HMRC recently announced that to ensure all claims made on research and development (R&D) tax are legitimate, and to prevent abuse of R&D tax credit payments, it will be strengthening its extensive compliance checks.

 

In this article, we explore why.

Background

£7.4bn is the estimated total amount of R&D tax relief support claimed for the year ending March 2020, an increase of 19% from the previous year. This corresponds to £47.5bn of R&D expenditure, which is 15% higher than the previous year. These newly implemented checks will not only seek to scrutinize any and all claims, but also aid in a better understanding of the scale and nature of errors and fraud associated with these particular reliefs.

 

Despite allocation of extra resources, including the hiring of 100 supplementary compliance officers, these additional checks mean HMRC’s standard processing time will increase significantly. In lieu of this fact, HMRC has also noted that it is seeking to return to standard processing time as quickly as possible.

What is Research & Development Tax?

Research and Development reliefs are tax credit payments designed to encourage investment in innovation from UK companies. It can be claimed by a wide variety of different companies, regardless of size, who are working on innovative projects that seek to research or develop an advance in their field or resolve a particular uncertainty.

 

For the work to qualify, it is essential for it to be part of a specific project aiming to make advances in the spheres of science or technology. However, this only applies to the project itself, not to to the company as a whole. The tax credit allows a company’s R&D spend to be recovered, either as a reduction in Corporation Tax or a cash repayment. It is also possible to claim for projects that were ultimately unsuccessful.

What costs can I claim?

Starting from the date you began working on the project or resolving the uncertainty, you can claim a range of costs right up until you discover or develop an advance, or the project comes to an end.

 

Costs that qualify for R&D tax credits include:

 

  • Staff – employee costs including salaries, pension contributions and employer’s National Insurance contributions.
  • Subcontractor/freelancer costs (up to 65%).
  • Some types of software, including software license fees.
  • Payments to volunteers who took part in any clinical tests or trials.

 

You cannot claim for the costs of rent, capital expenditure, production and distribution of goods and services, or the cost of land, patents or trademarks.

How do I claim R&D Tax Relief?

You can make a claim for R&D tax credit payments up to two years after the end of the accounting period that it relates to.

 

Essentially, to claim the relief, you need to submit your enhanced expenditure into the full Company Tax Return form (CT600). Following this, you should use the online service to support your claim.

 

To calculate enhanced expenditure, start by working out costs directly attributed to research and development – remember to reduce any subcontractor or freelancer payments to 65% of the original cost. Add all costs together and multiply the result by 130% – this gives you the additional deduction to put into your tax calculations. Add this figure to the original R&D expenditure cost to get the figure for enhanced expenditure. This is what you must enter into your tax return.

 

Whilst there is no legal obligation to do so, it’s a good idea to produce an R&D technical report that not only justifies the advancements/uncertainties of the work, but also sets out the eligible expenditure being claimed on a project-by-project basis. The report should also include a short summary explaining the project, the start and end dates of the relevant accounting period, and your 10-digit company unique tax reference number. It may be helpful to speak to an R&D tax specialist when compiling any supporting documents to ensure they cover all necessary ground and to maximise your claim.

What does the ramp up in investigation mean for businesses?

The main consequence of the enhanced investigations is longer processing time for tax credit payments. Despite the standard processing time being 28 days, HMRC currently aims to pay the tax credit within 40 days. This means businesses should be prepared to wait significantly longer to either receive payment or be contacted regarding a claim.

 

The additional compliance officers working to implement these checks also means an increased level of scrutiny when inspecting R&D relief claims. However, this is unlikely to cause any problems, particularly if the claim has been checked by a qualified and experienced accountant or tax specialist, and all procedures outlined below have been properly considered.

What procedures to follow

It’s important to follow correct procedures when submitting a claim for R&D tax relief to ensure your application goes as smoothly as possible, particularly given the added level of scrupulousness that HMRC is currently fostering.

 

When putting together your claim, there are several points to consider in order to ensure it will meet the required standard. Make sure all entries are completed on the R&D section of the corporation tax return (CT600 form) and stay up to date with the latest guidance on completing the CT600 form on gov.uk.

 

Submitting any and all additional information to support the claim, including the R&D report, will help HMRC process the claim quicker, reducing any potential additional processing time. And finally, be aware that if a claim is submitted that is incorrect, inflated, or fraudulent then you may be liable to a penalty.

