The authorities are not asleep

It is tempting to assume that government departments are drawing back from exercising their powers to challenge taxpayers due to COVID disruption, but it would be unwise to assume this is the case. For example, in a recent legal action undertaken by the Insolvency Service, a construction boss was banned from running companies for nine years after he caused a company to submit false tax returns.

Although the charges related to activity that pre-dated the coronavirus outbreak, this action – and many others reported by HMRC and other government departments – confirms that the powers-that-be are not idle.

In the above case, investigators uncovered that between November 2011 and February 2015, the director knowingly caused the company to submit false tax returns. Invoices had been brought down to zero rated sales to reduce the company’s tax liability. The tax authorities determined that just over £225,000 was owed by the company, which increased to more than £426,000 when interest and penalties were applied for the deliberate concealment and failure to pay.

A voluntary undertaking has the effect that without specific permission of a court, a person with a disqualification cannot:

  • act as a director of a company
  • take part, directly or indirectly, in the promotion, formation or management of a company or limited liability partnership
  • be a receiver of a company’s property

Deliberate attempts to evade tax will always be pursued as and when the authorities discover the wrong-doing.

However, we all make mistakes and HMRC will be sympathetic if you can offer a reasonable excuse for any apparent transgressions. These reasonable excuses might include:

  • your partner or another close relative died shortly before the tax return or payment deadline
  • you had an unexpected stay in hospital that prevented you from dealing with your tax affairs
  • you had a serious or life-threatening illness
  • your computer or software failed just before or while you were preparing your online return
  • service issues with HM Revenue and Customs (HMRC) online services
  • a fire, flood or theft prevented you from completing your tax return
  • postal delays that you could not have predicted
  • delays related to a disability you have

You could probably add to this published listing disruption created by the COVID outbreak.

Tax Diary August/September 2020

1 August 2020 – Due date for Corporation Tax due for the year ended 31 October 2019.

19 August 2020 – PAYE and NIC deductions due for month ended 5 August 2020. (If you pay your tax electronically the due date is 22 August 2020)

19 August 2020 – Filing deadline for the CIS300 monthly return for the month ended 5 August 2020.

19 August 2020 – CIS tax deducted for the month ended 5 August 2020 is payable by today.

1 September 2020 – Due date for Corporation Tax due for the year ended 30 November 2019.

19 September 2020 – PAYE and NIC deductions due for month ended 5 September 2020. (If you pay your tax electronically the due date is 22 September 2020)

19 September 2020 – Filing deadline for the CIS300 monthly return for the month ended 5 September 2020.

19 September 2020 – CIS tax deducted for the month ended 5 September 2020 is payable by today.

Changes to Capital Gains Tax underway?

In an update to the GOV.UK website recently the following post appeared:

The Chancellor has written to the OTS (Office of Tax Simplification), to ask the OTS to undertake a review of Capital Gains Tax and aspects of the taxation of chargeable gains, in relation to individuals and smaller businesses.

As well as looking at opportunities to simplify administration and the impact of technical issues, the review will explore areas where the present rules can distort behaviour or do not meet their policy intent, to help ensure the system is fit for purpose.

The scoping document for the review has also been published, together with a call for evidence and an online survey.

In his letter, Rishi Sunak also said:

This review should identify opportunities relating to administrative and technical issues as well as areas where the present rules can distort behaviour or do not meet their policy intent. In particular, I would be interested in any proposals from the OTS on the regime of allowances, exemptions, reliefs and the treatment of losses within CGT, and the interactions of how gains are taxed compared to other types of income.

Let us hope that any changes to this tax – if subsequently made – do simplify the taxation of capital gains and do not add further layers of complexity.

Keep an eye on the numbers

Recent economic forecasts for 2020 published by H M Treasury will do little to inspire business confidence. In their comparison of independent forecasts published last month, the unemployment rate is estimated to rise to 8% and in the same period, GDP falls by 9%.

The only good news is that inflation remains on the low side, the RPI forecast is 1.4%.

Obviously, these numbers are estimates and hide wide ranging differences in various business sectors.

Based on these forecasts it would be sensible to keep a watchful eye on your business performance. This should include the calculation and response to key performance indicators.

For example, no business can support losses for an indefinite period. Exhausting hard-won reserves of profit and cash-flow is not to be recommended.

If you need help setting up financial indicators to support your efforts to stay in the game please call. Once created, you will then be able to plot your progress or otherwise as the present disruption spins out in the coming months.

Be prepared, stay informed.

VAT changes

In an attempt to address the financial difficulties of businesses in the hospitality and tourism industries, Rishi Sunak also announced a range of VAT reductions on selected supplies for these sectors.

Summary of the changes are set out below:

Hospitality

When you supply food and non-alcoholic beverages for consumption on your premises, between 15 July 2020 and 12 January 2021 you will only need to charge 5% VAT.

