Business risk is increasing

COVID disruption has added a further layer to the business risk cake. Do you know how many of your customers are at risk of failure?

It is estimated that between 20% and 30% of small businesses, and a sprinkling of larger concerns, will cease to trade as we start to emerge from COVID lockdown; if indeed, that is what the politicians and scientists confirm will happen from 19 July.

Additionally, at the end of September, the major source of support for employment, the furlough scheme, is coming to an end. We should expect a significant rise in unemployment following that change.

Which is why we recommend that all businesses undertake a re-assessment of business risk on multiple levels so that services and goods supplied are paid for and bad debts kept to a minimum.

Initially, we suggest you divide your customers into Can Pay, Cannot Pay (they have cashflow issues) and will not pay (bad payers) categories.

Secondly, rank customers as T (transactional) or R (relationship). Transactional customers are concerned about price, quantity, and delivery, i.e., always want more for less. Transactional behaviour is the default position for many businesses in a crisis. Relationship clients are more open to conversations about the value of the goods or services you supply. They will enjoy their business relationship with you and be loyal customers.

Last of all, ranked customers 1 (low) to 5 (high) for risk of failure.

Using this approach, we would like to offer you our support to undertake a formal risk assessment of your customers.

This will enable you to better manage risk with eyes wide open rather than stumbling into situations where work is undertaken, or goods supplied in areas where there are increasing risks and where customers may not have the inclination or resources to pay.

If you would like to undertake a formal review of business risk, but do not know where to start, pick up the phone, we can help.

Payroll – late filing penalties 2021-22

HMRC have issued the following comments on their adoption of a risk-based penalty strategy for 2021-22. They said:

Following HMRC’s review of the effectiveness of the risk-based approach to late filing PAYE and late payment penalties, we can confirm this approach will continue for the 2021 to 2022 tax year. This means that late filing and late payment penalties will continue to be considered on a risk-assessed basis rather than issued automatically.

The first penalties for this tax year (beginning 6 April 2021) will be issued in August 2021.

Late filing penalties

As in previous years we will also continue to not charge penalties automatically if a Full Payment Submission (FPS) is filed late but within 3 days of the payment date and there remains no pattern of persistent late filing. This is not an extension to the current statutory position on reporting PAYE payments which remains unchanged.

Employers are still required to file their submissions on time unless any of the circumstances set out in the sending an FPS after payday guidance arises.

Employers who persistently file after the statutory filing date but within 3 days, will continue to be monitored and may be contacted or considered for a late filing penalty as part of our risk-based approach.

Late payment penalties

The due date to make PAYE payment to HMRC electronically remains the 22 of the month (or quarter if you are eligible to pay quarterly) following the tax month/period to which they relate. If you pay by cheque or other non-electronic payment methods, you must continue to make payment by 19 of the following month or quarter to which the payment relates.

How to pay your PAYE guidance is available.

If you pay late, we may charge interest on the amount outstanding which will continue to accrue until the total amount is paid.

You may also face a late payment penalty which we will continue to raise using a risk-based approach. This will focus on cases of greatest risk and non-compliant behaviour. There is guidance on how we calculate late payment penalties and how employers can appeal them.

If you have concerns that you will struggle to meet the demands of running your own payroll, we can help. Please call so that we can discuss your options.

Informed v guesswork

First, let’s define these terms.

  • “informed” – a decision or judgement based on an understanding of the facts of the situation.
  • “guesswork” the process or results of estimating or concluding something without sufficient information to be sure of being correct.

And between these two extremes varying degrees of certainty will apply.

From a business point of view, it makes sense to make decisions based on the informed end of the spectrum. Expressions such as “taking the guesswork out of decision making” make perfect sense.

From an accounting point of view, recording your transactions in a digital format will help you make informed decisions as the magical world of real-time data management opens for you.

For example, at a click of your mouse:

  • It is possible to drill down and discover what makes up items of expense.
  • You can automate credit control – no point in leaving your cash in customers’ bank accounts.
  • Faster access to data means you can control cash-flow more effectively.
  • You can determine if your activities are profitable, no more discovering you are a busy fool months after the event.
  • You can create and flex budgets to better monitor actual results.
  • It is a simple matter to view tax and VAT liabilities and make sure that returns are submitted and paid on time.

Historically, we were great at guesswork; had to be, took an age to create a bigger picture when records were kept manually or on disconnected spreadsheets.

Now we have an opportunity to steal a march on competitors who are slow on the uptake.

Act Now

If you have started on the digital track but are concerned you may not be getting the best out of the process, or, if you are still unsure how to maximise the benefits of computerisation – of being informed – please call. We can help you choose the most appropriate and cost-effective software and create the reports that will help you stay informed.