Get in touch

Compiling tax relief claims can be overwhelming. If you need to discuss any aspect of the claims process for R&D tax relief, or anything specifically regarding your claim, please do not hesitate to reach out to us at hello@shenward.com.

Many businesses are now back to “normal” service following 19th July being coined as ‘Freedom Day’ for people across the UK.

The government has now removed outstanding legal restrictions on social contact and life events, and all venues currently closed can safely reopen with no capacity limits.

This is great news for many businesses across the UK as they can start to recoup some of the financial losses experienced since the pandemic hit. However, for some this may still be a worrying time as they struggle to find the finances to get going again.

If you’re a Bradford business, you may be interested to find out whether Bradford council is offering financial support. The answer is, YES! They have a number of ways to support local Bradford businesses.

How is Bradford council supporting Bradford businesses?

Bradford council is offering small businesses a Small Business Rates Relief.

It is available to all businesses who occupy property with a rateable value of less than £14,999.

To qualify Bradford businesses must:

  • Have their property as the sole or main property they occupy and must have a rateable value of less than £14,999, and
  • If they occupy any additional properties, each of the additional properties must have a rateable value of less than £2,899 and the total rateable value of all of their properties must be less than £19,999, in which case the relief would be applied to the property with the highest rateable value

Also, businesses can occupy an additional property with a rateable value below £14,999, without losing entitlement to the relief on their original property, for an initial period of 12 months.

To apply, complete the small business rate relief form.

 

Bradford council is also offering those who are registered as a charity, support.

If your organisation is a registered charity or a charity that is exempt from registration or a registered community amateur sports club, it may get mandatory relief equivalent to 80% discount providing the premises are wholly or mainly occupied for charitable purposes.

Bradford Council also has the discretion to award a further 20% ‘top-up’ relief where 80% mandatory relief has already been allowed. However, this is only ever allowed in exceptional circumstances.

To apply, complete the mandatory relief form (PDF).

 

Bradford council is providing support for certain properties in rural areas.

The rural areas included must be contained in the council’s current rural settlements list which includes:

  • Eastburn
  • Harden
  • Oxenhope

The council must give 100%* relief to the following properties which are situated in a rural settlement:

  • Post Office – where it is the only Post Office in the settlement and has a rateable value of £8,500 or less
  • General store – where it is the only general store in the settlement and has a rateable value of £8,500 or less
  • All food stores – where they have a rateable value of £8,500 or less.
  • Public houses – where they are the only public house in the settlement and has a rateable value of £12,500 or less
  • Petrol station – where it is the only petrol station in the settlement and has a rateable value of £12,500 or less. How do I apply?

To apply, complete the rural rate relief form.

We hope this information has provided Bradford business owners with some help, however if you’re still unsure on how to progress with next steps for the future, we’re here to help.

 

The UK tax system is complex, there’s no denying it.  And with the introduction of various COVID relief funds of late, it’s become even harder for the everyday individual to get their heads around it.

The good news is, Tax Planning exists – and tax planning strategies for individuals can be created too.

You might be thinking “How can I possibly plan how much Tax I am going to pay?” Well, it’s possible, and we’re here to tell how.

What is Tax Planning?

Tax planning is quite simply the process of arranging your affairs – making a plan – in order to legally minimise tax liability.

You’ll notice we emphasised the word ‘legally’, and that’s because contrary to popular belief, there are several ways in which individuals can legitimately reduce the amount of tax they are or will be liable to pay.

How? By understanding the wide range of reliefs and provisions in the UK. It involves …

Why are Tax Planning strategies important for individuals?

Tax Planning strategies for individuals are important. FACT.

They enable you to take advantage of opportunities which minimise your tax bill without breaking any rules or being deceitful.

Developing a tax plan and sticking to it will mean you get to keep hold of more of your finances to either invest or spend. There are times when you are starting a new business, acquiring or disposing a business, or even property, plant & machinery, where careful planning will be required.

AGRESSIVE TAX AVOIDANCE AND TAX EVASION ARE NO GO AREAS

Aggressive Tax Avoidance

Aggressive tax avoidance has and always will be a bit of a grey area. Of course, it’s frowned upon by the government, but the final decision is always made in court and a court hearing must take place.

