Author: Sherad Dewedi

Although Britain left the EU in January 2020, its relationship with the EU has remained the same until the final cut-off date, December 31st.

With Covid-19 dominating the news agenda and Brexit feeling somewhat pushed into the background, the final cut-off date is quickly looming, and the government’s negotiation skills are still working towards better trade deals for UK businesses. 

Currently, there are no UK-EU trade deals reached, but the UK and EU agree in a couple of areas:

  • Workers’ rights
  • Competition 
  • Environmental policy 

These areas have become level playing fields, which the EU is adamant that the UK must stick to, however the UK wants the freedom to move away should it please – this is where the UK and EU are clashing heads resulting in a no-deal.

What does Brexit mean for EU and UK trade, if a deal isn’t reached?

If the EU and UK can’t make a formal agreement it would mean UK businesses would have to trade under rules set by the World Trade Organization (WTO). These rules are basic and would affect UK businesses in a number of ways, including:

  • Tariffs would be applied to most goods when UK businesses send goods to the EU
  • UK goods would be more expensive and harder to sell in Europe
  • WTO rules would also mean more border checks for goods, causing greater delays
  • The UK service industry would also lose access to European markers

What Brexit means for non-EU trade deals?

The government has continued to push forward talks with non-EU countries, securing trade deals with Japan, seeing 99% of UK exports there being free of tariffs. Trade with Japan amounts for around 2% of the UK’s total market value. 

The government is also in trade talks with the US, Australia and New Zealand. 

How does Brexit affect business planning for 2021?

With Brexit still very much in the air and negotiations still under review, you’re probably asking yourself what can I do now? 

Good business plans must account for different potential scenarios and outcomes, so there are a few areas you can start to think about and plan around to get you off to a good start come the Brexit deadline. 

Business planning, here are a few areas you can start to think about:

Get to know how Brexit affects your sector. 

If you work in hospitality for example, employing EU employees may become more difficult once the deadline hits. Be prepared to plan for additional costs should your business have to cover visa or additional admin costs. 

Those who import and export may experience delays on goods entering and leaving the country. Put in place a plan that acknowledges these potential issues and how you will look to overcome them, the aim is for the end user of your business to feel as little impact as possible

Be prepared to adapt. 

If you’ve always traded in a specific region and this area has now become affected by additional taxes and is no longer profitable, your business model may need to adapt so that it’s more fluid and can be slot into new territories easily. Look into the government’s established trade deals and see where a good opportunity for your business may be to explore and start to think and plan around different potential scenarios, now. 

Understand the rules put in place to date. 

If your business requires regular travel, there are already new rules in place that you can learn about and plan for. Gathering an understanding information on the new rules now, will allow you to acknowledge any potential cost implications, adding these into your 2021 budget will allow for you to forecast more accurately. 

Preparation is key. 

Make sure that you consider cash flow impact on paying VAT and duty tax when importing goods, being aware of potential new costs will help you plan better for the year ahead and remember to register for EORI number to clear goods as they come into the country.

For more business planning advice, you can get in contact with us here.

Financial Support Available During the Second Lockdown

Last week, just days after the Chancellor Rishi Sunak announced amendments to the Job Support Scheme, we were notified as a nation that a second national lockdown would be enforced and therefore changes would be made to the proposed financial support packages.

Whilst this brings good news to many, the endless changes and amendments to the various schemes is causing widespread confusion. So where do we stand in terms of the financial support available as we head into lockdown?

Let’s explore!

Furlough scheme extended

In a shock turn of events, Chancellor Rishi Sunak announced that the Furlough Scheme would be extended until March 2021, despite originally announcing it would only be available until some point in December.

Whilst the majority of the criteria and rules remain the same as when it was first introduced, there are some significant elements which are worth noting.

  • As before, the government will pay 80% of employees’ wages up to a cap of £2,500. This grant must be paid to the employee in full. 
  • Neither the employer nor employee needs previously to have used the JRS, however, to be eligible under this extension, employees must be on an employer’s PAYE payroll by 23:59 30th October 2020. This means a Real Time Information (RTI) submission notifying payment for that employee to HMRC must have been made on or before 30th October 2020. This is a significant change from the JRS in recent months, employees could only be furloughed if they had been prior to 30 June 2020.
  • Employers should continue to pay the employee for hours worked in the normal way.
  • Employers will only be required to cover National Insurance and employer pension contributions for employees on furlough. 
  • There’s no change to the level of the scheme available in August i.e. employers can claim a grant of 80% of hours not worked however they are required to settle employers’ national insurance contributions and pensions contributions.  
  • The Job Support Scheme (JSS) which was due to replace the furlough scheme has been postponed until the furlough scheme ends.
  • Flexible furloughing will continue to be available, as well as full-time furloughing. 

The government has announced they will soon be confirming when claims can first be made, but as far as we know, there will be no gap in support between 31 October when the scheme was originally due to end.

Financial help for the self-employed

The Self-Employed Income Support Grant is being extended from 40% to 80% for the period of the lockdown and up to March at the latest.

