifying cryptocurrency transactions is Proof of Work, which gives the first person to solve a randomly generated cryptographic puzzle the right to add a new entry to the distributed ledger.

The government states that the onus is on the individual to keep records of each cryptoasset transaction as cryptoasset exchanges may only keep records of transactions for a short period. Additionally, the exchange may no longer be in existence when an individual completes a tax return. Records can be kept via paper wallets; electronic wallets; downloads of wallet activity; and via hardware wallets, such as a USB stick. 

The tax position

Disposing of cryptoassets, such as cryptocurrencies like Bitcoin, brings a potential charge to capital gains tax (CGT). Disposals include the sale of assets for fiat currency, like pounds or dollars; the exchange of one cryptoasset for another, such as Bitcoin to Ether; or the use of cryptoassets to buy goods or services.
The tax position is not always intuitive. Where different types of cryptoasset are exchanged, there can be a chargeable taxable gain, even if the assets aren’t converted back to fiat currency.

Regulation of stablecoins

The Treasury defines ‘stablecoin’ as ‘a form of cryptoasset that is typically pegged to a fiat currency such as the dollar and is intended to maintain a stable value’. The government plans to bring stablecoins within regulation in order to pave the way for use in the UK as a recognised form of payment.

Hopes are high amongst government officials that bringing stablecoins within regulation will create conditions for stablecoin issuers and service providers to operate and invest in the UK.

Commenting on the issue, Chancellor Rishi Sunak said: ‘It’s my ambition to make the UK a global hub for cryptoasset technology, and the measures we’ve outlined… will help to ensure firms can invest, innovate and scale up in this country.

‘We want to see the businesses of tomorrow – and the jobs they create – here in the UK, and by regulating effectively we can give them the confidence they need to think and invest long-term.’

Cryptoassets and cryptocurrency are only growing in popularity, so getting to grips with its taxation is important.
 

£1k tax cut

The increase announced at Spring Statement is effectively a £1,000 tax cut for eligible businesses. It means that from 6 April 2022 smaller firms will be able to claim up to £5,000 off their employer national insurance contributions (NICs) bills.

According to the government, this measure will take the total number of firms not paying NICs or the Health and Social Care Levy to 670,000.

Advocacy group Small Business Britain welcomed the Chancellor’s announcement. It says the move will play a role in helping small businesses with employees deal with the significant cost-of-living challenges they are currently facing.

Third time lucky

This is the third time the government has increased the Employment Allowance since its introduction in 2014. It says that firms will now be able to employ four full-time workers on the National Living Wage without paying employer NICs at all.

According to the government, 94% of businesses benefitting from the £1,000 increase are small and micro businesses. The sectors that will see the highest numbers of employers benefitting are the wholesale and retail sector; the professional, scientific and technical activities industry; and the construction sector.

Hero ask

The Federation of Small Businesses (FSB) has campaigned for the increase to the Employment Allowance.

Responding to the Spring Statement, Martin McTague, National Chair of the FSB, said: ‘The increase in the Employment Allowance helps small firms do what they do best, creating and sustaining jobs.

‘This was FSB’s ‘hero ask’ at the Spring Statement, and we have hugely valued the time taken by Treasury officials to work with us on the positive impact this will have not just on work opportunities, but also training and investment.’

Who is eligible?

Businesses and charities can claim the Employment Allowance if their employers’ Class 1 NIC liabilities were less than £100,000 in the previous tax year.

It is possible to claim Employment Allowance for the previous four tax years dating back to the 2018 to 2019 tax year. Please note that some of the rules for claiming are different in previous tax years so even if your business does not meet the current criteria, a claim may be possible for an earlier year.

When to claim

The Employment Allowance should be claimed every tax year. It can be claimed at any time in the tax year, but the earlier the allowance is claimed the quicker it will be received.

Those businesses that have failed to claim the Employment Allowance against their employers’

Class 1 NI liabilities during the year have two options. They can ask for the unclaimed allowance at the end of the year to be offset against any tax or NIC liabilities, including VAT or corporation tax if there is no outstanding PAYE. If they do not owe any tax they can claim a refund.

How to claim

The Employment Allowance can be claimed through payroll software or HMRC’s PAYE tools. Please contact us to discuss the Employment Allowance or any other tax and payroll matters.
 

The deal runs for three years from January 2022, and aims to increase adoption of digital technologies. Discounts currently cover particular digital accounting and customer relations management (CRM) software. However, it is expected that other products, such as e-commerce software, will be added in due course. Discounts apply to the total product price, excluding VAT, and it’s important to check the terms and conditions thoroughly. 

Business structure matters: this is an offer for small and medium-sized companies, not sole traders or partnerships.

To be eligible, businesses must: 

Applications are made online on the Help to Grow website, which also lists eligible software products. The process can be complex: it includes fraud checks and requirements to keep relevant records for six years following purchase. It can also impact on thresholds for de Minimis state aid. Please contact us for advice on using the Help to Grow: Digital discount.
 

A Will can be a powerful planning tool. Individuals are advised to review their Will regularly to ensure any changes in their family and financial circumstances are reflected, and also to take into account any changes in tax law. 

Wills can also be re-written by others within two years after your death, in the event that changes are agreed by all concerned to be appropriate. 

As your accountants, we can advise you on the latest tax law applicable to your circumstances and on the tax efficiency of the bequests you are planning to make. Please get in touch with us for more information.
 

This issue of our Charity News includes the latest guidance and support available for the not-for-profit sector as COVID-19 restrictions ease. We also consider the impact of recent reporting and tax developments and other pertinent issues, giving you the inside track on the sector’s current hot topics and latest guidance.

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May 2022
3 Deadline for submitting P46(Car) for employees whose car/fuel benefits changed during the quarter to 5 April 2022.
19 PAYE, Student loan and CIS deductions are due for the month to 5 May 2022.
30 End of CT61 quarterly period.
June 2022
1 New Advisory Fuel Rates (AFR) for company car users apply from today.
19 PAYE, Student loan and CIS deductions are due for the month to 5 June 2022.
30 End of CT61 quarterly period.
July 2022
5 Deadline for reaching a PAYE Settlement Agreement for 2021/22.
6

Deadline for forms P11D and P11D(b) for 2021/22 to be submitted to HMRC and copies to be issued to employees concerned.

Deadline for employers to report share incentives for 2021/22.
14 Due date for income tax for the CT61 period to 30 June 2022.
19

Class 1A NICs due for 2021/22.

PAYE, Student loan and CIS deductions due for the month to 5 July 2022.

Small employers PAYE quarterly payments due for the pay periods 6 April to 5 July 2022.
31 Second payment on account 2021/22 due.

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Understanding stress and anxiety at work

Defining ‘stress’ and ‘anxiety’ can help us to understand them properly. The Health and Safety Executive (HSE) defines stress as ‘the adverse reaction a person has to excessive pressure or other types of demand placed upon them’. Meanwhile, Anxiety UK defines anxiety as ‘a feeling of apprehension or dread in situations where there is no actual real threat’. 

Stress and anxiety are two of the most common forms of mental health issues that affect individuals in the UK. Less common mental health issues include bipolar disorder and schizophrenia. 

Employees suffering from mental health issues may wish to make use of wellness action plans. These plans can help employees to identify the aspects of their working lives that keep them well and those that cause them to become unwell.  

Top tips for managing mental health in the workplace

A range of strategies exist to aid employees in managing their mental health at work. We have highlighted a handful below. 

Advice for employers

It’s important that an employer takes mental health issues seriously and supports their employees suitably. Employers have a legal duty of care to support their employees’ health, safety and wellbeing, including safeguarding their mental health. 

Under the Equality Act 2010, mental health issues can be considered a disability if the issue has a ‘substantial adverse effect’ on an employee’s life; if it lasts 12 months or is expected to last 12 months; and if it affects the employee in carrying out their day-to-day activities at work. 

Advisory body Acas suggests that employers work with employees affected by mental health issues in order to make the right adjustments so that they can continue to work effectively and safeguard their wellbeing. This may include, for example, helping them to prioritise their workload and permitting them extra rest breaks.  

We all experience stress in our working life, so taking steps to identify what stresses us at work will help us to mitigate and address the issue. 

Although remote working may not be feasible for all jobs, there are a wide range of other flexible working options that firms might consider. These options will help businesses to not only retain existing staff but will also help to attract new talent.

However, businesses looking at hybrid working options must manage flexible practices while considering potential issues, including inclusion, fairness and health and safety.

What is hybrid working?

Hybrid working is a form of flexible working where workers spend some of their time working remotely (usually, but not necessarily, from home) and some in the employer’s workspace. Hybrid working can be undertaken in conjunction with other forms of flexible working, including time flexibility. 

Although some workers will have worked remotely prior to March 2020, the extended period of enforced working from home during the global pandemic has led to considerable interest in new ways of working, including hybrid or blended work.

The Flexible Working Taskforce

As part of its involvement in the Flexible Working Taskforce, the Chartered Institute of Personnel and Development (CIPD) has produced practical guidance to support effective hybrid working.

Jane Gratton, Head of People Policy at the British Chambers of Commerce (BCC), says: ‘Our research indicates three quarters of employers will continue to offer hybrid working going forward.

‘This new guidance will help all employers to confidently implement and roll-out hybrid working in a way that is fair and accessible to their workforce.

‘Flexible working makes good business sense and is increasingly becoming a standard part of staff benefit packages. While remote working may not be practical for all job types, the wide range of other flexible working options that firms can consider opens the door to new talent to fuel growth and rebuild our economy.’

The case for hybrid working

Where it is possible, hybrid working can offer benefits to employers and employees alike. Hybrid work can benefit employees through helping them to achieve greater work-life balance, reducing the costs of commuting and providing autonomy about how and where they work.

According to the CIPD, employers can benefit from increased productivity and increased staff engagement and motivation. A significant majority of employees reported that when working from home they are at least as, if not more, productive.

Hybrid work can therefore deliver the benefits of remote working whilst still also allowing for the social and collaborative advantages of working together with colleagues in the workplace. 

Not for everyone

At the same time, it is important to recognise that hybrid working may not work well for everyone. There may be certain roles or tasks that require staff to be co-located to be carried out effectively and some individuals may not want to work remotely for personal or work-based reasons.

Organisations should therefore view hybrid working as one of many possible ways of working – and if hybrid working is not practicable, other forms of flexible working may be, such as time flexibility.

Some key considerations

There are many factors to consider if you are offering employees hybrid working options: these include changes to expense and tax arrangements. Please contact us if you need further information on these matters.

It’s a message underlined by a High Court case in 2020, involving a charitable gift of £800,000. Taxpayer, Mr Webster, inadvertently entered the gift as £400,000 on his tax return, although he had in fact increased the donation to £800,000. The aim was to use special Gift Aid carry back rules (below) as he hadn’t enough tax in charge to cover the donation in the current tax year. But because of a variety of errors, the verdict went against him. And that resulted in a £215,000 tax bill.

Own goal one. Not enough tax in the tax year in which a donation is made

Gift Aid allows a charity to claim back the basic rate tax (currently 20%) that you have paid on your donation, so your chosen charity ends up with a bigger gift. 

Always check you will pay enough tax in the tax year you make the donation. You must pay enough tax – income tax or capital gains tax – to cover the amount reclaimed by the charity. As a rule of thumb, donations should qualify if they’re not more than four times what you have paid in tax during the tax year. 

As happened in Mr Webster’s case, it’s the taxpayer who would be asked to make up any shortfall, not the charity. If in doubt, contact the charity to cancel the Gift Aid declaration for future donations.

Own goal two. Mind the gap: Scottish tax rates are different

Different rates of tax apply in Scotland, but the basic Gift Aid principles are the same. Scottish taxpayers paying at 19% should check that enough tax has been paid to cover their Gift Aid claim. 

Own goal three. Unclaimed additional tax relief

If you pay tax at more than basic rate, you can reclaim the difference between this and basic rate on the donation. However, research suggests many people don’t claim the additional tax relief to which they’re entitled. 

Higher rates of tax relief would normally be claimed on the self assessment tax return, or by asking HMRC to amend a PAYE tax code. 

Own goal four. Lost paperwork

Don’t throw away the paperwork. It’s important to keep records of all Gift Aid donations in order to substantiate claims for higher rates of relief. 

Own goal five. Mistakes with the small print

Higher rate tax relief is usually given in the tax year in which you make the donation. So a Gift Aid payment made by 5 April 2022 would get tax relief against income of 2021/22. This in itself can be a useful tax planning tool. 

But it may be possible to elect to have a Gift Aid donation treated as if made in the previous tax year. This can be a plus if you want to speed up tax relief, or paid higher rates of tax in the previous year. To carry back a donation made between 6 April 2022 and 31 January 2023 against 2021/22 income, strict timing rules apply. The election would be made on the 2021/22 tax return, for which the final filing deadline is 31 January 2023. 

Carry back elections are best made on the self assessment tax return. Correct procedure is essential, as Mr Webster found to his cost. Once the tax return is filed, the window to make a carry back election closes. The election can’t be made on an amended return: something HMRC has recently been writing to taxpayers about. Neither can an election, once made, be amended. A further point is that carry back elections can’t be used for part of a gift: they must be used for the whole sum.

For a discussion of charitable giving and the implications for tax, please contact us.

Chancellor announces £1 billion support fund for businesses

On December 21, Chancellor Rishi Sunak unveiled a £1 billion support fund for businesses, which includes cash grants of up to £6,000 per premises for each eligible firm.

Mr Sunak said the government would also help certain firms with the cost of sick pay for COVID-19-related absences.

To support other businesses impacted by the Omicron variant of COVID-19 – such as those who supply the hospitality and leisure sectors. Additionally, the Chancellor announced an extra £30 million to help theatres and museums.

Mr Sunak said: ‘We recognise that the spread of the Omicron variant means businesses in the hospitality and leisure sectors are facing huge uncertainty, at a crucial time.

‘So, we’re stepping in with £1 billion of support, including a new grant scheme, the reintroduction of the Statutory Sick Pay Rebate Scheme and further funding released through the Culture Recovery Fund.’

Climate Change Committee calls for higher tax on household gas

Following COP26, the Climate Change Committee (CCC) has urged the government to introduce a higher tax on household gas.

In its recommendation to the government, the Committee stated that taxes should be used to make fossil fuel heating more expensive to help reach the government’s Net Zero ambitions.

The CCC also recommended that the Treasury initiate a review of the role of the tax system in delivering Net Zero, including the role of tax in achieving a higher and more consistent carbon price across the economy.

The CCC said that funding should be doubled so that key climate finance commitments can be properly adapted.

Last chance opportunity to use Covid-19 extended loss carry back rules. 

Strategically timed capital expenditure now, in tandem with the extended loss carry back rules, may have the potential to create or enhance a trading loss, generating a tax refund for your business. Current rules provide particular incentives for capital spending. The temporary higher level of Annual Investment Allowance (AIA) is available both to companies and unincorporated businesses, whilst the 130% super-deduction and 50% special rate allowance are available to companies. 

The extended loss carry back rules apply to trading losses made by companies in accounting periods ending between 1 April 2020 and 31 March 2022. For unincorporated businesses, it’s available for trading losses made in the tax years 2020/21 and 2021/22. 

If you are planning capital expenditure, please don’t hesitate to contact us to discuss the options on timescale. We can help you decide if it would benefit your business to accelerate capital spending to bring it inside the relevant extended loss carry back window.

Reprieve for the temporary higher AIA limit. 

The AIA limit increased to £1 million from January 2019, and was scheduled to drop back to £200,000 from 1 January 2022. Autumn Budget 2021, however, extended it one last time. The £1 million AIA annual limit is now set to remain in place until 31 March 2023. In terms of timescale, this sets it on a par with the super-deduction regime available to companies: the two now both finish at the same time. 

Extending the availability period certainly gives businesses more time to take advantage of the enhanced provisions. But if planning major capital expenditure, it’s worth taking stock now of when the expenditure would be best made. The accounting year end is a key component in any decision here.

We recommend an early discussion to make sure that the timing of your purchase allows you to maximise the tax benefits available. Complex transitional calculations will be needed when the super-deduction comes to an end, and when the AIA drops back to its original level. It will be important to factor these into your planning. We should be pleased to advise further here.

NFTs are the crypto-world equivalent of certificates proving you own a digital (or physical) asset: a collectible, like digital artwork, or digital sports cards. 

Collins Dictionary isn’t alone in registering public interest in cryptoassets. So, too, is HMRC, and it’s been writing to taxpayers it believes hold cryptoassets to point out potential tax liability.

Disposing of cryptoassets, such as cryptocurrencies like bitcoin, brings a potential charge to capital gains tax (CGT). Disposals include the sale of assets for fiat currency, like pounds or dollars: the exchange of one cryptoasset for another, such as bitcoin to ether: or the use of cryptoassets to buy goods or services. The annual CGT exemption can be used to cover such gains, up to £12,300. If gains exceed this, or chargeable assets worth more than £49,200 (in 2020/21) are disposed of, HMRC should be notified, usually via the self assessment tax return. 

The tax position is not always intuitive. Where, for instance, different types of cryptoasset are exchanged, there can be a chargeable taxable gain, even if the assets aren’t converted back to fiat currency. We are happy to advise on cryptoasset transactions to help establish if a tax liability has arisen.

The answer is, not necessarily. Many companies carry out R&D without realising that their activity could bring them within scope of the R&D tax regime. It matters because R&D tax relief is particularly generous. 

There are two main R&D tax reliefs: Small and Medium-sized Enterprise (SME) R&D relief, and Research and Development Expenditure Credit. The first can provide an enhanced 130% deduction against taxable profits for qualifying R&D expenditure, in addition to the expenditure involved, making a total deduction of 230%. The second is potentially available to larger companies, and SMEs in particular circumstances. It allows a company to claim a credit calculated at 13% of qualifying R&D spend. 

In the latest news, qualifying R&D expenditure changes to include specific data and cloud costs from April 2023: licence payments for datasets, and cloud computing costs attributable to computation, data processing and software. There are also measures ‘refocusing’ the reliefs on innovation in the UK, and thus restricting some costs for R&D activity carried out overseas.

What are the boxes to tick to qualify for relief? Not all activity described as R&D in commercial parlance counts as R&D for tax relief purposes. For tax relief, the activity must fall to be accounted for as R&D under generally accepted accounting practice, and must also conform to definitions set out in BEIS Guidelines. Qualifying projects are those aiming to make an ‘advance in science or technology’ through the ‘resolution of scientific or technological uncertainty’. 

It goes without saying that subtle technical distinctions apply. An uncertainty that could be readily resolved by a competent professional in that field, for example, does not count. And an advance in science or technology must be one that has a bearing on the overall capability in a particular field, not one that relates solely to the individual company’s own knowledge or capability.

Having a clear idea of where your company sits with regard to R&D activity also matters for another reason. There is increasing government concern about error and fraud in R&D claims. One way such error can arise, for example, is through the use of unregulated, so-called R&D ‘specialist’ firms. Many of these operate by obtaining tax refunds for R&D claims that turn out not to be robust enough to withstand subsequent HMRC checks. 

Legislation is being laid to improve R&D compliance, with various changes to the claims process anticipated. From April 2023, claims will be made digitally in most cases, with additional detail given. A named senior officer of the company will have to endorse claims, and where an agent has advised on the claim, their details will also be needed. With increased HMRC compliance activity on the horizon, it is more important than ever that claims are watertight. 

If, perhaps, you have not previously considered whether your company is involved in qualifying R&D, we should be pleased to explore the issue with you. Please do contact us for more information on this, or any other area relating to R&D.

Until the Budget, UK residents disposing of UK residential property had a 30-day window after completion to report gains and pay any tax due. Non-residents disposing of UK property faced a similar deadline, with a need to report whether or not tax is due. 

The 30-day regime was itself relatively new, and has had considerable teething problems. Over £1.3 million was charged in penalties for late-filed returns in 2020, something attributed, at least partly, to low public awareness of the new rules. Concerns over lack of time to prepare accurate figures, especially in complex cases, were raised by professional bodies.

But the Budget extended the deadline to 60 days from completion for disposals completed on or after 27 October 2021. Where property has mixed-use, the 60-day window applies just to the residential element. For UK residents, the 60-day reporting requirement only comes into play where there is CGT to pay: and CGT on property disposal doesn’t arise in every case. Where a property is always occupied as the only or main residence, principal private residence relief means CGT is unlikely to come into play. Disposals of second homes, disposals by landlords or divorcing couples are more likely to be affected. 

We are on hand to advise if this is an area of concern to you.

Don’t be put off by the technical name. What are called ‘trivial’ benefits, are far from trivial. They can make a very worthwhile add-on to remuneration, allowing you to provide a benefit to an employee with no tax, no National Insurance: and no need to notify HMRC. There’s no limit on the number you can provide in a year – except for company directors and family members. An added advantage is that employers can claim income or corporation tax relief on the cost involved. But strict criteria apply.

Critical small print

A benefit must meet the following conditions. It must not cost more than £50 (including VAT) to provide and must not be cash or a voucher that can be redeemed for cash. Non-cash vouchers, like store cards, pass the test, though. It must not be a reward for particular services carried out by the worker, and should not be in the terms of the worker’s contract. Neither can it form part of a salary sacrifice arrangement.

Don’t make it a reward for services. Trivial benefits can fail the rules by appearing to be a reward for services. So don’t give a bottle of wine because someone made a great contribution – make it a morale booster on a grey day. Some businesses have used trivial benefits to enhance staff wellbeing during Covid-19, for example.

What constitutes a contractual element can be contentious: HMRC maintains that repeated provision of a benefit could create a legitimate employee expectation. This could then be viewed as a contractual arrangement which would fail to qualify.

Getting it right for company directors

There’s a £300 limit to the trivial benefits that directors or office holders of ‘close’ companies (limited companies run by five or fewer shareholders) can receive in any one tax year. This includes benefits given to family or household members who aren’t directors or employees of the company. But if other family members are also directors, they have their own £300 limit.

Working with you

Trivial benefits were very much on HMRC’s radar a year or so ago, but professional opinion is that HMRC’s interpretation of the rules could be unduly restrictive. For an in-depth discussion, do please contact us.

1. Importance of full disclosure to HMRC. Unable to get software to enter key information in the right box on the right page of his self assessment tax return, Mr Tooth and his advisers decided to crack the system. Using an ‘obviously artificial’ tax reference number, 99999 99999, they put it on the partnership page of the return, instead. Detailed disclosure was then made in the white space on the return.

HMRC maintained that the return was deliberately inaccurate. Deliberate inaccuracy is the green light for HMRC to assess any loss of tax for up to 20 years after the end of the tax year concerned: it also opens the door to higher penalties. The Court, however, held that Mr Tooth had no deliberate intention to mislead, but had done his best ‘in the context of an intractable online form’.

2. HMRC bite. The Court upheld HMRC in the important area of discovery assessments. These can be used where HMRC believes the wrong amount of tax has been assessed. The Tooth case makes it easier for HMRC to access extended time limits, even where it has delayed using available information, to raise additional tax bills, subject to the normal statutory time limits and principles of public law.

Ouch.

Normal minimum pension age: what’s changing? 

Normal minimum pension age (NMPA) is currently 55, and it’s usually the earliest age at which pension savers can access a workplace or personal pension without incurring an unauthorised payments tax charge. There are certain specific circumstances in which this may vary, for example where someone is retiring because of ill health, or in a minority of cases, where someone has what’s called a protected pension age. Withdrawing funds from a pension before NMPA is normally classified as an unauthorised payment. This is liable to a tax charge, potentially up to 55% of the value withdrawn. 

The NMPA will rise to 57 from 6 April 2028, as the government looks to accommodate increased life expectancy and longer working lives. The change broadly coincides with the rise in state pension age to 67. It is anticipated that the NMPA will continue to be about ten years less than state pension age in future.

There are, however, safeguards for members of registered pension schemes, who before 4 November 2021 had a right to take their entitlement to benefit at or before the existing NMPA. The new NMPA does not apply to some uniformed public servants, such as firefighters. 

Once someone reaches the NMPA, there are a range of options on how to access pensions savings. For defined contribution schemes, now the predominant type of scheme used for workplace pensions, options include taking a tax free lump sum of 25% of fund value, and then buying an annuity with the remaining fund, or using income drawdown. Annuities, or monies received from an income drawdown fund, are taxable income in the year of receipt. 

Scheme Pays

In an area of interest to some higher earners, there are forthcoming adjustments to the ‘Scheme Pays’ rules. Scheme Pays may be relevant where annual savings into a pension go over the annual allowance (AA). 

The AA limits how much tax relieved pension saving it’s possible to make in a tax year, and is usually £40,000. It may, however, be subject to a taper for higher earners, and we should be pleased to advise further. Where pension provision exceeds the AA, an AA tax charge applies. 

But with Scheme Pays, there may be the option to have the pension scheme meet some or all of the AA tax charge out of the pension pot. From 6 April 2022, there is change to the time limits and procedures when a request is made for the scheme to pay in relation to an earlier tax year. The measure has retrospective effect from 6 April 2016.

Outlook wintry?

In other headlines, the lifetime allowance (LTA) has been frozen at £1,073,100 until April 2026, and the triple lock on the state pension put on ice for 2022/23. 

The LTA is the maximum figure for tax-relieved savings in a pension fund. Where the value of the scheme is more than this when benefits are drawn, a tax charge can occur. This is 55% of the excess, if taken as a lump sum, and 25%, if taken as a pension. With recent HMRC figures showing tax yield from LTA charges increasing significantly, freezing the LTA will bring more people within scope of the charge.

To make tax efficient decisions as regards any additional investment, it’s important to know if savings will exceed the LTA. If so, alternative investment routes, such as Individual Savings Accounts (ISAs), or tax advantaged schemes like the Enterprise Investment Scheme, may be preferable.

Working with you

To discuss the best way to plan for retirement, and the tax consequences of any decision, please contact us.

Some may choose to take a dividend over a salary or bonus. Dividends are paid from the profits available after Corporation Tax is paid. A salary or a bonus generally creates tax charges for the company and currently carries up to 25.8% in combined employer and employee national insurance contributions (NICs). Dividends, however, are paid free of NICs.

The Dividend Allowance (DA) currently sits at £2,000 per year. The DA charges £2,000 of the dividend income at 0% tax: this is called the dividend nil-rate. The rates of tax on dividend income above the allowance until April 2022 are 7.5% for basic rate taxpayers; 32.5% for higher rate taxpayers; and 38.1% for additional rate taxpayers. 

In September 2021 the government published its proposals for new investment in health and social care in England. 

An increase was announced to the rates of tax paid on dividends by 1.25% from 6 April 2022 to help fund the new planned investment in health and social care. The new rates will therefore be 8.75% for basic rate taxpayers, 33.75% for higher rate taxpayers and 39.35% for additional rate taxpayers.

The new Health and Social Care Levy will lead to a UK-wide temporary 1.25% increase to both the main and additional rates of Class 1, Class 1A, Class 1B and Class 4 NICs for 2022/23. From April 2023 onwards, the NIC rates will decrease back to 2021/22 levels and will be replaced by a new 1.25% Health and Social Care Levy.

March 2022
1 New Advisory Fuel Rates (AFR) for company car users apply from today.
3 5% late payment penalty on any 2020/21 outstanding tax which was due on 31 January 2022 and still remains unpaid.
19 PAYE, Student loan and CIS deductions are due for the month to 5 March 2022.
31

End of corporation tax financial year.

End of CT61 quarterly period.

Filing date for Company Tax Return Form CT600 for period ended 31 March 2021.

Last minute planning for tax year 2021/22 – please contact us for advice.
April 2022
1

Making Tax Digital (MTD)  record keeping required for VAT return periods starting on or after 1 April 2022.

VAT Return information to be provided to HMRC through MTD compatible software.

5% late payment penalty on any 2020/21 outstanding tax which was due on 31 January 2022 and still remains unpaid.
5

Last day of 2021/22 tax year.

Deadline for 2021/22 ISA investments and pension contributions.

Last day to make disposals using the 2021/22 CGT exemption.
14

Due date for income tax for the CT61 period to 31 March 2022.
19

Automatic interest is charged where PAYE tax, Student loan deductions, Class 1 NI or CIS deductions for 2021/22 are not paid by today. Penalties may also apply if any payments have been made late throughout the tax year.

PAYE quarterly payments are due for small employers for the pay periods 6 January 2022 to 5 April 2022 if paying by cheque through the post or by 22nd April if paying online.

PAYE, Student loan and CIS deductions are due for the month to 5 April 2022 if paying by cheque through the post or by 22nd April if paying online.

Deadline for employers’ final PAYE return to be submitted online for 2021/22 if paying by cheque through the post or by 22nd April if paying online.

All three have been with the firm for a number of years. Rowan and Hetal are responsible for the management of the firm’s audit team, while Harry oversees the business services department.

Following on from the announcement, our Managing Partner Anthony Pins commented that “All three have worked extremely hard over the past few years and fully deserve their promotions. The business has enjoyed significant growth and they have been instrumental in helping to manage the challenges that come with that expansion.”

Follow these links to find out more about Rowan, Hetal and Harry.

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Some very welcome and encouraging news for parts of the Creative Industries sector was included within the Chancellor of the Exchequer’s Autumn Statement. Certain Creative Tax Credits will benefit from temporary rate rises and more flexibility will be introduced to parts of the legislation. Tax Credits are cash incentives for UK film, TV, theatre, orchestras, video games and exhibitions based on UK production expenditure incurred, and are intended to help the UK maintain its prestigious position in the global creative economy. 

The live entertainment sector was very badly hit by the pandemic and continues to struggle to find its usual audience levels with a reluctance by many to return to live venues, coupled with a significant reduction in tourists, particularly in London’s West End. This increase in support for live entertainment is therefore extremely welcome.

Here are our brief, early, notes on what to look forward to:

Theatre, orchestras and exhibitions: Temporary tax credit rate rise

The government intends to increase the rates of the cultural tax reliefs for the next two years in the following pattern, with rates returning to the current levels in 2024:

Rate % Current Rates From 27 October 2021 to 31 March 2023 2023 to 2024 2024 to 2025 (and onwards)
Theatre Tax Relief: non-touring / touring 20% / 25% 45% / 50% 30% / 35% 20% / 25%
Orchestra Tax Relief 25% 50% 35% 25%
Museums and Galleries Exhibition Tax Relief: non-touring / touring 20% / 25% 45% / 50% 30% / 35% 20% / 25%

This is a temporary measure aimed at helping the Creative Industries that rely on live audiences for their revenue, hence film, TV and video games are not included. Essentially rates will increase for the Industries from today until 31 March 2023 before tapering in 2023/24 and reverting to normal from 1 April 2024. One note of caution here though; the changes apply where production activities commence after 27 October 2021. So, where production has started already, the old rates will apply. Whilst this may sound a little harsh on productions that have recently started, the logic is presumably to encourage new productions and assumes that anything already ‘green lit’ doesn’t need an additional incentive.

Film and TV: Films becoming TV and streaming broadcasts rather than theatrical releases as first intended

A welcome measure that addresses issues related to both the pandemic and the changing way in which consumers access visual entertainment is the new ability to switch between film tax relief and high-end TV relief during production, with effect from 1 April 2022. The problem, hitherto, was effectively that a production needed to be one or the other from the outset, and because of the way the legislation has been historically constructed, a film that ended up being broadcast without a theatrical release could end up losing out. This new measure means that a film which started life intending a theatrical release but ended up, say, as a VOD release can switch from qualifying for Film Tax Credit to High-End TV Tax Credit. What is not entirely clear from the announcement is whether High-End TV Tax Credit includes animations and children’s TV but we would assume that it does. Please also note that the measure does not include switching from High-End TV Tax Credits to Film Tax Credits, although this is probably not a major concern affecting many productions.