Why? The courts need to determine whether there is manipulation of the law in a way that doesn’t represent the government’s tax intentions. It’s worth noting that if you’re ever in a situation whereby you’re unsure of whether your actions will be classed as tax avoidance, seek professional advice. HMRC will not take it lightly if found to be avoiding tax, and you’ll end up having to pay the full amount of tax which would have been due, PLUS INTEREST.

We discourage clients against aggressive tax planning or tax avoidance schemes. We ALWAYS advise clients to avoid taking advantage of tax legislation for which it was not designed for, i.e. promoting HMRC’s anti-avoidance legislation wherever it arises.

Tax evasion

Tax evasion refers directly to an individual who deliberately avoids paying their tax. They are classed as being non-compliant with the law regarding payments, nor the policies.

As you can imagine, tax evaders deliberately break the rules to ensure that they don’t pay the correct amount of tax. Usually, it involves misrepresentation or concealment of the true state of finances to the authorities. TIP: Tax evasion is a PROSECUTABLE OFFENCE, so don’t be tempted. Failing to declare your full income or hiding tax assets just aren’t worth it.

At Shenward, we act for clients who may face HMRC inquiry under their most serious line of enquiry, Code of Practice 9. We have a successful track record in advocating clients’ positions to achieve an optimal outcome for all parties.

Tax Planning Recommendations

Now we get down to business. By now, you’ll understand that tax planning is legal, but that doesn’t mean to say you shouldn’t seek professional support. To give you an idea as to whether you could benefit from tax planning support, we’ve outlined our ideas and recommendations below.

Income tax ideas and recommendations

  1. Can you exchange part of your salary for benefits?

Exchanging part of your salary for tax free benefits is extremely valuable to those close to the higher tax threshold – between £100,000 and £150,000. Opting for tax efficient benefits can help you reduce your salary to under the threshold and is completely legal.

It’s important to note that since April 2017, the number of tax-free benefits on offer has significantly reduced, so you’ll need to ensure you’ve done your research. Examples of tax-free benefits include cycles for commuting and childcare vouchers – some even opt for onsite nurseries.

2. Can you take advantage of the dividend allowance?

Company owners paying themselves a salary can be tax efficient if they take advantage of the dividend allowance. The tax-free dividend allowance currently stands at £2,000. This means you can take £2,000 from your company every year outside of your salary without paying tax on it. Anything more than that is taxed based on your income tax band:

  • Basic Rate 7.5%
  • Higher Rate 32.5%
  • Additional Rate 38.1%

3. Can you restructure your buy to let portfolio within a marriage?

Married couples have an added advantage when it comes to income tax. Where property is involved, if one member of the couple is a basic rate taxpayer and the other a higher rate taxpayer, it would make sense to ensure that the basic rate taxpayer should receive taxable rents. However, it’s a complicated process and if not managed correctly, you can end up wiping out the savings with other taxes triggered.

4. Can you incorporate let properties into a ltd company?

In certain circumstances, it may be beneficial to form a limited company to manage the property let portfolio. There are several advantages to incorporating your portfolio into a limited company; namely enabling mortgage interest relief which is tax deductible, taking advantage of lower tax rates (corporation tax at 19% and dividend tax at 7.5%), and future planning i.e. passing down wealth to your family. Taking your non-minor children into this company and gradually reducing your own involvement/ownership can be very tax-efficient in passing down your wealth.

There are several drawbacks though, such as capital gains tax which is payable upon transfer of properties, and it is unlikely incorporation relief would be available. Transactional costs such as stamp duty, legal fees, borrowing costs are also payable. So, it is vital to plan ahead. An alternative option could be the implementation of trusts. Which would help mitigate inheritance tax upon your death. This requires a detailed assessment of your current portfolio to determine whether this is a viable option.

5. Have you got a spare room you can rent out in your house?

Yes. There is such a thing as a ‘rent a room’ relief, and it’s been around for many years. The relief allows homeowners to rent a room for a value of up to £7,500 per annum before paying tax.

Carry back ideas and recommendations

  1. Can you use past capital losses?

Capital losses are carried forward indefinitely, so make sure you’re aware of the process and speak to your accountant.

  1. Are you using your annual exemptions?

In tax year 21/22 everyone is legally allowed to realise a capital gain up to the annual exemption threshold of £12,300. Whilst it’s available during the year, if not used, it cannot be carried forward.