  • The government is providing a total of £4.5 billion worth of grants between November and January.
  • Maximum grants increase to £5,160.
  • You must have qualified for the first and second grants earlier this year to be eligible for the new grant, which is the third round of grant funding for the self-employed. However, you do not need to have claimed these earlier grants to be eligible for this new grant.
  • The grants are available to the self-employed and those in partnerships, but not for limited company directors.
  • To qualify, you must declare an intention to continue trading.
  • You will need to be experiencing reduced demand due to Covid-19 or have been previously trading but unable to do so now because of the pandemic.
  • The grant claim will be based on your trading profits in the 2018/19 tax year, or average profits in 2018/19, 2017/18 and 2016/17.

Despite this extension, there are still thousands of self-employed who will be excluded from any form of financial support, raising cause for concern as the pandemic continues to disrupt their ability to earn.

New Style Jobseeker’s Allowance (JSA) and Universal Credit

The new style jobseeker’s allowance has been introduced for those who are unable to work due to the pandemic and do not qualify for other forms of support.

You could get this if:

  • you usually work less than 16 hours a week
  • you are under State Pension age
  • you have made enough National Insurance contributions over the last 2 to 3 years

It’s worth noting that your savings and partner’s income will not affect how much you can claim.

Depending on your circumstances, you may also be able to claim Universal Credit at the same time as JSA. This can include additional amounts for things like rent or the costs of raising children.

The criteria for Universal Credit states:

  • you must have less than £16,000 in savings
  • you or your partner must be under State Pension age

As always, if you require support or have any questions in relation to the updated schemes, please get in touch with Sherad Dewedi via sherad@shenward.com.

Getting to grips with the new Job Support Scheme

It comes as no surprise that as of the 31 October 2020, the Job Retention Scheme that has kept so many businesses afloat throughout the pandemic will come to an end.

However, the good news is that Rishi Sunak announced a new support scheme will come into effect, leaving many business owners feeling relieved. The difficulty is, with so much information floating around, it can be difficult to get to grips with what it means for you and your business.

Here, we break it down so that you’re fully in the loop with how the new Job Support Scheme works.

 

What is the Job Support Scheme?

The Job Support Scheme has been designed to support those businesses who expect to face lower demand during the winter period as a result of Covid-19. It aims to protect viable jobs and allow business owners to keep their employees attached to the workforce. To put it simply, it is a joint effort from the government, the employee and the employer to ensure that a job remains, and a salary continues to be paid. The government expects this will reduce the amount of redundancies and the number of people facing hardships throughout winter.

 

How does it work?

A company must continue to pay an employee for the time they have worked at a minimum of a third of their usual hours, with the government providing wage support for some of the remaining hours not worked, and the employee accepting a wage reduction for the rest of the hours. 

 

Eligibility

Whilst the criteria of the Job Support Scheme are slightly less restrictive than the Job Retention Scheme, there are certain criteria in which must be met.

  1. Any employee employed as of Wednesday 23rd September is eligible.
  2. All small and medium-sized businesses are eligible, but larger businesses must show their turnover has fallen during the crisis. Employers can use it even if they have not previous used the furlough scheme it replaces
  3. Employees are protected from redundancy whilst on the scheme.
  4. There will be restrictions on capital distributions (dividends) to shareholders who are in receipt of the scheme – for large companies.

 

Example

If an employee earns a salary of £2,000 per month and works 70% of their hours, they will earn £1,400 normal pay plus £200 extra from their employer and £200 from the government being £1,800 in total.

 

How to make a claim 

The scheme will be open from 1 November 2020 to the end of April 2021. Employers will be able to make a claim online through Gov.uk from December 2020 and will be paid on a monthly basis.

Grants will be payable in arrears meaning that a claim can only be submitted in respect of a given pay period, after payment to the employee has been made and that payment has been reported to HMRC via an RTI return.

HMRC will be checking the information and claims and will have the right to withhold claims that are deemed to be fraudulent.

 

What other support has been made available?

In addition to the Job Support Scheme, the government has announced a series of changes to existing support packages with a view to further helping businesses and business owners survive the next six months.

 

Self-Employment Income Support Scheme

  1. Self-employed grant will be extended to 30 April 2021 covering 20% of average monthly trading profits

 

Bounce back Loans

  1. Greater flexibility for repayment, currently borrowed over 6 years.
  2. Pay as You Grow Scheme announced – Loans can now be extended from six to ten years
  3. You can also move to interest-only or suspend payments for up to 6 months

 

Coronavirus Business Interruption Loans

  1. Extended from 30 September to 30 November 2020.
  2. Facility term extended to 10 years

 

VAT Deferral

  1. VAT payments between 20 March and 30 June 2020 deferred to 31 March 2021 can be paid over 11 monthly instalments, interest free.

 

Self-Assessment Income Tax

  1. Income tax due by 31 January 2021 can be paid over 12 monthly instalments, interest free.

 

VAT for Tourism & Hospitality

  1. 5% VAT rate extended to 31 March 2021, originally due to end on 13 January 2021.

 

Our reactions

Like always, we welcome any additional support given to businesses throughout this time and agree with the rationale put forward by the Chancellor regarding viable jobs and furlough not being sustainable. However, we do not believe that the Jobs Support Scheme goes far enough to prevent significant unemployment. The fact that businesses have to pay for hours not worked means that there is very little incentive for employers to use it. 