Theatre, orchestras and exhibitions: Revisions to current rules

There will be some “clarifications” to the current legislation. This will, we understand, cover anti-abuse and, in particular, improvements to help touring exhibitions get relief. Details will appear in the Finance Bill 2021-22 which will be published soon.

Exhibitions tax relief: Extension to the lifetime of the relief

This creative tax relief was due to expire in March 2022 but will now be extended until 31 March 2024.

If you have any questions about changes to Creative Tax Credits, please don’t hesitate to get in touch.


To receive occassional updates about Creative Industry Tax Relief please sign up here.

We will comment further when the draft legislation is published.

© Nyman Libson Paul LLP

Yesterday in parliament, Rishi Sunak laid out the Government’s tax and spending plans for a post-pandemic and post-Brexit world.

Our useful guide takes you through the key points from his Budget and how they might impact on your business or personal finances.

For advice on any of the topics covered please do not hesitate to contact us.

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The government is currently discussing proposals for what’s called income tax basis period reform, something entailing fundamental change for unincorporated businesses. There are also discussions on whether the UK tax year itself should change. A year end of 31 December or 31 March, rather than 5 April, has been suggested.

It’s not often that the tax administration framework gets an overhaul, and many of the suggestions need to be seen in the context of the move towards Making Tax Digital for income tax (MTD for ITSA). This will take effect in three stages, starting from 6 April 2024 for most self-employed businesses and landlords, and 6 April 2025 for partnerships with only individuals as partners. Other partnerships would enter later. The recently-published regulations stipulate that fixed quarters, rather than quarters based on the individual accounting year of the business, will be used to report to HMRC. This puts the spotlight on the choice of accounting year end, and it may be prudent to review this as part of your MTD preparation. 

Basis period reform, if implemented as it stands, also has a bearing on the choice of year end. It would end the present system whereby calculations are based on the accounting year of the individual business. Instead, profits (or losses) assessed would be those occurring in the actual tax year, regardless of accounting year end. The new tax year basis would apply from April 2024 at the earliest. There would be a transitional year (2023/24 at the earliest) in which payment of tax would be accelerated. Businesses without a 31 March/5 April year end would potentially face higher tax bills, and those with higher taxable profits in 2023/24 because of the change would be able to elect to spread the ‘additional’ profit over a period of up to five years. 

Businesses with accounting year ends other than 31 March or 5 April would see additional complexity to tax calculations on an ongoing basis and potentially a need to submit estimated returns to meet filing deadlines. A change of accounting year end might be the optimal solution here. Many businesses would also want to consider the practical implications of the transitional year on tax bills. 

No genuine simplification

However, the Tax Faculty at the Institute of Chartered Accountants in England and Wales (ICAEW) argues that implementing such changes to income tax basis period would ‘not provide any genuine simplification to the UK’s tax system’.

Instead, it says such reforms would be likely to increase costs, complexity and uncertainty for those businesses affected. It could also damage the UK’s attractiveness as a place for the location of international service firms, the ICAEW added.

The ICAEW highlights that those businesses not following the tax year are likely to have very good reasons for doing so, including aligning with 31 December, which is the international standard for the tax year end.

The response also stresses the considerable difficulties that the proposed change would pose for seasonal businesses, agricultural firms and GP practices.

Whatever last-minute adjustments to timetabling or smallprint there may be, change is very much in the air. 

Please be assured we are monitoring all these developments closely and will advise on the latest developments as they impact you. If you have any questions, please get in touch.

November 2021
2 Deadline for submitting P46(Car) for employees whose car/fuel benefits changed during the quarter to 5 October 2021.
19 PAYE, Student loan and CIS deductions are due for the month to 5 November 2021.
December 2021
1 New Advisory Fuel Rates (AFR) for company car users apply from today.
19 PAYE, Student loan and CIS deductions are due for the month to 5 December 2021.
30 Online filing deadline for submitting 2020/21 self assessment return if you require HMRC to collect any underpaid tax by making an adjustment to your 2022/23 tax code.
31

End of CT61 quarterly period.

Filing date for Company Tax Return Form CT600 for period ended 31 December 2020.
January 2022
1 Due date for payment of corporation tax for period ended 31 March 2021.
14 Due date for income tax for the CT61 quarter to 31 December 2021.
19

PAYE, Student loan and CIS deductions are due for the month to 5 January 2022.

PAYE quarterly payments are due for small employers for the pay periods 6 October 2021 to 5 January 2022.
31

Deadline for submitting your 2020/21 self assessment return (£100 automatic penalty if your return is late) and the balance of your 2020/21 liability together with the first payment on account for 2021/22 are also due.

Capital gains tax payment for 2020/21.

Balancing payment – 2020/21 income tax and Class 4 NICs. Class 2 NICs also due.

Government announces rise in NICs to fund new Health and Social Care Levy

National insurance contributions (NICs) and dividend tax rates will rise by 1.25% in 2022 to fund a new health and social care package. The increase is put on a permanent footing from 6 April 2023 as a separate tax, the Health and Social Care Levy. NIC rates then revert to current levels. Workers over state pension age, who are currently exempt from NICs, will be liable to the Levy – but not the temporary increase in NICs.

From 6 April 2022, NICs rise by 1.25% for employees (Class 1 contributions), the self-employed (Class 4 contributions) and employers (Class 1, 1A and 1B secondary contributions). Also from April 2022, dividend rates rise to 8.75% for basic rate taxpayers, 33.75% for higher rate taxpayers and 39.35% for additional rate taxpayers. These measures apply to all the UK, and have particular impact on higher earners in Scotland. 

The proposals bring major changes to the way social care is funded in England. They mean that from October 2023, no eligible person starting adult social care should contribute more than £86,000 over their lifetime. Where assets are less than £20,000, contributions may be required from income, but not savings or the value of the home. Means-tested support will be available where assets fall between £20,000 and £100,000. Social care is funded differently elsewhere in the UK.

HMRC outlines changes to late payment penalty regime

HMRC has published a paper outlining the changes to the late payment penalty regime for taxpayers. Initially the changes will apply to VAT and income tax self assessment (ITSA). The changes will see interest charges and repayment interest harmonised to bring VAT in line with other tax regimes, including ITSA.

Under the new regime, there are two late payment penalties that may apply: a first penalty and then an additional or second penalty, with an annualised penalty rate. All taxpayers, regardless of the tax regime, have a legal obligation to pay their tax by the due date for that tax. The taxpayer will not incur a penalty if the outstanding tax is paid within the first 15 days after the due date. If tax remains unpaid after day 15, the taxpayer incurs the first penalty.

The changes will apply to VAT taxpayers for accounting periods beginning on or after 1 April 2022; to ITSA taxpayers with business or property income over £10,000 per year (who are mandated for Making Tax Digital for ITSA (MTD for ITSA)) from the tax year beginning 6 April 2024; and for all other ITSA taxpayers from the tax year beginning 6 April 2025.
 

Goods coming from the EU

The government has decided to phase in checks and controls on imports from the EU over a longer period. The Border Operating Model had set out major new requirements from 1 October 2021 and 1 January 2022, some with particular repercussions for the agri-food sector. This timetable is now revised.

Delayed

The new timetable pushes the start date of some new requirements into 2022. This affects pre-notification of what are called sanitary and phytosanitary (SPS) goods: export health certificates: and phytosanitary certificates and physical checks on SPS goods at border control posts. It also impacts the timetable for the introduction of safety and security declarations on imports. We should be pleased to advise in more detail if this is relevant to you. It should be noted that the easements do not apply to imports to Northern Ireland.

Still on track

The revised timetable doesn’t do away with all change from 1 January 2022. Full customs controls and customs checks are still being introduced from this date, and the year-long easement allowing businesses to make delayed customs declarations ends. Unless you or your agent are authorised to use Customs Freight Simplified Procedures, you may need to pay relevant tariffs. 

Northern Ireland. In another change, it has been announced that current processes for moving goods from mainland Britain to Northern Ireland will continue. For traders moving goods from the mainland into Northern Ireland, this means that the grace periods and easements currently in force are extended. 

Rules of origin: check compliance now to ensure ongoing tariff-free trade

To access tariff-free trade with the EU, the onus is on businesses to demonstrate that goods qualify by originating in the UK or EU. 

This is administratively complex. Proof of originating status relies either on what is called importer’s knowledge, or on an exporter’s statement on origin. In the latter case, suppliers’ declarations can form part of the audit trail. Since 31 December 2020, there has been an easement in place, meaning businesses don’t need a suppliers’ declaration in place when goods are exported to claim preference – though they must be confident that the goods do meet the preferential rules of origin set out in the Trade and Cooperation Agreement.

Time is now running out. The easement ends on 31 December 2021. From 1 January 2022, suppliers’ declarations are needed, and there may be retrospective checks on transactions since 1 January 2021. Make sure you have everything in place in your supply chain to enable ongoing access to tariff-free trade.

New EU export health certificates: new timetable

The EU has delayed the use of new Export Health Certificates (EHCs). Originally due to come into force from 21 August 2021, the start date is now 15 January 2022. Current EHCs, signed before 15 January 2022, can be used until 15 March 2022 for goods en route to the EU. Exporters are, however, encouraged to start moving towards use of the new EHCs so as to be ready for full implementation in January. 

The EHCs are needed to export all products of animal origin, live animals, germinal products and composite products to the EU. They are also needed for movements from mainland Britain to Northern Ireland. 

Extra time for product conformity marking 

Great Britain (England, Scotland and Wales) has had a new domestic goods regulation regime in place since 1 January 2021, with a new product marking: the UKCA (UK Conformity Assessed) marking. 

The UKCA marking is used for manufactured goods placed on the market in Great Britain, and covers most cases where the CE marking would have been used previously. It is also used for aerosol products that used the reverse epsilon marking. 

To give businesses time to make the necessary changes, there is a temporary concession allowing the CE marking to continue to be used in many cases. This was due to expire on 31 December 2021. The government, however, has recently announced that it will not now mandate use of the UKCA marking until 1 January 2023 – though it encourages its adoption as soon as possible.

It should be noted that the CE marking is only valid in Great Britain for areas where rules are the same as those in the EU. Should EU rules change, the UKCA marking might need to be adopted earlier.

There may be steps you need to take to make sure products are compliant in order to continue selling them in Great Britain from 1 January 2023. If, for example, your business manufactures, imports or distributes goods that need to be tested by a conformity assessment body, you need to factor in the time for the testing process to be sure you will be ready on time. 

Sales in the EU. Products for sale in the EU need a CE marking. The new UKCA marking is not recognised there. 

Northern Ireland. There are different rules for product conformity marking that apply to Northern Ireland. 

Navigating the rules for imports and exports needs considerable care, and it is essential to be up to date with the latest timetabling. If we can be of further assistance, please don’t hesitate to contact us.

    

Tip 1. PVA isn’t time-limited: it’s a permanent cash flow concession, applying to EU or rest of world trade. It means that rather than paying the VAT at the time of import, and recovering it later, you declare and recover it on the same VAT return. No prior approval is required. 

Tip 2. If using someone like a freight forwarder, customs agent or fast parcel operator to import goods on your behalf, make sure they know how to deal with your import VAT. Make it clear if you want to use PVA, to avoid potentially expensive confusion. And keep a written record of your instructions.

Tip 3. Using PVA means you need to access a monthly postponed import VAT statement. This is obtained online, via the Customs Declaration Service (CDS). And it’s CDS you need, even if you use the Customs Handling of Import and Export Freight (CHIEF) system to make the actual customs declarations. The very first time you access CDS, you will need to supply certain initial information, like your EORI number. 

Tip 4. Statements are usually available to view by the sixth working day of the month and are provided in pdf format. But – and it’s a big but – they are only available online for six months from the date that they’re published. So to support your VAT return and provide an audit trail for compliance purposes, download and keep a copy of each statement in your records. 

Working with you

We are happy to provide further detail on how PVA works, when the scheme can – or must – be used, and how to complete the VAT return. Please don’t hesitate to get in touch.
 

Salary sacrifice: the basics

Salary sacrifice arrangements are agreements that reduce the amount your employee gets as cash remuneration in return for some sort of non-cash benefit. 

The number of benefits that can be provided free of income tax and National Insurance Contributions (NICs) under salary sacrifice schemes has been steadily eroded in recent years. The prime advantage is broadly now restricted to: employer pension contributions to approved schemes, pensions advice, cycle to work schemes, qualifying low emission cars and certain specific childcare provision. Please contact us for further details on these as they are not without complexity. 

With these particular benefits, reducing gross pay through salary sacrifice can reduce employee NICs and income tax liability. For you as employer, there should also be a saving in employer NICs. You can of course offer benefits other than these, but the advantage is likely to accrue from group purchase discounts for things like gym facilities, rather than tax or NICs savings. 

Tip: Make sure you remain minimum wage compliant when setting up any salary sacrifice arrangement: check that the arrangement doesn’t take cash earnings below the relevant minimum wage rate.

Making changes

Salary sacrifice arrangements are based on the idea that the employee has permanently given up the right to part of their salary, with the terms of the sacrifice, and details of the non-cash benefit received in exchange, formally set out in the employment contract. In practice, arrangements tend to apply for a minimum period, usually a year. 

The need for permanence obviously creates an issue if you are asked to alter the arrangement. As a general rule, if an employee swaps between cash earnings and a non-cash benefit at will, any expected tax and NICs advantages are at risk. HMRC does acknowledge, however, that in some circumstances, a salary sacrifice arrangement can be varied or discontinued without adverse effect. 

This exception is for ‘lifestyle’ events:

And because of the pandemic, HMRC has expanded the list to include:

When varying a salary sacrifice arrangement, the employment contract is key. To change the terms of the salary sacrifice agreement, the employment contract must change, and change first, setting out clearly entitlement to cash salary and non-cash benefit at any given time. 

Working with you

With HMRC’s emphasis on the employment contract being varied before changes are implemented, and the right to salary being given up before an employee is entitled to receive the remuneration, this is an area to get right first time. We are always happy to advise on salary sacrifice or any other aspect of tax efficient remuneration.

In Northern Ireland, that’s the JobStart scheme. In England, Scotland and Wales, it’s Kickstart. The schemes are broadly similar. 

The Kickstart scheme has just been extended to March 2022, and is open to applications from employers and Kickstart Gateways until 17 December 2021.

Government funding is available to cover minimum wage at the appropriate level for 25 hours a week in full. It also provides the cost of employer National Insurance Contributions and employer minimum automatic enrolment pension contributions. There is also £1,500 funding per job for set up costs and skills development support. To use the schemes, employers apply directly online. Kickstart applicants can also apply through Kickstart Gateways, intermediary organisations which may offer more support to smaller employers. In mainland Britain, successful applications are sent to Jobcentre Plus work coaches, who select a pool of candidates for you to interview and appoint from. You can advertise vacancies yourself, but all jobs must receive an introduction through a DWP work coach to receive full funding. In Northern Ireland, job referrals must be made by the Department for Communities.

Your part of the equation as employer? Creating a quality six-month placement (or multiple placements) for a candidate (or candidates) aged between 16 and 24 otherwise facing long-term unemployment. In Northern Ireland, placements can run for nine months in some circumstances. 

You must be able to show how you’ll support your new staff grow their employability skills while they’re with you. And any job must be an additional new post, created specially for the scheme, that doesn’t involve your existing workforce losing out. It shouldn’t, for example, replace existing or planned vacancies, or cause your existing employees, apprentices or contractors to lose work or reduce their working hours. 

Processing applications can take about a month, so to access funding, act now. We should be delighted to advise further.
 

Protecting livelihoods. Keeping people in work. Helping businesses with temporary cash flow issues to survive. These have been HMRC’s guiding principles on tax debt ever since Covid-19 began. That starts to change this autumn. 

What happens next?

As government support schemes wind down, so HMRC begins to return to something nearer its normal debt collection procedure. Though it’s still committed to what it calls an ‘understanding and supportive approach’, the word ‘but’ forms part of the updated messaging. It comes here: ‘But where businesses have little chance of recovery, we do have a responsibility to act’. The emphasis is on supporting ‘viable businesses where we can’

HMRC contact if there’s tax outstanding

HMRC urges any business or individual worried about paying tax to phone its dedicated Payment Support Service as soon as possible. Where taxpayers don’t take the initiative, HMRC will itself make contact and the importance of responding can’t be overstated. Initial HMRC triage for tax debt is to establish if taxpayers can’t, or simply won’t pay, and cooperation here is vital. Failure to engage may mean enforcement procedures are escalated to the next level. 

HMRC messaging: ‘If you can pay your taxes then you should do so – but if you’re struggling, we want to work with you to agree a plan based on your financial position.’

Negotiations

HMRC support includes Time to Pay repayment plans for tax. These are arranged to fit individual circumstances, with the aim of paying as quickly and affordably as possible. But HMRC will also consider short-term deferrals where nothing is paid for a short set period. 

If a business has used a government loan support package, like the Bounce Back Loan Scheme, HMRC expects it to use the flexibility this provides to the full. This could mean, for example, including extending repayment terms, to maximise the chance of keeping tax payments up to date. It also advises that the existence of such a loan doesn’t preclude HMRC debt collection activity: even, as a last resort, pursuing for insolvency.

Escalation

If taxpayers fail to respond, or refuse to pay, HMRC may want to visit either the home or business premises. But the aim at this stage is still to agree a payment or payment plan without further action. 

From September 2021, HMRC may start the process of collecting tax debt using its enforcement powers, where someone is unwilling to discuss a payment plan or ignores its attempts to make contact. 

Whilst the emphasis is still on a ‘cautious approach’ to debt enforcement action, HMRC powers are extensive, and it is obviously wise to take appropriate action before this stage is reached. Where a company is considering a Company Voluntary Arrangement, early engagement with HMRC is particularly important.

If you have any concerns about the payment of tax, please talk to us for further advice.
 

Breaching NMW laws

Last year the number of workers HMRC helped to reclaim lost earnings rose to over 155,000 across the UK. HMRC recovered more than £16 million in pay that was due to them and also issued more than £14 million in penalties. Although not all NMW underpayments are intentional, it has always been the responsibility of all employers to abide by the law. 

The employers named by the government fell foul of NMW laws: 

Poor excuses

In addition to naming and shaming offenders, HMRC revealed some of the most ‘absurd’ excuses given by employers for not paying their employees the NMW.

HMRC’s top five ‘ridiculous’ excuses for flouting the law are:

  1. ‘She does not deserve the NMW because she only makes the tea and sweeps the floors.’
  2. ‘The employee was not a good worker, so I did not think they deserved to be paid the NMW.’
  3. ‘My accountant and I speak a different language – he does not understand me, and that is why he does not pay my workers the correct wages.’
  4. ‘My employee is still learning so they are not entitled to the NMW.’
  5. ‘It is part of UK culture not to pay young workers for the first three months as they have to prove their ‘worth’ first.’

The National Living Wage and the NMW

Anybody working aged 25 or over and not in the first year of an apprenticeship is legally entitled to the National Living Wage (NLW).

Despite its name, this rate is essentially a NMW for the over 24s. The government is committed to increasing this every year.

The NLW rate changes every April, while the NMW rates have traditionally been revised in October. However, since April 2017 the NMW and NLW cycles have been aligned so that both rates are amended in April each year. Employers will need to make sure they are paying their staff correctly as the NLW will be enforced as strongly as the NMW.

The table below shows the NMW and NLW rates applying from 1 April 2021:

  Apprentices* 16 and 17 18 – 20 18 – 20 18 – 20
NMW

£4.30

 £4.62 £6.56 £8.36 –
NLW – – – – £8.91

*Under 19, or 19 and over in the first year of their apprenticeship
 

Calculating the NMW and NLW

Calculating the NMW and the NLW can prove to be complex. Please contact us to discuss any concerns you may have.

Trading?

It can be difficult sometimes to know where a hobby stops and a trade begins. But where there’s any question of additional income, it’s not always appreciated that HMRC may need to be told. This applies to all sorts of fairly informal arrangements, from making sales online to taking on casual jobs like dog walking, gardening or babysitting: even renting out property or part of the home. 

The questions HMRC will have are: has this person effectively set up a business, and does this amount to trading income, or property income? To decide, there are particular signs HMRC looks for. These are sometimes called the ‘badges of trade’. They include the intention to make a profit, the number of transactions, and the way sales are carried out. 

Notification may be needed for additional income not from someone’s usual employer or business. Please do discuss additional income with us when the self assessment tax returns are being prepared. We are happy to advise whether income should be disclosed, and if so, the appropriate timescale for action.

Taxable?

Some casual income may be covered by special rules: there are two fairly new allowances, the Property Allowance and Trading Allowance, which may be available to cover small amounts received. Each provides up to £1,000 per annum tax-free, and someone with both types of income can use both the allowances. Where annual gross property/trading income is £1,000 or less, there is no need to tell HMRC, or declare the income on a tax return: though depending on other income, there may still be a need for a tax return. And where someone has trading income, there are also circumstances when they may need to register for self assessment and complete a return. 

Again, depending on circumstances, it may be that these allowances don’t provide the most tax efficient means of dealing with income and expenses. Do please contact us if you need further information here, or on any similar issue.

Despite Covid-19, AE duties apply as normal, whether your staff are working, whether you’ve furloughed them, or whether you have staff on placement with government funding as part of the Kickstart scheme. Both you and your staff should continue to make pension contributions. Staff do have the option to reduce the level of contribution in some circumstances: they can also decide to opt out or cease active membership of the scheme, if they decide that is the best course of action for them. But it is critical that as employer, you don’t encourage or induce them to do so: this would breach the legal safeguards provided for workers under the regime.

If you’re using the furlough or Kickstart scheme, you should run your normal payroll process. Both the contributions you pay, and your staff pension contributions due under your pension scheme are calculated on the total pay. That’s regardless of how much government support you are claiming. 

If you are a new employer, the pandemic doesn’t make any difference to procedure. You should still assess staff and put them in a pension if they are eligible. But you may be able to formally postpone the procedure for up to three months, and we can advise you more fully here. It’s only a delay, however: it doesn’t cancel your obligations. And it comes with its own admin requirements, so it isn’t completely hands-free.

Regular AE housekeeping

The AE regime has its own cycle of responsibilities. This involves regular re-enrolment and re-declaration duties every three years. In outline, certain staff who have left your pension scheme must be put back in it. And you then have to submit a re-declaration of compliance to the Pensions Regulator (TPR), setting out how you have met your duties. 

Many smaller employers will be coming up to their first re-enrolment. TPR is likely to write to you with information about this, recommending that you assess your staff for re-enrolment on the third anniversary of your staging date or duties start date. Although there isn’t the option to use postponement for re-enrolment, TPR is providing some flexibility on dates if you are struggling to get re-enrolment carried out on your third anniversary because of Covid-19. 

Here to help

Getting the figures right for pension contributions and the furlough scheme can be extremely complex. If you would like us to review this for you, please don’t hesitate to get in touch.

Scammers know when tax is going to be on people’s minds. Self assessment tax return season is always a time to be alert: but the pandemic has given scammers a field day. Emails mimicking HMRC, with invitations to apply for the Self-employment Income Support Scheme (SEISS) grant, and texts offering refunds or funding because of lockdown are among those in circulation. In the case of SEISS, it can be even more confusing, because HMRC has been contacting some claimants to carry out pre-verification checks. But if this is the case, it should notify you by letter in advance.

Sometimes there are basic clues to note. Bad grammar. Spelling mistakes. And HMRC isn’t likely to start its emails ‘Hello’ or end with a chatty ‘Thank you for your cooperation’. It won’t use WhatsApp or email to tell you about a tax refund.

Tip: Don’t click

Most scams invite you to open an attachment or click on a link. Don’t. They’re likely to take you to a misleading ‘phishing’ website, to get you to enter personal details that can then be exploited, or expose you to malicious software.

If in any doubt about contact that seems to be from HMRC, please do talk to us. We are always able to point you towards HMRC’s ‘live’ list of issues, where it really is contacting the public.

VAT: the initial easement, meaning full digital links did not have to be in place, expired for VAT return periods starting on or after 1 April 2021. Businesses now need to be fully compliant with the new rules. We can provide guidance on what does and doesn’t constitute a digital link, in cases of doubt. From April 2022, MTD for VAT applies to all VAT registered businesses, even voluntary registrations.

Corporation tax: mandation is not expected before 2026, with a pilot from 2024.

Income tax self assessment: MTD rules apply from 6 April 2023 for unincorporated businesses and landlords with total business or property income more than £10,000 per year. HMRC had intended to expand its pilot scheme substantially from April 2021, allowing entry to the vast majority of sole traders and landlords. This has not happened. It is now pushed forwards to April 2022, whittling away the two-year period to trial the system. Given the considerable demands of the new rules, which involve filing quarterly summaries of business income and expenses via MTD-compatible software, plus an end of year finalisation, we recommend making an action plan for your business now. Please contact us to discuss what is needed to comply.

Reviewing claims

It is always preferable to approach HMRC with a disclosure, rather than wait for HMRC to discover potential problems. 

As HMRC recognises, genuine mistakes in SEISS claims have been made over the last year. The rules have changed frequently and in the very early stage of roll out, HMRC took a fairly broad brush approach to what it meant for a business to be ‘adversely affected’. 

We recommend checking back over claims now, so that you can be sure that you have evidence in place to support your claim, and that you are confident that you have met the eligibility criteria under each successive phase of the rules. Particularly important are differences in the rules for SEISS 1 and 2, for which a business had to be adversely affected, and also within a particular timeframe: and SEISS 3, 4 and 5, where requirements are more precisely defined in terms of reduced activity, capacity or demand. 

Reviewing your claim before your 2020/21 tax return is submitted is particularly important. SEISS amounts will be entered on the tax return, and submission of the return constitutes your acceptance that the figures are accurate.

Disclaiming grants

In some circumstances, the whole, or part, of a SEISS grant would need to be repaid. This could be, for example, where a claim doesn’t fit the criteria for a particular phase of SEISS; where a claimant did not intend to continue trading; or where a business has been incorporated before a SEISS claim was made. 

For SEISS 4 and 5, any amendments to the tax returns which HMRC has used to calculate your grant, made on or after 3 March 2021, are now on the list of circumstances that need monitoring. If such an amendment changes SEISS eligibility, resulting in less or no SEISS payment, it’s now your responsibility to notify HMRC of this. There is a different route to notify and repay in these circumstances, and we can advise here. Note however that if the amendment means a reduction of £100 or less, HMRC does not need notification: the amount can be ignored. 

There are time limits both for alerting HMRC to potential problems and making repayment. Most importantly, HMRC should be notified within 90 days of receiving a grant to which you think you may not be entitled. Once this has been done, HMRC is likely to be open to arranging time to make repayment, and we can guide you on procedure here.

Checking claims is particularly important as HMRC has the power to charge penalties. These can apply when someone fails to notify HMRC that they claimed a grant to which they knew they were not entitled. More rigorous conditions attach from SEISS 4 onwards, including a responsibility to notify HMRC where circumstances change and someone becomes ineligible after making a claim. Penalties should not apply where someone received SEISS not knowing they weren’t eligible, if they repay the grant by 31 January 2022, or by 31 January 2023 for SEISS 4 and 5. Where penalties do apply for claiming when not entitled, HMRC may charge a penalty of up to 100% on the SEISS grant overclaimed.

Finally, just as some major employers have voluntarily repaid furlough monies, it’s possible at any time to repay voluntarily some or all of a SEISS grant. We can advise on how this can be done.

HMRC will be dealing with claims for SEISS 5 shortly, and we should be pleased to advise in this area, particularly as regards the new requirement to calculate reduction in turnover.

Fifth SEISS grant opens to claims from late July

The fifth Self-employment Income Support Scheme (SEISS) grant covering May 2021 to September 2021 will open to claims from late July, HMRC has confirmed.

To be eligible for the grant, an individual must be self-employed or a member of a partnership. They must have traded in the tax year 2019/2020 and submitted their tax return on or before 2 March 2021, and also have traded in the tax year 2020/21.

The amount of the fifth grant will be determined by how much an individual’s turnover has been reduced in the year April 2020 to April 2021.

HMRC will provide more information and support by the end of June 2021 to help individuals work out how their turnover was affected.

The online claims service for the fifth SEISS grant will be open from late July 2021. In mid-July HMRC will contact individuals who are eligible based on their tax returns to give them a date from which they can make their claim.

Finance Act receives Royal Assent

Royal Assent of Finance Act 2021 was granted on 10 June, bringing the extended loss carry-back, the capital allowances super-deduction and other measures into effect.

Now Royal Assent has been granted it will prompt the issue of commencement orders for provisions, including the 130% capital allowances super-deduction for companies; the Plastic Packaging Tax; penalties for late filing of tax returns; penalties for late payment of tax; and VAT late payment and repayment interest.

The government tabled amendments to the super-deduction in Finance Act 2021.

Chancellor Rishi Sunak used the 2021 Budget to announce temporary capital allowances. These provide an increased incentive to invest in plant and machinery.

The new super-deduction allows companies investing in qualifying new plant and machinery to benefit from new first-year capital allowances.

Under the measure, a company will be allowed to claim a super-deduction providing allowances of 130% on most new plant and machinery investments that ordinarily qualify for 18% main rate writing down allowances, and a first-year allowance of 50% on most new plant and machinery investments that ordinarily qualify for 6% special rate writing down allowances. This relief is available between 1 April 2021 and 31 March 2023 and is not available for unincorporated businesses.

The amendments to Finance Act 2021 permit landlord lessors to claim the super-deduction. Landlord lessors were initially excluded from claiming the deduction.

Tax tip: understanding VAT collection schemes

As importers and exporters continue to get to grips with post-Brexit trade, import taxes and VAT changes, businesses should note that the One Stop Shop introduces three schemes which were launched on 1 July to deal with B2C supplies of goods and services to EU customers.

They are known as the ‘Union’, ‘non-Union’ and ‘import’ schemes. The schemes are designed to facilitate the collection of VAT by one EU member state, which is then passed on to the member state in which the supply is deemed to take place.

If businesses register for VAT using one of these schemes, they will complete one return for all EU sales, rather than being required to register for VAT in all member states in which your customers are based. These schemes will allow businesses to declare sales across all EU member states.

Tax relief for the year to 5 April 2022 tax year is also available and you may like to bring this to the attention of relevant members of staff. They should be aware that they must make a new claim for this, even if they claimed tax relief in 2020/21: the old claim does not carry forward. Relief should apply to the whole tax year, regardless of whether staff are brought back to the workplace during the year, so long as they have at some point been required to work at home. Staff who didn’t get round to claiming tax relief last year haven’t lost their opportunity. HMRC will accept their claim for this period for up to four years. 

To recap: employees can claim tax relief on up to £6 per week, or £26 per month, to help with additional costs if they are required to work from home because of Covid-19. Tax relief is based on the rate at which employees pay tax. Someone paying 20% basic rate tax, claiming relief on £6 weekly, would get £1.20 in relief weekly (20% of £6). Higher rate taxpayers would get £2.40 weekly (40% of £6). With devolved taxation, calculations will be slightly different in Scotland. The relief applies to costs like business phone calls and heat and light for the workspace, but not the purchase of office equipment or furniture. Different provisions apply here.

Employees should be directed to HMRC’s online portal on gov.uk. HMRC advises that they search ‘working from home tax relief’ to find it. The portal checks eligibility and accepts an online claim through Government Gateway there and then. Alternatively, if someone usually completes a self assessment tax return, they will be re-routed to claim there. The gov.uk service is easy to use and employees are well recommended to claim themselves, rather than use a commercial repayment service charging commission.