You will also be able to charge the reduced 5% rate of VAT on your supplies of hot takeaway food and hot takeaway non-alcoholic drinks.

Hotel and holiday accommodation

You will also benefit from the temporary reduced rate if you:

  • supply sleeping accommodation in a hotel or similar establishment
  • make certain supplies of holiday accommodation
  • charge fees for caravan pitches and associated facilities
  • charge fees for tent pitches or camping facilities

Admission to certain attractions

If you charge a fee for admission to certain attractions where the supplies are currently standard rated, you will only need to charge the 5% reduced rate of VAT between 15 July 2020 and 12 January 2021.

However, if the fee you charge for admission is currently exempt, that will take precedence and your supplies will not qualify for the reduced rate.

Changes to your accounts’ software

In most cases these changes should be fairly easy to accommodate in your accounts’ software. If you are experiencing difficulties in this regard please call, we can help.

Stamp duty changes- residential property

In his recent Summer Statement, Rishi Sunak announced changes to the nil rate band of Stamp Duty Land Tax (SDLT) to be applied in England and Northern Ireland.

This was followed by announcements from the Scottish and Welsh regional assemblies who set the rates in Scotland and Wales.

Here is a brief summary of the regional changes aimed at stimulating the UK property market. In all cases rates will revert to previous levels 31 March 2021.

England and Northern Ireland

From 8 July 2020, if you purchase a residential property you will only pay SDLT on the amount you pay above £500,000. This applies whether or not you have purchased a property before – it is not restricted to first time buyers.

Scotland

From 15 July 2020, if you purchase a residential property in Scotland you will only pay the Land and Building Transaction Tax on the amount you pay above £250,000.

Wales

From 27 July 2020, if you purchase a residential property in Wales you will only pay the Land Transaction Tax on the amount you pay above £250,000.

In all regions, it is presumed that buyers of second homes and buy-to-let residential properties will still pay the additional stamp duty charge.

FIx your bike voucher scheme

A Fix your Bike Voucher Scheme has been launched by the Department for Transport as an incentive to encourage the numbers of people using their bikes to commute and for leisure purposes.

How the scheme works

Bike repairers must be located in England.

Bike repairers must meet certain eligibility criteria including the possession of valid public liability insurance with a minimum cover of £2 million. When registering, businesses will need to provide some information about their business along with evidence that they have the necessary insurance to carry out cycle repairs.

A full list of terms and conditions and eligibility criteria is provided when you register.

Bike owners will apply for the £50 vouchers and present these to approved repairers to defray the cost of repairs.

Repairers will then recover the £50 from the Energy Saving Trust.

How to apply

Repairers will need to register on the Energy Saving Trust website at https://fixyourbikevoucherscheme.est.org.uk/

Registration for vouchers by bike owners will reopen at a later date.

The Fix Your Bike Voucher Scheme aims to encourage more people in England to embrace cycling as an alternative to private cars, particularly while social distancing measures are in place. The scheme is for anyone who has an unused cycle in need of repair. It will help them get it back on the road by providing £50 towards the cost of a service and repair for up to two cycles per household.

 

New law clarifies redundancy rights

New legislation applies from 31 July 2020 to ensure that furloughed employees receive statutory redundancy pay based on their normal wages, rather than a reduced amount based on their furloughed pay.

Business owners who are considering their options – to bring back furloughed staff or consider redundancy – are now obliged to consider new legislation that clarifies the amount of redundancy pay is not based on any reduced, furloughed pay, but on employees basic, normal wages.

In a press release issued 30 July 2020, the Department for Business, Energy & Industrial Strategy said:

Throughout the pandemic, the government has urged businesses to do right by their employees and pay those being made redundant based on their normal wage, rather than their furlough pay, which is often less.

The majority of businesses have done so, however, there are a minority who have not.

Today (from 31 July 2020) the government will bring in legislation to protect workers and ensure all furloughed employees who are being made redundant receive their full entitlement.

Employees with more than 2 years’ continuous service who are made redundant are usually entitled to a statutory redundancy payment that is based on length of service, age and pay, up to a statutory maximum.

This legislation, which will come into force from tomorrow (Friday 31 July), will ensure that employees who are furloughed receive statutory redundancy pay based on their normal wages, rather than a reduced furlough rate.

They went on to say:

These changes will also apply to Statutory Notice Pay, which is where employees must be given a notice period before their employment ends, varying from at least one week’s notice up to 12 weeks’ notice, depending on how long they have worked for their employer. During this notice period, employees must be paid.

This legislation will also ensure that notice pay is based on normal wages rather than their wages under the CJRS.

Other changes coming into force will ensure basic awards for unfair dismissal cases are based on full pay rather than wages under the CJRS.