The arithmetic of the scheme means that it would cost a firm £1,500 to employ one full-time worker on £17,000, but more than £2,000 a month to employ two half-time workers on the same full-time equivalent salary. For many, this won’t be achievable.

The JSS is intended to limit the reduction of household income compared with say losing their employment completely and moving to Universal Credit but the scheme is much less generous for businesses which gives them little or no incentive to use it. Those employees who work in closed businesses e.g. nightclubs, soft play centres may lose out if they are not working at all. 

On a positive note, we welcome the measures set out for the self-employed, bounce back and CBILs, however once again, there’s a whole market of directors who are not paid via PAYE who are not eligible for support. This is of course saddening and worrying.

With regards to the VAT & Income tax deferral, it is vital to remember that this is not a tax saving or reduction. It still needs to be paid albeit at a later date. Therefore, the cash flow will certainly benefit but if businesses and individuals take this to the full advantage, there will come a time when tax liabilities from 2020 will need to be paid along with the future tax liabilities e.g. 2021. 

Our advice is to carefully plan ahead where possible do start to pay instalments to smooth cashflow. 

How can R&D Tax Credits benefit your business?

‘What are R&D Tax Credits?’ It’s a question that should be asked more often in the world of business, especially since it’s an incentive to encourage innovation in UK businesses – a cash injection for any research and development that a business has completed.

Sadly, however, unless you’re a business supported by a team of accountants or business advisors, you’re unlikely to know just how much of a cash injection you could be receiving.

If you’re an active scroller on social media, or you like to keep up with the news, you’ll likely be aware that a recent report found manufacturers especially could unknowingly be missing out on this cash injection – and we’re talking thousands of pounds!

But it’s not just manufactures, and we’re here to take a look at how all businesses can take advantage of the rewards for research and development and continue their innovative work.

 

R&D Tax Credits defined

Research and Development Tax Credits are an incentive developed by the government in a bid to encourage and reward UK businesses for continuing innovation – a vital factor in the strength of the economy.

Whilst they’re available to businesses of all sizes who actively participate in research and development, there is certain criteria which any claimant must meet.

 

To make a claim under the R&D SME Regime

The finance tests must be met: 

  • Employ less than 500 employees, and
  • Have a turnover of less than £100m, or
  • Have an £86m balance sheet.

If the above criteria are met, the project for which businesses are claiming for will then need to be considered. Some of the most popular projects include:

  • Development of processing and handling techniques.
  • The design, testing and trialling of prototypes and demonstration plant.
  • Scaling up of production processes
  • Adaption to include new or alternative materials – driven by legislation, environmental aims or operational efficiency.
  • Integration of new technology with old systems.

In summary, for an activity to qualify it must be technological or scientific in nature to qualify.

It’s important to note that if the project in question has received state aid, subsidies or grants, then that project won’t be considered via the SME Regime scheme. 

 

To make a claim under the RDEC Regime

If you’re a business who doesn’t meet the criteria above, don’t worry. It doesn’t necessarily mean you’ll miss out. It’s a little more complicated, and a little less beneficial, but you could still claim 9.7% cash back under the RDEC Regime.

Again, you’ll need to discuss the project itself if you’re looking to claim via this regime.

 

How do R&D Tax Credits work?

As we mentioned, the whole point of R&D Tax Credits is to reward those businesses innovating to help the economy and individuals thrive, so it’s no surprise that the schemes are centred around financial gains.

Let’s explore.

 

Small and medium sized enterprises (SME) R&D Relief

SME R&D relief allows companies to:

  1. Deduct an extra 130% of their qualifying costs from their yearly profit, as well as the normal 100% deduction, to make a total 230% deduction: and/or
  2. Claim a tax credit if the company is loss making, worth up to 14.5% of the surrenderable loss

For example, let’s assume a company has incurred £100k of R&D qualifying expenditure:

£’000
The net profit before tax is 250
The tax due is (see below for info) 22.8
The profit after tax would be 227.2

 

The corporation tax computation would therefore be:

£’000
Net profit before tax 250
Less R&D relief 130 (130% in addition to what has been claimed)
Adjusted profit before tax 120
Corporation tax at 19% 22.8

 

Research and Development Expenditure Credit

This replaces the relief previously available under the large company scheme.

Large companies can claim a Research and Development Expenditure Credit (RDEC) for working on R&D projects, and it can also be claimed by SMEs and large companies who have been subcontracted to do R&D work by a large company.

The RDEC is a tax credit which used to be 11% of your qualifying R&D expenditure up to 31 December 2017, but in 2018 it was increased to:

  1. 12% from 1 January 2018 to 31 March 2020, and 
  2. 13% from 1 April 2020

Looking at a typical scenario then, let’s assume that £100k of R&D qualifying expenditure has been incurred.