Almost all workers, including zero-hour contracted workers and people on irregular hours contracts, are legally entitled to 5.6 weeks’ paid holiday each year. Ideally, this should be taken in the current leave year. Staff should be encouraged to book and take paid holiday, spread throughout the year, if at all possible. But in the context of the COVID-19 pandemic, there may be unusual factors to take into account, both for you and your workforce. Making up for lost time could be the employer number one priority, where employees may be desperate for a break. Whatever the scenario, it’s likely that good communication, plus a degree of flexibility on both sides, will secure the best outcome. 

Where it’s not possible for employees to take all the holiday they are due during the holiday year because of COVID-19, special provisions are in place to allow them to carry some holiday entitlement forward. Up to four weeks of statutory paid holiday can be carried over into the next two holiday leave years. When calculating how much holiday can be carried over, you need to give workers the opportunity to take any leave that they can’t carry forward before the end of the leave year. Workers who can’t take annual leave because they are on maternity leave or sick leave, still have the right to carry their annual leave forward.

There is no statutory requirement to give staff notice that they can carry holiday forward if they don’t use it. But it would be unlawful to prevent workers from taking holiday to which they are entitled, and best practice would suggest telling workers of the need to carry forward, and how much leave this covers.

If you have staff on furlough, they can take holiday as normal, with your permission. Their holiday pay needs to be based on what they would earn if they were working. If that’s higher than their pay while they’re furloughed, it falls to you to make up the difference. But you are still able to claim through the furlough scheme for the holiday period. Taking holiday does not break the furlough period. 

Can you require employees to take leave? The answer is yes. Employers can require that certain days are taken as holiday, provided that the correct period of notice is given. If, for example, you want employees to take six days off, they must be notified 12 days in advance. Similarly, employers can cancel paid holiday time that has been booked. This must also be done within a particular timeframe. If your employee has booked six days holiday, you must tell them you need to cancel it at least six days before the holiday was due to start.

Finally, what if an employee wants time off in an emergency to look after a dependant? This is another area where there is a right to time off. There isn’t a statutory right to pay, and the amount of time provided must be reasonable, given the situation. 

Please don’t hesitate to contact us for further advice on any of the issues covered here

August 2021
2 Deadline for submitting P46(Car) for employees whose car/fuel benefits changed during the quarter to 5 July 2021.

19

 PAYE, Student loan and CIS deductions are due for the month to 5 August 2021.
September 2021
1 New Advisory Fuel Rates (AFR) for company car users apply from today.
19 PAYE, Student loan and CIS deductions are due for the month to 5 September 2021.
30 End of CT61 quarterly period.
October 2021
1 Due date for payment of Corporation Tax for period ended 31 December 2020.
5

Deadline for notifying HMRC of new sources of taxable income or gains or liability to the High Income Child Benefit Charge for 2020/21 if no tax return has been issued.
14

Due date for income tax for the CT61 quarter to 30 September 2021.
19

Tax and NICs due under a 2020/21 PAYE Settlement Agreement.

PAYE, Student loan and CIS deductions are due for the month to 5 October 2021.

PAYE quarterly payments are due for small employers for the pay periods 6 July 2021 to 5 October 2021.
31 Deadline for submitting ‘paper’ 2020/21 self assessment returns.

Scamming the taxman

The HMRC figures show an increase of fraudulent activity across all three communication types – emails, SMS and phone.

HMRC itself was the most targeted by phishing attacks among government departments. 

Always check

HMRC advises using the following checklist to decide if the contact you’ve received is a scam. Is the communication:

Import/export red tape

According to the NCSC, attempts to clone part of the gov.uk website were identified in December 2020. In addition, the increase in red tape being experienced by importers and exporters this year is expected to create opportunities for scammers.

Devastating pension savers

Pension savers have long been a target of scammers and losses from pension fraud rose to £1.8 million in the first three months of this year, according to figures from Action Fraud.

Pension scams often include free pension reviews, ‘too good to be true’ investment opportunities and offers to help release money from your pension, even for under 55s, which is not permitted under the pension freedom rules.

Protection from pension scams

Action Fraud says you should reject unexpected pension opportunities, such as free pension reviews or investment opportunities involving your pension, whether made via email, social media, text or over the phone.

Research who you’re dealing with before changing your pension arrangements, and check with the Financial Conduct Authority (FCA) to see if the firm is authorised.

Don’t be rushed or pressured into making any decisions about your pension – consider seeking impartial information and advice.

Every taxpayer, saver and business is a potential target, so always check before you respond to messages, even if they appear to be genuine.

The new rules extend the period over which losses can be carried back for relief against profits of earlier years. This becomes three years rather than the usual one year. For unincorporated businesses, it affects the tax years 2020/21 and 2021/22. For companies, this covers losses arising in accounting periods ending between 1 April 2020 and 31 March 2022. 

We look forward to working with you to action such a claim where this is appropriate

The government has published a range of tax documents and consultations designed to help modernise the UK tax system.

More than 30 policy updates, consultations and documents have been published in an effort to give tax professionals more time to scrutinise them. These documents, which would traditionally have been published at the Budget, include a business rates review interim report and a call for evidence on the tax administration framework.

A consultation on the potential changes to Air Passenger Duty (APD) has been published, seeking views on supporting the UK’s commitment to net-zero emissions by 2050 by increasing the number of international distance bands.

Additionally, documents on cutting inheritance tax (IHT) red tape for more than 200,000 estates have also been published.

Many of the announcements form a key part of the government’s wider ten-year plan to build a trusted, modern tax system.

‘These measures will help us to upgrade and digitise the UK tax system, tackle tax avoidance and fraud, among other things,’ said Jesse Norman, Financial Secretary to the Treasury.

‘By grouping them together, we want to give Members of Parliament, tax professionals and other stakeholders a better opportunity to scrutinise them.’
The tax documents can be found here.

Tax Tip

Forms P11D and reviewing your benefits-in-kind policy

Forms P11D, which report benefits-in-kind for employees for the year to 5 April 2021, are due for submission to HMRC by 6 July 2021. Employer-only Class 1A national insurance contributions (NICs) of 13.8% are also payable on the benefits by 19 July 2021.

Benefits-in-kind are generally valued at the cost to the employer of providing the benefit. However, special rules apply to the valuation of some benefits such as cars where the taxable amount will generally be based on a range of up to 37% of the manufacturer’s list price (including accessories) of the car. The taxable benefit depends upon the carbon dioxide emissions of the car. There is also a separate benefit-in-kind for the provision of fuel for private motoring.

Now would be a good time to start gathering together the information to complete the forms P11D and to review your benefits-in-kind policy.

We can help you complete the forms P11D and review your benefits-in-kind policy. Please get in touch for more information.
 

A property must pass all three tests: 

For established lets, tests apply to the tax year (for income tax): and to the 12 months of the accounting period (for corporation tax). There are slightly different rules on commencement and cessation.

If your day count to 5 April 2021 falls short of the letting condition, a ‘period of grace election’ could preserve FHL status. But you must still meet the other two tests. The election can be available if you have a genuine, demonstrable, intention to let, but can’t, for example because of cancellations due to unforeseen circumstances. For the year to 5 April 2021, this can include COVID-19 measures like enforced closure due to lockdown or travel ban. If you have more than one FHL, you may be able to use an averaging election to similar effect. We should be delighted to advise further if you have concerns here.

Capital gains tax (CGT) 30-day reporting is one of these. The new regime comes into play for any disposals of UK residential property since 6 April 2020, where there is CGT to pay. In such cases, tax must be calculated, reported and paid within 30 days of completion, rather than taking place within the self assessment tax return cycle as before. Relevant disposals in the year to 5 April 2021 should therefore already have been reported.

Reporting is done online, through HMRC’s UK Property Reporting Service. We would be happy to report recent disposals for you, as your agents. Unfortunately, HMRC’s system is not entirely hands-free, and requires you to set up a UK Property Account on gov.uk to authorise us to report for you. This account, it should be noted, is a completely different entity from the Personal Tax Account.

30-day reporting impacts you only if you have CGT to pay. Disposal of a main residence, for most people, will be covered by the CGT relief known as private residence relief (PRR). PRR applies if the property has been occupied as your main residence throughout the entire period of ownership. Scenarios where a CGT liability could arise, and hence a need for a 30-day return, include disposal of a buy-to-let property; a holiday home; property you have inherited; property you’ve never lived in; or have lived in for just some of the time you’ve owned it.

Recent changes have restricted availability of PRR, potentially bringing more property transactions within scope of 30-day reporting. Letting relief, for example, used to give relief up to £40,000 (up to £80,000 for property in joint names) on the sale of property that had, at some point, been used as the main residence, but had also been let as residential accommodation. For disposals from 6 April 2020, the relief is considerably restricted, available only where you live in the property at the same time that it is let out. Rules relating to property transfer between spouses have also changed. The recipient spouse now also receives the period of ownership and history of their property use, and this can have knock-on consequences for PRR. So, too, can change on rules giving automatic relief for the final months of ownership.

Please do talk to us in advance if you are planning property transactions, particularly if you have doubts as to whether full PRR will apply.
 

Personal tax

Initially, the UK-wide personal allowance increases, rising to £12,570 from 6 April 2021. The basic rate band also increases, to £37,700. This means the higher rate threshold – the point at which you start paying higher, rather than basic rate tax in England, Wales and Northern Ireland, increases to £50,270 (if you have a full personal allowance).
But after this date, the personal allowance and higher rate threshold won’t change until 5 April 2026. As incomes go up, this brings more people within the tax net, and pushes some basic and higher rate taxpayers into the higher and additional rate bands. 1.3 million people, in fact, according to government figures, should come into income tax by 2025/26 and one million into higher rates of tax. From the 2026/27 tax year, starting 6 April 2026, the personal allowance and basic rate limit are indexed with the Consumer Price Index by default.

Scottish taxpayers: for Scottish taxpayers, income tax rates and bands for non-savings and non-dividend income are different from the rest of the UK. The freeze to the personal allowance impacts Scotland, although the freeze to the UK higher rate threshold only affects those with savings and dividend income.

Big change postponed?

There’s been much discussion of a major tax overhaul, with inheritance tax (IHT), capital gains tax and pensions contenders for a makeover. It didn’t happen on Budget day, nor the UK’s first ‘Tax Day’, publication day for a raft of tax consultations. What Tax Day did produce was a commitment to reduce red tape for IHT, so that from 1 January 2022, over 90% of non-taxpaying estates shouldn’t complete IHT forms for deaths when probate or confirmation is required.

But sooner or later, change is likely, as the government looks beyond the COVID-19 crisis. Perhaps it has been reined back until 2026, when the big freeze ends. We shall have to wait and see. In the meanwhile, please don’t hesitate to contact us for advice in any of these areas.

Tax-Free Childcare (TFC) permits parents and carers who have children aged up to 11 (17 for children with disabilities) to pay their childcare provider via the scheme and receive a 20% government top-up on any money deposited.

Under TFC the tax relief available is 20% of the costs of childcare up to total childcare costs of £10,000 per child per year. The scheme is therefore worth a maximum of £2,000 per child (£4,000 for a disabled child).

To qualify for TFC all parents in the household must generally meet a minimum income level, based on working 16 hours a week (on average £142 a week), each earn less than £100,000 a year and not already be receiving support through Tax Credits or Universal Credit.

‘Help is available towards the cost of childcare,’ said Myrtle Lloyd, Director General for Customer Services at HMRC.

‘Families using TFC to pay their childcare provider are already benefiting from the 20% government top-up on deposits, and you could too.’
 

Dealing with VAT

Before Brexit, VAT on trade with the EU entailed minimal paperwork. There was also access to a range of VAT simplifications. This has changed. Broadly, rules on the supply of services have changed less than the rules on the supply of goods. One key change relates to business to consumer (B2C) supplies of digital services, such as apps and downloads, where registration for the UK VAT mini one-stop shop (MOSS) is no longer available. Registration for the MOSS non-union scheme in an EU member state is needed instead.

Goods sold to the EU

Business to business (B2B) supplies of goods, previously treated as dispatches for VAT purposes, are now reclassified: sales from the UK become exports. Exports can be zero-rated, provided goods are physically exported within three months of the time of supply, with export evidence obtained within the same period.

Before Brexit, the distance selling rules applied to B2C supplies of goods (also now treated as exports). But the EU distance selling regime/thresholds are no longer open to UK suppliers. Instead, you may need to register for VAT in EU countries where your customers are located. In some countries, VAT registration may also require the appointment of a local agent to deal with matters for you.

Goods bought from the EU

Previously treated as acquisitions for VAT purposes, these are reclassified as imports, and from 1 January 2021, two new VAT schemes apply to imports, not just to imports from the EU but from anywhere in the world:

Dealing with customs procedures 

Trade with the EU now means following the correct customs procedures. It’s a complex area involving being ready to make customs declarations, knowing how to classify goods correctly and understanding relevant safety and security requirements. The government recommends using a professional customs intermediary.

Imports: new timetable, ongoing change

The new rules for import controls (full import customs declarations, border checks and controls) don’t all take effect at once. The government’s Border Operating Model set out stricter controls in three stages: 1 January 2021, 1 April 2021 and 1 July 2021. This has changed to give traders more time to prepare with import pre-notifications for products of animal origin introduced from 1 October 2021 and from 1 January 2022 customs declarations for all goods at point of import.

Making a declaration

Customs declarations are made either to the Customs Handling of Import and Export Freight (CHIEF) or to HMRC’s new declaration platform, the Customs Declaration Service (CDS). Special software is needed.

To complete a customs declaration, you need:

We can help you

Brexit has brought significant change to trade with Europe and Northern Ireland, and we have only been able to highlight key issues here. Please contact us for in-depth advice tailored to your circumstances.
 

The new Recovery Loan Scheme (RLS) launched on 6 April 2021 and runs to 31 December 2021, subject to review. It provides finance that can be used for any legitimate business purpose, including managing cashflow, investment and growth. It is designed to appeal to businesses which can afford to take on additional debt finance for these purposes. Interest rates are capped at 14.99% and are expected to be much lower in most cases.#

The scheme offers term loans, overdrafts, asset and invoice finance. The maximum facility is £10 million per business. The minimum facility varies, starting at £1,000 for asset and invoice finance and £25,001 for term loans and overdrafts. Term loans and asset finance facilities are available for up to six years; overdrafts and invoice for up to three.

Eligibility

No turnover restriction applies. The RLS is open to businesses trading in the UK that can show their business is viable or would be, if it wasn’t for the pandemic; those that are impacted by COVID-19; and businesses not in collective insolvency proceedings. The RLS can be used on top of previous COVID-19 loan schemes, though previous borrowing may restrict the amount available. The scheme is not open to public sector bodies; state-funded primary and secondary schools; or banks, building societies, insurers and reinsurers (insurance brokers are eligible).

The government guarantees the lender 80% of the finance. No personal guarantees will be taken on facilities up to £250,000, and the borrower’s principal private residence cannot be taken as security. Interest and fees will have to be paid from the outset.

Credit checks and fraud checks will be carried out on all applicants. The checks and approach may vary between lenders. When making their assessment, lenders may overlook concerns over short to medium-term business performance caused by the pandemic.

Loans are available through a network of accredited lenders and full details are here. 
 

We outline recent changes here, but for full information on how the schemes work, see here and here.

There are two further SEISS grants, SEISS four and five. They are intended as a final, more restricted phase of support. For SEISS four, businesses must declare a reasonable belief that there will be a significant reduction in trading profits due to reduced business activity, capacity, or demand because of COVID-19. The impact on the business must relate to the period 1 February 2021 to 30 April 2021, and the reduction in profits must be reflected in the figures reported on the relevant tax return in due course. Evidence must be kept to support claims, see https://bit.ly/2PSkbnr. SEISS five introduces an additional turnover test; the amount of grant will hinge on how much turnover has fallen between April 2020 and April 2021.

To be eligible for SEISS four or five, the 2019/20 tax return must have been submitted before midnight on 2 March 2021. HMRC will base calculations on 2019/20 tax return data, and more recent years than for earlier SEISS grants. This could produce unexpected results. It opens the door to some new claimants, such as those starting self-employment in the 2019/20 tax year, provided they meet other eligibility conditions. On the other hand, someone eligible for earlier SEISS grants may receive more or less than before.

The furlough scheme runs to 30 September 2021. There is no change until 1 July 2021, when government contributions drop. Employers then make 10% contributions in July, and 20% in August and September. For periods starting on or after 1 May 2021, claims can be made for employees employed on 2 March 2021, if a PAYE RTI submission has been made to HMRC between 20 March 2020 and 2 March 2021, notifying payment of earnings for that employee. It’s not necessary to have claimed under the scheme for an employee before 2 March 2021 to claim on/after 1 May 2021.

COVID-19 support schemes are very much in the public eye. HMRC stresses that it is not looking for innocent errors. But with details of employer furlough claims now published, new SEISS recovery powers, and a new Taxpayer Protection Taskforce set up to tackle fraud, it is important that any claim is well-evidenced and can stand HMRC scrutiny. Assessment of the position now would be prudent, and this guidance from the Chartered Institute of Taxation (CIOT) may make a good starting point to assess potential issues. We would, of course, be glad to help you review compliance.
 

But what are the terms and conditions, how does it sit alongside the usual rules on capital allowances – and is it the giveaway it’s been made out to be?

First of all, it’s not available to every business. It’s targeted at companies, not unincorporated businesses. These will have to continue to look to the Annual Investment Allowance (AIA), with its temporarily extended higher £1 million limit for major capital spending up to 31 December 2021.

It’s temporary, lasting for two years. And it works by giving first-year tax relief in the form of capital allowances for expenditure between 1 April 2021 and 31 March 2023. For assets that would normally qualify for 18% main rate writing down allowances, the super deduction gives first-year relief of 130%. Assets normally qualifying for 6% special rate writing down allowances (such as integral features in buildings, like lifts and long-life assets) can qualify for a first year allowance of 50%. But this 50% allowance is likely to be relevant only to companies that have used their AIA. Unlike the AIA, there is no cap on eligible expenditure. The rate of the deduction will be apportioned for a business making eligible expenditure in an accounting period straddling 1 April 2023.

There are exclusions. Plant or machinery must be new, not used or second hand. Expenditure incurred on contracts entered into before the Budget on 3 March 2021 does not qualify. The general exclusions that are in existing legislation relating to first year allowances apply. For example, expenditure on cars and assets for leasing are excluded – the latter point meaning that commercial landlords may benefit less than the initial publicity of the proposals might have led them to expect.

Rules on what happens when the assets are disposed of make the picture more complex. With disposal proceeds treated as a taxable balancing charge, these potentially claw back some of the previous benefits. It will be important to keep records of assets on which the super-deduction is claimed so they can be correctly treated on sale.

Will it benefit your business? Not in every case. As it sits alongside other tax measures, it’s a finely balanced equation. It is designed to incentivise investment now, with the corporation tax rate at 19%. But with the planned increase in corporation tax from 1 April 2023, when the super-deduction ends, the outlook for your business may change. The main rate of corporation tax is set to increase to 25% on profits over £250,000. Only companies with profits up to £50,000 will retain the 19% rate, with profits between £50,000 and £250,000 taxed on a sliding scale. Whether the super-deduction significantly benefits your company will depend on the forecast level of capital expenditure, the type of asset, financing method, and your expected corporation tax rate.

With the AIA due to revert to £200,000 from 1 January 2022 and higher corporation tax rates in prospect, careful timing of major capital expenditure is more critical than ever. The new provisions on loss carry-back could also affect decision making.

All in all, it’s a complex area, and the right decision for your business will be unique to your business. We would be delighted to advise further.
 

The Budget announced a temporary extension to the period over which a business can carry back trading losses. This means relief can be carried back to the three previous years, rather than the usual one year, potentially triggering a tax refund. Unlike the new super deduction, it’s available to unincorporated businesses, as well as companies.

Unincorporated businesses

The extension applies to trading losses made in the 2020/21 and/or 2021/22 tax years for unincorporated businesses, allowing relief against profits of the same trade. A cap of £2 million applies to each extended carry back loss year. There is no partnership-level limit.

Companies

For companies, the current rules allow trading losses to be carried back one year against total profits. For accounting periods ending between 1 April 2020 and 31 March 2022, trading losses will be available for carry back for an additional two years against profits of the same trade. Losses are required to be set against profits of most recent years first, before carry back to earlier years. There is no change to the existing one-year unlimited carry back, but after that, there is a cap of £2 million on the losses that can be carried back to the earlier two years. The cap applies to each loss-making year. There is a group cap of £2 million, though individual group companies have a £200,000 de minimis limit. Although most extended loss carry back claims will need to be made in the company tax return, usefully, claims of £200,000 or less may be submitted earlier, outside the tax return.

Snakes and ladders

But as ever with tax, there are other issues to consider. There is more than one way to use a loss, and whilst the Budget incentive is to use carry back against trading income, a different approach may be better for your business. For companies, loss relief generally has been more flexible since 2017, providing a wider range of options, and we should be delighted to discuss this with you further. For unincorporated businesses, a prime question will be using the loss in the most tax efficient way, at the same time as looking to retain the benefit of the personal allowance. In terms of timescale, HMRC will not action claims or make repayments until the Finance Bill receives Royal Assent, which is unlikely to be until early summer.

We have only been able to flag up some key points here. We should be happy to discuss in detail the best way forward for your business.
 

The judgment held that Uber taxi-drivers were not self-employed contractors: they were ‘workers’. This is a specific status in employment law, giving the right to minimum wage, holiday pay and other legal protection. Uber’s extensive control over the drivers was a key determining factor in the verdict.

Significantly, the judgment also emphasised the importance of starting not with the written agreement (if any) between parties when establishing employment status, but with the purpose of the relevant employment legislation. This exists ‘to give protection to vulnerable individuals who have little or no say over their pay and working conditions because they are in a subordinate and dependent position’. This means employers, ‘frequently in a stronger bargaining position’, cannot simply contract out of such protection.

The Uber case relates to the gig economy, but it has wider practical implications. It’s a verdict that should inform thinking generally around the use of non-standard working arrangements, both for those who automatically identify themselves as employers and those who don’t. The employment cost of having to reclassify members of the workforce can be high, and it may be prudent to check now that anyone in a non-employee role has been appropriately classified and that contracts indicate accurately the reality of the working relationships involved. We should be delighted to advise further.

May 2021
3 Deadline for submitting P46(Car) for employees whose car/fuel benefits changed during the quarter to 5 April 2021.

19

 PAYE, Student loan and CIS deductions are due for the month to 5 May 2021.
31 Deadline for forms P60 for 2020/21 to be issued to employees.
June 2021
1 New Advisory Fuel Rates (AFR) for company car users apply from today.
19 PAYE, Student loan and CIS deductions are due for the month to 5 June 2021.
30 End of CT61 quarterly period.
July 2021
5 Deadline for reaching a PAYE Settlement Agreement for 2020/21.
6

Deadline for forms P11D and P11D(b) for 2020/21 to be submitted to HMRC and copies to be issued to employees concerned.

Deadline for employers to report share incentives for 2020/21.
14 Due date for income tax for the CT61 period to 30 June 2021.
19

Class 1A NICs due for 2020/21.

PAYE, Student loan and CIS deductions due for the month to 5 July 2021.

PAYE quarterly payments are due for small employers for the pay periods 6 April 2021 to 5 July 2021.
31 Second payment on account 2020/21 due.

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HMRC may charge penalties if you are overpaid and fail to notify it of the fact within the correct timescale.

Notification should be made within 90 days of the date you received an amount to which you were not entitled. HMRC states that it is not looking for innocent errors or small mistakes. Where someone didn’t know they didn’t qualify for a grant when they received it, HMRC will only charge a penalty if the grant is not repaid by 31 January 2022.

There are some key areas worth revisiting. Check, for example, that there isn’t a significant discrepancy between the amount(s) HMRC has advised you were due, and amount(s) received. Overpayment could potentially occur if you have a business that has permanently stopped trading, or (because companies aren’t eligible for the SEISS) if you have incorporated a sole trader or partnership business since 5 April 2018. Or indeed if you misunderstood the rules and claimed when you weren’t eligible.

The process to notify HMRC of an error, or to make repayment, involves completing an online form, then making the payment. HMRC is unlikely to contact you unless it needs more information or if there is a problem with your payment. The details can be found here.

Think of it as the portal to HMRC’s online services. 

The BTA is designed to allow you to manage all your business taxes online at the click of a button. It can be used by sole traders, partnerships and limited companies. It should summarise your business tax position for any tax you have registered for, from VAT and income tax self assessment to corporation tax and the Construction Industry Scheme (CIS). For best results, look to use just one Government Gateway ID for all taxes and consolidate access to just one ID if needs be.

You can use the BTA for a range of tasks. It has two distinct areas: firstly, a top menu to manage your account, view secure messages and get help. From this ‘manage account’ area you can add or remove online access to particular taxes; give an employee access to a particular tax; authorise an agent to act for you; or change account details such as address, phone or email. Secondly, there is a business tax summary (or homepage). From this, you can make payments, file returns and carry out other tasks. It’s a quick way to get an at-a-glance overview of your liabilities and payments: via the PAYE for employers service, for instance, you can check the data HMRC has received from your full payment submissions and employer payment summaries and the payments it has received. The PAYE section also has a new feature to allow you to check your Employment Allowance status.

Current pressures on business make this a particularly good time to get to grips with the BTA. A business that has new compliance responsibilities around imports and exports as a result of the end of the Brexit transition period, for example, will find the BTA a useful management tool. Additionally, if you want to apply online for time to pay either an income tax self assessment liability or a VAT liability under the VAT deferral new payment scheme, the BTA will provide the route to do so. More details, including steps to set up a BTA, can be found here.

Considering Brexit changes

The UK officially left the EU on 31 January 2020, and the subsequent transitional period ended on 1 January 2021. Firms doing business with the EU now must make vital changes in order to continue to trade.

In regard to VAT, the UK left the EU VAT Territory on 31 December 2020. Great Britain (England, Wales and Scotland) is no longer subject to EU VAT legislation. Northern Ireland, however, remains subject to such legislation in relation to transactions involving goods, but not for services.

Goods purchased from EU member states are now treated as imports. VAT on acquisitions is no longer declared in Box 2 of the VAT return. Postponed Accounting, a new system, applies to imports from around the world (excluding certain imports – for example, low-value consignments). Using Postponed Accounting, import VAT can be deferred and declared to HMRC in Box 1 of the VAT return for the period of importation. Box 4 on the return should be used to reclaim VAT. This is subject to the usual rules for reclaiming input tax. Further information can be found here.

Goods sold to business customers in EU member states are treated as exports. Provided certain conditions are met, exports are zero-rated.

The UK now operates a full, external border with the EU. New border controls on imports from the EU to Great Britain are being introduced gradually. Customs declarations for goods which are not controlled are delayed until 30 June 2021.

New rates of Customs Duty for imports apply where the UK has not agreed a trade deal with a particular jurisdiction. These are set out in the UK Global Tariff. In principle, trade in goods between the UK and the EU are tariff-free. To check the tariffs that apply to different categories of imported goods, please see here.

Making use of NIC-saving strategies

When extracting profits from your business, the tax-efficient use of benefits can save income tax and may also reduce your national insurance contribution (NIC) liability.

Some strategies which could help to save NICs include:

We can provide advice on all aspects of tax planning – please get in touch with us for more information

MTD: at a glance

For the government, MTD for corporation tax (CT) is about cutting down errors causing a £2.1 billion corporation tax gap. The system turns on three basic principles: 

The MTD for CT regime is likely to be tailored at both ends of the spectrum, with the largest companies (those with profits over £20 million, paying CT through the Quarterly Instalment Payments regime) and the smallest, micro-entities having their own niche requirements.

The changes

At this stage, the detail is provisional, but the overarching framework is fairly clear. 

Digital record keeping: the consultation states that ‘digital records kept within the entity’s software may also form the prime record for their accounts. To comply with MTD, accounting and tax adjustments relating to the period will need to occur either in that software or alternatively in linked software’.

Tip: what might need to change?

Some companies may need to move to new MTD compatible accounting systems. For others, as with MTD for VAT, it may be possible to use existing software, including spreadsheets, and to connect to HMRC systems via bridging software. It’s likely that a range of software solutions will also be acceptable for MTD for CT.

Which records? for both income and expenditure, the date, amount and category of each transaction will need to be recorded digitally, as a minimum. The categories for income for smaller businesses are expected ‘to have some parity with’ categories for MTD for income tax. They are likely to include dividend payments, loans and other benefits provided to directors, participators and others, including director loan balances.

Quarterly updates: quarters will be aligned with the accounting period. The deadline for updates will be one month from the end of the quarter.

Various tax and accounting adjustments turn the raw data into GAAP compliant accounts, and indicate the company’s final tax position. At present, these are usually carried out at the end of the accounting period. The current proposal for MTD for CT is that it will be possible to adjust quarterly figures to indicate such adjustments, but it will not be mandatory.

End of year: MTD doesn’t spell the end of the annual CT return, CT600 process. Instead, the return will be submitted via MTD compatible software. The current position, whereby claims to the usual allowances and reliefs are submitted at this point, is likely to remain.

Other points to note are that the government is also considering the possibility of using MTD for CT as the occasion to align filing dates for tax and company law purposes, by bringing forward the company tax return filing date. Also that HMRC expects that iXBRL tagging to become integrated into MTD software, facilitating greater accuracy. Tagging transactional level data is not required by the proposals on the table at present.

When?

The government is now consulting on how MTD will best work for CT. In the medium term, there may be change to the small print, but it’s unlikely that there is any going back now, given the government commitment to MTD, and its planned roll-out to other taxes.

How this will affect you

HMRC anticipates that the business population with turnover below the £85,000 compulsory VAT registration threshold will find the transition to MTD for CT most challenging. If your business needs to adapt its processes, invest in new software or update systems to enter MTD, it’s as well to be aware of this now. Note, too, that your company may have different reporting requirements for MTD for CT and MTD for VAT. Software that complies for one may not meet all the obligations of the other.

We are happy to advise further here. Please don’t hesitate to discuss any areas of concern with us.

And charities?

MTD for CT is about ‘entities within the charge to corporation tax’. This potentially gives it wide impact, with implications for charities, community amateur sports clubs and other not-for-profit organisations. When the question was first raised some years ago, the government suggested that the non-trading activities of charities would be outside MTD, and charitable trading subsidiaries inside. There is now a shift in thinking, and the current proposal is that all charities that are within the scope of CT and are required to file a company tax return should enter MTD for CT. As government intentions become clearer, we will of course update you further.

The first option is to settle the liability, in full, on or before 31 March 2021, and HMRC has reminded taxpayers financially able to pay that they should do so. The second option is to use the VAT deferral new payment scheme, announced in the government’s Winter Economy Plan. This can provide you with up to an additional year to pay. The third option, where more time than this is likely to be needed to pay, is to contact HMRC.

New payment scheme

The VAT deferral new payment scheme means that instead of settling the full amount by the end of March 2021, you can pay by equal monthly instalments, and no interest will apply. All instalments must be paid by the end of March 2022, and the scheme gives you the discretion to choose how many monthly instalments you make, with a minimum of two and maximum of 11. Using the scheme does not prejudice your applying for a time to pay arrangement for other HMRC debts or outstanding tax. To use the scheme, you opt in, online, and it falls to the taxpayer to do this. HMRC systems do not allow us, as your agents, to opt in on your behalf.

Tip

Watch the deadline. You must opt in before the end of March 2021.