Employers should also note that:

• an employee will be entitled to statutory redundancy pay if they have been working for their employer for 2 years or more,

• calculating statutory redundancy pay for employees relies on inputting average weekly pay, alongside other factors such as length of continuous service and the employee’s age. Average weekly pay is usually worked out by adding the pay received over the 12 weeks up to when the employer notifies the employee they are being made redundant and dividing by 12 to get the average. This legislation ensures that employers must treat any weeks an employer spent on furlough over the 12-week reference period as if they were working, and on full (100%) pay

• this legislation does not impact any enhanced redundancy pay that may be stipulated in the terms and conditions of an employee’s individual employment contract, but applies to basic statutory redundancy pay entitlements

• the legislation also covers other employment rights that rely on average weekly pay, including notice pay, unfair dismissal, and short-time working

Obviously, any decisions regarding the process to unwind the furlough scheme need to consider the wider implications for your business. We invite business readers considering their options, and who are undecided on the action they should take, to call, so that we can help you examine your choices, and if necessary, crunch the numbers to flex your existing business plans. 

 

Making Tax Digital – getting prepared

We have been waiting for some time for government to announce an extension to its Making Tax Digital (MTD) program; this they did last week.

What is MTD?

HMRC are keen to digitise the collection of information to calculate your tax liabilities. At present they are reliant on you submitting a variety of tax returns to do this.

MTD means that they will require you to link your data, your accounts information, directly with HMRC’s personal tax account in your name if you are an individual or your company’s tax account if incorporated.

Essentially, your VAT records and other accounts data will be summarised by your accounts software and sent to HMRC electronically once a quarter. In this way HMRC will build a picture of your current trading position and eventually, you will not need to file an annual tax return.

MTD and VAT

Presently, the majority of VAT registered traders with turnover above £85,000 (the present VAT registration threshold) are filing their returns using MTD approved software. From April 2022, this requirement will be extended to include all VAT registered businesses with turnover below the £85,000 threshold.

MTD and income tax

From April 2023, the accounting data of the self-employed and property letting businesses will need use MTD compliant software and file quarterly updates to HMRC. Initially, this will apply to those with business or property income in excess of £10,000 a year.

Many property letting businesses and smaller self-employed traders are used to preparing figures manually for their annual tax return. From April 2023, these traders will need to invest in converting to an approved electronic record keeping process.

Certainly, we are confident that the bookkeeping software we recommend clients use will be MTD compliant. We are currently filing MTD VAT returns and see no reason why this will not be successfully extended to include MTD filing of accounts information from April 2023.

Will be in touch with clients in the coming months to discuss actions that need to be taken in order to comply with these new regulations. Needless to say we will aim to minimise disruption for clients already stretched by COVID disruption.

 

Brexit – get someone to deal with customs for you

It seems fairly likely that we are heading for a no-deal exit from the EU, 1 January 2021. Many smaller businesses that presently import or export goods from and to the EU will need to deal with a complex raft of customs and VAT issues if they continue trade with the EU after this date.

The GOV.UK website has a whole section that promotes the idea that you get someone to deal with customs for you. They have even published a lift of firms, 600 of them, that can act as freight forwarders, customs agents or brokers or fast parcel operators.

Will all the present COVID related issues, it is likely that many businesses will not relish a further list of red-tape chores in order to continue cross-border trade with the EU. In which case, hiring someone to do this for you may be appealing.

A summary of the information posted by government on this topic follows:

Freight forwarders

Freight forwarders move goods around the world for importers. A freight forwarder will arrange clearing your goods through customs. They will have the right software to communicate with HMRC’s systems. You can find out how to use a freight forwarder on the British International Freight Association and Institute of Export websites.

Customs agent or broker

Customs agents and brokers make sure your goods clear through customs. You can hire a customs agent or broker to act as a:

  • direct representative
  • indirect representative

Fast parcel operators

Fast parcel operators transport documents, parcels and freight across the world in a specific time frame. They can deal with customs for you, as part of their delivery. They cannot act on your behalf without written instructions from you. The instruction must show whether they’re acting for you directly or indirectly. HMRC will only ask for evidence of the authorisation if we need it.

Get someone to act directly

You can hire a person or business to act in your name. You’ll be liable for:

  • keeping records
  • the accuracy of any information provided on your customs declarations
  • any Customs Duty or VAT due

If you give clear instructions and they make a mistake, they may become jointly and severally liable. You cannot ask someone to act directly if they’re submitting your declarations using:

  • simplified customs procedures
  • entry in the declarant’s records

When acting directly, even if they have authorisation, they can only submit those types of declarations if you have authorisation.

Get someone to act indirectly

You can get someone to act for you in their own name, this means they’re:

  • equally responsible for making sure the information is accurate
  • jointly and severally liable for any duty or VAT

If they have authorisation, you can get an indirect agent to make declarations using:

  • simplified customs procedures
  • entry in the declarant’s records

You cannot ask someone to act indirectly if you’re declaring goods for:

  • inward processing
  • outward processing
  • temporary admission
  • end-use relief
  • private customs warehousing