£’000
The Net profit before tax would be 250
13% RDEC on expenditure would be 13
The adjusted profit before tax would be 263

                                                                

The corporation tax computation would therefore be:

£’000
Net profit before tax 263
Corporation tax at 19% 50

                                                                                                                                                                                                                                                                    

And the tax payable:

£’000
Corporation tax due 50
Less tax credit (13)
Corporation tax payable 37

 

More information on R&D Tax Credits can be found here https://www.gov.uk/guidance/corporation-tax-research-and-development-rd-relief, but if you’d prefer a friendly chat with one of our experts, please get in touch.

 

Author: Rajeev Dewedi

How much do you know about quarterly Corporation Tax payments?

Written by Michael Gough, Senior Accountant at Shenward, Leeds.

For small companies, corporation tax is payable by nine months and one day after the end of your accounting period. For example, if your company’s year-end is 31 December 2019, the corporation tax, if you are a small company, would be due by 1 October 2020. 

You might not be aware but ‘large’ companies as defined by HMRC are required to make quarterly Corporation Tax payments. It is noteworthy that HMRC’s definition of a ‘large’ company is not the same as the definition set out in the Companies Act 2006. 

Put simply, if you’re classed as a large company by HMRC – your company’s profits for an accounting period are expected to top £1.5 million a year – you must pay the tax due electronically and in four instalments.

Confused? Let’s explore.

HMRC characterise a large business as one with an annual profit of between £1.5 million and £20 million. 

Under Corporation Tax self-assessment large companies must pay in quarterly instalments if they expect their annual profits to be above the £1.5 million threshold. This threshold is known as the Upper Relevant Maximum Amount (URMA) and the current rate of Corporation Tax is 19%.

Most companies won’t fall within the quarterly payment regime, but the directors of fast-growing businesses need to be aware of their obligations as their companies expand and profits rise.

There are exceptions, of course, and that is where taking specialist advice from your accountant is important – and can save you time and money. Tax rules can be complex, every business is unique, and it pays to have an expert on your side.

To help get you started, we’ve answered some of the most frequently asked questions regarding quarterly Corporation Tax.

What are the quarterly Corporation Tax exceptions for growing companies?

A company doesn’t have to pay by instalments for an accounting period even if profits go above £1.5 million if:

  • The amount of its total liability for the accounting period is less than £10,000, or where the accounting period is less than 12 months;
  • Its profits for the accounting period do not exceed £10 million and at any time in the previous 12 months it did not exist or did not have an accounting period; or for any accounting period in the previous 12 months either its annual rate of profit did not exceed £1.5 million or its annual rate of tax liability did not exceed £10,000.

How does having a group of companies apply to paying quarterly Corporation Tax?

Where a company owns at least 51% of other companies in a group the URMA is calculated by dividing £1.5 million by the number of companies in the group. This includes the parent company so if a company has another three in the group then the URMA is divided by four.

Group companies can choose to offset an amount overpaid by one company against an amount unpaid by another company in the group.

HMRC also offers Group Payment Arrangements, which allow groups to make instalment payments on a group-wide basis. You can nominate one company in the group to pay the instalments on behalf of the group, rather than company by company.

When do quarterly payments have to be made?

Four equal instalments should be paid for a 12-month accounting period, two within the 12 months and two afterwards.

The dates are: 

  1. Six months and 13 days after the first day of the accounting period
  2. Three months after the first instalment
  3. Three months after the second instalment (14 days after the last day of the accounting period)
  4. Three months and 14 days after the last day of the accounting period.

For example, using the same example as earlier, a company with a year-end of 31 December 2019:

  1. 14 July 2020
  2. 14 October 2020
  3. 14 January 2021
  4. 14 April 2021

How are quarterly payments worked out?

A company must estimate its current tax year liability, taking into account net reliefs and set offs, and make payments based on that assessment. The estimate is just that, an estimate, and will vary over time. 

Companies are allowed to top-up payments at any time. It may also be possible to claim back over-payments if they shouldn’t have been made or were shown to be excessive. Alternatively, HMRC will set any over-payment against future liabilities.

What should growing companies be aware of? 

If a growing company is defined as a large company for two consecutive years, the quarterly instalments payments regime will apply for the second of those years. If for example, a company’s accounting period ending on 31 December 2019 is the first accounting period where profits exceed the URMA, it will be required to make payments on account for the accounting period 31 December 2020. Its tax payments will be as follows:

  1. First payment on account (2020): 14 July 2020
  2. Corporation tax liability (2019): 1 October 2020
  3. Second payment on account (2020): 14 October 2020
  4. Third payment on account (2020): 14 January 2021
  5. Fourth payment on account (2021): 14 April 2021

By 14 October 2020, the company will have paid its corporation tax liability for 2019 and potentially up to 50% of its upcoming tax liability for 2020. Therefore, it is absolutely essential that companies plan ahead when budgeting for cash flow. 

How should payments be made?

All payments must be made electronically. This can be by direct debit, debit card, credit card, company credit card or your own bank or building society’s internet banking service.

Alternatively, you can use BACS direct credit, your own bank or building society’s telephone banking service, CHAPS or Bank Giro.

What are the penalties for failing to pay Corporation Tax?

HMRC may charge penalties if a company deliberately fails to pay quarterly instalments or doesn’t pay enough. The amount will vary. Interest can also be charged on overdue or under-paid instalments.