  1. Can you use Investors Relief?

These are available to businesses and those with shares in personal companies only and cover holdover relief and rollover relief.

  1. Are you eligible for Business Asset Disposal Relief?

Formerly known as Entrepreneurs’ Relief. Previously each individual had a lifetime limit of £10m gains at which they pay a flat rate of 10%, as opposed to 20%. Lifetime limit reduced to £1m in 2020 Budget. It is still a very lucrative relief for those eligible businessmen/women and shareholders, provided the criteria are met.

  1. Can you utilise your spouse’s annual exemption?

Transferring 50% of the property before sale to a partner would mean it was treated as though your spouse was a joint owner from when the property was first bought.

  1. Can you claim relief when you sell your home?

Usually exempt under Principal private residence rules. If you let out your previous home and live elsewhere – you can claim PPR for the time you lived there.

Inheritance tax ideas and recommendations

  1. Can you switch your assets?

Inheritance Tax is always payable on the value of your estate if it exceeds £325,000. The good news is business assets and agricultural land have IHT exemptions. It’s always worth asking yourself whether you can switch your existing assets to things such as shares in private trading companies, or even agricultural assets as an example.

  1. Why not leave your family home to a dependent?

In the tax year 21/22, there is an additional Inheritance Tax nil rate band of £175,000 when a property belonging to a deceased loved one is left to a dependent – dependents are classed as biological, step or adopted.

  1. Why not make charitable gifts in your will?

Many people naturally want to leave part of their estate to charity when they pass but doing so can also reduce the need for your family to pay Inheritance Tax. Leaving at least 10% of the net value of your estate is usually the way to go. However, where the estate value is high, a reduced rate of 36% is charged where 10% or more is left to charity.

  1. Can you take advantage of equity release plans?

If you’re aged over 55, there are a numerous equity release plans available to free up funds for multiple purposes. It works by using the value of the home to release a lump sum, which is only paid back when the homeowner goes into long term care or passes. The benefit is that the homeowner can still continue to reside in the home.

  1. When did you last update your will?

Many people make a will and then never look back over it. Regularly reviewing your will as your family and financial circumstances change will help you understand what Inheritance Tax your family may be liable to pay.

  1. Consider leaving your ISA to a spouse/civil partner

Income and capital gains received through an ISA are tax-free throughout their lifetime, but when you pass, the value is added to your estate and becomes subject to Inheritance Tax. But, if you leave the ISA to your spouse of civil partner, they can’t legally be charged Inheritance Tax – gifts between spouses/civil partners are exempt.

Contact us to talk through your tax planning strategy

Over the years, we’ve supported hundreds of people with their tax planning strategies, ensuring they are always acting legally and in line with HMRC regulations. If you’d like to find out how we can help you, please get in touch here.

Chancellor Rishi Sunak’s Budget continues emergency support for the UK economy ravaged by the Covid-19 pandemic – and the figures are eye-watering.

In the short-term, the emergency support – most notably the Coronavirus Job Retention Scheme – has been extended as the Government starts to unlock the economy over the coming months.

The Chancellor opened his battered briefcase to reveal an additional £65 billion for the Coronavirus response taking the total fiscal support over the last 12 months to a staggering £407 billion.

Government debt has risen to an historic peacetime high – forecasts show Government borrowing reaching £355 billion in 2020-21, 17% of national income – and it will have to be paid back eventually.

The start time for that pay back formed the second part of Wednesday’s Budget with largest and most profitable companies bearing the load with an increase in Corporation Tax from 19% to 25% from April 2023.

That is expected to raise £50 billion but the Chancellor has pledged it will only impact profitable businesses. What these tax rises mustn’t do, however, is discourage innovation, job creation, R&D and inward investment. That would be counter-productive to hopes of a sustained recovery.

The large companies impacted by this – those with profits over £50,000 – are also likely to have capital repayment obligations, such as loans, which are paid after Corporation Tax. What we don’t want to see is companies retrenching.

Everyone will share the debt repayment burden to some extent, however, as Income Tax will also rise in future years. Personal allowances will be frozen which will eventually lift people into higher tax brackets.

The Chancellor had little choice other than to continue to shore up the economy and finish what he’d started in supporting businesses, families and jobs.

He was buoyed by forecasts that the economy is expected to return to pre-Covid levels by the middle of next year – six months earlier than thought – but nothing is certain as we take tentative steps out of the pandemic. Unemployment fears still loom large as furlough is unwound.