There may be the odd occasion where you will need to make decisions quickly, and then you may have to drift back towards the guesswork end of the scale; otherwise, get informed, implement and make the most of digitising your business activities.

Ready for tax payments next month?

January and July are positive cash flow months for the UK Treasury as a number of significant taxes fall due for collection.

Next month, July 2021, taxpayers may need to settle the following liabilities:

  • 1 July 2021, companies with corporation tax due for the year end date 30 September 2020, will need to pay corporation tax due by today.
  • 19 July 2021, employers who have reported taxable benefits for their employees for 2020-21, will need to settle any Class 1A NICs – based on total benefits provided – today. If you pay your tax electronically the due date is 22 July 2021.
  • 19 July 2021 – PAYE and NIC deductions due for month ended 5 July 2021. If you pay your tax electronically the due date is 22 July 2021.
  • 19 July 2021 – CIS tax deducted for the month ended 5 July 2021 is payable by today. If you pay your tax electronically the due date is 22 July 2021.
  • 31 July 2021 – individuals registered for self-assessment may have to pay any second instalment of tax due for 2020-21, by today.

For many businesses and individuals this may cause cash flow problems as many of us continue to be affected by COVID disruption. What to do?

If you cannot meet the forthcoming payment, contact HMRC before the tax due date. In this way you can request an extended period to pay taxes due.

For example, HMRC have set up a payment plan for self-assessment that you can apply for online or by calling their Self-Assessment Payment Support Service; the number is 0300 200 3822. There are conditions that apply, but the message from HMRC is clear. If you cannot settle taxes when they fall due, do your best to call HMRC before the due date and ask for time to pay.

Beware bogus contacts from HMRC

None of us are particularly thrilled to receive communications from HMRC, but fraudulent contacts, by email and other means, are becoming commonplace and innocent members of the public are being left out of pocket.

According to HMRC, in the 12 months to 30 April 2021, they responded to more than 1,154,300 referrals of suspicious contact sent to them by anxious members of the public. More than 576,960 of these offered bogus tax rebates.

In the same period, HMRC had worked with telecoms companies and Ofcom to remove more than 3,000 malicious telephone numbers, and with internet service providers to take down over 15,700 malicious web pages. HMRC responded to 443,033 reports of phone scams in total, up 135% on the previous year.

Which raises an interesting question. How can you tell if a phone call or email is a genuine approach by HMRC?

Here is what HMRC’s Director General for Customer Services, advised:

We are urging all taxpayers to be careful if they are contacted out of the blue by someone asking for money or bank details.

There are a lot of scams out there where fraudsters are calling, texting or emailing customers claiming to be from HMRC. If you have any doubts, we suggest you do not reply directly, and contact us yourself straight away. Search GOV.UK for our ‘scams checklist’ and to find out ‘how to report tax scams’.

To avoid being duped by scammers, we suggest:

  • Do not provide any personal data, particularly your bank details, in response to a phone call, email or text message.
  • Instead, call the organisation that said they were trying to contact you using contact details published on official websites. Do not use links on the offending email or provided during a suspicious phone call.

HMRC generally will not ask for personal information – particularly your bank details – by email or by phone. If in doubt, the message is clear. Side-step the communication you have received and contact the apparent sender or caller using contact detail in the public domain.

VAT Deferral Scheme deadline

The online portal for the new VAT payment scheme closes on 21 June 2021.

Over half a million businesses deferred £34 billion in VAT payments due between March and June 2020 under the VAT Payment Deferral Scheme. Businesses had until 31 March 2021 to pay this deferred VAT or, if they could not afford to do so, they could go online from 23 February to set up a new payment scheme and pay by monthly instalments to spread the cost.

The VAT Deferral New Payment Scheme means businesses can now manage their cashflow by paying their deferred VAT more gradually.

The March, April and May joining dates have passed, but businesses can still spread their payments across up to eight equal monthly instalments, interest-free, if they join by 21 June 2021. Payments can easily be set up via the VAT Deferral New Payment Scheme portal.

Eligible businesses that are unable to use online service by 21 June 2021, can call the HMRC Coronavirus Helpline on 0800 024 1222 to join the scheme until 30 June 2021.

Businesses may be charged a 5% penalty and/or interest if they do not join up to the scheme online by 21 June, or pay in full by 30 June, or contact HMRC to arrange to pay by 30 June 2021.

Businesses should also contact HMRC by 30 June 2021 if they need to agree extra help to pay.

Businesses can pay their deferred VAT in 2 to 8 consecutive instalments without adding interest if they join online by 21 June 2021. The first payment is made when they join.

The joining stage is slightly longer for those unable to use our online service due to the way payments are processed.