Tax can be complex so if you need help with Corporation Tax please speak to one of our experts here Shenward – your leading independent firm of accountants and business advisors. Email michael@shenward.com

Accounting for government grants: What your accountant needs to know

Across the industry, accountants are beginning to prepare year-end financial statements for clients whose accounting periods end on or after 31 March 2020.

Resulting from the various government support made available due to the COVID-19 pandemic, businesses are likely to have received grants, whether from the local authority/self-employed grants and/or in respect of furlough claims. 

The accounting and tax treatment of such receipts may become an afterthought, but it is worth considering at the earliest opportunity in case budgeting needs to reflect increased tax liabilities. 

We’ve prepared some useful tips that will help sole traders, partnerships and limited companies understand the accounting and tax treatment when preparing financial statements.

Local Authority Grants

Like thousands of people across the UK, you may have received local authority grants, whether that be a Small Business Grant, a Retail Leisure & Hospitality Grant or a Discretionary Grants. 

Whichever grant you received; accountants will need to report this in your financial statements, ordinarily as other income which would then be taxed in the year in which received. 

However a fundamental accounting concept is the matching basis therefore it is possible, if your year-end was shortly after the grant receipt in your bank account, that you have not yet had the opportunity to reflect how the funds will be utilised in your business.

 It would therefore prudent to report the grant in your statement of financial position as a deferred income/long term liability. This means that the grant has been reported in the financial statements but as it has not yet been spent, it is deferred to the next accounting period. It then enables the grant receipt and the related costs to be matched thus having a negligible/nil tax impact, smoothing cash flow requirements during the ongoing pandemic.

For your accountant to correctly account for the grant, you’ll need to provide evidence of what the additional funding was used for. If you use a cloud-based accounting system such as KashFlow, this should be a smoother process. But if not, preparing a list to send to your accountant will help them offset the expenses against the grant.

Self Employed Income Support Grant

As at today, 3 August, accountants have not yet received confirmation from HMRC as to when the SEIS grants will be taxable. However, here at Shenward, we fully expect any SEIS grant received to be taxable during the 2020/21 financial year.

If you were in receipt of the SEIS grant, you’ll need to provide your accountant with exactly how much was received, bearing in mind that there are 2 grants, the second window opening from Monday 17 August 2020.

Job Retention Scheme (CJRS) Grants

The coronavirus job retention scheme is one of the most complex schemes within the government support packages provided throughout the COVID-19 pandemic. With flexible furlough and short-term furlough being part of the equation, payroll records will look a lot different to the ones you provided to your accountant in the last financial year.

No matter how complex they are, one thing is for sure; any furlough claims will need to be reported as other income within your financial statements and will be subject to tax and national insurance (for sole traders and partners). 

Eat Out to Help Out Grants

Eat Out to Help Out will operate on Mondays to Wednesdays through the month of August 2020. Its purpose is to incentivise customers to eat in restaurants or other eating establishments by giving them a discount which businesses can then claim back from the government. 

The scheme is UK wide and customers will be able to see who is taking part on GOV.UK. The scheme will drum up custom on quieter days of the week.

HMRC has issued extensive guidance on various examples how to calculate the 50% voucher, capped at £10 per head. However, we draw registered businesses of the scheme to the following accounting and tax points:

  1. Claims made will form part of sales and ultimately profit and will be subject to tax and national insurance (for sole traders and partners) as normal
  2. Where restaurants or other eating establishments are registered for VAT, this will be payable on the undiscounted bill, albeit at 5% for food and non-alcoholic drinks

Example

A group of six diners (4 adults and 2 children) spend £90, including £18 on alcoholic beverages. 

Bill before discount £90

Amount spent on alcohol £18

Amount discount can be applied to £72

Discount (50%, capped at £10 per head) £36

Bill after discount is applied £54

Total amount the business can claim £36

VAT will be due at 20% of the alcohol amount of £18, being £3. 

VAT will be due at 5% on the full undiscounted amount of £72 for the rest of the meal, being £3.43.

Total VAT due being £6.43. As a comparison, if VAT was maintained at 20%, the VAT due would have been £15.

Businesses will be required to retain sufficient evidence to support any claims made e.g. daily gross takings reports (e.g. Z reads and individual meal receipts). 

Further information is available below: https://www.gov.uk/government/publications/get-more-information-about-the-eat-out-to-help-out-scheme/get-more-information-about-the-eat-out-to-help-out-scheme

We appreciate the complexity of this year’s financial statement preparation, so please do get in touch with one of our friendly experts if you’d like to discuss your businesses’ position.

Summer Statement: A review of the Chancellor’s key announcements

In a bid to minimise the economic impact caused by the coronavirus pandemic, yesterday (8 July 2020) the Chancellor made a summer statement mini-budget announcement to the nation.

Whilst we welcome the government support and appreciate the governments’ efforts to support the economy, we again await further guidance on claims processes and eligibility.

Here, we take a look the measures announced to support the rebuilding of the economy and what this might mean for you.

 

Job Retention Scheme

In a surprising turn of events, Chancellor Rishi Sunak announced further pots of money would be made available for those employers already utilising the Coronavirus Job Retention Scheme. 