What the Chancellor has done this week is leave the public in no doubt about the scale of the crisis. We’ll be paying off Coronavirus debts for decades and that, ultimately, means higher taxes for everyone.

Here are some of the main points of the Budget and what it might mean for you:

Furlough and support for the self-employed extended

The Coronavirus Job Retention Scheme – or furlough – has been extended until the end of September with the Government paying 80% of salary, though employers will be asked to put in 10% from July and 20% from August.

The Self-Employed Income Support Scheme (SEISS) continues with a fourth grant from the three months to April 2021, paid at 80%. A fifth and final grant will be based on extent of reduction in turnover. A greater than 70% reduction in turnover will enable self-employed people to claim the full 80%. A reduction of less than 70% in turnover will mean a grant of 30%.

There was good news for those who have previously missed out on SIESS because they are relatively new to self-employment. The scheme is now available to around 600,000 people with 2019-20 tax returns taken into account. Previously anyone who hadn’t filed a 2018-19 tax return and who became self-employed after April 6 2019 was ineligible.

Help for businesses

The Coronavirus Business Interruption Loan Scheme ends on March 31, 2021 and is replaced by a new Loan Recovery Scheme.

There will also be Business Restart Grant worth up to £18,000 for larger businesses such as pubs, hotels, gyms and restaurants while grants of up to £6,000 will be available to small non-essential retail shops.

The 100% Business Rates holiday will end on June 30 2021 but bills will be discounted by up to 66% for the remaining nine months of 2021-22.

VAT relief for leisure and hospitality businesses will continue with the 5% VAT rate not due to end until September 30 2021. It will then increase to 12.5% from October 1 2021 and run for another six months.

Support for homebuyers

There was good news for homebuyers as the Stamp Duty holiday is extended to June 30 2021. After that the nil rate band will be doubled from £125,000 to £250,000 until the end of September 2021. The Government also announced Government-backed 95% mortgages to help people get on the property ladder.

Corporation Tax

This was the most significant change announced by the Chancellor as the rate of Corporation Tax rises from 19% to 25% from April 2023. This will apply to larger companies with profits over £50,000.

The 19% will remain for companies with a profit of less than £50,000 – said by the Chancellor to be 70% of businesses – meaning they would be “completely unaffected” in his words.

There will be a taper for profits above £50,000 meaning only companies with profits above £250,000 would pay the full 25%, around 10% of companies. 

Income Tax and National Insurance

The Income Tax Personal Allowance will remain at £12,500 but will increase to £12,570 in April 2022 and then be frozen until 2026.

The basic rate threshold will stay at £50,000 but will increase to £50,270 in April 2022. Then it will be frozen until 2026. National Insurance remains unchanged.

National Minimum/Living Wage

The National Living Wage will increase by 2.2% from £8.72 per hour to £8.91 per hour from April 1 2021 and will be extended to 23 and 24-year-olds for the first time. The increases are lower for younger workers and are as follows: Aged 21 to 22 the increase is from £8.20ph to £8.36ph; aged 18 to 20 – £6.45ph to £6.56ph; and under 18 – £4.55ph to £4.62ph. The apprentice rate will rise from £4.15ph to £4.30ph.

Any other changes to note?

While Corporation Tax will rise in 2023 the Chancellor has offered an incentive to businesses to invest now. A ‘super deduction’ of up to 130% will be available to encourage investment in new plant and machinery.

That will be especially welcome in the infrastructure sector and it is only meant to be a ‘quick fix’ or a short-term injection to help restart the economy. The super-deduction is not available on used or second-hand assets.

Elsewhere, there’s no change on the likes of Capital Gains Tax nor Inheritance Tax.

As with every Budget the devil is in the detail and more detail will emerge in the coming days.

For expert advice, please email a member of the team at hello@shenward.com

Lockdown 3.0 came hard and fast just a day after most businesses returned to work after the Christmas and New Year break.

Businesses hoping for better times with the turn of the year were left disappointed and ‘non-essential’ shops hoping for a boost from the January sales were forced to close. Overnight the traditional ‘Happy New Year’ refrain seemed to stick in the throat somewhat.

The Government was quick to announce a new £4.6 billion package of financial help aimed at keeping businesses afloat until the Spring but for many that still won’t go far enough.