Certain terms and conditions apply. You must, obviously, still have deferred VAT to pay: you must also be up to date with your VAT returns, and able to pay the deferred VAT by direct debit. Your first instalment must be paid before the end of March 2021.

In order to get ready for the opt-in, HMRC requires you to have created a Government Gateway account, if you don’t already have one, and to have submitted any outstanding VAT returns from the last four years. In addition, any errors on your VAT returns must be corrected as soon as possible. Corrections received after 31 December 2020 may not show in the deferred VAT balance.

HMRC advises that you must make sure you know how much VAT is owed, taking into account both the amount originally deferred and any sums you may already have paid. It also requests that if you intend to make any payment towards the deferred VAT before the scheme begins, you do so as soon as possible in order for it to show the correct deferred VAT balance.

At this particularly testing time for business, it’s important to take stock of levels of committed expenditure, coupled with realistic appraisal of overall liquidity and ability to repay. We are on hand to discuss the best way forward for your business. Please don’t hesitate to contact us for advice.

Critics acknowledge that business rates are, and should remain, an important source of revenue, for both central and local authorities. However, the government has recognised the need for reform by launching a fundamental review and a subsequent call for evidence. 

Unfairness and uncertainty

Many of the problems businesses currently face with rates are caused by a lack of information about the calculation of rateable values, which only serve to highlight the perceived unfairness of the system. This in turn is exacerbated by the lack of certainty around how much business needs to pay.

In addition, although the government is committed to complete revaluations every three years, more timely data would maintain a more accurate valuation.

Critics say these problems mean that a fundamental rethink of property and business tax is needed in order to find a long-term solution.

According to the Institute of Chartered Accountants in England and Wales (ICAEW), better use of technology and more transparency could help to address some of the unfairness within the business rates system.

The cost to business

Business rates aim to provide revenue for local government and are a combination of business tax and property tax. According to the ICAEW, business rates generated £30 billion for the government during the 2018/19 financial year. However, the business rates holiday introduced to support organisations through the COVID-19 pandemic is estimated to result in foregone revenues of £10 billion.

Critics of business rates say the current system means they fail to reflect either property values or business activity accurately.

The call for change

The growing consensus that the current business rates system is out of date and unsustainable has only been magnified by the strain businesses have been under during the COVID-19 pandemic, further fuelling the calls for change.

The ICAEW says there must be a clearer link with current market values. It says better use of technology could provide a clearer link between market rents and business rates. It also says that the roll-out of digital tax systems should make it possible to enable more timely maintenance of valuations.

Furthermore, the ICAEW suggests that the government investigates whether the Valuation Office Agency could share more details about assessments, including how a valuation was calculated. 

In addition, the Confederation of British Industry (CBI) has set out a package of measures, which it says would save business £21.8 billion over the next five years.

It says the government should delay the next valuation date until 1st October 2021, shortening the valuation period to 18 months. This would ensure bills reflect the current economic situation and the property market in a post-COVID world. 

Business rates affect businesses of all sizes. As your accountants, we can help you plan your cashflow as efficiently as possible. Please contact us for further advice.
 

The most common type of intermediary is a worker’s own ‘personal service’ company (PSC) and PSCs, but please note that an intermediary can also be an individual, partnership or unincorporated association.

Determining employment status

How employment status is determined revolves around whether the off-payroll worker would be an employee if any intervening entities, like the PSC, did not exist so they were engaged directly by the client. However, the factors to weigh up are frequently complex. HMRC’s online status checker tool (CEST) can be used to make a determination but has come in for criticism in the past.

CEST has been refreshed to support the new regime. Despite this, many commentators remain sceptical about its efficacy in determining status in all cases.

HMRC has pledged to stand by the results produced if CEST is ‘used in accordance with its guidance and the information entered is accurate and remains accurate’.

The Status Determination Statement (SDS)

The SDS is a new part of the status determination procedure. If an organisation decides an engagement amounts to employment, it should provide the off-payroll worker with an SDS. This sets out its employment status decision, giving the reasons underpinning it.

Reasonable care

Organisations must take ‘reasonable care’ when making the status determination. In practice, this means intermediaries have the right to expect staff making the decision to be trained to know what to consider, seeking professional support if needed. They should examine each contract individually, rather than making a ‘blanket’ determination, treating all contractors the same.

HMRC advises that using CEST accurately is one example of taking reasonable care.

Off-payroll workers are entitled to disagree with an SDS, and organisations must have a process in place to deal with this.

However, if an off-payroll worker now falls within the rules for the first time, HMRC has undertaken not to use this information to review their status for previous tax years. This is subject to there being no reason to suspect fraud or criminal behaviour.

Tax matters

Where a medium or large client decides a contract is within scope of the rules, it will then:

This effectively means the end of the tax advantage of receiving income via a PSC, with its traditional profit extraction strategy of low salary plus dividend payments. If a contract falls within the rules then the intermediary will essentially be treated as an employee of the party paying the PSC for tax purposes.

Next steps

Steps intermediaries can take include checking the size of the clients they work for to see if the changes will apply and using CEST now to examine any contract running beyond 6 April 2021. It may also be possible to renegotiate fees where an engagement now falls within the rules. 

In some cases it will be worth considering whether operating via a PSC is still optimal for the long term. Please do contact us to discuss the impact of the new legislation on your business.

The temporary increase to the Annual Investment Allowance (AIA) limit is set to continue for another year. 

The AIA limit rose to £1 million two years ago, and was due to revert to £200,000 from 1 January 2021. But to stimulate investment, the £1 million limit now remains until 31 December 2021. The AIA gives 100% same-year tax relief for most qualifying capital expenditure on plant and machinery, up to a fixed limit. Relief for cars is given by other means.

To maximise tax relief on capital expenditure, the small print is critical: and timing of purchases and sales of capital assets particularly important. When the rates of AIA change, the amount of AIA available depends on your accounting period, as well as the amount and timing of the expenditure. Looking towards the end of the year, when the £1 million limit expires, special care will be needed. The message is that any substantial capital expenditure would be better made before 1 January 2022, and bespoke calculations will be needed for businesses with accounting periods spanning this date. We are always on hand to compute the capital allowances available to your business and make sure the most advantageous claims are made.

February 2021
2 Deadline for submitting P46(Car) for employees whose car/fuel benefits changed during the quarter to 5 January 2021.
19 PAYE, Student loan and CIS deductions are due for the month to 5 February 2021.
March 2021
1 New Advisory Fuel Rates (AFR) for company car users apply from today.
3 5% late payment penalty on any 2019/20 outstanding tax which was due on 31 January 2021 and still remains unpaid.
19 PAYE, Student loan and CIS deductions are due for the month to 5 March 2021.
31

End of corporation tax financial year.

End of CT61 quarterly period.

Filing date for Company Tax Return Form CT600 for period ended 31 March 2020.

Last minute planning for tax year 2020/21 – please contact us for advice.
April 2021
1 Digital links required in Making Tax Digital for VAT returns.
5

Last day of 2020/21 tax year.

Deadline for 2020/21 ISA investments and pension contributions.

Last day to make disposals using the 2020/21 CGT exemption.
14 Due date for income tax for the CT61 period to 31 March 2021.
19

Automatic interest is charged where PAYE tax, Student loan deductions, Class 1 NI or CIS deductions for 2020/21 are not paid by today. Penalties may also apply if any payments have been made late throughout the tax year.

PAYE quarterly payments are due for small employers for the pay periods 6 January 2021 to 5 April 2021.

PAYE, Student loan and CIS deductions are due for the month to 5 April 2021.

Deadline for employers’ final PAYE return to be submitted online for 2020/21.

Bounce Back loans still available 

The Bounce Back Loan Scheme (BBLS) enables smaller businesses to quickly access finance during the Covid-19 pandemic. The scheme allows businesses to borrow between £2,000 and £50,000 with no interest charged or repayments needed in the first 12 months. There is still time to apply for a bounce-back loan as the scheme is open to applications until 31 January 2021. For those businesses that have already applied for a bounce-back loan but didn’t borrow the maximum amount permitted under the scheme (25% of total turnover), you can also now ‘top-up’ your loan. You are able to top-up once and this must be from your existing lender. Find out more.

Coronavirus Job Retention Scheme Deadline 

The Coronavirus Job Retention Scheme (CJRS) has been extended until 31 March 2021 and the government will review the scheme in January 2021. Claims for furlough days in November 2020 must be submitted by 14 December 2020. You are no longer able to submit claims for periods ending on or before 31 October 2020. 

Please be assured that we are here to provide you with support, so please contact us if you have any queries on the extension of the CJRS. Find out more.

Spending Review 2021/22 

On 25 November, the Chancellor, Rishi Sunak delivered the 2020 Spending Review. The review detailed how much money will be spent on hospitals, schools and other public services over the next financial year, starting in April 2021. Highlights include: 

Read the full review here.

Reasonable excuses for making a late furlough claim 

The government recently updated the guidance for making claims through the Coronavirus Job Retention Scheme. The updated guidance now includes a list of examples in which HMRC may accept a claim made after the deadline. Here are the examples of reasonable excuses listed: 

Tax relief for working from home 

Those working from home may be able to claim tax relief for additional household costs. If you have to work, you may be able to claim for; heating, metered water bills, home contents insurance, business calls and a new broadband connection. How much you are able to claim: 

Speak to us today to see if you’re eligible for tax relief. Find out more. 

Mental Health and working from home 

The Covid-19 pandemic has changed our way of life and we’ve had to adjust to new ways of working. For some working from home will come with some obvious benefits such as no commute and increased time with the family. Some may struggle with the lack of human interaction or may be juggling work alongside looking after children. 

The NHS has published some tips to help improve our mental health as well as our work/life balance: Create a routine – keep to your usual workday routine. Wake at the same time and log off at the end of the day. Try not to check emails outside of work hours to allow yourself to switch off. A dedicated workspace – this will help create some separation from work at the end of the day. A quiet area away from the tv or washing machine will also aid concentration. 

Regular breaks – when working from home it’s easy to feel like you need to be available at all times. Regular breaks will help improve your focus and productivity. Stay connected – human interaction is so important for our mental health. 

Remember to check with colleagues regularly and stay connected with friends outside of work. More tips can be found here.

Extended CJRS – government support

The extended CJRS applies to all of the UK. The scheme follows the flexibility of the CJRS and so can be used for employees for any work pattern including full-time furlough.

Employees will receive 80% of their usual salary for hours not worked, up to a maximum of £2,500 per month. Calculations will broadly follow the same methodology as under the CJRS. Employees can top up employee wages if they wish. Employees will be paid for worked hours by their employer on the terms in their employment contract.

Under the scheme employers can claim for the salary received by the employee for hours not worked. Employers will need to cover the employer Class 1 National Insurance contributions and employer pension contributions.

There is no gap in support between the previously announced end-date of the CJRS and the extended CJRS.

The government will review the amount of support given in January to decide whether economic circumstances are improving enough so that employers will need to make more contributions for hours not worked.

Extended CJRS – eligibility

All employers with a UK bank account and a UK PAYE scheme can make a claim. Neither the employer nor the employee needs to have previously claimed or have been claimed for under the CJRS to make a claim under the extended CJRS. 

An employer can claim for employees who were employed and on their PAYE payroll on 30 October 2020. The employer must have made a PAYE Real Time Information (RTI) submission to HMRC between 20 March 2020 and 30 October 2020, notifying a payment of earnings for that employee. 

In addition, employees who have recently been made redundant or stopped working for the employer can be re-employed. The employees must have been employed and on the payroll on 23 September. The employer must have made an RTI submission to HMRC from 20 March 2020 to 23 September 2020, notifying a payment of earnings for those employees.

When can a claim be made?

The extended CJRS will operate as the previous scheme did, with businesses being able to claim either shortly before, during or after running payroll. Claims can be made from 8am Wednesday 11 November. 

Claims made for November must be submitted to HMRC by no later than 14 December 2020. 

Claims relating to each subsequent month should be submitted by day 14 of the following month, to ensure prompt claims following the end of the month which is the subject of the claim.

HMRC guidance

HMRC guidance is still being developed. Below are some links to guidance which will be updated (and continue to be updated) in the next few days:

Job Support Scheme

As part of the Winter Economy Plan Chancellor Rishi Sunak announced the introduction of the government’s new Job Support Scheme (JSS). There have been two revisions to the plan since then. The JSS was due to be introduced from 1 November until 30 April 2021. We may see the JSS being introduced after March, but the government is planning to review the terms of the JSS in January anyway. As a result, we are not covering the detail of the JSS here.

Jobs Retention Bonus

The Jobs Retention Bonus was announced by the Chancellor in July. The Bonus was to have provided a one-off payment of £1,000 to UK employers for every furloughed employee who remains continuously employed through to the end of January 2021 and who earned at least £520 a month on average between 1 November 2020 and 31 January 2021.

The purpose of the Bonus was to encourage employers to keep people in work until the end of January. The government now considers that with the extension of the CJRS, the policy intent of the Bonus falls away. The government intends to redeploy a retention incentive at the appropriate time.

How we can help

Please be assured that we are here to provide you with support, so please contact us if you have any queries on the extension of the CJRS.
 

We also consider the impact of recent reporting and tax developments and other pertinent issues, giving you the inside track on the sector’s current hot topics and latest guidance.

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Consequently, we are pleased to share a link to an interview by the ICAEW with Rowan Lindsay, our senior manager in Audit. Rowan was specifically approached by the ICAEW to share his thoughts on black history and diversity in chartered accountancy.

If you’d like to know more or have any questions please speak to Rowan directly.

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The aim is for these zones to create employment opportunities and boost regeneration in economically depressed areas, helping to meet the government’s goal of levelling up the UK economy. Here, we take a look at freeports and how they may be of benefit to the UK.

The first freeports

The concept of a freeport dates back to Ancient Greece, when the Free Port of Delos provided a safe harbour in the Aegean Sea. This offered traders respite from import taxes and allowed them to attract the custom of local merchants who could take their goods on elsewhere for final sale.

That early freeport model has continued into the world of modern commerce. Today freeports exist around the globe, from California to China, Hamburg to Hong Kong and Turkey to Thailand. They are based around the seaports, riverports and airports that provide major points of entry to economies.

Trading under different rules

Freeports are designated zones where normal tax and customs rules do not apply. At a freeport, imports can enter with simplified customs documentation and without paying tariffs.

Businesses operating inside the designated areas in and around the freeport can manufacture goods using the imports and add value, before exporting again without ever facing the full tariffs or procedures.

If the goods move out of the freeport into another part of the country they must go through the full import process, including paying any tariffs. However, if the duty on a finished product is lower than that on the component parts, a company could still benefit.

Potential UK freeports

There were five freeports in the UK until 2012. The current government is now consulting on its freeport plan before inviting towns and cities across the UK to bid for the right to create up to ten free trade zones. The locations will be announced by the end of this year, with the aim of having the first zones up and running in 2021.

The promise of transformation

The government sees the freeports being well integrated into the local economy with the private sector working alongside local partners to deliver:

The government is consulting on tax incentives to stimulate the creation of new jobs and economic activity in the freeport areas, which will include changes to VAT and excise duties for goods within freeports, Research and Development (R&D) tax credits, employers’ national insurance changes and changes to devolved stamp taxes and business rates.

For further information and advice on tax or import and export matters, please get in touch with us.

Annual Investment Allowance reduction from January 2021

The AIA is reduced from £1,000,000 to £200,000 from 1 January 2021 and the AIA will be reduced for expenditure incurred after this date.

For accounting periods that straddle the change a pro rata calculation of the maximum entitlement is required. So for an accounting period for the year ended 31 March 2021 the AIA will be £800,000 (9/12 x £1,000,000 plus 3/12 x £200,000). The available AIA spend for the period 1 January to 31 March is restricted to a maximum of £50,000, so the timing of the expenditure around 1 January 2021 is critical. 

If you are unsure what this change will mean for your business, please get in touch with us as soon as possible.

If a business starts a new trade, it’s normally treated as a separate trade for tax purposes. HMRC gives the example of a restaurant making gowns and face masks – something completely unrelated to previous business activity. If this reflects your business experience this year, there are key issues to consider. Are you are now running two trades rather than one? Alternatively, has your original trade ceased permanently for tax purposes? In either eventuality, there may be knock-on consequences. For income tax, the beginning or cessation of trade impacts on how profits are taxed, and when any losses qualify for relief. Considerations for companies are subtly different (see below).

If, on the other hand, a business starts a new activity, broadly similar to its existing trade, this isn’t likely to be treated as the start of a separate trade. Profits or losses will be merged with those of the original trade. Think of a clothing manufacturing business starting to make gowns and face masks, using existing staff and premises, for instance. 

A temporary break in trading because of lockdown won’t count as a permanent cessation of trade for tax purposes. This is provided that business activity after the break is the same as, or similar to, that carried on before. 

Tip: think points for companies

HMRC is likely to think of a company as carrying on only one trade. Factors which may persuade it otherwise include the fact that one activity is so different in nature from the other that it can be seen as quite separate, and that activities are separately organised and managed up to board level. Availability of loss relief may be a concern to many at present. Since April 2017, there has been greater flexibility to relieve losses arising in different trades. Relief can however be restricted where trading has become ‘negligible’. This is a technical area: please contact us to discuss specific circumstances.

Finally, don’t forget VAT. Amongst other issues to watch, it’s the person (natural or legal), rather than the business, that registers for VAT. So if you have diversified, you may need to review compliance. As always, we are happy to advise.

This entails major change for imports and exports to and from the EU.

From 1 January 2021, declarations will be needed to import or export specific (limited) goods categorised as ‘controlled’: see here and here. But for non-controlled goods brought from the EU to GB, import controls apply in three stages: January, April and July 2021. Some changes will apply to all goods movements, and will involve customs declarations, customs duties and VAT on imports, and safety and security declarations. ‘Additional requirements’ come in, but affecting only certain specific goods movements, such as foodstuffs. Note that separate rules will govern goods moving into, out of and through Northern Ireland: this link may be useful here. 

To help you plan, guidance on procedure generally can be found here. Action points to consider now include:

Economic Operators Registration and Identification (EORI) numbers: from 1 January 2021, an EORI number with the prefix ‘GB’ is needed to move goods between the UK and the EU, unless you only move goods between Northern Ireland and Ireland see here for details.

Remember that from January 2021, it will be important to think about both the UK and EU sides of the equation: to comply with EU requirements, you will, for example, need an EU EORI number if your business makes customs declarations or gets a customs decision in the EU.

Using a customs intermediary: given the complexity of UK and EU customs declarations, you may want to engage a customs intermediary to deal on your behalf see here. 

Postponed VAT accounting for goods imported from the EU: from 1 January 2021, import VAT applies to imports from the EU. Using ‘postponed VAT accounting’ from 1 January 2021 lets you account for import VAT on your VAT return, giving the potential to declare and recover import VAT on the same return see here.

Delaying customs declarations and payment of tariffs: when the UK’s full suite of border controls are in place in July 2021, full customs declarations and payment of customs duties, as set out in the new UK Global Tariff (or as specified in any trade deal with the EU) must take place when goods are imported from the EU. But from 1 January 2021 to 30 June 2021, most traders with a good compliance record can defer declaration and payment for up to six months on imports of standard goods from the EU see here. 

This is only a summary outline of some of the issues involved. Gov.uk provides an online checker tool to use in your own circumstances. Do talk to us where further advice is needed.

‘The most significant reforms of UK insolvency law for a decade’?

The Corporate Insolvency and Governance Act 2020 puts in place a series of measures amending insolvency and company law. Some are temporary, some permanent. Many have been in the pipeline for some time, but the final timing of the legislation, mid-pandemic, should provide a considerable help to companies combating the storms of COVID-19. Insolvency provisions differ in the detail in Scotland and Northern Ireland, but broadly, the measures apply across the UK.

The Act is relevant not just to companies in difficulty. It also makes important reading for businesses dealing with such companies. If, for example, your business supplies a company that you think is struggling financially, you may want to consider the implications of your relationship now. 

Key provisions:

Some of the measures are not available to financial services firms and contracts.

There are various temporary changes to ease the administrative burden on companies. Many filing deadlines are extended automatically, and the Companies House website usefully summarises the position. Note though, that as some COVID-19 easements are introduced, others are now expiring. The usual process for companies applying for voluntary strike off resumed on 10 September 2020. And from 10 October 2020, the compulsory strike off procedure restarts for companies which are believed no longer to be carrying on business or in operation. The suspension of directors’ liability for wrongful trading was also temporary, covering the period until 30 September 2020. Companies House general COVID-19 guidance is here.

If you have concerns about the outlook for your company, or financial viability of your customers, we are happy to provide further advice.

The Bounce Back Loan scheme, the Coronavirus Business Interruption Loan Scheme (CBILS), the Coronavirus Large Business Interruption Loan Scheme and the Future Fund will all now remain open for applications for longer than originally planned. You can now apply for any of these up until 30 November 2020. The Bounce Back Loan scheme, for example, can be used to provide finance between £2,000 and £50,000. Information about the schemes can be found on the British Business Bank website here.

The Winter Economy Plan also gives greater flexibility around repayment. For the Bounce Back Loan, there is a new ‘Pay as You Grow’ repayment system. This gives the option to repay over a longer period, now up to ten years, effectively reducing monthly repayments by nearly half. Interest-only periods of up to six months will also be offered. This option can be used up to three times. There will also be the possibility of pausing repayment entirely for up to six months. This can only be done once, and only when six payments have been made. CBILS lenders will also have the flexibility to extend the length of loans from a maximum of six years to ten years if this facilitates repayment.

November 2020
2 Deadline for submitting P46(Car) for employees whose car/fuel benefits changed during the quarter to 5 October 2020.
19 PAYE, Student loan and CIS deductions are due for the month to 5 November 2020.
December 2020
1 New Advisory Fuel Rates (AFR) for company car users apply from today.
19 PAYE, Student loan and CIS deductions are due for the month to 5 December 2020.
30 Online filing deadline for submitting 2019/20 self assessment return if you require HMRC to collect any underpaid tax by making an adjustment to your 2021/22 tax code.
31

End of CT61 quarterly period.

Filing date for Company Tax Return Form CT600 for period ended 31 December 2019.
January 2021
1 Due date for payment of corporation tax for period ended 31 March 2020.
14 Due date for income tax for the CT61 quarter to 31 December 2020.
19

PAYE, Student loan and CIS deductions are due for the month to 5 January 2021.

PAYE quarterly payments are due for small employers for the pay periods 6 October 2020 to 5 January 2021.
31

Deadline for submitting your 2019/20 self assessment return (£100 automatic penalty if your return is late) and the balance of your 2019/20 liability together with the first payment on account for 2020/21 are also due.

Capital gains tax payment for 2019/20.

Balancing payment – 2019/20 income tax and Class 4 NICs. Class 2 NICs also due.

Job Support Scheme

The Winter Economy Plan unveiled the Job Support Scheme (JSS), the successor to the current ‘furlough’ scheme (Coronavirus Job Retention Scheme), which ends on 31 October 2020. The new JSS opens on 1 November 2020 and runs to 30 April 2021.

The new scheme aims to protect ‘viable’ jobs in businesses with decreased demand because of COVID-19. Where an employee is on reduced hours because of lower demand, the JSS proposes a three-way split: the government and employer together cover a proportion of the wages for time not worked, and the employee suffers a wage reduction. This is intended to mean that employees keep their job. And it is a requirement of the scheme that employees cannot be made redundant or put on notice of redundancy while the employer claims JSS for them. 

To qualify, employees must work reduced hours: initially this will mean at least 33% of their usual hours. They must also have been on your PAYE payroll on or before 23 September 2020. You can claim if you are a small or medium business with a UK bank account and UK PAYE scheme. You don’t have to have used the furlough scheme before, either for employer or employee. Large businesses, however, will have to meet a financial test to assess the impact of Covid-19 on their turnover. There is also the expectation that they would not be making capital distributions, such as dividend payments, while accessing the scheme. 

As employer, you pay for hours worked. For time not worked, you and the government each pay a third of the usual hourly wage for that employee. The government contribution is capped at £697.92 a month. Employees should thus get at least 77% of the normal wage for every hour they don’t work (where the government contribution has not been capped). As employer, you also pay National Insurance and pension contributions. The new JSS will be paid in arrears, with claims made online from December 2020. Further information is here.

Job Retention Bonus

The Job Retention Bonus provides support for employers keeping furloughed employees ‘in meaningful employment’ after the furlough scheme ends on 31 October 2020. If you are eligible, you can claim this alongside the JSS. Claims for the Bonus can be made after Real Time Information payroll returns for January 2021 are filed.

The Bonus is a one-off payment to you as an employer, on which you are taxable. Payment will be made from February 2021, comprising £1,000 for every employee whom you previously claimed for under the furlough scheme, so long as they remain continuously employed through to 31 January 2021. Eligible employees must earn at least £520 per month on average between 1 November 2020 and 31 January 2021 (a total of at least £1,560 across the three months). It can be paid if you’re a company director or other office holder meeting the criteria. 

The Bonus is not payable for employees serving a contractual or statutory notice period that started before 1 February 2021 for the employer making a claim. HMRC advises that if there is any suggestion that claims under the furlough scheme have been fraudulently claimed or inflated, the Bonus will be withheld until the enquiry is completed. 

Employer tip

Further HMRC guidance is forthcoming, but employers planning to claim will find it useful to know that accurate record keeping for the furlough scheme, plus accurate, up to date payroll data are essential to receipt of the Bonus. Revisit claims now to double-check all is well.

COVID-19 grants: unders, overs and compliance

HMRC has published guidance on errors in claims for COVID-19 grants. Calculations for the furlough scheme have proved particularly complex, and there are details covering what to do if amounts have been under claimed or over claimed.

If you have received too much under the furlough scheme, you must notify HMRC and make repayment. Notification should be the later of 90 days after receiving payment you weren’t entitled to: 90 days after the day your circumstances changed, ending your entitlement to the grant: or 20 October 2020. Taking action before these deadlines means you should avoid the ensuing penalty regime. Overpayments can either be corrected in the next claim, or by contacting HMRC if you don’t expect to make a further claim under the scheme. 

HMRC is undertaking compliance activity and has powers to impose penalties in some circumstances, and to ‘name and shame’ defaulters. It advises that it ‘will not be actively looking for innocent errors’, but it is clearly important to make sure that any claims have been correctly calculated and can be substantiated with appropriate documentation. 

All records relating to the furlough scheme, for instance, should be kept for six years. For the new Job Support Scheme, the new short-time working arrangements must be agreed with staff, as must any changes to the employment contract, and employees must be notified in writing. Such agreement must be made available to HMRC on request.

On 24 September 2020, the Chancellor announced additional measures to help deal with the ongoing economic strain of COVID-19. The focus was on supporting viable jobs, with the introduction of a successor scheme to the Coronavirus Job Retention Scheme, which ends on 31 October 2020. This new Job Support Scheme is covered in our COVID-19 round up.

Further help for the self-employed will be provided via the Self-Employment Income Support Scheme (SEISS) grant extension. The government states that this represents ‘broadly the same level of support for the self-employed as is being provided for employees through the Job Support Scheme.’

The extension comprises two taxable grants, and lasts from November 2020 to April 2021. It is available to the self-employed and members of partnerships. The emphasis is slightly different from the first SEISS grants, however. To qualify, you must be able to declare that you are currently actively trading and intend to continue doing so: and also that you are impacted by reduced demand because of COVID-19 in the qualifying period (between 1 November 2020 and the date of the claim). You must also fulfil the current eligibility criteria. You don’t, however, have to have claimed SEISS before in order to qualify.

Grants will be paid in two lump sums, each covering a three-month period. The first covers the period from the start of November 2020 to the end of January 2021, and is based on 20% of average monthly trading profits. It will be paid in one instalment and capped at £1,875. The second will cover the period from the start of February 2021 to the end of April 2021. Further details have yet to be announced, with the Plan stating that it ‘may be adjusted to respond to changing circumstances’. Available information can be found here.

VAT in the tourism and hospitality sector:

a temporary reduction in the rate of VAT for certain supplies of hospitality, hotel and holiday accommodation, along with admission to some attractions, took effect from 15 July 2020. This cut the VAT rate from the standard rate of 20% to 5%, and was due to expire on 12 January 2021. The Winter Economy Plan extends the 5% reduction to the end of March 2021.

We are on hand to discuss these, or any other areas of importance to you.

Extension of MTD to all VAT-registered businesses

Since April 2019, VAT-registered businesses with turnover above the VAT threshold of £85,000 have been required to keep digital records for VAT purposes and provide their VAT return information to HMRC using MTD functional compatible software. From April 2022 these requirements will apply to all VAT-registered businesses, including those with turnover below the VAT threshold. 

Implementing digital links

In April 2020, as a result of the coronavirus (COVID-19) pandemic, HMRC deferred the deadline for businesses reporting under MTD for VAT to have digital links in their recordkeeping for the purpose of transferring information from software and spreadsheets to their online VAT filing. 

HMRC is permitting a ‘soft landing’ period for businesses to have digital links in place between all parts of their functional compatible software. During this period only, HMRC will accept the use of ‘copy and paste’ as a digital link for VAT periods. Businesses will not be required to have digital links between software programs until their first VAT return period starting on or after 1 April 2021.

For VAT periods after this date, businesses’ systems must use digital links for any transfer or exchange of data between software programs used as functional compatible software, as outlined in VAT Notice 700/22. 

The use of cut and paste will no longer be accepted as a digital link from this point. However HMRC will accept the following (please note this list is not exhaustive):

MTD for Income Tax Self Assessment

MTD for Income Tax Self Assessment will take effect from April 2023 for unincorporated businesses and landlords with total business or property income above £10,000 per year. 

HMRC will pilot the scheme before it goes live. Those with income from one source of self-employment and landlords (except for those with furnished holiday lettings) who wish to participate can find out how to do so here. 

In a written statement, Jesse Norman, Financial Secretary to the Treasury, said: ‘This timetable allows businesses, landlords and agents time to plan, and gives software providers enough notice to bring new MTD products to market, including free software for businesses with the simplest tax affairs. 

‘HMRC will expand its pilot service from April 2021 to allow businesses and landlords to test the full end-to-end service before the requirement to join.’ 

In regard to MTD for corporation tax, a consultation is expected this year, however HMRC has not yet announced a start date. 

No matter if your business is big or small, MTD affects you. As your accountants, we can help you to stay compliant with the MTD rules. Please contact us for more information.

Income tax

The Winter Economy Plan gives longer to pay for liabilities due in January 2021. This applies not just if you took up the option of putting off to 31 January 2021 the second income tax self assessment payment on account for 2019/20, due by 31 July 2020, but also to payment of other amounts due by 31 January 2021: the balancing payment for the 2019/20 tax year and first payment on account for 2020/21. The Plan allows an additional period to pay of up to 12 months to those who need it, moving the deadline to January 2022.

If you have self assessment tax debt up to £30,000, you can take advantage of this by setting up a payment plan online without needing to phone HMRC, and you should get automatic, immediate approval. This page provides the link to the online facility. For larger debts, or to arrange longer to pay, contact HMRC’s helpline to set up a Time to Pay arrangement. Alternatively, if you are able to, you can pay in full or in instalments on or before 31 January 2021, via the usual online service.  

VAT

The VAT deferral period ended on 30 June 2020, and as far as ongoing liabilities are concerned, it’s business as usual. It was originally announced that any VAT payments deferred between 20 March 2020 and 30 June 2020 should be paid in full on or before 31 March 2021. The Winter Economy Plan changed the rules, giving extra time to pay. The VAT deferral ‘New Payment Scheme’ allows payment in 11 equal interest-free instalments in the 12 months to 31 March 2022. You will need to opt-in to do this, and HMRC will provide a means of doing so early in 2021. If you prefer, you can still pay in full or make payments towards the deferred VAT at any point before 31 March 2021. HMRC has advice on how to do this.