Under the new rules, each employee who is brought off furlough and is continuously employed until January 2021 will receive a £1000 bonus. It is not yet clear from when the employee must be brought back to work from and if employees already returned to work would be eligible. 

Whilst the criteria and claims guidance are still to be announced, what we do know is

To be eligible, employees will need to:

  • earn at least £520 per month (above the Lower Earnings Limit) on average for November, December and January
  • have been furloughed by you at any point and legitimately claimed for under the Coronavirus Job Retention Scheme
  • have been continuously employed by you up until at least 31 January 2021.

Employers will be able to claim the bonus from February 2021 once accurate RTI data to 31 January has been received. More information about this scheme will be available by 31 July and full guidance will be published in the Autumn.

We also predict that Directors/Shareholders who were not eligible for the self-employment grant but were placed on furlough, may find some respite in claiming £1,000 bonus for each director retained on the payroll.

 

Kickstarter Scheme

It had already been mentioned that £2.1bn would be invested in the Kickstarter scheme to create new jobs for 16 to 24-year olds, but the Chancellor added further, although limited, insight into how this will work.

Under the scheme, employers creating entirely new jobs will be able to claim wages and overheads as long as they can prove these are new roles. In addition, the scheme will allow six-month work placements for young people on Universal Credit to be subsidised in an attempt to rescue those at risk of unemployment.

 

Traineeship Scheme

Similarly to the Kickstarter Scheme, employers will be able to claim £1,000 to employ youngsters via traineeships. This includes work experience placements, training and work preparation for 16 to 24-year olds, and each can last from 6 weeks to 6 months.

 

Apprentices

All businesses looking to take on new apprentices will be able to claim £2,000 to employ youngsters between the ages of 16 and 24. However, businesses who take on apprentices older than 25 will be able to claim £1,500.

 

Green Energy

The pandemic raised awareness of just how much impact society’s lifestyles had on the environment and so the government are now looking at further ways to encourage people to become greener. 

Under the new support measures, homeowners will receive vouchers to pay for at least two-thirds of green improvements to their homes including loft, wall and floor insulations.

Low-income households will also be eligible for up to 100% government funding to a maximum value of £10,000.

 

Stamp Duty

Moving away from jobs and employment, Mr Sunak announced a stamp duty ‘holiday’ in England and Northern Ireland starting yesterday (8 July 2020) and lasting until 31 March 2021. 

This means that we will see a rise in the property value threshold at which stamp duty is paid, which will now increase to £500,000.

However, stamp duty is tiered, meaning different rates are applied to different price brackets. Below is a list of the newly updated tiers and rates.

Up to £500,000 – Zero %

£500,001 to £925,000 – 5%

£925,001 to £1.5m – 10%

Over £1.5m – 12%

We understand that buy to let landlords and 2nd home buyers will benefit from the increased thresholds, although the 3% surcharge will still apply. 

 

VAT Reductions within the hospitality and tourism sectors

From 15 July 2020, VAT will temporarily be reduced from 20% to 5% for goods and services supplied by the tourism and hospitality sectors. Businesses within these sectors can apply the VAT reductions for six months.

However, it’s important to note that the VAT cut does not apply to alcoholic beverages, which means this may not entice people to drink out as the government hopes. Furthermore, from a professional point of view, it will introduce complexity in the VAT calculations.

 

Eating Out

In a bid to entice people to back into restaurants and help them begin to rebuild, for the month of August, there will be a 50% reduction in price of up to £10 per head on sit down meals and non-alcoholic drinks between Monday and Wednesday. This benefit will be available to both adults and children.

How it will be implemented for the public we don’t yet know, but we know that restaurants will have to register for the scheme in order to make claims. 

Our concern is that this won’t be enough to encourage consumers to dine out given lingering safety concerns and a change in tastes. Lockdown has certainly changed consumers’ behaviours and so eating/drinking out is not as popular as it was.

 

Our team of friendly experts is always just on the other end of the phone, so if you’re struggling to digest the information or would like to chat about how this might affect you and your business, please feel free to get in touch.

How will the furlough scheme change from July?

Since the Coronavirus Job Retention Scheme (CJRS) officially launched on 20 April it has enabled businesses to keep valued employees whilst facing the financial challenges brought about by the pandemic.

Chancellor Rishi Sunak has been clear about the fact that the government has always intended to review the scheme over the coming months, which has led to many rumours within business communities about how the scheme will change.

Fortunately, business owners and employers can now make clear decisions about what actions to take next as the government has confirmed that it will continue to pay CJRS grants from 1 July but will introduce a number of changes.

 

How will the furlough scheme change for businesses?

 

You can bring furloughed employees back 

From 1 July, you will be able to bring furloughed employees back into work. This will be a relief for both employees and employers, who can start returning to some level of normality.

 

Employees can work part-time on a flexible basis

You can bring furloughed employees back for any amount of time and any shift pattern, which is known as a ‘flexible furlough’. This means that if you want an employee to come back but are concerned about affording full-time wages, then you can agree to a number of hours for them to work. For example, if an employee works 40 hours, 5 days a week, you could ask them to work for 2 days a week (16 hours).