What the Government is offering is a good start but many firms are on the brink, even with furlough extended to the end of April.

There is only so long a business can sustain itself without any actual trade and the stop-start nature of the Covid-19 restrictions ramps up the pressure on businesses already under extreme stress.

Chancellor Rishi Sunak will look again at help for businesses in the Budget on March 3 but until then businesses should look closely at what is available.

Here we look at the financial support that it’s still not too late to claim.

What is the National Lockdown Grant announced on January 5 and who’s it for?

  • One-off top ups for retail, hospitality and leisure businesses who are legally required to close;
  • Those with premises with a rateable value of £15,000 or less can claim £4,000;
  • Those with rateable value between £15,000 and £51,000 can claim £6,000;
  • Larger businesses with rateable value greater than £51,000 can claim £9,000.

Coronavirus Job Retention Scheme (known as ‘furlough’)

It’s been around a while now but there are strict deadlines for claiming. Currently the Government will pay 80% of employees’ usual wages for hours they do not work up to a maximum of £2,500 per month.

The deadline for claiming for furloughed employees in December is January 14, for January it’s February 15.

The scheme is open until April 30.

Deferring VAT

VAT-registered businesses which had a VAT payment due between March 20 2020 and June 30 2020 can defer payments until March 31 2021.

Statutory Sick Pay Rebate

You can reclaim Statutory Sick Pay paid to employees off sick, self-isolating or shielding because of Coronavirus. It covers up to two weeks for eligible employees.

The company has to be UK-based and have had fewer than 250 employees since February 28 2020.

Christmas Support Payments for Pubs

If your pub was in Tier 2 or Tier 3 between December 2 and 29 2020 you may be eligible for a payment of up to £1,000.

The pub must be in England and have less than 50% in revenue from food sales.

Apply to your local authority before January 31 2021.

Business Rates Holiday for Retail, Hospitality and Leisure

Business rates have been waived for 2020-21 for retail, hospitality or leisure businesses. You should receive this automatically through your local authority if your business is eligible.

Coronavirus Business Interruption Loan Scheme

UK businesses can access loans of up to £5 million, as long as they have a turnover of less than £45 million a year.

They need to be considered viable by a lender if it was not for the pandemic and have been negatively impacted by Coronavirus.

The scheme is open until March 31 2021.

Coronavirus Bounce Back Loan

Small-medium sized enterprises and the self-employed may be able to borrow between £2,000 and £50,000, interest-free and repayment-free for the first 12 months.

Businesses must be UK-based, established before March 1 2020 and negatively impacted by Coronavirus.

The scheme is open until January 31 2021 and loans can be topped up to the maximum.

Time to Pay Service to Ease Tax Burden

HMRC offers a Time to Pay service for businesses struggling to meet their tax bill on time. Contact HMRC to see if your business is eligible.

Local Restrictions Support Grant for Businesses Forced to Close

Grants may be available from your local council if all or part of your business was closed by law at any time between August 1 and November 5 2020 or after December 2 2020.

Your business must have been in Tier 2, 3 or 4 and you can claim for each 14-day period your business was closed for. How much depends on the rateable value of your property.

Local Restrictions Support Grant for Businesses that Stayed Open

If your business was in a Tier 2 or 3 area between August 1 and November 5 2020 and stayed open you may have a claim.

You will have to show your business was negatively affected and payment is based on the rateable value of premises.

Additional Restrictions Grant

Local authorities were given extra money for businesses impacted by local restrictions.

Local authorities will decide who is eligible and for how much. Businesses which could benefit are those supplying a sector forced to close or if your business is in the events industry. It’s worth checking with your local authority about what’s available.

Self-Employment Income Support Scheme

The scheme is open for the self-employed to make a third claim – a taxable grant worth 80% of annual monthly trading profits, capped at £7,500 in total. Only those eligible for the first two rounds are eligible again.

The claim for a third grant runs from November 1 2020 to January 29 2021, and must be made on or before January 29 2021.

There’s a lot to take in but there’s more information on how to claim on the Government website www.gov.uk where you can enter in specific details about your business and see what’s available.

Just be aware of the deadlines because when it’s gone, it’s gone!

Taxes are a fact of life. No-one likes paying them but if we didn’t there would be no NHS, no welfare state and no public services.

As the saying goes ‘Money Makes the World Go Around’ and without people paying taxes the world would stop turning. Not literally, but you know what we mean!