Further help

HMRC’s Time to Pay service is available to any business struggling to pay tax on time: read more here. You may also find information on the TaxAid website helpful. Although the charity is only resourced to help those on yearly incomes of £20,000 or less. We are happy to discuss other possibilities with you. If, for example, taxable income for 2020/21 has fallen in comparison with 2019/20, it may be possible to reduce your 2020/21 payments on account, rather than use the monthly payment facility. 

Please do contact us for advice.

Job Support Scheme

The existing job support scheme – the furlough scheme – comes to an end on 31 October. The government will be introducing a new Job Support Scheme from 1 November 2020. 

For employers to participate in the scheme:

Employees using the scheme will receive at least 77% of their pay, where the government contribution has not been capped. The employer will be reimbursed in arrears for the government contribution. The employee must not be on a redundancy notice.

The scheme will run for six months from 1 November 2020 and is open to all employers with a UK bank account and a UK PAYE scheme. It will be open to such businesses even if they have not previously used the furlough scheme. 

All small and medium-sized enterprises will be eligible. Large businesses will be required to demonstrate that their business has been adversely affected by COVID-19. The government also expects that large employers will not be making capital distributions (such as dividends), while using the scheme.

The Job Support Scheme will sit alongside the Jobs Retention Bonus which was announced by the Chancellor in July. The Bonus will provide a one-off payment of £1,000 to UK employers for every furloughed employee who remains continuously employed through to the end of January 2021 and who earns at least £520 a month on average between the 1 November 2020 and 31 January 2021. Businesses can benefit from both schemes.

Support for the self-employed

The Self-Employment Income Support Scheme (SEISS) will be extended under the name SEISS Grant Extension. The grant:

The scheme will last for six months, from November 2020 to April 2021, and will consist of two grants. The first grant will cover a three-month period from the start of November until the end of January. This initial grant will cover 20% of average monthly trading profits, paid out in a single instalment covering three months’ worth of profits, and capped at £1,875 in total. The second grant will cover a three-month period from the start of February until the end of April. The government will review the level of the second grant and set this in due course.

The amount of the first grant under the SEISS grant extension will be significantly less than the grants made under the SEISS. The initial SEISS grant was based on 80% of profits (capped at £7,500) and the second SEISS grant was based on 70% of profits (capped at £6,570).

Temporary VAT reduced rate for hospitality and tourism

The government is extending the temporary reduced rate of VAT (5%) from 12 January to 31 March 2021. This will continue to apply to supplies of food and non-alcoholic drinks from restaurants, pubs, bars, cafés and similar premises, supplies of accommodation and admission to attractions across the UK.

VAT deferral

Over half a million businesses deferred VAT payments, which were due in March to June 2020, with these payments becoming due at the end of March 2021.

The government has now announced the option for such businesses to spread their payments over the financial year 2021/22. Businesses will be able to choose to make 11 equal instalments over 2021/22. All businesses which took advantage of the VAT deferral can use the spreading scheme. Businesses will need to opt in and HMRC will put in place an opt-in process in early 2021.

Enhanced Time to Pay for self assessment taxpayers

Taxpayers were able to defer the income tax self assessment payment on account for 2019/20, due by 31 July 2020, to 31 January 2021. There are also other amounts due on 31 January 2021 – a balancing payment for the 2019/20 tax year and the first payment on account for the 2020/21 tax year.

Taxpayers with up to £30,000 of self assessment liabilities due will be able to use HMRC’s self-service Time to Pay facility to secure a plan to pay over an additional 12 months. This means that self assessment liabilities due in July 2020, and those due in January 2021, will not need to be paid in full until January 2022. Any self assessment taxpayer not able to pay their tax bill on time, including those who cannot use the online service, can continue to use HMRC’s Time to Pay self assessment helpline to agree a payment plan.

The Bounce Back Loan Scheme (BBLS) 

The BBLS has provided support to many UK-based small businesses. Loans are between £2,000 and £50,000, capped at 25% of turnover, with a 100% government guarantee to the lender. The borrower does not have to make any repayments for the first 12 months, with the government covering the first 12 months’ interest payments. Under a Pay as you Grow scheme businesses will have options to:

Coronavirus Business Interruption Loan Scheme (CBILS) 

The CBILS provides loan facilities to UK-based businesses with turnover under £45 million. The scheme provides loans of up to £5 million with an 80% government guarantee to the lender. The government does not charge businesses for this guarantee and also covers the first 12 months of interest payments and fees.

The government intends to allow CBILS lenders to extend the term of a loan up to ten years.

Extension of access to finance schemes

The government is extending the BBLS and the CBILS to 30 November 2020 for new applications.

Applications for the Coronavirus Large Business Interruption Loan Scheme and the Future Fund will also be extended.

How we can help

Further technical details of the schemes will be published by the government but no date has been announced as to when. If you have questions in relation to the above, please get in touch with your usual contact at Nyman Libson Paul LLP. We are here to help you.

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As with all of these schemes, there is likely to be more clarification of the mechanics of the scheme as things progress and more information about claims is anticipated on Wednesday 5th August. Also, based on other measures, it is likely that it will be tweaked as things unfold and various scenarios become apparent.

More details of the Cultural Recovery Fund are also now available. We are hoping that something similar to the BFI part of the scheme for cinemas will be put in place for theatres at some point.

The Government announcement can be found here.

The headlines are:

Film and TV Scheme

To reiterate, the film and TV cash is for insuring future work and not past losses. The notion here is that insurers will not, generally, wish to cover the risks of COVID19 and a ‘market failure’ is being covered. To be eligible a production’s budget needs to be at least 50% incurred in the UK.

This is a temporary measure for productions commencing before 31 December 2020. The insurance can only cover COVID19 related losses through to June 2021. Delays will be covered up to 20% of the budget. Where a film is abandoned and the Government agree that it was caused by COVID19, claims may go up to 70% of the budget. There is a cap of £5 million on any one production and productions must have parallel insurance covering non COVID19 losses. There will be an ‘excess’ amount on any claim. One aspect that does look potentially tricky is that productions will need to prove that a current lack of insurance is preventing restarting now.

Cultural Recovery Fund

The Cultural Recovery Fund may provide grants of up to £3 million to protect ‘cultural assets’. As noted above, guidance has been issued by the four administrative bodies. There is also a £270 million repayable finance element of the £1.57 billion package.

British Film Institute

The BFI have a £30 million part of the Culture Recovery Fund and it appears to be aimed at independent and not for profit cinemas. This will help towards reopening with Social Distancing measures in place. The fund opens on 10th August. The grants can cover both the cost safety measures and business sustainability. More details here.

Arts Council England

Grants of between £50,000 and £3 million for Cultural Organisations (‘cultural defined as sitting within the remit of Arts Council England) and are available to profit or non-profit companies, charities and public bodies (but not libraries). Claims will be dealt with in two rounds, firstly on 10th August 2020 with Round 2 on 21st August 2020. Read more.

Historic England

There is an £88 million fund for Heritage covering re-opening costs, operating costs, hibernation costs, mothballing costs and economic recovery costs. This is being run with the National Lottery.

This is open to not for profit managing heritage sites, venues and attractions as well as private owners of heritage sites open more than 28 days or more per year. Other organisations managing assets or culturally significant collections may also apply.

Grants range from £10,000 to £3 million and must be spent by 31 March 2021. The fund opens on 30 July 2020 and applications must be made by 17th August 2020. Find out more.

National Lottery Heritage Fund

This is the same as the Historic England part of the fund (above). Hiowever, their web page does appear to go into greater detail regarding who may be eligible. Click for details.

If you have questions in relation to the above, please get in touch with your usual contact at Nyman Libson Paul LLP. We are here to help you.

August 2020  
02 Deadline for submitting P46(Car) for employees whose car/fuel benefits changed during the quarter to 5 July 2020.
19 PAYE, Student loan and CIS deductions are due for the month to 5 August 2020.
September 2020  
1 New Advisory Fuel Rates (AFR) for company car users apply from today.
19 PAYE, Student loan and CIS deductions are due for the month to 5 September 2020.
30 End of CT61 quarterly period.
October 2020  
1 Due date for payment of Corporation Tax for period ended 31 December 2019.
5 Deadline for notifying HMRC of new sources of taxable income or gains or liability to the High Income Child Benefit Charge for 2019/20 if no tax return has been issued.
14 Due date for income tax for the CT61 quarter to 30 September 2020.
19 Tax and NICs due under a 2019/20 PAYE Settlement Agreement.
PAYE, Student loan and CIS deductions are due for the month to 5 October 2020.
PAYE quarterly payments are due for small employers for the pay periods 6 July 2020 to 5 October 2020.
31 Deadline for submitting ‘paper’ 2019/20 self assessment returns.

In a limited company, they can be remunerated with a salary, receive benefits, and be included in your company pension scheme. If you are in a partnership, taking your non-minor children into the partnership and gradually reducing your own involvement can be a very tax-efficient way of passing on the family business.

Please get in touch to discover the most tax-efficient way to involve your family in your business. 

VAT reverse charge on construction services delayed

HMRC has announced a five-month delay to the introduction of the domestic VAT reverse charge for construction services, due to the impact of the coronavirus (COVID-19) pandemic on the sector.

The change will now apply from 1 March 2021 and will overhaul the way VAT is payable on building and construction invoices as part of a move to reduce fraud in the sector. Under the domestic reverse charge, the VAT-registered businesses customer receiving the service will have to pay the VAT owed straight to HMRC instead of paying the supplier, if they report via the Construction Industry Scheme (CIS).

The change was originally scheduled to come into effect from 1 October 2019 but was deferred for 12 months after industry bodies highlighted concerns about the lack of preparation and the impact on businesses. The start date has now been put back from 1 October 2020 to 1 March 2021.

For businesses to be excluded from the reverse charge because they are end users or intermediary suppliers, they must inform their subcontractors, in writing, that they are end users or intermediary suppliers. This is to make sure both parties are clear in regard to whether the supply is excluded from the reverse charge. It reflects recommended advice published in HMRC guidance and brings certainty for subcontractors as to the correct treatment for their supplies.

HMRC stated that it will continue to focus additional resources on identifying and tackling existing perpetrators of fraud in the construction supply chain. It will also work closely with the sector to raise awareness and provide additional guidance and support to ensure all businesses will be ready for the new implementation date.

Pension savers warned over scams and transfers

The Pensions Regulator (TPR) has issued a warning to savers over the dangers of scams and making transfers during the coronavirus (COVID-19) pandemic.

The warning followed the publication of figures by Action Fraud, which showed that over £5 million of fraud has been reported since February, with reports totalling over 2,100.

According to the fraud prevention body Cifas, the most common COVID-19 scams Britons have been targeted with during the pandemic include pension scams, where fraudsters convince their victims to transfer their pension pots or release funds.

The TPR has also produced a factsheet for savers who have a defined benefit (DB) pension.

The factsheet tells savers that they do not need to rush a decision about their pension and should seek advice first. It also reminds DB pension holders that transferring into another type of arrangement is unlikely to be in their best interest.

Commenting on the issue, Charles Counsell, Chief Executive of the TPR, said: ‘These figures once again show the true devastation of scams. We know, on average, victims of pension scams lose £82,000.

‘Anyone can be a victim, and COVID-19 has created the sort of environment fraudsters thrive in. That’s why it is vital savers don’t rush decisions about their retirement funds.’

Temporary VAT cut

A temporary cut to VAT, targeted at the hospitality and tourism sectors, was announced on 8 July 2020. From 15 July 2020 to 12 January 2021, a reduced rate of VAT of 5% (rather than the usual 20% standard rate) will apply in some cases. 

The new temporary rate will apply to supplies of food and non-alcoholic drinks from restaurants, pubs, bars and cafes and similar premises. It will also apply to hot take-away food and hot take-away non-alcoholic drinks. More information is here and a revised VAT Notice taking account of the change here.

To help tourism, the VAT cut will also apply to supplies of accommodation, such as hotels, bed and breakfasts, campsites and caravan sites and admission to attractions, such as cinemas, theme parks and zoos across the UK. The new VAT Notice on hotels and holiday accommodation is here and guidance on admission charges here. 

Eat Out to Help Out

This is an additional, temporary scheme to boost the hospitality trade, running just for the month of August 2020. On Mondays, Tuesdays and Wednesdays from 3 to 31 August 2020, it will give diners 50% off the cost of eat-in meals and non-alcoholic drinks, up to £10 per person. Restaurants, bars, cafes and other eligible food service establishments will need to register to participate and will then receive reimbursement for the 50% discount. Further details are here and registration details here .

Job Retention Scheme: phase two

The Job Retention Scheme (JRS) has been a lifeline for employers looking to avoid staff lay-offs because of Covid-19. Now it’s changing.

You can use it part time

From 1 July 2020, JRS gives you a half-way house: flexible furloughing. You can bring employees who have been furloughed back to work, for any amount of time and any shift pattern. There’s no longer a minimum furlough period. You must agree any new flexible furlough arrangement with employees, and confirm it in writing. If bringing staff back, you are responsible for paying wages under the normal terms of the employment contract, with tax and National Insurance contributions (NICs) for any hours worked. But you can still use JRS for the hours staff don’t work. This has the potential to help your business adapt creatively as the economy emerges from lockdown.

Other changes to the scheme mean it’s no longer possible to use furlough for anyone not successfully claimed for previously. And for any claim periods starting from 1 July 2020, check that you’re not claiming for more employees than claimed for in any claim ending by 30 June 2020. 

Tip: JRS deadlines

JRS ends on 31 October 2020. Although the last date by which to furlough an employee for the first time was 10 June 2020, (unless they were returning from family leave), if you still need to claim for any period before 30 June 2020, you have until 31 July 2020.

Sharing the cost

Government support will taper off from August. For employees who are on full time furlough, in August, JRS will pay 80% of wages, capped at £2,500. You will pay employer NICs and pension contributions on hours furloughed. In September, JRS will pay 70% of wages, capped at £2,187.50 for hours furloughed. You pay employer NICs, pension contributions and 10% of wages to make 80% total, up to a cap of £2,500. In October, JRS pays 60% of wages, capped at £1,875 for hours furloughed. You pay employer NICs, pension contributions and 20% of wages to make 80% total, up to a cap of £2,500.

If you use flexible furlough, the cap is proportional to the hours your employees are furloughed. For example, an employee is entitled to 60% of the £2,500 cap if they are placed on furlough for 60% of their usual hours.

The revised rules add further complexity, and care will be needed to ensure claims fit the scheme criteria. We should be happy to advise on any aspect of compliance. 

Job Retention Bonus

The Summer Economic Update on 8 July 2020 announced a new Job Retention Bonus. This is designed to ‘incentivise employers’ to continue to keep furloughed staff in work over the economically uncertain period once the JRS ends. It will be a one-off payment of £1,000 to UK employers for every furloughed employee who remains continuously employed until the end of January 2021. 

As an employer, you will be eligible to claim the bonus where employees earn at least £520 per month on average for November 2020, December 2020 and January 2021. You must have furloughed and legitimately claimed for them under JRS, and they must have been continuously in your employment until at least 31 January 2021. You will be able to claim the bonus from February 2021, once accurate RTI data to 31 January 2021 has been received by HMRC.

Self-employed Income Support Scheme 

The Self-employed Income Support Scheme is being extended until 19 October 2020. HMRC’s online portal will open from 17 August 2020, and those eligible will be invited to claim the final grant, covering the period on or after 14 July 2020 see here for details. The grant, which is taxable, will be worth 70% of average monthly trading profits, capped at £6,570, and paid in one instalment. You can claim whether you claimed the first grant, or not. Claims must, however, relate to the correct period: you will need to confirm that your business has been adversely affected by Covid-19 on or after 14 July 2020. This adds potential complexity, and you can see some examples of what HMRC currently considers being ‘adversely affected’ means here. 

But as always with tax, there are conditions. The most straightforward scenario is where you have only one home, and live in it, as your main home, for all the time you own it. Life, on the other hand, isn’t always that simple. 

Where a property is acquired with a view to profit, PRR can be denied, and HMRC is increasingly alert to such possibility. Two recent tax cases illustrate areas of potential challenge.

In one, the bone of contention was whether ‘period of ownership’ runs from date of contract (HMRC’s view) or date of completion. The property was a flat, purchased off-plan, and the issue of dates significant because the credit crunch delayed construction for some three years – while property prices rose. At contract date, the flat was unbuilt, and the ‘residence’ just an empty ‘space in a tower’. When the taxpayer sold, HMRC time apportioned PRR, and with CGT of over £60,000 at stake, the case went all the way to the Court of Appeal. Here it was held that HMRC’s interpretation ran ‘counter to the ordinary meaning of the words “period of ownership”’: a victory for common sense and good news for taxpayers.

Taxpayer, Carol Adams, was not as fortunate. Contending that a two-bed London house, previously let out, was her main home for six months before it sold, she claimed what is called ‘final period exemption’ for PRR, bringing a longer period (currently nine months) outside the scope of CGT. HMRC argued she had never occupied the house as a residence at all, and if she had, it was not her main residence. Complicating matters, Ms Adams also owned, and had lived in, a ‘substantial property’ in the country. HMRC held there was insufficient ‘degree of permanence, continuity or expectation of continuity … to amount to residence’ of the London house. It clearly suspected a decision to sell had been made early on, scouring the estate agency’s online photographs for signs of genuine occupation.

And this was where the dogs came in. Ms Adams owned two Labradors. Noting the ‘complete absence of … canine paraphernalia’ in the photographs on Zoopla, Tribunal commented that it would ‘be unusual for a pet owner to move to a new house on a permanent basis’ leaving the pets behind. HMRC’s view of impermanence won the day, losing the taxpayer over £40,000 in CGT. So it’s official. Be careful where you put the kennel: home is (very possibly) where the dog is. 

PRR claims can be lost without attention to detail. We should be delighted to help you review the availability of this important relief in your own circumstances.

Covid-19 brings significant change to many aspects of workforce operations. 

But any adaptations, permanent or temporary, require you to tread carefully, with due regard to relevant employment law. Change to terms and conditions of work is essentially change to the employment contract. Some contracts contain a flexibility clause, allowing you to vary terms, but are unlikely to permit a fundamental change to hours or pay. In the absence of a flexibility clause, look to agree any change with your employees. Express employee (and in some circumstances trade union) agreement to the proposed change is advisable in most cases.

Simply trying to force change through can open the pandora’s box of claims for breach of contract and the risk of legal action by employees. It is also important to step back and look at the bigger picture. Which individuals are being asked to accept change? Are you confident that you have closed the door on any question of discrimination? That you can show that no one has been selected because of a characteristic protected under the Equality Act 2010, such as age or disability?

Change can be agreed verbally or in writing, but where change affects something included in the written statement of employment particulars, it must be notified to employees in writing, within a month of the change being effected. 

Any change to the small print is best done through dialogue and employee engagement. And as businesses emerge from lockdown, workers are likely to need particular reassurance about plans for the future. At this point, make regular two-way communication with your workforce a priority in order to carry them with you. The Arbitration and Conciliation Service provides guidance on how to go about changing employment contracts. We would, however, strongly recommend professional advice tailored to your own circumstances. Please do not hesitate to contact us for help reviewing your options.

There are two main types of R&D tax relief, with availability largely dependent on the size of the company. Small and medium-sized enterprise (SME) R&D relief provides an enhanced 230% deduction from taxable profits for qualifying R&D expenditure. Where an R&D claim creates a loss, it may be possible to surrender this for a cash repayment, currently 14.5%, a valuable boost to cash flow in current circumstances. Research and Development Expenditure Credit (RDEC) is another valuable relief, available both to large companies, and SMEs not meeting the criteria for the SME R&D scheme. It is now worth 13% of qualifying R&D expenditure. 

COVID-19 creates a number of issues for R&D claims:

Please do contact us for advice on the complexities of R&D.

The Job Retention Bonus

The Coronavirus Job Retention Scheme (CJRS) is being gradually wound down and will end in October, to be replaced by a Job Retention Bonus. This will see UK employers receive a one-off payment of £1,000 for each furloughed employee who is still employed as of 31 January 2021. To qualify for the payment, the employee must be paid at least £520 on average in each month from November to January. Payments will be made from February 2021.

Kickstarting the job search

To address the ongoing challenges that the economy faces, the government has a large-scale plan to support people in finding jobs, enable them to gain the skills they need to get jobs and provide targeted help for young people to get into work.

The flagship £2 billion Kickstart Scheme aims to create high-quality, subsidised six-month placements for young people at risk of long-term unemployment. Other measures include a boost to the National Careers Service, enhanced work search support and payments for employers who hire new apprentices.

Eat Out to Help Out

Pubs and restaurants have been amongst the worst affected by the COVID-19 lockdown and Mr Sunak’s innovative ‘Eat Out to Help Out’ scheme aims to give them a boost.

It entitles every diner to a 50% discount of up to £10 per head on their meal at any participating restaurant, café, pub or other eligible food service establishment and is valid Monday to Wednesday throughout August. Participating establishments will be fully reimbursed for the 50% discount. Further details are available here. 

In order to further support the hospitality and tourism sector, the Chancellor cut the rate of VAT from 20% to 5%. This applies to supplies of food and non-alcoholic drinks from restaurants, pubs, bars, cafés and similar premises, as well as to accommodation and admission to attractions, including theme parks and zoos, across the UK. See here for further guidance.

Stamp duty boost for property market

In response to a stalling property market, the government temporarily increased the nil-rate band of residential SDLT in England and Northern Ireland from £125,000 to £500,000. This applies from 8 July 2020 until 31 March 2021.

Both Scotland and Wales have their own versions of SDLT, namely the Land and Buildings Transaction Tax (LBTT) and the Land Transaction Tax (LTT). The Scottish government has raised the threshold at which LBTT is paid from £145,000 to £250,000. This applies from 15 July 2020 until 31 March 2021. The Welsh government has also raised the threshold at which LTT is paid from £180,000 to £250,000, effective from 27 July 2020 until 31 March 2021. However the tax reduction in Wales will not apply to purchases on additional properties, including buy-to-let and second homes.

Additionally, the Chancellor announced a £2 billion Green Homes Grant, providing at least £2 for every £1 homeowners and landlords spend to make their homes more energy efficient, up to £5,000 per household. For those on the lowest incomes, energy efficiency measures will be fully funded up to £10,000. The scheme aims to upgrade over 600,000 homes across England.

Changes to tax rules and rates can be complex. We would be only too pleased to provide any further assistance you may need.

What if I contribute to employee costs?

You can look to reimburse some specified costs incurred by employees when working from home without income tax or national insurance consequences, by making a nominal fixed payment, or a larger contribution.

Can employees claim tax relief themselves?

Yes: employees looking to recoup costs have a potential alternative route to employer reimbursement: claiming tax relief themselves. The easiest way to do it is to claim relief of £6 per week/£26 per month for those paid monthly (£4 or £18 before 6 April 2020). As with the employer method, this doesn’t need records. Note though, that relief for making business phone calls can be claimed separately, and this does mean recording costs involved. Employees can claim online, by phone or post, or via their self assessment tax return, if they usually file one. They can be directed here for further help.

However, gateway criteria for employee claims are normally very strict, and it doesn’t usually follow that where an employer doesn’t reimburse, an employee can get tax relief by default. And while it’s likely HMRC will accept that its usual tests are met where someone is working at home because of Covid-19, it has yet to confirm some aspects of the position. It may be worth flagging this up to employees, for example if there is a degree of choice over homeworking as we move out of lockdown.

Do normal rules on taxable benefits and expenses still apply during the COVID-19 lockdown?

Broadly, yes. In most cases, it’s (tax) business as usual. So, for example, you can provide one mobile phone and SIM card per employee, with no restriction on private use, and it doesn’t count as a taxable benefit. Or you can provide an asset, like a computer for work at home and it will usually be exempt from tax, provided the arrangement fits three conditions: 

Where employees are paid travel and subsistence expenses to get to a temporary workplace, and furlough or home working interrupts this, the usual time clock still runs. So for tax purposes, a ‘temporary’ workplace won’t qualify as temporary after 24 months, and the 24 months includes time furloughed or homeworking. For HMRC guidance, covering areas like volunteer fuel and mileage costs, and paying or refunding transport costs, see here and here.

Are there any new COVID-19 rules?

Yes. They cover the position where you reimburse an employee who has bought home office equipment: table, chair or monitor, for example. Normally, reimbursement after an employee purchases would be taxable. But from 16 March 2020 to 5 April 2021, a temporary exemption from income tax and National Insurance exists, so long as: 

Care will be needed regarding current and future ownership of the equipment. We are happy to advise further. 

What about employer-provided cars?

With cars going nowhere during lockdown, this may seem counter sense: but usual rules on company cars mostly still apply, for furloughed employees, and those working at home because of Covid-19. The car is still treated as ‘available for private use’ for tax purposes. That’s even if you have told employees not to use it; asked someone to take and keep a photographic image of mileage, both before and after a period of furlough; or employees are unable physically to return it and it can’t be collected from them. 

HMRC will accept a car is unavailable in limited circumstances, applying only where Covid-19 restrictions on movement prevent its being returned to the employer, or collected. Thus, where the contract is terminated, it will be unavailable from the date car keys are returned; or where the contract has not been terminated, after 30 days from the date keys are returned.

For more information, please contact us.

Now, the long road to recovery begins for the UK economy. Businesses will need to consider how they can safely reopen workplaces and take stock of the challenges and opportunities stemming from the coronavirus (COVID-19) pandemic, all whilst planning for the future.

Staying safe

The ability to implement social distancing in the workplace will be key to a successful return. However, it will mean reduced capacity in most workspaces, so staffing requirements and working patterns will have to be reviewed.

Crucial to managing a flexible return to work will be the technological capabilities that support a combination of office and remote working. Updated hygiene practices will also be vital to a safe return, especially if a business is expecting to welcome visitors onto its premises. Firms will need to consider measures such as creating one-way walkthroughs, installing hand sanitising stations, opening more entrances and exits and changing seating layouts in break rooms.

Keep the cash flowing

There will be major challenges for businesses that need to fulfil order books, maintain stocks and overcome supply chain delays. However, managing cashflow will be paramount for businesses that are aiming to exit the lockdown and recover successfully. Understanding the cash position in the short and medium-term will help firms assess which steps they need to take in order to keep the business moving and profitable.

Lowering costs 

When a business is facing cashflow issues, lowering costs is a key element in turning the situation around. When some firms are experiencing a dip in profits, action needs to be taken to correct the underlying problem. Regardless of the size of the business, discretionary and non-crucial costs can be decreased or cut out entirely.

Finding funding

Many businesses are likely to need some additional help as they start back up again. Existing banks and lenders should be the first port of call, but remember there are other sources of finance available.

Interest rates are near zero, while numerous government funding options are helping ensure businesses remain open and operational. These include the various government COVID-19 support schemes.

Additionally, businesses must make sure that they utilise the tax reliefs available to them. There are various reliefs for business owners which can assist with tax planning. We can offer advice and guidance to make sure your business is benefiting from the appropriate reliefs.

The road ahead

The road ahead may not be an easy one. It is unlikely to be straightforward and setbacks are probable. However, careful planning will help businesses be prepared to take advantage of a surge in economic activity and the return of market confidence.

Our team can help businesses with a range of financial planning issues. For more information, please contact us.

Our summary of the Summer Economic Update provides an overview of the key announcements arising from the Chancellor’s speech. Measures include a new Job Retention Bonus to support the phasing out of the Coronavirus Job Retention Scheme (CJRS), a VAT reduction for businesses in the hospitality and tourism sector and a temporary increase to the nil-rate band of residential Stamp Duty Land Tax (SDLT).

Additionally, throughout the Summary you will find informative comments to help you assess the effect that the proposed changes may have.

If you would like more detailed, one-to-one advice on any of the issues raised in the Chancellor’s speech, please do get in touch.

Download Summer Economic Update PDF

This situation can be stressful and leaves people vulnerable to mental health issues. However, simple steps and employer support can make a vital difference.

Self isolation and stress

Governments around the world have responded to COVID-19 with drastic lockdown measures aimed at delaying its spread and mitigating damage to economies. What is often overlooked is the psychological toll that this type of outbreak can take on individuals.

Periods of self isolation, remote working and social distancing, alongside wider concerns surrounding COVID-19 or job security, cause significant surges in stress and anxiety for many people.

Stay connected

In terms of work, most of us work better with the company and support of others. Employers will need to support staff by enabling them to work remotely. Laptops and virtual desktops that enable employees to log in and take part in tasks like video conferencing are essential to working from home successfully.

However, it is also vital to make an effort to keep in touch with friends and family. Being able to discuss issues openly will help overcome any anxiety caused by the uncertain situation.

Switching routines

Bringing the workplace into the home can prove to be a testing experience, as physical spaces ordinarily used for living become devoted to work. It is more important than ever to have switching routines between work life and home life, whether that is physically packing equipment away or taking some exercise away from your desk.

Use to-do lists to plan your day, although remember that completing all jobs may be unrealistic, so prioritise tasks. Working from home and using video conferencing technology can be tiring: workers are encouraged to take more short breaks than normal. It is also essential to have something to look forward to, so reward yourself for completing tasks.

Staying healthy

For those who are self isolating or working from home, it can be easy to slip into a sedentary lifestyle. However, it is important to stay active, as studies show physical activity is vital in lowering the risk of depression. It is prudent for employers to focus on fostering healthy lifestyles, as well as supporting employees in other ways through these challenging times.

Keep learning

The economic downturn caused by COVID-19, with workers furloughed and job security threatened, is combining with changes caused by technological advances to exacerbate existing challenges in the work environment. However, furloughed workers are allowed to undertake training, so this time can be used as an opportunity to upskill or re-skill ready to meet the challenges of the future.

Outbreaks cause mental as well as physical stress, but simple steps have the power to make a significant difference.

2020/21 England, Wales and Northern Ireland income tax rates and bands remain unchanged:

Band name Rate Band
Basic rate 20% £1 – £37,500
Higher rate 40% £37,501 – £150,000
Additional rate 45% Over £150,000

For Scottish taxpayers, the position is different:

Band name Rate Band
Starter rate 19% Over £12,500* – £14,585
Scottish Basic rate 20% Over £14,585 – £25,158
Intermediate rate 21% Over £25,158 – £43,430
Higher rate 41% Over £43,430 – £150,000
Top rate 46% Over £150,000

*Assumes individuals are in receipt of the standard UK Personal Allowance.

There were no major changes to the Inheritance Tax regime – perhaps surprising given recommendations in last year’s report by the Office of Tax Simplification. It may be that the autumn Budget brings further developments.

The Budget addressed pension issues experienced by high earners such as GPs and NHS consultants, with an increase to the two income thresholds used to calculate the tapered annual allowance. Tapered annual allowance is triggered when both ‘threshold’ income and ‘adjusted’ income exceed a particular level. From 6 April 2020, threshold income (broadly net income before tax, excluding pension contributions) increases from £110,000 to £200,000.

Adjusted income (broadly net income plus pension accrual) increases from £150,000 to £240,000. This should take about 200,000 higher earners out of this particular tax trap. There is also change to the minimum tapered annual allowance, which can now fall to a low of £4,000 rather than £10,000. This, however, will only impact those with adjusted income of more than £300,000.

Many of us may currently have some time on our hands to accelerate tax year end planning. Central to this is making use of the CGT annual exemption. Things to consider are:

We can help with all your CGT planning needs. Please contact us for more information.