 

You will pay for the hours they work 

If you do bring a fully furloughed employee back on a part-time basis, you will pay them their normal wage for these hours including NIC and minimum pension contributions.
For the hours they do not work, you will claim furlough pay at 80% of the normal wage. This may mean that you will need to carefully manage payroll if you do make this decision.

 

The government grants will gradually decrease

As part of its strategy to restart the economy, the government will start to decrease the levels of grants that it is paying in monthly stages.
While the government will still cover the same level of grant for July (80% of wages to a maximum of £2,500pm), it will gradually decrease the grant from August until it closes the scheme on 31 October 2020.

Throughout this period, furloughed employees will still receive 80% of their wages but employers will have to start contributing to this.

This is how each stage will look like this:

  • From 1 August, employers can no longer claim Employer NI and pension contributions, but the government will continue to pay 80% of wages.
  • From 1 Sept, employers will have to contribute 10% of wages, while the government will contribute 70%.
  • From 1 Oct, employers will have to contribute 20% of wages, while the government will contribute 60%.

The conditions for furloughing will also change 

From 1 July, the conditions for applying for the scheme will also change.

  • You will only be able to claim for furlough grants for employees that you have successfully claimed for before.
  • The employee must have been previously furloughed for at least 3 consecutive weeks between 1 March and 30 June. So, if you had furloughed an employee on the 10 June, they will be eligible, but not after this date as this will not meet the minimum of 3 consecutive weeks.
  • The cap for the number of employees that you can furlough in a single claim is based on your previous claims. So, if you submitted three monthly claims and the total number employees furloughed in each respective claim was 30, 20 and 50, the maximum number of employees you can furlough in one claim is 50.
  • Although flexible furlough agreements can last any amount of time, unless otherwise specified the period that you claim for must be a minimum of 7 days.

What does this mean to you as a business owner and employer?

 

You should support home working or make a safe workspace

If you have employees returning to work from being furloughed, then it is your responsibility to ensure that they are working in a safe work environment.

If possible, do your best to get your employees set up so they can work from home. If this is not possible, then ensure that your work environment is prepared so people can maintain social distancing and other measures.

The government provides in-depth guidance on safe working during the coronavirus which includes working in offices, factories, labs, shops and vehicles.

 

You should spend some time breaking down the calculations

If you have agreed to put your employees on a ‘flexible furlough’, rather than a full furlough then you will have to spend some time to ensure that they are being paid the correct amount.

You will have to calculate what they are owed in terms of full wages and 80% furlough payments.

If you have been making the claims since April you will probably be familiar with the full list of steps to take before making a claim.

The government has now included guidance on the steps to take to calculate your employees usual hours and furloughed hours.

There is also an example of how to make these calculations, which breaks down each stage including calculating usual hours, furloughed hours, NICs and pension contributions.

 

Be clear about your agreements with employees

It is advised to put your new flexible furlough agreement with your employees into writing, which must be done in accordance with pre-existing employment law.

 

Be clear about your criteria for selecting employees

Take care when selecting your criteria for selecting which furloughed workers will return part-time and defining their hours, make sure that you highlight these so that they are fair, reasonable and objective and be wary of discriminating.

 

Be wary of scams

It is important now, more than ever, as we all get used to working remotely to maintain due diligence when it comes to cyber security.

There have been many reported cases of businesses who have fallen foul of a scam by fraudsters exploiting the challenging situation that we are all facing.

One scam comes in the form of a phishing email scam pretending to be from HM Revenue and Customs. The intention is to trick business owners into providing personal and financial details.

If you suspect a potential scam, you can report it to Action Fraud.

 

Remember: support is always available from your family-run accountants and business advisors

These are difficult times and we are doing all that we can to support our clients and our community. 

If you need advice and support with managing the complexities around furlough and payroll, understanding what the law requires of you as an employer, or support to boost cashflow, don’t be afraid to talk to one of our specialists at hello@shenward.com

Offsetting covid-19 losses against previous year’s profits

The economic fallout from the COVID-19 pandemic is already beginning to cripple even the most resilient of markets, and thus threatening national and global growth. 

In the three months that the UK has spent in lockdown, we’ve witnessed businesses of all sizes dramatically slow down, if not completely halt trading activities, meaning many are heading for a significant loss in trading profits.

But, thanks to the treatment of tax losses, COVID-19 losses can be offset against previous or future years’ profits. 

 

What does this mean?

This means that ordinarily profitable businesses who are already in or expect to be in a tax loss position due to COVID-19 related circumstances, can offset losses to either;

  • Reduce future tax bills (loss carry-forward rule) or;
  • Claim back tax from previous years (loss carry-back rule)

Both options will have a positive effect on cash flow allowing businesses the financial breathing space to begin rebuilding.

 

The loss carry-back rule

The biggest advantage of the introduction of the loss carry-back rule is that businesses will have the opportunity to claim back much-needed cash if they have incurred a significant loss in comparison to previous years’ profits.