Given that tax is intrinsically unpopular, it’s no surprise that the Government prefers them to be…less obvious. We won’t say “hidden” because that suggests skulduggery but if they are not quite so blatant, all the better.

So what are these, ahem, “less obvious” taxes and how can we spot them?

National Insurance – it’s just another tax

National Insurance – or “paying your stamp” – comes off your wages. It’s right there, it’s a big chunk and it doesn’t make happy reading on your pay slip. The impression given is that it’s going towards your pension. It actually isn’t. It’s paying for today’s pensions.

So NI isn’t hidden. Or at least YOUR part of it isn’t hidden. What’s not so obvious is that your employer also pays a contribution on your wage. So your boss pays for the privilege of employing you! Critics would call it a tax on jobs. In total NI can be more than the Income Tax on your wage.

Excise Duty – it’s a tax on a tax!

The tax we pay on petrol has become more obvious in recent years but we’ve still come to accept high prices at the pumps.

You only have to fill up a hire car abroad or do a double-take at the prices at the filling stations to see a huge discrepancy in fuel prices in the UK and Europe, for example. Oil is oil. The difference is tax.

The UK has excise duty on fuel and we see the Chancellor often tinker with it at Budget time. The oil company and the retailer calculate their costs and then add the excise duty. Then they add VAT on top. So we end up paying a tax on a tax. I’ll leave you to digest that one…

Air Passenger Duty – a holiday tax

When you’re all packed and ready to go on holiday the last thing you want to think about is tax. But in 1994 the UK Government introduced Air Passenger Duty and it costs up to £176 per flight from UK airports. It was brought in as a revenue raiser and had little to do with cutting the environmental impact of flying.

Insurance Premium Tax – a tax on something else we don’t like to pay out for

This was another tax introduced in the 1990s when the Government decided the insurance industry was “under-taxed” because it wasn’t subject to VAT. Car insurance, home insurance and pet insurance are taxed at 12% while travel insurance, electrical appliance insurance and some vehicle insurance is 20%.

Tariffs – don’t mention Brexit!

Consumers may be blissfully unaware of import tariffs and excise duty on goods coming in from overseas. With negotiations over a Brexit deal underway these are the kind of issues that prove very thorny indeed and we all have to pay.

You can’t avoid most of these taxes if you want to live a “normal” life and we all do need to pay our fair share to help society and protect those less fortunate. So what can we do minimise our tax burden?

Five simple ways to reduce your tax bill and not feel guilty about it

1. Salary Sacrifice

Take a portion of your gross salary and put it into a pension, childcare vouchers or a bike-to-work scheme. The cost comes off your gross salary before the taxman takes his cut, meaning you pay less tax.

2. If you’re self-employed pay into a pension and claim all your allowable expenses

Paying into a pension is a great way to save for the future. For every £100 invested by a basic rate taxpayer the Government adds another £25. Every business can claim expenses against its tax liability but those allowance expenses will be different for each business. Claim what you are entitled to. If you’re not sure, take advice.

3. Marriage Tax Allowance

The marriage allowance lets you transfer £1,250 of your Personal Allowance to your husband, wife or civil partner, reducing their tax by up to £250 in the tax year.  It can also be back-dated to 2016. Marriage has a financial perk but you must have tied the knot!

4. Working From Home Tax Relief

If your employer requires you to work from home you’ve always been able to claim for extra costs. That’s become a big issue in 2020 with most people told to work from home during the pandemic. Even if you’ve worked from home for just one day you can claim a whole year’s tax relief. You can claim £1.20 a week if you’re a basic-rate (20%) taxpayer, £2.40 a week if you’re a higher-rate (40%) taxpayer or £2.70/week if you’re an additional-rate taxpayer (45%). So over the year, that’s £62.40 for basic-rate taxpayers, £124.80 for higher-rate taxpayers, and £140.40 for additional-rate taxpayers.

5. Work Clothes Allowance

From hair nets for catering to steel toe-capped boots for builders, if your employer requires you to wear protective clothing at work you can claim an allowance, even if your employer provides the gear for you. It’s not a fortune but every little helps. Basic rate taxpayers can claim back £12 a year, higher-rate taxpayers twice that.

There’s no getting away from tax but you shouldn’t have to pay more than your fair share. It pays to be tax savvy.

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. 

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.