May 2020  
19 PAYE, Student loan and CIS deductions are due for the month to 5 May 2020
31 Deadline for forms P60 for 2019/20 to be issued to employees
June 2020  
1 New Advisory Fuel Rates (AFR) for company car users apply from today
19 PAYE, Student loan and CIS deductions are due for the month to 5 June 2020
30 End of CT61 quarterly period
July 2020  
5 Deadline for reaching a PAYE Settlement Agreement for 2019/20
6

Deadline for forms P11D and P11D(b) for 2019/20 to be submitted to HMRC and copies to be issued to employees concerned

Deadline for employers to report share incentives for 2019/20
14 Due date for income tax for the CT61 period to 30 June 2020
19

Class 1A NICs due for 2019/20

PAYE, Student loan and CIS deductions due for the month to 5 July 2020

PAYE quarterly payments are due for small employers for the pay periods 6 April 2020 to 5 July 2020
31 Second payment on account 2019/20 due

HMRC extends MTD digital links deadline until 2021

HMRC has delayed the requirement to implement digital links for Making Tax Digital (MTD) due to the coronavirus (COVID-19) pandemic.

Under MTD, the required digital records can be held within more than one piece of software, however there must be a digital link between them: the data cannot be transferred manually between software products.

Participants were given a year from the launch of MTD to have these digital links in place, giving organisations until 1 April or 1 October 2020, depending on their original MTD start date.

HMRC has confirmed that all businesses now have until their first VAT return period starting on or after 1 April 2021 to ensure digital links are in place.

HMRC said: ‘We understand that the impact of COVID-19 is creating extremely difficult times for all, and we are committed to helping in every way possible all those businesses facing unprecedented challenges.

‘Therefore, we are providing all MTD businesses with more time to put in place digital links between all parts of their functional compatible software.

‘This means that all businesses now have until their first VAT return period starting on or after 1 April 2021 to put digital links in place.’

Rise in contactless card payment limit

From 1 April the contactless card payment limit rose from £30 to £45.

The decision to increase the payment limit was reached following consultation between the retail sector and the finance and payments industry, and echoes similar increases in other European countries.

UK Finance stated that the change had been under consideration before the outbreak of the coronavirus (COVID-19), but was brought forward in order to support consumers during the pandemic.

Commenting on the increase, Stephen Jones, CEO of UK Finance, said: ‘The payments industry has been working closely with retailers to be able to increase the contactless payment limit to help customers with their shopping at this critical time for the country.

‘This will give more people the choice to opt for the speed and convenience of purchasing goods using their contactless card, helping to cut queues at the checkout.’

UK Finance said that, given the pace at which the change is being rolled out, the new payment limit will take ‘some time’ to be introduced across all retailers.

Consumers spending more than £45 will be able to make use of many other ways to pay, including Chip and PIN, cash and mobile payments.

It is important to appreciate that TTP cannot be used to reduce tax liability. TTP is just that – it buys time, giving you breathing space and spreading payment over a longer period. Negotiating TTP means you can settle a tax liability by monthly instalments, making a tool to help your business weather the next critical few months.

TTP should be available across the whole range of taxes, from income tax self assessment bills, to VAT and corporation tax. There’s no standard arrangement: repayment is tailored to your circumstances. You may still have to pay interest, because technically the tax is overdue. The rate of interest is usually low, but is not allowable for tax.

Arranging TTP as soon as possible should mean you avoid having to pay penalties. To do this, contact HMRC now and explain that you have coronavirus-related financial difficulties. This is usually done by phone, but you can also use webchat. HMRC has set up a dedicated coronavirus helpline, on 0800 024 1222 see here. Please note that nominated partners in a business partnership can negotiate TTP with HMRC on behalf of the partnership or individual partners. Fuller information is here.

For employees, payment of NICs now starts when salary tips £9,500 pa (2020/21), rather than £8,632 pa (2019/20). The self-employed benefit, with the threshold for Class 4 NICs mirroring this change, and the small profits threshold for Class 2 NICs rising from £6,365 (2019/20) to £6,475 (2020/21). For higher earners, employees and self-employed alike, the freezing of the upper earnings/profits limit at £50,000 gives access to a 2% contribution rate on a bigger slice of earnings.

But for employers, the story is different: there is only an inflationary increase to the secondary threshold. Employers now contribute when salary exceeds £8,788 pa (2020/21), rather than £8,632 (2019/20). Directors in family companies must take account of the cost of both employer and employee NICs. In announcing support for the self-employed in the current crisis, the Chancellor signalled that the contribution system for the self-employed is likely to be fundamentally reformed in the medium term.

ER, as we will call it for one last time, is a capital gains tax (CGT) relief available not just to company shareholders, but to owners of unincorporated businesses. It has been the relief, par excellence, for someone looking to dispose of all, or part of, a business and extract a capital sum, for example on retirement. Applying to gains on disposals of shares, or securities in a trading company, it gives access to a niche 10% rate of CGT, rather than 20%. In some circumstances, it can be used for disposals of assets such as land and buildings used by a company, but owned by an individual. ER can also reduce CGT paid on disposals of qualifying shares from an Enterprise Management Incentive scheme. ER is subject to a lifetime limit, hitherto £10 million.

Budget 2020 brings a new lower lifetime limit of £1 million. This has immediate effect, applying to qualifying disposals made on or after Budget day, 11 March 2020. The value of ER claimed for qualifying gains in the past will contribute to the new lifetime limit, and this will now need to be taken into account when assessing eligibility for any future claim. The new date is a cliff edge: there is no period of transition. The new limit can also apply where a business ceased trading before 11 March 2020; or the gain is a deferred gain that accrues on a chargeable event on or after 11 March 2020.

Despite the change, ER remains a vital part of the exit strategy for business owners. Ensuring availability of ER has always depended on paying close attention to the rules, and this is unchanged. In the current volatile economy, it may be of particular relevance to those reshaping their plans for the future. Please contact us for further advice.

Coronavirus Job Retention Scheme (JRS)

JRS allows employers to claim up to 80% of furloughed workers’ wages, to a maximum of £2,500 per worker per month. The scheme will continue until the end of October but new flexibility will be introduced from the start of August. From that time furloughed workers will be able to return to work part-time with employers being asked to pay a percentage towards the salaries of their furloughed staff.

HMRC’s online application portal for JRS claims opened on 20 April 2020, with new information to be used to make a claim: the employer step by step guide and guidance. This online calculator can be used to work out how much can be claimed see here.

Keep the calculations used as the basis of your claim. You are also advised to print the final confirmation screen, or note the claim reference number, because HMRC will not send an email confirmation. HMRC will check claims and has the right to audit claims retrospectively. It advises that payments may be withheld, or need to be repaid in full, if claims are found to be based on dishonest or inaccurate information, or found to be fraudulent. An online portal for employees and the public to report suspected cases of fraud has been set up.

Making best use of the JRS

Although many employers will now have used the JRS for the first time, there are still points to consider going forward. These include how best to staff any work needed to keep your business going, and planning for the post-lockdown future of your business.

Furlough is designed with some flexibility. It must be for a minimum of three consecutive weeks, but there is the option to take staff off furlough, have them return to work and then refurlough them. This can be done multiple times, but the three-week minimum applies to any furlough period. Judicious use of the scheme could provide the potential to start gearing up again for business. Whilst on furlough, staff are debarred from carrying out work that generates revenue for your business, but timely switching between furlough and work, or even rotating staff on furlough, may prove useful.

To recap, furlough is a formal process, bringing employment law issues to consider. To be eligible, staff must have been on your payroll on or before 19 March 2020, and have been notified to HMRC on an RTI submission on or before that date. There are also some provisions for staff made redundant early in the pandemic, who are re-employed and furloughed. A claim under JRS can only be made from the date at which an individual’s furlough begins.

We are happy to advise further, to support you through an application, or to submit your claim if authorised to act on your behalf for PAYE matters.

Statutory Sick Pay Rebate

Businesses based in the UK, with fewer than 250 employees at 28 February 2020, with a PAYE payroll scheme created and started on or before that date, can reclaim Statutory Sick Pay (SSP) for staff absence due to coronavirus. This will cover up to two weeks’ SSP per eligible employee. The government is currently creating a system to deliver this, with further guidance expected. Find out more here.

Tactics can be very sophisticated. Be alert to genuine-looking but bogus websites, plausible-sounding phone calls, and SMS text scams – as well as phishing emails. With the government’s recent use of text messaging to convey genuine information during the coronavirus emergency, and increased HMRC online activity, it’s even more important to be able to sift the wheat from the chaff.

HMRC regularly updates its information on current scams: you can find this here. Recent examples include SMS scams purporting to offer ‘goodwill payments’ because of the coronavirus. Always think twice before accepting a source as genuine, always check before clicking on a link, and take care before inputting personal details on websites.

The off-payroll rules, often called the IR35 rules, were introduced because of concern about loss of tax revenue, particularly national insurance contributions (NICs), arising through the use of intermediaries in the labour chain. Intermediaries are most often a worker’s personal service company (PSC), though they can also be an individual, partnership or unincorporated association. The government believes many off-payroll workers are wrongly classified for tax purposes, and should be treated as employees.

From 6 April 2021, therefore, if you work for a medium or large client through a PSC or other intermediary, responsibility for determining employment status passes from your PSC to your client. Further information can be found here.

But for now, it is as you were. If you work for a client in the private sector, you determine employment status on your contract, not the client. Deduction of tax and NICs remains your responsibility. To help with questions around employment status, HMRC has enhanced its online Employment Status Checker Tool, CEST, although there are still reservations about its ability to cope with the nuances of real life.

But the late change may create practical problems. What if you’ve already been given a Status Determination Statement (SDS), as if the new rules were now in force, for example? An SDS has no legal standing this year. It is up to the PSC to determine its status, and deal with tax and NICs as before. HMRC says it won’t use any SDS already issued as evidence if there is a dispute over your employment status in the next 12 months.

If we can be of any assistance with further advice, please do not hesitate to get in touch.

To help businesses remain buoyant amid falling sales and abrupt loss of income, cash in and cash out is key. There are government support measures in place, but the next few weeks, before assistance gets to business bank accounts, will be critical. The importance of up-to-date accounting and management information cannot be overstated, especially to use the Self-employment Income Support Scheme or the Coronavirus Business Interruption Loan Scheme, for example. 

Payment of income tax and VAT can be deferred in current circumstances. The second income tax self assessment payment on account, due for payment by 31 July 2020, can be deferred until January 2021. HMRC advises that ‘deferment is optional and any persons still able to pay their second self assessment payment on account… should still do so’. No action is needed to defer. No penalty or interest for late payment will be charged. VAT payments due between 20 March 2020 and 30 June 2020 can also be deferred, again without the need to apply. This applies to any business with VAT payments due between these dates – but does not cover VAT MOSS payments. Deferred VAT must be paid on or before 31 March 2021. VAT refunds and reclaims will be dealt with by HMRC as usual, and you should continue to send in your VAT return.

Those paying HMRC by direct debit should cancel it promptly, so it isn’t automatically collected when the return is filed. Where trading is significantly disrupted, VAT registration may no longer be appropriate, and we are happy to advise here. And if you are entering a period in which input tax is more than output tax, and you anticipate regular VAT refunds, you may want to think about moving to monthly VAT returns to accelerate cashflow. 

For the latest guidance, check here. Information is frequently updated, though this may lessen with time. Please be assured we are on hand to help navigate the days to come.
 

For general advice go here. For Scotland, go here. For Wales, here. And for Northern Ireland click here.

Loan schemes

There are now three schemes, all delivered through commercial lenders to support ‘long-term viable businesses . . . respond to cashflow pressures by seeking additional finance’. Businesses need to approach a lender, and it probably makes sense to try your usual bank first.

Bounce Back loans

These provide 100% government-backed loans covering 25% of business turnover. Minimum loan size is set at £2,000 and the maximum at £50,000. Loans are interest-free for the first 12 months, with a repayment holiday for this period. The scheme launched on 4 May, with application online – read more. 

CBILS

The CBILS provides access to loans, overdrafts and other finance. Finance is capped at £5 million, with a maximum term of six years for term loans and asset finance. The government covers interest payments for the first 12 months and any lender-levied fees. The CBILS cannot be used as well as Bounce Back funding, and applicants must ‘self-certify’ that their business is adversely impacted by COVID-19. 

Criticism of the scheme has brought some changes. The most recent viability tests only require a bank to assess whether a business was viable pre-COVID-19, for example, and loans below £250,000 do not require personal guarantees. Any type of business can apply, if generating more than 50% of its turnover from trading activity. There is a quick eligibility checklist here.

How do I apply for a loan?

The Bounce Back scheme has a short, standardised online application form. Critically, the aim is to provide loans to businesses ‘within days’.

The CBILS entails more of an application process than a conventional loan. Lenders should now, however, be focusing mainly on information you can supply at speed, assessing credit and business viability on the basis of this and their own prior information.  

Self-employment Income Support Scheme (SEISS)

This supports the self-employed and partnerships and is being developed at pace by HMRC – more. The government is signing the self-employed to the Universal Credit system before SEISS payments are made.

What does it do?

Provides a direct cash grant of up to 80% of profits, calculated with reference to specific rules. The grant is taxable and will be paid as one lump sum, covering the three months to May. The maximum payable is £2,500 per month. The first payments should start at the end of May, and it is possible the scheme will be extended.

Criteria

Broadly, you must carry on a trade which has been adversely affected by circumstances relating to COVID-19. You must also have filed all relevant income tax self assessment returns; have traded in the 2018/19 and 2019/20 tax years, and intend to carry on trading in the 2020/21 tax year. Your profits, based on an average of the last three years, must be no more than £50,000, and at least equal to any non-trading income, such as employment income, dividends or rental income. 

Directors of personal service companies are not eligible. But if paid under Pay as You Earn (PAYE), government help may be available via the Coronavirus Job Retention Scheme. Note, however, that only salary costs are eligible for inclusion, not dividend payments. There is guidance on how directors can access this here. 

What do I have to do?

Claims can now be made. HMRC should have contacted you by email, text or letter this month, asking you to claim, and given you a date from which you can make a claim. There is an online tool you can use to see if HMRC thinks you match its criteria: bit.ly/3b0n7mw. If the tool finds you are not eligible, you can ask to have this reviewed. Payment directly into your bank account should be made within six working days of completing a claim.

Rent, rates and property

Commercial tenants across the UK, unable to pay rent because of COVID-19, are given protection from eviction. This is not a rental holiday however, and liability to pay remains. Discussions between landlords and tenants are encouraged. Other help, for example with business rates, is also available see here and here. 
 

This page can also be downloaded as a PDF.

Download PDF 

The significant change just announced is that the scheme has been extended to cover employees inservice as of 19 March, it was previously 28 February. They must have also been notified to HMRC by an RTI submission by 19 March.

Similarly, employees made redundant or leaving up to 19 March 2020 can be re-employed so long as they were on the payroll as at 28 February and notified to HMRC by then. They can be re-employed after 19 March.

We would emphasise that HMRC are keen to point out that the employee must have been on the payroll before 19 March or 28 February under these scenarios such that the employer will have to have notified HMRC through an RTI submission up to the appropriate date.

If an employee has had multiple employers over the past year, has only worked for one of them at any one time, and is being furloughed by their current employer, their former employer/s should not reemploy them, put them on furlough and claim for their wages through the scheme. It is worth highlighting that Automatic Enrolment Employer Pension Contribution subsidy is capped as follows:

Employer pension contributions that are paid on the subsidised furlough pay, up to the level of the minimum automatic enrolment employer contribution. The maximum level of grant for employer pension contributions on subsidised furlough pay is set in line with the minimum automatic enrolment employer contribution of 3% on qualifying earnings. Grants for pension contributions can be claimed up to this cap provided the employer will pay the whole amount claimed to a pension scheme for the employee as an employer contribution.

It had been previously announced that claims must be online only and will be available from 20 April. It has now been added that it is expected that claims will be paid within 6 days, although the first due are expected from 30 April. Based on experience, we might mention that HMRC processing and authorising a payment and it arriving in someone’s bank account on the same day may be optimistic, especially as this is a hurriedly set up operation and no doubt HMRC will be swamped with applications. More details of how to make a claim are now included further down this article.

Where a company is in Administration, although there may be a genuine threat of redundancy already, employees can be furloughed, but this can only apply where there is a realistic chance that their jobs would be available again after the Corona Virus Pandemic crisis is over. Again, it is worth reminding ourselves that the scheme is designed to assist with the temporary impact of COVID 19 and not other, more general, economic factors.

Eligible employees include:

It is also possible to claim for people who are on the payroll but are not legally employees under employment law, so long as they are paid under PAYE and were at 19 March 2020:

Who an employer cannot claim for:

Key Points to remember:

Information needed to make a claim:

  1. The bank account number and sort code the claim is to be received in.
  2. The name and phone number of the person in the business/organisation or individual employer where appropriate for HMRC to call with any questions, or if using an agent such as NLP see below.
  3. The employer’s Personal Self-Assessment UTR (Unique Tax Reference) if not an organisation, Company UTR or CRN (Company Registration Number) if the entity is a company etc.
  4. The total amount being claimed for all employees and the total furlough period.
  5. A Government Gateway (GG) ID and password – if the employer doesn’t already have a GG account, one can apply for one online (https://www.gov.uk/register-employer), or by going to GOV.UK and searching for ‘HMRC services: sign in or register 
  6. The employer should be enrolled for PAYE online – if the employer isn’t registered yet, they can do so now (https://www.gov.uk/register-employer), or by going to GOV.UK and searching for ‘PAYE Online for employers’
  7. The following information for each furloughed employee being claimed for:
    • Name.
    • National Insurance number.
    • Claim period and claim amount.
    • PAYE/employee number (optional).
  8. If there are fewer than 100 furloughed staff – it will be necessary to input information directly into the system for each employee
  9. If there are 100 or more furloughed staff – it will be necessary to upload a file with information for each employee; they will accept the following file types: .xls .xlsx .csv .ods.

Please Note: You should retain all records and calculations in respect of your claims as HMRC may choose to retrospectively audit your claim.

If you would like Nyman Libson Paul to act for you

 

Useful links

We have included a series of HMRC links which may be useful at this current time.

We propose to update this document as we receive new information and will continue to post useful updates on our home page as well as on our social media.

However, in the meantime, if you have any concerns or questions, please get in touch with your usual contact at the Firm.

Employees and The Job Retention Scheme

(Will cover at least 3 months from 1 March 2020)

It should be borne in mind that the Government’s strategy is to avoid redundancies where possible.  They have approached this issue by creating the Job Retention Scheme to fund ‘furloughs’, whereby staff are temporarily sent home rather than being made redundant. It must be stressed that these furloughs are only valid where the person might otherwise have to be made redundant, although how this is monitored remains to be seen. The member of staff must do no work for the employer during this time, so they should not answer emails etc. Of course, there is a slight impracticability about this, imagine ringing up to ask them for, say, a phone number; can they give it to you? Hopefully, there will be some sense of reality in application here. It is also worth noting that directors can be put on furlough, and it has been further stated that they can look after statutory administration style tasks whilst off work, so long as they don’t engage in any ‘commercial’ duties. It is not clear whether all directors can be on furlough, or one must be retained to operate the company. Indeed, given the official communication that persons operating from ‘Personal Service Companies’ may be eligible, it tends to suggest that one-person companies can operate a furlough policy. However, given that many ‘one-man bands’ pay themselves by dividends, any salary they take will often be less than £10,000pa which is likely to make any entitlement to salary replacement minimal.

Another significant point is that anyone with the virus will be entitled to Statutory Sick Pay. Furthermore, if someone who is not sick needs to stay at home in accordance with Government advice, for example because someone they live with is ill, they may also qualify. Please also read the section below concerning Statutory Sick Pay and COVID-19 The Government has asked employers to use their discretion with regards to medical evidence, as clearly the system will not be able to cope with issuing doctors’ notes on a vast scale. If someone returns from sick leave they can be put on furlough thereafter. Note that taking time off to look after someone else, does not appear to qualify for sick leave and reference should be made to the rules governing time off for dependants. 

Similarly, Statutory Maternity Pay, Paternity Pay, Adoption etc are also still in place and will apply where appropriate.

It should be borne in mind that the minimum furlough period is three weeks and introducing short weeks or reductions of hours do not appear to be acceptable, for example, working a four-day week instead of five will not count as a furlough. However, it may be possible to rotate furloughs so that one individual takes, say, three weeks then returns to work whilst a different person is put on a three week furlough, thereby spreading the impact across the workforce.

Only employees on the payroll on 28 February (meaning that the employer must have set up a PAYE scheme by then) are eligible and there are rumours that it may be possible to include people who left since then and re-joined. However, HMRC’s guidance seems to imply that this may only apply where someone was made redundant after 28 February then re-hired. People on zero hours contracts on that date are eligible, but calculation of their salary will be slightly different. The scheme covers full- and part-time workers and it is possible to be furloughed on one job whilst still working on another (each employer has a separate cap so it may be possible to earn, say, £5,000 per month from two jobs!). Employees on Agency Contracts are also covered. Employees on unpaid leave cannot be furloughed unless placed on unpaid leave after 28 February.

Employees can do volunteer work or training whilst furloughed, but it seems that compulsory training courses may entail the employer paying at east Minimum Wages for the time incurred. It would seem that this does not apply to cases where an employee studies alone. 

So, what is available? Essentially, the first announcement was that the Government would fund 80% of eligible employees’ salaries up to a cap of £2,500 per month per employee. It was subsequently confirmed that the payments would be £2,500 plus Employer’s NIC and Employer’s Auto Enrolment Pension Contributions. Essentially, payments to employees earning £37,500 (£3,125 per month) or under will be eligible for £2,500 gross per month plus Employers NIC and Pension from the Government at a future date. They do not have to be paid their full salary. Employers may choose, for example, to inform staff that their pay will reduce to either 80% of normal rates, or £2,500 per month, whichever is the lower. However, the figure cannot fall below the minimum wage.

If the staff member is furloughed for less than a month, say three weeks, then the calculation will need to be honed accordingly by calculating the furlough pay by reference to working days lost. So, 3 weeks may equate to 15 working days lost out of, say, 23 working days in the month, so 15/23rds multiplied by the monthly pay.

If the employee has been employed for at least 12 months (at the time of the claim), then it is possible to claim the equivalent month from the previous year, or the average monthly amount in the year to 5th April 2020. This may work well in March for people paid an annual amount each March, but then would they be able to flip to the average amount in April, where there is no prior year equivalent? It would seem so as if the reference is to each month, then it would seem that a choice is available each month. If an employee has worked for less than 12 months, you should take an average over the period that they worked. However, if they only started part way through February 2020 then you will need to extrapolate the monthly pay accordingly.

However, the fact that this cash can only be reclaimed in the future, as things currently stand, leaves a potential headache for employers who will still need to fund the net amount of salary in the meantime. Where this is a problem, it seems that the recourse may be to consider the Business Interruption Loan Scheme (see below) which involves the Government, effectively, underwriting loans from commercial banks and lenders.

Holiday entitlement accrues over the furlough period. Statutory provisions have been enacted to allow staff that don’t take all of their holiday during a ‘leave year’ to carry it over to the next 2 years. Similarly, employers won’t need to ensure that full holidays are taken. Should an employee leave, then accrued but untaken holiday must be paid to them. Needless to say, the cause of the untaken leave must be due to the wider implications of COVID-19, essentially that it was not ‘reasonably practicable’ to take the leave. Finally, an employer may insist that leave is not taken, which would seem to be a provision to ensure vital roles are carried out during the pandemic.

There is some debate as to employee rights where someone is deemed employed for tax purposes but self-employed under employment law (as is not uncommon in the entertainment industry). Engagers will be worried that putting someone on furlough in such circumstances may grant them employee rights. Whilst we do not know the answer to this at present, it would seem unlikely given that this is a financial package operated by HMRC, but never underestimate the judiciary’s capacity to overturn logic at a future date!

The claim process (which will be online with HMRC) is not currently open, but when it is then a claim can be made at least every three weeks. Claim payments will be made into the employer’s bank account. 

Note that payments received under this scheme should be treated as taxable income of the employer but will, of course, be offset by the actual wages paid. Wages will still be paid through a payroll and tax and NIC operated. As previously noted, there is a cash flow issue here, and it remains to be seen how quickly HMRC can process repayments. It is likely that they will pay upon application and investigate later to check some claims, but this is not clear at the time of writing and they might withhold suspicious looking claims in some cases.

It may be worth contacting HMRC to try and defer PAYE payments whilst awaiting the cash from HMRC  (see below)

Statutory Sick Pay and COVID-19

This measure is open to small and medium sized entities with fewer than 250 employees. It covers all costs for employees over a two week period where they are claiming Statutory Sick Pay. Medical Certificates from GPs will not be required. At the time of writing, details are not available of exact amounts and how claims will be made. The scheme will operate from as soon as the regulations are enacted.

Deferring VAT payments due between 20 March and 30 June 2020

This scheme is only a deferral, but does help with cash flow. Payments due between 20 March and 30 June may be deferred any time until 31 March 2021. Although this is optional, it would seem advisable in any event. It should be noted, however, that this doesn’t cover the Mini One Stop Shop scheme for European traders. 

The presumption is that no interest nor penalties would be applicable to deferred payments.

VAT Returns will still need to be submitted on time, but HMRC does not need to be informed that you are deferring payments. Meanwhile, if you wish to defer but your VAT is collected by Direct Debit, then you’ll need to suspend the Direct Debit in the meantime!

Business Interruption Loan Scheme 

The Government has marshalled the main banks and other lenders to engage in this scheme whereby the Government covers the first 12 months’ interest charges and the lender’s fees and guarantees up to 80% of the loan. The loan is still repayable and interest will run from the start of year two. Loans can be up to £5 million and last up to 6 years. The earlier requirement that it only applies to firms who cannot get commercial finance elsewhere has been scrapped and banks have been prohibited from requiring personal guarantees in addition to the Government support for loans of less than £250,000.

This may be an ideal way of covering furloughs whilst the Government processes the repayments, or for the self-employed whilst they await payments under their scheme. Different banks will offer different deals of course, so shop around but you may find that they give preference to existing business customers. There are eligibility criteria (available from the British Business Bank) and the business must have turnover under £45million. Larger businesses may be eligible for the COVID-19 Corporate Financing Facility.

As we write, there have been announcements that there will also be another scheme for larger firms not currently eligible for loans, under which the Government would provide a guarantee of 80% so that banks could make loans of up to £25m to firms with an annual turnover of between £45m and £500m.

HMRC Time to Pay Service

All businesses, including the self employed may contact HMRC and arrange a payment schedule on a case by case basis. Phone lines are likely to be busy.

Getting a delay on paying PAYE in order to pay the following month’s wages may be appropriate, especially as you will be able to point out that you should be able to pay once refunded by the Job Retention Scheme payment.

Cash grants for the retail, hospitality and leisure sectors

These will apply to English businesses with premises and the relevant local authority will administer them. One off grants of £10,000 are available for businesses with rateable values of up to £15,000 and £25,000 for businesses whose premises have a rateable value of up to £51,000. The grants are sector specific and the premises must be used for shops, restaurants, cafes, drinking establishments, cinemas and live music venues, for assembly and leisure or as hotels, guest and boarding premises and self-catering accommodation. Local authorities should contact qualifying businesses in due course. However, they may miss some, so be alert and contact them if you are in doubt.

Rates holiday for the retail, hospitality and leisure sectors

There will be a rates holiday for English retail, hospitality and leisure businesses over the 2020/21 year who use their premises for shops, restaurants, cafes, drinking establishments, cinemas and live music venues, for assembly and leisure or as hotels, guest and boarding premises and self-catering accommodation. Local authorities should contact qualifying businesses in due course. However, they may miss some, so be alert and contact them if you are in doubt.

Rates holiday for nursery businesses

There will be a rates holiday over the 2020/21 year for English nursery businesses who use their premises as providers on Ofsted’s Early Years Register or premises wholly or mainly used for the provision of the Early Years Foundation Stage. Local authorities should contact qualifying businesses in due course. However, they may miss some, so be alert and contact them if you are in doubt.

Support for businesses that pay little of no business rates

The Government will provide additional Small Business Grant Scheme funding for English local authorities to support small businesses that already pay little or no business rates because of small business rate relief (SBRR), rural rate relief (RRR) and tapered relief. This will provide a one-off grant of £10,000 to eligible businesses to help meet their ongoing business costs. To be eligible the business must, as of 11 March 2020, be receiving small business rate relief. Local authorities should contact eligible businesses.

Companies House filing of accounts

If a company’s accounts are likely to be late due to COVID-19 then they can apply to Companies House for a three month filing extension so long as the accounts filing date has not already passed. This should be done online at Companies House website.

Self Employed

As you will probably have heard, the Government has announced some help for the self-employed over a three month period. To be eligible, a self-employed person’s trading profits must, effectively, be generally less than £50,000 and constitute more than half of their overall income. At this stage, as with most of the Government support initiatives, some of the details are yet to be honed, but to apply an individual (or partner in a partnership) must:

It is not clear yet how one proves a loss of profits, but it is probable that this will be by comparison to previous years. How this works with cyclical or sporadic trades, remains to be seen. For example, a ski instructor may not habitually work in April in any normal year! 

There are two tests for seeing whether a trader meets the £50,000 maximum profits test. They must either have had trading profits of less than £50,000 for 2018/19, or the average over the three years up to and including 2018/19 averaged under £50,000.
 
For example, if over the last 3 years, their profits were as follows:

2018/19: £43,000
2017/18: £55,000
2016/17: £37,000

3-year average = £45,000

As this is below £50,000, both in 2018/19 and under the average test, then they would appear to be eligible.

The calculation of the grant they would be eligible to receive would then be calculated as follows:

You first need to determine whether this exceeds the maximum allowed. The grant can be up to 80% of £45,000 (the average) which equals £36,000

However, this would exceed the maximum allowed of £30,000

Maximum:  £30,000
Per month (1/12): £2,500
Payable for 3 months: £7,500

HMRC would pay the £7,500 grant directly into the person’s bank account, in one instalment later on, but not during the 3 month period!

If the person’s average had been, say, £24,000, then the monthly figure would be £2,000, with the 3 month amount totalling £6,000.

The historic figures used will correlate to the person’s accounting period dates and, in consequence, what has been declared on their Tax Returns, rather than earnings between 6th April and 5th April each year.

Individuals cannot apply for this scheme yet. HMRC will contact eligible traders by the beginning of June and invite them to apply online. HMRC will use 2018/19 Tax Returns to identify eligible persons. However, using these criteria surely cannot identify a person with over £50,000 in 2018/19, but who meets the averaging test? HMRC are telling people not to apply yet, as this adds burden to the system, but it is reasonable to assume that anyone who qualifies but doesn’t get contacted by HMRC will have an opportunity to claim at some point.

Unlike the employee scheme, you can continue to work and claim the relief. The announcements seen at the time of writing do not specify how someone who continued to earn, say, £2,000 per month would be treated as it seems that they might be able to aggregate £4,500 (£2,000 actual earnings plus a £2,500 grant) whilst others get nothing. It is reasonable to expect that this will be addressed at some point, as will the proof of lost earnings. Indeed, it also may also be the case that the maximum is limited to the actual loss of earnings should it be lower than £2,500, although this is far from clear at this time.