Outlook for employment

Government continues to be optimistic about the outlook for employment. In a recent press release they said:

“Furlough numbers have fallen to their lowest level this year, according to official statistics published 3 June, as the number of people relying on the scheme fell to 3.4 million.”

And yet that is still 3.4 million who are uncertain if they will still have a job come 30 September, when the furlough scheme is withdrawn.

We are aware of many small businesses who are keen to retain staff but are still struggling to regain market share as lockdown restrictions are gradually reduced.

And uncertainty has not been eradicated. The abandonment of COVID restrictions due to apply from the end of this month is under threat as new variants of coronavirus tilt the infection rates in yet another upward direction.

Can we take comfort from these bullish announcements from Mr Sunak? In the same press release it was asserted:

“There are also other reasons to be optimistic about the outlook for the labour market, as ONS survey results released today estimate that the number of employees on furlough fell even further in early May.

HMRC data released last month showed that the number of payrolled employees jumped by nearly 100,000 in April. Together, this makes it clear that our Plan for Jobs is working to protect and create jobs across the country.

Alongside the furlough and self-employed schemes, the Kickstart scheme is creating thousands of new jobs for young people and a range of business grants and loans have provided a bridge so that businesses could make it through the pandemic.”

Truthfully, we will have to wait and see. Readers who have lingering concerns about their ability to maintain staffing levels after 30 September 2021, would be advised to create forecasts for their business based on their actual performance to date. If uncomfortable decisions need to be made about staffing levels, they need to be based on an “eyes wide open” approach.

If you need help crunching the numbers, pick up the phone, we can help.

The 7-year rule

If there is any Inheritance Tax to pay on gifts you make during your lifetime, it is charged at 40% on gifts given in the 3 years before you die.

Gifts made 3 to 7 years before your death are taxed on a reducing, sliding scale known as ‘taper relief’.

Years between gift and death

Tax paid

less than 3

40%

3 to 4

32%

4 to 5

24%

5 to 6

16%

6 to 7

8%

7 or more

0%

 

Example reproduced from GOV.UK website:

 

Sally died on 1 July 2018. She was not married or in a civil partnership when she died.

Sally left 3 gifts in the 7 years before her death:

  • £300,000 to her brother 6.5 years before her death
  • £50,000 to her sister 4.5 years before her death
  • £150,000 to her friend 3.5 years before her death

Sally is not entitled to any other gift exemptions or reliefs.

There is a £325,000 inheritance tax threshold. Anything below this amount is tax free.

£300,000 is used up by the gift Sally gave her brother. There is no tax to pay on his gift.

The remaining £25,000 is used up by her £50,000 gift to her sister. There’s tax to pay on the amount not covered by the threshold. That means there’s tax to pay on £25,000 of the gift to Sally’s sister at a rate of 24%.

The £150,000 gift given to her friend is taxed at a rate of 32%.

Sally’s remaining estate was valued at £500,000 and charged at the usual 40% inheritance tax rate. Sally used up the tax-free threshold on gifts given before her death.

Gifts are not counted towards the value of your estate after 7 years.

Prepare benefit in kind returns to HMRC

Next month, as you will see from the Tax Diary notes for July, employers that provide any form of taxable benefit to clients will need to prepare and file P11D returns to HMRC. The deadline to file is 6 July 2021.

You will also need to provide employees affected with a copy of their P11D form by the same date. They will need this to check their tax account or to include on their tax return.

Unfortunately, there is one further chore to complete this annual process.

Employers are obliged to pay employers’ National Insurance contributions on the aggregate value of benefits provided to all employees. The way to do this is to complete a P11D(b) return; and again, this needs to be filed by 6 July 2021. NIC class 1A contributions are payable at 13.8% of the total benefits returned and are payable by 22 July 2021 if paid electronically or by 19 July 2021 if you pay by cheque.

If we prepare your payroll, we may undertake this work for you.

If not, do not miss the filing and payment deadlines otherwise you may trigger late filing penalties and interest charges.

Any Class 1A NIC paid is an allowable deduction for tax purposes.

Furlough scheme ends September 2021

There are still a significant number of UK employees that are furloughed. Unfortunately, this scheme is scheduled to end 30 September 2021.

Businesses that are struggling to re-establish themselves following the downside effects of repeated lockdown, may be faced with difficult decisions as this deadline approaches. The pundits are expecting a significant rise in the unemployment numbers.

If you have concerns that you may be faced with laying off furloughed staff when the Coronavirus Job Retention Scheme closes, and are unsure how to plan for any changes, we can help.

The key is to create a forecast of business activity – based on current estimates – that highlights profitability, solvency and cash flow. Armed with this information, it will then be possible to try out different what-if scenarios and consider the options this process opens.

It is better to plan for these changes before they happen than to react when the changes have occurred.