However, as with all other tax regulations and schemes, there are certain rules which apply:

  1. A tax loss incurred during the 2020 or 2021 financial year can only be offset against the previous years’ profits. For example, 2021 losses cannot be offset against 2019’s profits. However, there is an exception to the rule if the business has closed and such can claim Terminal Loss Relief. 
  2. Previous year refers to the preceding 12 months rather than the previous financial year the company operates.

 

The loss carry-forward rule

As long as trade continues, businesses who experience profit loss due to COVID-19 can carry forward this loss to offset against future profitable years, thus freeing up cash that would have ordinarily be used to pay tax bills.

If your company is using a carried forward trading loss in an accounting period that ends before 1 April 2017, you can only use the relief against profits of the same trade.

Where your company is using a carried forward trading loss in an accounting period that starts on or after 1 April 2017, the situation depends on when your company made the loss in question. If your company made the loss;

  • before 1 April 2017, it can only be used against profits of the same trade
  • on or after 1 April 2017, it can normally be used against your company’s total profits

 

Group Relief

Where groups of companies meet the group relief criteria (75% ownership), any loss-making companies can offset their losses to other profitable members of the same group. This enables the group to pay corporation tax on the net profits made on the group as a whole where loss-making entities are present. This is one of the key benefits for trading as a group of companies. 

 

Next steps

We’d strongly recommend that businesses begin to look at their expected losses sooner rather than later and work with their accountants to prepare the 2020 tax return way before the deadline.

If you require assistance from any of our trained specialists, please email hello@shenward.com.

COVID-19 Financial Support: Updates to Furlough and Self Employment Income Support Schemes

Over the course of the last month, there’s been a lot of speculation about how long the government can continue to financially support individuals and businesses across the UK.

Whilst many of the rumours weren’t backed up by facts, one particular speculation was confirmed by Chancellor Rishi Sunak two weeks ago; changes to the furlough scheme will occur. 

Up until Friday 29th May, we had little idea about the changes that would come into force and how this would affect both employees and employers. However, the Chancellor has now confirmed what the amended scheme will look like.


So, what’s changed?

The CJRS currently allows business owners to furlough staff who are paid via PAYE and claim up to 80% of their wages back from the government up to a maximum of £2,500 for each employee. Up until the end of July 2020, the scheme will continue in its current form.


But then what happens?

  • After 30th June 2020, employers will not be able to place any non-furloughed employees on furlough. Realistically, this means the employee must be on furlough by 10th June 2020 to complete the minimum 3-week furlough period. 
  • From 1 July 2020, employers can place employees on furlough on a part-time basis, the 3-week rule will no longer apply. 
  • Claims for furlough periods up to 30 June 2020 must be claimed by 31 July 2020.
  • From 1 August 2020, employers can no longer claim Employer NI and pension contributions, but the government will continue to pay 80% of wages to a maximum of £2,500pm. 
  • From 1 September 2020, employers will be required to contribute 10% and the government will contribute 70%. However, the employee will still receive a minimum of 80% of salary/pay.
  • From 1 October 2020, the employer will be required to contribute 20% and the government will contribute 60%. However, the employee will still receive a minimum of 80% of salary/pay.
  • The furlough scheme will close on 31 October 2020. 


How about the self-employed, do they get additional support?

In the daily briefing held 29th May 2020, Chancellor Rishi Sunak also advised that self-employed individuals will receive a second and final taxable grant.

This time, it will be 70% of trading profits to a maximum of £6,570 over a 3-month period- this equates to £2,190 pcm.

Claimants will be required to apply again in August, and it is expected they will receive notification from HMRC in due course in the same way as they did with the prior grant. Per our understanding, the eligibility for this scheme remains the same. 

 

Shenward’s Insight and Analysis

Extension of Furlough Scheme

It’s certainly a welcome extension for businesses who have placed employees on furlough. During August, employers will be required to settle the Employer’s NI however, given that most small employers claim the Employers’ NI allowance of £4,000pa, they would only be required to fund 80% of the pension contributions thus we do not expect a significant impact to businesses’ cash flow. 

Where we do expect an impact is from September and October where employers will be required to fund 10% and 20% respectively. Particularly for those industries which are most affected such as leisure and hospitality, if their businesses have not recovered by then, how will they able to afford 10% / 20% of employees’ wages?

Additionally, it’s certainly an interesting move from the Chancellor to close the scheme to new entrants from 1 July 2020 as a trade-off to allowing ‘flexible furlough’. Realistically, employers have until 10 June to decide whether they wish to place any non-furloughed employees and benefit from this flexibility. 


Self Employed Income Support Grant

Shenward welcomes the extension to the SEIS grant although it’s set to reduce to 70%. Although our concerns raised through our survey https://www.bmmagazine.co.uk/news/alarming-number-of-self-employed-dont-qualify-for-government-support/remain valid. Particularly the directors of owner-managed businesses and new businesses established since 6 April 2019. 

There are still several options that business owners and self-employed individuals can explore to help with cashflow during the pandemic. If you’d like tailored advice or support with applications, please email hello@shenward.com.

 

Update: Changes to the CJRS have since been made.
Please see  https://www.shenward.com/how-will-the-furlough-scheme-change-from-july  for further information.

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