It seems that anyone with a newly started business may fail to qualify as they cannot meet the 2018/19 declared profits criterion. The other issue which is bound to cause concern is that people, effectively self-employed but who trade through a limited company, paying themselves dividends (usually plus a small salary) are not covered by the announcement. This may well be addressed in due course, but we would need some clear definitions as to just who can qualify. Furthermore, if all directors are on the payroll, then they would be employees and it is considered difficult to qualify for a furlough under the employee scheme because, essentially, anyone on an employee furlough must not work for their employer at all during the furlough. This would seem difficult for a single person company. In a company with, say, 3 directors, it may be possible to put, say, 2 on furlough. As things stand though, persons operating through a company and taking dividends look a bit stranded…. Universal Credit may just be the only way unless further measures are being considered. Training can be undertaken whilst on furlough but the employer must pay at least minimum wage whilst this is undertaken even if it exceeds 80% of the salary.

Some freelancers flit between employee engagements and self-employed engagements, a situation made worse by HMRC’s aggressive IR35 campaign. It would seem that, so long as the self-employed element was more than 50% of earnings, then they would be eligible, but if the employee status earnings were high, this could be a problem. Indeed, as these employment contracts would be short term, it seems unlikely that they would be eligible for furloughs under the employee scheme. Where a person has two current PAYE positions, it is possible to continue to work at one whilst on furlough for the other. For people on zero hours contracts, an average will be used over recent months to estimate any claim. 

As things stand, anyone who falls outside of these conditions should look towards the benefits system. It will not be sufficient in many cases and there will be injustice unless some means of working to help unfortunate cases can be found. This is unlikely to be addressed immediately as Government time will be focused on initiatives that cover the majority before honing down to less common scenarios. 

With regard to Universal Credit, the calculation will ignore the Minimum Income Floor during the virus period, which is slightly helpful. Anyone with substantial savings and other income may find that this impairs their claim, and it will seem very unjust in some cases when compared to the standard packages for others. Hopefully this might be reviewed at some point when things become more orderly. 

Outside of the grants to cover earnings losses, there are other areas that the self-employed might explore.

The 31 July 2020 second instalment tax payments on account for 2019/20 can be deferred to 31 January 2021. There is no need to apply as this is automatic. Bizarrely, HMRC suggest that if you can pay then you should still pay on 31 July…. good luck with that HMRC! In fact, you do not need to be self-employed to benefit from this initiative.

Similarly, (as explained above) there is no need to make any VAT payments between 20 March and 30 June. This is a deferral and payment can be made any time up to 5 April 2021. Remember, that this is only for the specified period and, unless it is extended, payments will recommence as normal in July. Meanwhile, anyone paying their VAT by direct debit is advised to cancel the Direct Debit in the meantime.
 
English Retail, hospitality and leisure industry businesses may benefit from the rates holiday in some instances. The local authority will contact them. They may also be eligible for grants of up to £25,000, but they will need to be operating from premises and paying business rates (see above).

There is also the Coronavirus Business Interruption Loan Scheme (see above). The Government will cover the first 12 months interest and lender fees on loans of up to £5million and guarantee 80% of it. The major banks are all involved and borrowers will need to assess their respective offerings.

There is plenty more to be addressed, both in honing the already announced schemes and dealing with the less common scenarios where the hard luck stories will be numerous.

The Nyman Libson Paul to do list

  1. Stop the VAT direct debit immediately if you are a payer. Repayments will be made as normal.
  2. Phone the coronavirus PAYE helpline and agree a PAYE time to pay arrangement.
  3. Contact your landlord and request a rent reduction/deferral. Check if the rates relief applies to you.
  4. Consider each and every employee and placing them on furlough where they are idle. Consider which employees should be made redundant with furlough as an alternative. See sample furlough letter attached. Consider any costs that will be paused if you furlough someone e.g. software costs, training.
  5. Reduce hours or suggest unpaid leave of certain employees where possible.
  6. Consider the Coronavirus business interruption loan scheme. 
  7. Review on a line by line basis all expenditure to identify cost reductions and deferrals. 
  8. Review all standing orders and direct debits to see what can be cancelled or reduced. 
  9. Consider salary reductions for senior management team and all staff.
  10. Prepare a rolling 60/90 day cash flow for the business. Update this every day.
  11. Cancel all orders and negotiate any deposit rebates (furniture etc).

We propose to update this document as we receive new information and will continue to post useful updates on our home page as well as on Twitter and Linkedin.

However, in the meantime, if you have any concerns or questions, please get in touch with your usual contact at the Firm.

For further information, please see: www.artscouncil.org.uk/covid19 

If you have questions in relation to the above, please get in touch with your usual contact at the Firm. We are here to help you. 

Our team has put together a summary of the recent announcements and links to resources where you can find further support which may be helpful for your business, your family and professional contacts. 

The announcements include a package of measures to support businesses, including: 

1.  A statutory sick pay relief package for SMEs 

The Government will bring forward legislation to allow small- and medium-sized businesses and employers to reclaim Statutory Sick Pay (SSP) paid for sickness absence due to COVID-19. The eligibility criteria for the scheme will be as follows: 

2.  A 12-month business rates holiday for all retail, hospitality and leisure businesses in England 

3.  Small business grant funding of £10,000 for all business in receipt of small business rate relief or rural rate relief. 

4.  Grant funding of £25,000 for retail, hospitality and leisure businesses with property with a rateable value between £15,000 and £51,000. 

5.  The Coronavirus Business Interruption Loan Scheme to support long-term viable businesses who may need to respond to cash-flow pressures by seeking additional finance. 

6.  The HMRC Time To Pay Scheme 

 

Support for Business Website: here is a link to the support for business website which provides more details  

Extension of IR35 postponed: as a separate measure, the UK Government announced yesterday – although a briefing note from the UK Government has not yet been published to formally confirm this – that the extension of IR35 to medium and large companies in the private sector is being postponed by a year, to 6 April 2021. 

Business Interruption Insurance: there have been press reports that the insurance industry may seek to argue that they will not pay out under the terms of any business interruption insurance policies. 

The current advice from the UK government is 

We suggest that if you have that type of cover in the UK and, if your business is affected, that you look into the exact terms and speak with your insurance broker. 

UK Government Coronavirus update page: here is a link to the Government Coronavirus update page. You can register to receive updates. 

If you have any concerns or questions in relation to the above, please get in touch with your usual contact at the Firm. We are here to help you.

The content of this note is provided for general purposes only and does not constitute professional advice specific to your situation and should not be relied upon. Before any action is taken, please speak with your usual contact at Nyman Libson Paul. 

R&D tax reliefs: the benefits

The government actively encourages companies to carry out R&D in order to help grow their firm and increase profitability. A wide range of tax incentives exist, which are designed to encourage investment in R&D. Different types of incentives are available, depending on the size of the company. These include an increased deduction for R&D spending, alongside a payable R&D tax credit for those companies not yet in profit.

The government has stated that it is ‘committed to improving access to R&D’ for small and medium-sized enterprises (SMEs). Below, we outline how companies can claim R&D tax reliefs.

Claiming R&D tax reliefs

SMEs are permitted to claim R&D tax relief if they have fewer than 500 members of staff and a turnover of under €100 million, or a balance sheet total of less than €86 million. The relief permits SMEs to deduct an additional 130% of qualifying costs from their yearly profit. This is in addition to the normal 100% deduction, giving a total deduction of 230%.

A company may be able to surrender losses for cash repayments in instances where the R&D tax claim creates a tax loss. Currently, this is calculated at 14.5%.

In order to make the most of R&D tax relief, a company must have incurred expenditure on qualifying R&D projects that are related to its trade. Projects must be innovative and should assess and attempt to resolve scientific or technological issues.

Qualifying expenditure falls into different categories. These include staffing costs; software costs; expenditure on consumables or transformable materials; costs of work done by subcontractors; and costs of clinical trial volunteers.

Using the Research and Development Expenditure Credit (RDEC) scheme

The RDEC scheme is a replacement for the large company scheme, but can also be used by SMEs  that have received a grant or a subsidy for their R&D project or are subcontracted to do R&D work by a large company. The credit is taxable, and is calculated at 12% of a company’s qualifying R&D expenditure incurred. This credit may be used to discharge the corporation tax liability, depending on whether the company makes a profit or a loss. It could also result in a cash payment. Where no corporation tax is due, the amount can be repaid net of tax or used to settle other debts.

For further information and advice on R&D and claiming R&D relief, please get in touch with us.

1. Deliberately decide what to take out

Why? Because getting the best tax results is never a matter of chance

The most tax efficient way to extract profits for director-shareholders is usually to pay a minimal salary and top up with dividends. The salary level can be pitched to keep state pension entitlement, but stopping short of the point at which National Insurance contributions (NICs) are due. This strategy can lead to considerable savings in NICs.

Dividends have their own tax treatment. Basic rate taxpayers pay tax at 7.5% on dividends, higher rate taxpayers 32.5% and additional rate taxpayers 38.1%. Taken alongside the Dividend Allowance, £2,000 in 2019/20, this can produce very favourable results. Remember however, that company profits taken as dividends are chargeable to corporation tax – currently 19%.

Where finances are such that you don’t actually need to extract profits, consider leaving some in the company. Although they stand to be taxed at corporation tax rates, this is still lower than paying at income tax rates. Retained profits can be used to fund expansion, possibly bringing future business development a step closer. On the other hand, you don’t want to become an accidental investment company – see resolution number 5. 2.

Think pensions

Why? Because pensions for directors provide ideal planning opportunities

Extracting profit from your company via pension contributions can be very tax efficient. If the company makes employer pension contributions for directors, it is generally free of tax for the director. There is no National Insurance for the employer or director on the contribution. The company should also qualify for tax relief on the contribution. There is potential to make contributions for a spouse also employed by the company.

There are still limits to watch. The annual allowance – usually £40,000 – is the total employer and employee contribution that can be put into a defined contribution pension scheme each year. However, the annual allowance can fall by £1 for every £2 of ‘adjusted’ income over £150,000, until it reaches a minimum of £10,000. Adjusted income includes not only total income, but the value of employer pension contributions for the year.

On the other hand, there may be unused annual allowance from the three previous years, which can give scope for significant pension contribution without a charge. Please don’t hesitate to contact us for advice.

3. Review loans from the company

Why? Because your loan account has tax implications for both you and your company at the year end

Director-shareholders in family companies often have a ‘loan’ advance from the company. A director’s loan is any money received from the company that is not salary, dividend, repayment of expenses, or money you have previously paid into or lent to the company. Loan advances often represent personal expenses paid by the company. That sounds technical, but is actually as simple as putting a pony magazine for your daughter and a six pack of crisps on the company card when you fill up with fuel.

If you have a loan from your family company, the company faces a tax charge if it’s not paid back within nine months of the end of your accounting period. This is an amount equal to 32.5% of the loan. If you pay it back within nine months, there is no tax charge.

There are tax efficient ways to make the repayment, including awarding a valid bonus or dividend. HMRC is wary of arrangements where a director repays a loan in time to avoid a tax charge, but then takes out a second loan for a similar amount almost immediately. This is a complex area and we are always happy to advise.

4. Work out where family fits in

Why? Because employing family members multiplies tax efficiency

Look for opportunities to involve your family in the business. Which areas of work could you effectively delegate? Employing a spouse, sibling or the next generation can mean more opportunities to extract profit from the company before higher rates of income tax come into play. The rider is that profit extracted for family members needs to reflect commercial reality, and match the work they actually do.

5. Plan ahead

Why? Because some of the most important tax reliefs available to your company can easily be lost

It’s very easy to get bound up in the day to day running of your company and lose the long-term perspective. But eventual access to reliefs like Entrepreneurs’ Relief (ER) for capital gains tax purposes and Business Property Relief (BPR) for inheritance tax can be significantly affected by decisions you take now. Recent change to rules on ER makes it more critical than ever before that shareholding, voting rights, entitlement to distributable profits and assets available on a winding up are correctly structured.

Getting it right here will help with another resolution: don’t accidentally turn from a trading business into an investment company. This can be a risk if your company buys land or property, or you retain considerable profits in the company. For ER on the sale of a company, there may be an issue where 20% or more of the total value of the company stems from non-trading investment activities. Availability of BPR can also be affected if non-trading assets are more than 50% of the value of the company.

Please contact us to shape tax efficient, bespoke solutions for you and your family company.

Divorcing couples

Tax is never at the top of the agenda when a relationship ends, yet the tax consequences can be far-reaching. A jointly-owned family home is often the most important asset when couples divorce. But for many practical reasons, its value isn’t always rapidly realised, and for divorcing couples, the reduction in the CGT final period exemption for property disposals on or after 6 April 2020 could have considerable impact.

The final period exemption gives a useful extension to the time available to dispose of a property that has, at some time, been the main private residence. It can be particularly relevant in a marriage breakdown, where one party moves out of the family home. Hitherto it has given an 18-month grace period. Someone buying a property as a new main residence, before disposing of the old, could obtain private residence relief on the original home for the last 18 months of ownership, even after moving out.

But from April, the final period becomes nine months, giving less time to sell before a CGT charge could arise. Where higher rate taxpayers are involved, this could mean a tax rate of 28% applies. Also from April, new requirements to report and pay CGT within 30 days of completion have the potential to add to the financial strain of divorce.

HMRC treats spouses and civil partners as living together unless separated under court order; by a formal Deed of Separation executed under seal (this should be witnessed in Scotland); or in circumstances such that the separation is likely to be permanent. Whilst living together, a couple can only have one residence to which private residence relief pertains. Following separation, it is possible to obtain relief on a different property.

There is a concession for divorcing couples, where one party moves out of the family home. It can extend the final period exemption, but only where an interest in the family home is transferred to the other party as part of the overall financial settlement on separation, divorce or dissolution. If transfer takes place outside the final period exemption window, full private residence relief would be normally be lost. Here it can be extended to the date of transfer, or date that the recipient spouse ceases to use the property as their main residence – whichever is the earlier. A tax claim must be made for this treatment to apply. It will not always be advantageous, as the spouse moving out cannot then get relief on any new purchase for this period.

Other considerations

Where one party moves out and buys another home before disposing of their interest in the family home, for example, there is also the fact that higher rates of tax are paid on the purchase of ‘additional’ property throughout the UK. Although in some circumstances, a refund can be claimed on sale of the previous main home, the impact in terms of cash flow can be significant. To discuss tax and marriage breakdown more fully, please do not hesitate to get in touch.

Whose main residence?

A further change from 6 April 2020 will also affect married couples and civil partners. Where property is transferred between spouses, the receiving spouse will always take on the other spouse’s history of use of the property. At present, this only happens if the property is their main residence when the transfer takes place. Due to the tax free transfer rules between spouses, this can produce anomalous results where a property has been the main residence of one, but not both, spouses in the past. The new rule may significantly affect the amount of private residence relief available to spouses following such transfers.

The new spousal rules will impact different people in different ways, and we would recommend bespoke advice, tailored to your circumstances. It may be that transfer before 6 April 2020, under the old rules, or after 6 April, under the new rules, produces the best results for you. We are happy to advise on optimal timing.

We could all echo the line from ‘Gone with the Wind’ quoted in a recent Office of Tax Simplification (OTS) report. But for the increasing number of people using home help, such as carers for disabled or elderly relatives, the OTS thinks tax can be particularly challenging.

If the work arrangement amounts to direct employment, the individual or family concerned should operate a PAYE scheme. This applies whether hiring help directly, or with funding from a body such as the local authority or NHS.

Some local authorities offer a payroll service. If not, HMRC’s free Basic PAYE Tools (BPT) software can be used where working arrangements are straightforward. Further information about BPT can be found here. Provision of payslips is now a legal obligation for employers, and in a welcome move, HMRC has advised that BPT is being updated to provide the functionality to do this from April 2020.

Employing home help also brings other responsibilities, such as the need to pay National Minimum or National Living Wage (NLW). There are also pensions auto-enrolment obligations and employment law issues to consider. We are always happy to advise in this area.

February 2020

2     Deadline for submitting P46(Car) for employees whose car/fuel benefits changed during the quarter to 5 January 2020.
19     PAYE, Student loan and CIS deductions are due for the month to 5 February 2020.

March 2020

1     New Advisory Fuel Rates (AFR) for company car users apply from today.
2     5% late payment penalty on any 2018/19 outstanding tax which was due on 31 January 2020 and still remains unpaid.
19     PAYE, Student loan and CIS deductions are due for the month to 5 March 2020.
31    

End of corporation tax financial year.     

End of CT61 quarterly period.     

Filing date for Company Tax Return Form CT600 for period ended 31 March 2019.

Last minute planning for tax year 2019/20 – please contact us for advice.

April 2020

5

Last day of 2019/20 tax year.     

Deadline for 2019/20 ISA investments and pension contributions.     

Last day to make disposals using the 2019/20 CGT exemption.
14     Due date for income tax for the CT61 period to 31 March 2020.
19    

Automatic interest is charged where PAYE tax, Student loan deductions, Class 1 NI or CIS deductions for 2019/20 are not paid by today. Penalties may also apply if any payments have been made late throughout the tax year.

PAYE quarterly payments are due for small employers for the pay periods 6 January 2020 to 5 April 2020.

PAYE, Student loan and CIS deductions are due for the month to 5 April 2020.

Deadline for employers’ final PAYE return to be submitted online for 2019/20.

   

UK SMEs owed £23.4 billion in late payments

Late payment debts owed to the UK’s small and medium-sized enterprises (SMEs) now total £23.4 billion, according to research.

A survey conducted by Pay.UK, which runs the BACS direct credit and direct debit payment services, showed that debts due from late payments have soared by over £10 billion from the £13 billion total reported in 2018.

Over half of SMEs have experienced overdue payments, and the average debt burden per business has increased to £25,000.

Some 78% of SMEs say they are being forced to wait a month beyond agreed payment terms, while another 45% are being kept waiting over two months. In addition, the bill for chasing late payments has now reached £4.4 billion a year.

Commenting on the research, Paul Horlock, CEO of Pay.UK, said: ‘It is concerning that so many smaller businesses are struggling because of late payments… especially as there are so many ways they can now get paid.

‘Offering customers a choice of payment or automated options can help remove barriers to make sure a bill is settled on time.’ 

UK minimum wage gets largest ever raise

Millions of UK workers will see their pay rise after the government made the biggest ever cash increase in the legal minimum wage.

The government has announced a 6.2% increase in the National Living Wage (NLW), which applies to workers aged 25 and over. The NLW will rise from the current rate of £8.21 to £8.72 an hour, in the largest raise since it was introduced two decades ago.

The government has confirmed that the new rate will start on 1 April 2020 and will result in an increase of £930 annually for 2.8 million full-time workers earning the NLW.

Workers aged under 25 earning the National Minimum Wage (NMW) will also see increases of between 4.6% and 6.5%, depending on their age.

Commenting on the rise, Bryan Sanderson, Chair of the Low Pay Commission (LPC), said: ‘The NLW has been an ambitious long-term intervention in the labour market. The rate has increased faster than inflation, faster than average earnings and faster than most international comparators.

‘This has raised pay for millions without costing jobs, although employers have had to make a variety of other adjustments to deal with the increases.’

They can be advised to:

Where employees are unable to provide you with a NINO by the time you run your payroll, HMRC suggests that the relevant field on your Full Payment Submission is left blank.

The Open University Business Barometer 2019 found that UK business is spending £4.4 billion annually to address the skills shortage, with the cash going on recruitment fees, increased salaries, temporary staff and training costs to upskill workers. More than two thirds of employers had difficulty finding appropriately skilled employees. Managerial skills were in particularly short supply, with IT and leadership skills coming second. In around a quarter of cases, positions went unfilled. Many employers felt that their business was not as agile as it needed to be to tackle future challenge successfully, and nearly half anticipated a knock-on effect on business finances.

A key take-away message was that businesses are increasingly growing their own in-house talent. Over 50% had increased the spend on training and development, with long-term sustainability, and increased staff loyalty cited as additional benefits. Work-based training and apprenticeships were particularly attractive to over half the businesses surveyed.

We should be pleased to advise on any part of the recruitment process, including the creation of apprenticeships. Do not hesitate to contact us to discuss your business strategy.

The findings are sobering. They cite charity fraud potentially running into billions of pounds each year, with the ‘strong ethos of trust’ leaving charities particularly vulnerable. And whilst 85% of charities think they are doing everything they can to prevent fraud, nearly half don’t have good practice protection in place.

Cybercrime is another growth area, and there are fears that the higher age profile of charity trustees can coincide with lower levels of cyber awareness. The survey recommends that charities clarify responsibility for managing the risk of cybercrime, ensuring that it’s a governance priority for every Board.

Insider fraud is a major concern. Of the charities experiencing fraud in the last two years, more than half knew who the criminal was. Fraudsters came from the ranks of paid staff (29%), volunteers (18%), beneficiaries (13%) and trustees (10%). But there are ‘red flags’ to look out for. These can be things like someone seeming unwilling to share duties, being reluctant to delegate or to take holiday – or perhaps seeming unusually close to suppliers.

Most frauds are small-scale and time-limited. They range from cash theft; cheque or banking fraud; to so-called ‘Mandate’ or ‘Chief Executive’ (CEO) fraud. This is the most common type of charity fraud, often carried out by hoax email. With CEO fraud, the fraudster impersonates an organisation that the charity deals with, or senior staff within the charity itself.

Appropriate financial controls and audit procedures are likely to detect many of these issues. The Charity Commission has a clear call to action, recommending that charities:

‘Strong customer authentication’ (SCA) is a new way for banks and payment service providers to verify customer identity and validate payment instructions. SCA stems from the EU’s Payment Services Directive, and should go ahead regardless of Brexit. The complete suite of changes should soon be in place: by 14 March 2020 for online banking services, and by March 2021 for online shopping. In many cases, SCA will entail customers using a smartphone, although there are workarounds suggested for those without a smartphone or reliable signal. Customers will have to provide two different types of information, out of three different categories: knowledge – something only the user knows, like a PIN or password: possession – something only the user possesses, like a card checked by a card reader: and inherence – something unique to the user, like voice or fingerprint.

Card issuers, payments firms and online retailers are preparing for the change. You may find they contact you with details of their plans.

Why the business-next-door could soon be driving electric

Key to the new regime is the new Worldwide Harmonised Light vehicle Test Procedure (WLTP), which replaces the current New European Driving Cycle (NEDC) emissions test. With higher carbon dioxide (CO2) readings anticipated under WLTP, vehicle tax will be impacted in various ways. From April 2020, the CO2 value obtained under WLTP will be used to determine Vehicle Excise Duty – although existing VED rates are retained in April, pending further government consultation. And for all new cars provided to employees and available for private use, first registered from this date, the WLTP CO2 figure will affect BiK treatment.

For BiK purposes, tax is worked out by multiplying the list price of the car (including most accessories) by the ‘appropriate percentage’. Percentages are determined by fuel type and level of CO2 emissions.

The changes provide business owners with considerable food for thought, and we have only been able to highlight key points here. The decision to go electric is a major one, involving not just tax, but consideration of the available infrastructure, charging facilities, total business mileage, and other issues. Do contact us for an in-depth discussion of your business motoring strategy, and tax efficient provision of employee benefits.

What is a cryptocurrency?

Cryptocurrencies are relatively new and technological innovations have led to them being created in a wide range of forms with varying uses. They are cryptographically-secured digital representations of value or contractual rights that can be transferred, stored or traded electronically.

Entering the mainstream

Although cryptocurrencies have not yet become part of everyday spending for the average UK adult, their use is slowly but surely becoming commonplace. Bitcoin is the best known of the cryptocurrencies, and 2017’s spectacular rise in value aroused much interest. That rally highlighted the potential of Bitcoin as an investment; however, it is increasingly available for everyday usage. More businesses are now accepting Bitcoin as payment for goods and services.

Losses and scams

The value of cryptocurrencies can be volatile, and holdings have been subject to cyber loss or theft. Bitcoin value rocketed to over £13,800 during 2017: however, at the time of writing it is trading at around £6,600. Meanwhile, Action Fraud figures show cryptocurrency frauds totalled £2 million during one two-month period.

Tax treatment of cryptocurrencies

HMRC recently issued guidance on the tax treatment of cryptocurrencies for businesses.

The UK tax authority stressed that it does not consider cryptocurrencies to be currency (e.g. pound sterling), stock or marketable securities. This means that any corporation tax and capital gains tax (CGT) legislation which relates solely to currency does not apply to cryptoassets.

However, HMRC makes clear that if a business is carrying out activities that involve exchange tokens, they are liable to pay taxes, including CGT, corporation tax or VAT on them. This includes activities such as buying and selling exchange tokens; exchanging tokens; ‘mining’ assets; and providing goods or services in return for exchange tokens.

It also requires businesses to keep records of cryptocurrency transactions in pounds sterling, and to keep records of the valuation methodology for these transactions. HMRC previously published cryptocurrency taxation guidance for individuals, clarifying several taxation issues.

Individuals will be liable to pay income tax and national insurance contributions (NICs) on cryptocurrencies that they receive from their employer as a form of non-cash payment, or through mining, transaction confirmation or airdrops.

For further information and advice on tax or investment matters, please get in touch with us.

R&D tax reliefs: the benefits

The government actively encourages companies to carry out R&D in order to help grow their firm and increase profitability. A wide range of tax incentives exist, which are designed to encourage investment in R&D. Different types of incentives are available, depending on the size of the company. These include an increased deduction for R&D spending, alongside a payable R&D tax credit for those companies not yet in profit.

The government has stated that it is ‘committed to improving access to R&D’ for small and medium-sized enterprises (SMEs). Below, we outline how companies can claim R&D tax reliefs.

Claiming R&D tax reliefs

SMEs are permitted to claim R&D tax relief if they have fewer than 500 members of staff and a turnover of under €100 million, or a balance sheet total of less than €86 million. The relief permits SMEs to deduct an additional 130% of qualifying costs from their yearly profit. This is in addition to the normal 100% deduction, giving a total deduction of 230%.

A company may be able to surrender losses for cash repayments in instances where the R&D tax claim creates a tax loss. Currently, this is calculated at 14.5%.

In order to make the most of R&D tax relief, a company must have incurred expenditure on qualifying R&D projects that are related to its trade. Projects must be innovative and should assess and attempt to resolve scientific or technological issues.

Qualifying expenditure falls into different categories. These include staffing costs; software costs; expenditure on consumables or transformable materials; costs of work done by subcontractors; and costs of clinical trial volunteers.

Using the Research and Development Expenditure Credit (RDEC) scheme

The RDEC scheme is a replacement for the large company scheme, but can also be used by SMEs that have received a grant or a subsidy for their R&D project or are subcontracted to do R&D work by a large company. The credit is taxable, and is calculated at 12% of a company’s qualifying R&D expenditure incurred. This credit may be used to discharge the corporation tax liability, depending on whether the company makes a profit or a loss. It could also result in a cash payment. Where no corporation tax is due, the amount can be repaid net of tax or used to settle other debts.

For further information and advice on R&D and claiming R&D relief, please get in touch with us.

For more information about how they might impact you please download our Election Fact Sheet.

Download our Election Manifesto Fact Sheet

If you would like more information please feel free to contact us.

Broadly speaking, private residence relief (PRR) means there is usually no CGT to pay on the sale or disposal of your main or only residence. To ‘better focus’ PRR on owner-occupiers, the 2018 Budget announced changes to the final period exemption and lettings relief. You may want to consider your affairs now in the light of these changes.

Taking a look at the final period exemption

Currently, the final period exemption means you are not usually liable to CGT for the last 18 months of ownership, even if you don’t actually live there. This was intended to provide protection for someone moving to a new main residence when there was difficulty selling the original home. However, from April 2020, the final period exemption will be cut to nine months. The change could create CGT consequences for significantly higher numbers of property transactions. If buying a new property before selling the old, it will be important to try to sell within nine months to avoid a possible CGT bill.

There is an exception for those in, or moving into, care home accommodation, or those with a disability. Provided they or their spouse do not own any other residences there is a final 36-month deemed occupation period, which is not changing.

A word on lettings relief

At present, lettings relief gives up to £40,000 relief (£80,000 for a couple who jointly own the property) for someone letting part, or all, of a property which is their main residence, or was the former main residence at some point in their period of ownership. But, under the new regime, lettings relief will only be available where you jointly share occupation with a tenant. These new rules will apply for disposals from 6 April 2020, regardless of when the period of letting took place, even if before April 2020. This is likely to considerably reduce its scope.

We have only been able to provide an overview of the new rules here and complexities can arise. Examples include periods of absence from a main residence, or ownership of more than one property. Please do talk to us for advice on your individual circumstances.

Changes from 2020

From 6 April 2020, there is also a major change to the deadlines for paying CGT when disposing of a residential property. This may apply when a second home, an inherited property, or a rental property is sold or otherwise disposed of. Individuals, trustees and personal representatives should all be aware of the forthcoming change.

In future there will be a 30-day window after the completion date for the property disposal to file a return and calculate and make payment on account of the CGT bill. This changes the current procedure, with payment made as part of the self-assessment cycle, and CGT payable by 31 January of the tax year following the year of disposal. If no payment is due, reporting will not be required. This would be the case if, for example, PRR is available in full.

The change mirrors current obligations of non-UK residents. Since 6 April 2019, non-resident CGT has applied to direct and indirect disposals of UK land or property, whether commercial or residential, with non-resident companies being chargeable to corporation tax. There is a 30-day reporting requirement, even if there is no tax to pay. Where tax is due, it must be paid within 30 days of completion. The charge to CGT on gains from the Annual Tax on Enveloped Dwellings (ATED) has been removed.

Tax and property are complicated and it is always prudent to discuss the potential tax implications of any property transaction. For peace of mind, please do not hesitate to contact us.

Some doctors have recently been refusing overtime shifts after being hit with ‘punitive tax bills’ following changes to the amount that can be accrued tax-free. In a joint statement from the Department for Health and Social Care and the Treasury, ministers said that new rules would allow NHS employees to ‘scale down’ their pension contributions in order to avoid breaching the annual allowance (AA). The pensions row has been linked to a rise in waiting times for routine surgery caused by doctors’ refusal to work beyond normal hours.

Commenting on the matter, Steve Webb, Director of Policy at insurers Royal London, said: ‘NHS services are now being seriously impacted by GPs and senior doctors choosing to retire prematurely or cut hours because of tax relief limits. This issue needs to be addressed as a matter of urgency.’

Two key allowances have exacerbated NHS problems: the AA and the tapered AA. The type of pension scheme involved also plays a part, the NHS pension scheme being a defined benefit arrangement.

The AA – usually £40,000 – is the total employer and employee contributions that can be put into a defined contribution pension scheme each year. For a defined benefit scheme, the AA is generally measured against how much the value of the accrued pension has risen over the year. Factor in the AA taper, introduced in 2016 to restrict relief for top earners, and the position becomes very complicated. The taper can reduce the AA from £40,000 to £10,000, cutting it by £1 for every £2 of ‘adjusted’ income over £150,000. Adjusted income includes not only total income, but also the value of employer pension contributions for the year. The taper doesn’t apply if taxable income, after allowing for certain reliefs, is below £110,000. 

For those in defined benefit schemes, benefit build up can be significant – and not immediately visible to the individual involved. Large pay increases and long pensionable service compound the issue. 

For those in defined contribution schemes, significant employer contributions may result in a tapered AA if total income, such as pay and dividends, exceeds £110,000. 

How we can help

We are always happy to advise on pension issues and the associated tax planning opportunities. Please do not hesitate to get in touch. We would also be delighted to discuss the outlook for the future, should you be affected by the government’s new undertaking to minimise AA problems and create ‘full flexibility’ over pension contributions for senior NHS clinicians. 

Tax Tip

Minimising your national insurance contribution

(NIC) liability NICs are essentially a tax on earned income. The NICs regime divides income into different classes: Class 1 contributions are payable on earnings from employment, while the profits of the self-employed are liable to Class 2 and 4 contributions.

Many strategies for saving NICs are available to business owners. An employer may wish to increase the amount they contribute to company pension schemes; make use of share incentive plans; or disincorporate and operate as a sole trader or partnership. Business owners could also opt to pay a bonus to reduce employee NICs, or pay themselves dividends instead of bonuses. 

We can help you to minimise your NIC liability. Please get in touch for more information.

Reminders for your diary

02 November: Deadline for submitting P46(Car) for employees whose car/fuel benefits changed during the quarter to 5 October 2019.

19 November: PAYE, Student loan and CIS deductions are due for the month to 5 November 2019.

01 December: New Advisory Fuel Rates (AFR) for company car users apply from today. 

19 December: PAYE, Student loan and CIS deductions are due for the month to 5 December 2019.

30 December: Online filing deadline for submitting 2018/19 self assessment return if you require HMRC to collect any underpaid tax by making an adjustment to your 2020/21 tax code.

31 December: End of CT61 quarterly period.

Filing date for Company Tax Return Form CT600 for period ended 31 December 2018.

01 January: Due date for payment of corporation tax for the period ended 31 March 2019.

14 January: Due date for income tax for the CT61 quarter to 31 December 2019.

19 January: PAYE, Student loan and CIS deductions are due for the month to 5 January 2020.

PAYE quarterly payments are due for small employers for the pay periods 6 October 2019 to 5 January 2020.

31 January: Deadline for submitting your 2018/19 self assessment return (£100 automatic penalty if your return is late) and the balance of your 2018/19 liability together with the first payment on account for 2019/20 are also due.     

Capital gains tax payment for 2018/19.

Balancing payment – 2018/19 income tax 
and Class 4 NICs. Class 2 NICs also due.

TPR warns changing name of a business ‘doesn’t change pensions duties’

The Pensions Regulator (TPR) has warned businesses that they cannot dodge their workplace pension responsibilities by changing their company name.

According to the TPR, some employers are committing offences by creating new businesses, transferring their workforce and liquidating the ‘old’ business. Other employers claim that they have no workers. However, the TPR can see from its data that they are paying wages.

The Regulator is working in conjunction with the Insolvency Service to tackle the issue.

Regarding rebranding, the TPR stated that there is ‘nothing wrong with genuine rebranding’, and that rebranding has no impact on an employer’s automatic enrolment duties. A business carrying out a rebrand is ‘still the same entity’ and the TPR will ‘take action if employees are denied the pensions they are entitled to’.

Commenting on the issue, Darren Ryder, Director of Automatic Enrolment at the TPR, said: ‘Some bosses might think that by changing the name of their company they can avoid their duties, but they should know they are on our radar.

‘We will not tolerate any attempt to deny employees the workplace pensions they are entitled to – and will take action against those who try to dodge their duties.’

Fraud ‘costing UK businesses £130 billion each year’, report suggests

A report published by the Centre for Counter Fraud Studies at the University of Portsmouth has suggested that fraud costs UK businesses £130 billion each year.

According to the data, the number of losses incurred as a result of fraud has risen by 56.5% since 2009. Reducing fraud losses by 40% would ‘free up more than £76 billion each year’, the report stated.

It also found that 80% of global fraud losses are ‘larger than the UK’s entire GDP’.

Commenting on the findings, Jim Gee, Chair of the Advisory Board at the Centre for Counter Fraud Studies, said: ‘Sadly, too many organisations adopt a reactive approach to fraud and only look to tackle it once it has taken place, and losses have already occurred. A change of perspective is needed. Fraud is an ever present, high volume, low value problem and only a small proportion is detected.

‘We need to view fraud as a business cost – by understanding the nature and scale of the cost, we can reduce its extent – enhancing the profitability of companies and ensuring better funded public sector and charitable organisations.’

CIOT, IFS and IfG urge Chancellor to ‘take a new approach to making tax policy’

The Chartered Institute of Taxation (CIOT), the Institute for Fiscal Studies (IFS) and the Institute for Government (IfG) have urged Chancellor Sajid Javid to ‘take a new approach to making tax policy’.

The groups have co-signed a letter to the Chancellor, in which they urge him to outline the principles and objectives that will inform his tax policy.

In the letter, the groups called for the Chancellor to ‘consult on tax policies at an earlier stage in policy development’, and to ‘professionalise tax policy-making in the Treasury’. They also urged the Chancellor to confirm that there will be ‘no going back’ to the ‘old days of multiple fiscal events’.

Additionally, the groups have called for the Chancellor to ‘consult earlier with a wide group of stakeholders’ on tax matters, and to carry out a ‘more systematic evaluation of tax measures’, including tax reliefs. Tax measures must be effectively reviewed to ensure they are ‘achieving their objectives at acceptable cost’, the groups added.

New OTS project aims to explore simplifying tax reporting for the self-employed

The Office of Tax Simplification (OTS) has launched a new project, which aims to explore how tax reporting and payment arrangements for self-employed people can be simplified.

Introducing the project, the OTS stated: ‘The OTS has heard that some, including some of those working freelance or in the gig economy, would welcome the option to report information and pay tax to HMRC periodically or on the completion of work assignments, rather than only through self-assessment.’

The OTS intends to explore options concerning information reporting and paying tax in or closer to real-time, which could ‘make it simpler for people who are self-employed or receive private residential property income to meet their tax obligations in a practical and streamlined way’.

In the report, the OTS said that it understands that self-employed individuals ‘work in diverse ways and contexts’. As a result, it is ‘quite possible’ that there will not be one single approach to simplifying tax reporting. The OTS intends to give consideration to the merits of having different approaches for different groups, or creating one overall system with sub-options.

The OTS will publish an initial paper on the matter in the autumn.

Web Watch

Essential sites for business owners. 

www.theaccountant-online.com
Provides coverage of international accountancy news.

www.oecd.org/unitedkingdom
Keeps individuals up-to-date on the latest economic forecasts.

www.re-work.co
Analyses the latest technological innovations and developments.

www.iod.com
Outlines businesses’ opinions on tax and business matters. 

The DRC does not change the VAT liability: it changes the way that VAT is accounted for. In future the recipient of the services, rather than the supplier, will account for VAT on specified building and construction services. 

This major change entails adaptation to invoicing and accounting systems, and a negative impact on cashflow for suppliers.

The DRC is a business-to-business charge, applying to VAT-registered businesses where payments are required to be reported through the Construction Industry Scheme (CIS). It will be used through the CIS supply chain, up to the point where the recipient is no longer a business making supplies of specified construction services. The rules refer to this recipient as the ‘end user’.

Broadly, the DRC means that a contractor receiving a supply of specified construction services has to account for the output VAT due – rather than the subcontractor supplying the services. The contractor will then be able to deduct the VAT due on the supply as input VAT, subject to the normal rules. In most cases, no net tax on the transaction will be payable to HMRC. 

Overall, the change may mean that the construction sector is likely to be subject to considerable HMRC scrutiny in the foreseeable future. Under the rules, for example, some subcontractors, with VAT to reclaim on inputs but no VAT to charge on outputs, will regularly receive VAT refunds. A regular repayment position could trigger a VAT inspection.

The government cites concern that some businesses are not yet ready to implement the change – and possible coincidence with Brexit – as the reasons for the delay.

Where businesses have changed their invoicing to be DRC-compliant and cannot reverse this in time, HMRC will take the change in implementation date into account should genuine errors occur. Businesses which have now adopted a monthly VAT return cycle, in order to mitigate any cashflow disadvantage, can change back to quarterly reporting during the interim if they prefer. 

If you would like assistance, please do contact us. Despite the delay, the government is still committed to the DRC, and businesses which have not yet assessed how they need to comply should still do so.

The new regime will affect you if you work via your own personal service company (PSC). Off-payroll workers should be aware that their clients are likely to investigate the profile of the contractor workforce more closely than before, as part of a general review of compliance, strategy and spend. However, the changes could be felt more widely. Anyone supplying personal services via an ‘intermediary’ could be within the scope of the IR35 rules. An intermediary can be an individual, a partnership, an unincorporated association or a company. 

Will you be affected?

The change could impact you if you supply personal services to large and medium organisations in the private and voluntary sector. If the client is a ‘small’ business, the rules are unchanged. A company is considered ‘small’ if it meets two of these criteria: 

If your contract is with an unincorporated organisation, the new rules only apply if its annual turnover is more than £10.2 million.

Determining employment status

Under the new rules, responsibility for making the decision as to whether IR35 rules apply passes to the business you contract for. The key question is whether, if your services were provided directly to that business, you would then be regarded as an employee. You may be used to this if you undertake contracts in the public sector, where similar provisions already exist. HMRC has an online ‘check employment status check tool’ (CEST), which can be found at 
www.gov.uk/guidance/check-employment-status-for-tax, and undertakes to stand by the results if information provided is accurate and given in good faith. It can be used by you or your client, although, at present, HMRC considers it is unable to determine status in 15% of cases. Many commentators consider the failure rate to be much higher. HMRC is working to improve the CEST tool with the forthcoming changes in mind. 

In the future, your client will have to give you the reasons for its status decision in a ‘Status Determination Statement’ (SDS). If you disagree, you can challenge the status determination with the business and it should respond within 45 days, either withdrawing or upholding the decision, again supplying reasons.

Looking to the future

Significant tax implications arise if IR35 applies, as the business or agency paying you will calculate a ‘deemed payment’ based on the fees charged by your PSC. Broadly, this means you are taxed like an employee, receiving payment after deduction of Pay as You Earn (PAYE) and employee national insurance contributions (NICs). If you operate via a PSC, the PSC will receive the net amount, which you can then receive without further payment of PAYE or NICs. The potential tax advantages of working under such a contract – especially for PSCs – are much reduced.

This is a good time to take stock of your options. Are clients likely to query your employment status? Should you consider restructured work arrangements, or renegotiating fees? If working via a PSC, is it still the best business model? With clients checking that contracts comply with the new rules, employment status for contractors is likely to come under increasing scrutiny across the board. 

We would be delighted to talk through your options and the tax consequences. For those working only for small private sector clients where contracts do not fall under IR35, we are always happy to review your profit extraction strategy. Please do get in touch.

Government policy regarding immigration and free movement is a rapidly changing area. To keep up-to-date, a regular check of the Brexit preparation pages on gov.uk (www.gov.uk/brexit) or signing up for email alerts is recommended. The House of Commons Library also publishes useful and clearly-written Brexit news items. 

Workers: checking the right to stay

The government stated that ‘freedom of movement as it currently stands will end… when the UK leaves the EU’. If the UK leaves the EU without a deal on 31 October, workers will need to take action within a short timeframe. 

Citizens of the EU, European Economic Area (EEA) and Switzerland, or those with such a family member, living in the UK before it leaves the EU should check what they need to do in order to stay after Brexit.

For most such workers and their family members, this will involve applying to the EU Settlement Scheme (EUSS), which gives the ability to continue living, working and studying in the UK. However, there is no need to apply where someone has indefinite leave to enter or remain in the UK. Those with British or Irish citizenship – including ‘dual citizenship’ – do not need to apply.

The EU Settlement Scheme

There are different application deadlines for the EU Settlement Scheme, depending on whether there is a no-deal Brexit or a negotiated settlement. With a no-deal Brexit, the deadline for EUSS applications is 31 December 2020. Otherwise it is 30 June 2021. It is free to apply and it would be wise to do so as soon as possible. Applications can be made online. 

Successful applicants will receive either settled or pre-settled status. This is based on how long someone has lived in the UK: it is not a matter of choice. Broadly, settled status is given where someone has lived in the UK for five years continuously and pre-settled status where someone has lived in the UK for less than this. For either status, applicants should have started living in the UK by 31 December 2020 – or the date the UK leaves the EU without a deal. Either status gives access to public services like the NHS and pensions, and means someone can continue working in the UK, though rights are slightly different for each.

Employers are not obliged to assist, but HMRC’s Employer Toolkit is designed to facilitate employers providing advice and support to relevant staff.

Employers: other considerations

The government is currently reviewing arrangements for EU, EEA and Swiss citizens arriving in the UK after Brexit as part of its plans for a future points-based immigration system. But until 31 December 2020, such citizens can continue to enter, live and work in the UK as they do now. For those wanting to stay beyond this, a temporary three-year UK immigration status, European Temporary Leave to Remain, is being planned. Thereafter, application under the points-based system, expected in 2021, would be required.

Employers should be aware of key deadlines and immigration rules applying at any point, as workers inadvertently breaching immigration procedures could become illegal workers. 

Deal or no-deal Brexit, employers should also carry on with normal right to work checks. Further Home Office guidance is expected, clarifying when right to work checks will change. It is not anticipated, however, that there will be any change until 1 January 2021. Employers can check the current position here. 

Businesses trading with the EU

HMRC has advised that, post-Brexit, businesses trading with the EU will require an Economic Operator Registration and Identification (EORI) number. Firms without an EORI number may face ‘increased costs and delays’, the government recently warned. In the event of a no-deal Brexit, businesses will need a 12 digit EORI number that starts with GB in order to move goods in or out of the country. Firms that already have an EORI number that starts in GB can continue to use it. Businesses do not require an EORI number if they only move goods between Northern Ireland and Ireland. Firms can apply for an EORI number here.  

Businesses are also advised to decide whether a customs agent will be used to make import and/or export declarations, or whether declarations will be made by the business via software.

These are challenging times for employers and businesses and we would be delighted to advise you.

The survey revealed that nine out of ten directors believe that business leaders need to act to mitigate the effects of climate change. Identifying positive steps that a business can take may seem a daunting prospect for many SMEs, particularly if cashflow is tight. However, many ideas are simple to put into action and some could save businesses money.

Here are some practical steps that all businesses can consider:

Businesses may well be forced to change how they behave through a combination of consumer preferences and the implementation of future regulations. However, taking positive steps now will help to minimise businesses’ carbon footprints.

Deferred businesses

MTD for VAT is still being rolled out for some businesses. The start date was deferred for trusts, not-for-profit organisations not set up as companies, VAT divisions, VAT groups and some other businesses. HMRC should have notified these businesses of their deferral directly, but MTD for VAT rules apply for the first VAT return period starting on or after 1 October 2019.

Looking ahead

Businesses submitting returns should be aware that, as an online service, MTD for VAT is subject to occasional downtime. Downtime should usually be flagged up in advance and service availability can be checked here. If filing your own VAT return, it would be prudent not to leave this until the last minute.

HMRC has made concessions regarding digital record keeping for the initial stage of the new regime, known as the ‘soft-landing’ period. This means that the requirement for digital links joining all parts of a business’s functional compatible software is eased for the first year of mandation. The use of cut and paste, or copy and paste, is also permitted instead of a digital link, but only within this period. Requirements are explained under Point 4 in VAT Notice 700/22.

Businesses taking advantage of the soft-landing period need to be confident that they can transition to full digital competence in 2020. We would be happy to advise further.

The big winner this year was Inheritance – Matthew Lopez’s brilliant two-part transposition of Howard’s End to 21st century gay New York. It won best new play, best director for Stephen Daldry and best actor for Kyle Soller.

Marianne Elliott’s resurrection of the Sondheim musical Company won best musical and best designer. Patsy Ferran – who won best newcomer at the Critics’ Circle Awards 2015 – received best actress for her role in Summer and Smoke. Sophie Okonedo, CBE was awarded best Shakespearean performance for her portrayal of Cleopatra in the National Theatre’s Antony and Cleopatra.

In a win for British theatre as a whole, the event trended on Twitter, the hashtag #CriticsCircleAwards reaching 1,145,391 people. This without the star power of Bryan Cranston and Hamilton that amplified the awards’ reach last year.

The Critics’ Circle Awards first took place in 1989. The awards are presented by the Critics’ Circle, founded in 1913 to protect and promote cultural criticism in the UK. Winners are selected from the independent votes of working theatre critics, free of any discussion or industry influence.

Nyman Libson Paul has been a principal sponsor of the awards since 2005. As NLP partner Anthony Pins, who attended the event, said: “We are proud sponsors of The Critics’ Circle Theatre Awards and send our congratulations to all of the Award nominees and winners. The fact that the awards are determined only by the professional critics gives them immense credibility, and are highly respected as such by the industry.”

Full list of winners:

Up to £220 for death certificates

Death certificates are required to gain access to and/or close down accounts with banks, building societies, insurance companies and various other authorities.

Many require an original death certificate, rather than a copy. As The Daily Mail reports, families can need up to 20 original certificates. The charge’s increase brings the total cost from £80 to £220.

A Home Office spokesperson stated that the price rise is the first since 2010 and is set at recovery levels only. They were also at pains to point out that registration officers have the ability to reduce or waive fees for reasons of compassion or hardship.

However, as quoted in the Mail report, Liberal Democrat leader Vince Cable condemned the price rise as causing additional misery for families at an acutely difficult time.

Up to £6,000 for probate

Meanwhile, just a week before, the Government passed legislation to replace the current flat probate fee of £215 – or £155 through a solicitor – with a sliding scale that varies according to the size of the estate.

From April 2019, the new UK probate fee structure will be:

Estate value Probate fee
£0 – £50,000 £0
£50,000 – £300,000 £250
£300,000 – £500,000 £750
£500,000 – £1m £2,500
£1m – £1.6m £4,000
£1.6m – £2m £5,000
£2m and above £6,000

The fees will also have to be paid up-front – before being recovered from the estate – leading to worries that some families will need to borrow to obtain probate.

The good news, of course, is that more families will be exempt from probate fees altogether, as the threshold has been raised from £5,000 to £50,000.

How can you minimise costs?

There’s no getting around the death certificate charges and probate fees, of course. But the increases only make it more important to efficiently administer the Estate.

We can help you to minimise the tax liabilities of your loved one’s Estate. Speak to one of our probate experts today.

The IR35 rules aim to prevent the avoidance of tax and national insurance contributions (NICs), where an individual works for a client through an intermediary (usually a PSC) and the use of the intermediary means that they avoid being taxed as the client’s employee.

Currently, responsibility for deciding whether the IR35 rules apply to a private sector contract lies with the intermediary. If IR35 applies, the intermediary also has to account for PAYE and NICs on the fees received.

From 6 April 2020, responsibility for deciding employment status is set to pass from the intermediary to the party engaging the worker. If IR35 applies, the business, agency or third party paying the intermediary must deduct income tax and employee NICs and become liable for employer NICs.

HMRC has an online Check Employment Status for Tax (CEST) tool to help decide whether the off-payroll working rules apply to any given contract: https://www.gov.uk/guidance/check-employment-status-for-tax. The tool can be used by workers, hirers or agencies placing a worker. HMRC will stand by the result, unless a compliance check finds that information supplied was inaccurate.

The service can be used anonymously and will not store any personal details or findings. However, the result can be printed, which is essential. If there are changes to the working arrangement, we would recommend that you run the new details through the check again.

It is important to note that problems regarding employment status do arise in practice, even when the tool is used, and HMRC has stated that it is committed to improving CEST’s usefulness.

Some aspects of the forthcoming change also remain to be clarified and government consultation is ongoing. The change will affect employing businesses which are classed as ‘medium and large businesses’, but not ‘small’ ones; the definition of small will be based on the Companies Act 2006 definition of a small company.

The government has issued a welcome assurance that the change is not retrospective. Where someone starts paying employment taxes under IR35 for the first time, or where a business decides that a worker should come within the rules, this will not automatically trigger an enquiry into earlier years.

In a recent report, the Charity Commission for England and Wales (CCEW) suggested that nearly 40% of small charities were submitting inaccurate financial information. Small charities are defined as those with annual income below £25,000, and this category makes up two thirds of those on the CCEW’s register. The CCEW is concerned that some of those given the job of submitting a charity’s annual return – particularly in the small charity category – are not sufficiently skilled to perform the role accurately.

Annual returns

Against this background, charities registered in England and Wales should be aware of developments regarding annual returns. Returns must be submitted no later than ten months after the end of the financial year and charity trustees must keep the charity’s registered details up to date.

From November 2018, the service to update these details changed. All charities must now check and update their details online before they can submit their annual return. Charities will only need to provide missing information the first time they sign in, or when they need to update their charity details. Charities will be able to choose which sections or information to edit and update.

Information required includes all current trustee names, their contact details (including an email address) and details of the charity’s UK bank/ building society accounts. Bank/building society details will not be available publicly.

From 1 April 2019, full legal names will show to the public and trustees will not be able to use a ‘public display’ name on the charity register. If, however, this would cause personal danger to an individual, it is possible to apply for a dispensation.

New questions are introduced in the 2018 return, and these can be previewed before signing in. Some questions are optional for 2018, but mandatory from 2019 onwards. They are intended to allay public concerns, for example about high levels of pay in charities: or to highlight possible areas of risk, say in relation to money transfer overseas.

New questions for 2018 include a breakdown of salaries across income bands and the amount of total employee benefits for the highest paid member of staff. Details of this, however, will not be published on the public register. There are also questions asking about use of professional fundraisers, receipt of grants and contracts from central government and local authorities, as well as questions on safeguarding children and adults at risk.

Overseas expenditure is another area where the detail is being expanded. If a charity has spent money outside England and Wales, it will need to explain if it has transferred money overseas by a means other than the regulated banking system. There are questions about whether controls exist to monitor overseas expenditure, and others asking if the trustees are satisfied that risk management policies and procedures are adequate for the charity’s activities and for its place of operations. These are mandatory for returns from 2019 onwards, but optional for 2018.

Questions about income received from outside the UK are also introduced. These include which countries income was from; the value of income by country; the source and amount of such income, analysed into categories such as overseas governments or quasi government bodies; overseas institutional donors; and individual donors resident overseas. Some of this information will be optional for 2018, but mandatory thereafter.

These changes mean some additional work for charities and may require changes to financial systems to capture relevant detail.

Please do not hesitate to contact us for further advice.

Following the 2018 Autumn Budget, new conditions have been introduced to ensure shareholders benefitting from ER have a minimum economic stake in the company. According to HMRC, ‘it is designed to support and encourage investment and means that entrepreneurs can keep more of the rewards when their business is successful’.

Who can claim ER?

ER is available to company directors and employees meeting certain conditions, as detailed later. It is also available to sole traders or partners selling or giving away all or a certain part of their business.

The disposal of ‘associated’ assets, such as land and buildings used by a company or partnership but owned by an individual, may also attract ER if the individual chooses to leave the company or partnership.

Qualifying company

ER is available on the gains made on the disposals of shares and securities in a trading company or the holding company of a trading group. A trading company is defined as one ‘carrying on trading activities whose activities do not include, to a substantial extent, activities other than trading activities’.

Trading activities are those activities which carry on a trade or profession by buying and selling goods or services with a view to making a profit or surplus.

On the other hand, non-trading activities are those undertaken by a company that may invest, for example in properties or shares.

Conditions

In order to qualify for ER, the taxpayer must be an employee or officer of the company and hold at least 5% of the ordinary share capital, and 5% of the associated voting rights.

In addition to the existing tests, a new test is introduced whereby the shareholders must also be entitled to at least 5% of the company’s distributable profits and 5% of net assets on the winding up of the company.

However, where the taxpayer cannot demonstrate their entitlement to the profits and assets of the company, a taxpayer can use an alternative test. This is that, in the event of a disposal of the ordinary share capital of the company (i.e. the company being sold), the taxpayer is entitled to 5% of the disposal proceeds.

The above conditions must be satisfied by the shareholders for a period of 12 months until the date of disposal or cessation of the trade. For disposals on or after 6 April 2019, the minimum period throughout which the conditions must be met is increased to two years.

In another change new legislation gives relief where an expanding business raises additional finance by means of the issue of new shares for cash, but as a result, an individual’s shareholding is ‘diluted’ – falling below the 5% needed to claim ER.

For new investment taking place on or after 6 April 2019, shareholders will be able to make an election, treating them as if they had disposed of their shares and immediately reacquired them at market value just before dilution. To avoid an immediate CGT bill on this deemed disposal, a further election can be made to defer the gain until such time as the shares are actually sold. ER can then be claimed in its current form.

The lifetime limit of £10 million remains intact. Additionally, taxpayers continue to benefit from an annual exempt amount of £12,000 in 2019/20, on which CGT is not due.

Drawbacks

There are situations where shareholders may not be able to claim ER:

Directors should remain in office up to the date of disposal of their shares to avoid jeopardising an ER claim
If a company goes from a trading company to an investment company, shareholders of the company will no longer qualify for ER.

If you are thinking of making a disposal of shares in your company, please get in touch to find out if you qualify for ER.

Offering attractive incentives

It can be helpful to segment your workforce when recruiting employees and designing incentives. Be aware of the differences between generations. Research suggests that different generations look for different incentives when it comes to seeking employment. Whereas earlier generations have favoured medical and dental insurance as workplace incentives, this appears to be less attractive to millennials.

As far as millennials are concerned, the possibility of taking extra paid leave carries more weight. The difference in generations is also obvious when it comes to the factors pulling millennials towards employers. Here they appear to favour the more techsavvy employer – those with a more digital operation.

Boosting employees’ quality of life

Experts are increasingly linking the ease with which staff can be retained to overall feelings of wellbeing. There is evidence that, right across the board, quality of life incentives offered by employers can have a disproportionate impact on staff perceptions.

Quality of life incentives can be radical and don’t always need to cost the employer money. Offering staff the opportunity to bring a dog to work, for instance, could transform an employee’s experience. Allowing staff to listen to music on headphones, or personalise their work space with personal effects are other low-cost, but potentially high-impact, suggestions.

Giving feedback

Establishing a two-way flow of communication, so that employers know what works for staff, and where change might be beneficial, is another key recommendation. Carrying out regular staff satisfaction surveys is one way to do this. An employer can do this formally or informally.

Helping to minimise financial stress

Research shows that possibly as many as 40% of employees are under financial stress. This can lead to lower productivity, absence, poor relationships with colleagues and can impact mental health. A new, and increasingly popular, move to help here is staff financial education. Providing advice on budgeting, savings and planning for retirement can make a valuable staff incentive package. We would be delighted to assist in regard to this important area.

Ensuring your employees are satisfied in their job roles is vital in creating a happy and productive working environment.

The new SBA gives relief for expenditure on certain structures and buildings. Since the abolition of the Industrial and Agricultural Buildings Allowances no relief has been available for most structures and buildings. The SBA addresses the gap, and is intended to encourage investment in construction for commercial activity.

Relief is given on eligible construction costs incurred on or after 29 October 2018. Where a contract for the physical construction work was entered into before this date, relief is not available. The rules are subject to consultation, but the broad proposals are outlined below.

An overview of the rules

The SBA will be available for new structures and buildings intended for commercial use and the improvement of existing structures and buildings, including the cost of converting or renovating existing premises to qualifying use.

Relief will be available for businesses chargeable to income tax and companies chargeable to corporation tax. It will be limited to the original cost of construction or renovation and will be spread over a fixed 50-year period at an annual flat rate of 2%, regardless of changes in ownership.

On disposal of a relevant asset, the purchaser will continue to claim the annual allowance of 2% of the original cost, provided the asset continues to be used for a qualifying activity. There will be no balancing adjustments on sale for the vendor. For chargeable gains purposes, the allowable cost of the asset will be reduced by the total amount of relief claimed.

Relief for the SBA will be available from the date the structure or building is brought into use for the first time for a qualifying activity. UK and overseas structures and buildings will be eligible where the business is within the charge to UK tax.

Special provisions will apply for leasing transactions. Where an asset is leased, both lessor and lessee may be able to claim the SBA for qualifying expenditure that they themselves incur on construction works. However, special rules will apply where the grant of a lease is substantially no different from the sale of the property interest. These rules may result in the lessee becoming entitled to the attributable SBA.

Qualifying activities

Only certain expenditure will qualify. The structures or buildings must be brought into use for qualifying activities. These include trades, professions or vocations and certain UK or overseas properties businesses – essentially commercial property lettings as residential property is excluded. The types of structures and buildings covered awaits final clarification, but is expected to include: offices; retail and wholesale premises; walls; hotels and care homes; and factories and warehouses.

Exclusions and apportionment

Expenditure on land or residential property or other buildings functioning as dwellings will not be eligible. What constitutes a dwelling is to be clarified. Work spaces forming an integral part of a dwelling, such as a home office, will not be eligible. With mixed use, such as between commercial and residential units in a development, relief will be apportioned.

Please contact us for further guidance.

Personal planning

Maximising the personal allowance The basic income tax personal allowance (PA) for an individual is set at £11,850 for 2018/19 (although this allowance is restricted where an individual’s adjusted net income exceeds £100,000). In order to make the most of allowances across the family, if one spouse has little or no income it may be worth transferring income to them. However, it is important to bear in mind the settlements legislation relating to income shifting and to ensure that any transfer is an outright gift.

Considering the Marriage Allowance

The Marriage Allowance may benefit some married couples where one spouse earns less than the PA and the other spouse is not a higher or additional rate taxpayer. For 2018/19, up to £1,190 can be transferred to the lower earner, helping to reduce a couple’s overall tax liability by up to £238.

Making the most of tax-free savings

The annual ISA allowance means that you can save up to £20,000 tax-free for 2018/19. There are a variety of different types of ISA to choose from.

Increasing contributions into your pension scheme will also provide tax relief – this is restricted to the higher of £3,600, or the amount of UK relevant earnings. Additionally, contributions in excess of the annual allowance of £40,000 will generally be taxable.

All payments must be made before 6 April 2019.

Business planning

Utilising capital allowances

Most businesses can claim an Annual Investment Allowance (AIA) on expenditure on most types of plant and machinery (except cars). In the 2018 Autumn Budget, Chancellor Philip Hammond announced an increase in the AIA from £200,000 to £1 million, applying to expenditure incurred from 1 January 2019 to 31 December 2020. Complex calculations may apply to accounting periods which straddle these dates. Please contact us for advice on making the most of the AIA.

Extracting profits

The Dividend Allowance reduced to £2,000 in April 2018, so the question of whether it is better to take a salary/bonus or a dividend requires consideration. Dividends are taken after corporation tax has been calculated, while a salary is taken before corporation tax is deducted.

On the other hand, national insurance is due on any salary taken, which can be up to 25.8% in combined employer and employee contributions.

Other ways to extract profit from your business might include considering incorporation if your business is currently unincorporated and making the most of tax-free allowances, such as mileage payments.

For more year end planning tips, please contact us.

What do I need to do?

Under MTD, you must ensure that:

Accounting records are kept digitally either through software or a digitally linked spreadsheet that is compatible with bridging software. You won’t be able to keep paper records after April 2019.

VAT returns are prepared using software that directly links to HMRC’s system. Bear in mind that not all accounting packages will be compatible with HMRC or support MTD. A full list of compatible software can be found here: Find software suppliers for sending VAT Returns and Income Tax updates – GOV.UK.

If you are using MTD compatible software, there is currently nothing you need to do unless you suspect that your records are not digitally linked or if your software is a desktop version and needs to be upgraded to a cloud-based version.

If you believe that you are not using MTD compatible software or that your digital records are not digitally linked, please contact our cloud accounting team at cloudaccounting@nlpca.co.uk.

Where can I get more information?

We’ve created some handy MTD FAQs and a Fact Sheet which you can download from here.

There’s also an overview of the changes on HMRC’s website: www.gov.uk/government/publications/making-tax-digital

How can Nyman Libson Paul help?

We are cloud accounting specialists and can make the transition to digital record keeping and digital submissions seamless and straightforward. Our experienced cloud accounting team is here to support you and is ready to answer any of your queries, even if it’s just to make sure your current systems are compatible. They can be contacted at cloudaccounting@nlpca.co.uk