Author: Femi Ogunshakin

New VAT penalties regime on the horizon

Written by Femi Ogunshakin on 1 October 2021. Posted in VAT. No Comments on New VAT penalties regime on the horizon

The existing penalty regime for VAT returns has the advantage of simplicity, but it’s something of a blunt instrument. The new system coming in for return periods beginning on or after 1 April 2022 will be fairer, but some businesses will find themselves caught up in a complex web of escalating penalties.

The penalty scheme will be clearly divided, with one regime for late payments and another for late VAT return submissions.

Late payments

Unlike the current system of default surcharges, each late payment will be considered separately, with the following penalties charged unless there is reasonable excuse:

Days late	Penalty
Up to 15	None
16 to 30	2% of outstanding VAT
More than 30	A further 2% penalty plus a daily penalty at a rate of 4% p.a. on the outstanding VAT

A business can avoid any further penalties accruing by entering into a time to pay arrangement with HMRC. For example, penalties are avoided if a business approaches HMRC when payments are already 12 days late.

For the first year, HMRC will take a light-touch approach to the initial 2% late payment penalty.

Regardless of whether any late payment penalties are charged, interest will be incurred from the due date until payment is made. A time to pay arrangement will not stop interest accruing.

Late submissions

Under a points-based system, a business will incur a penalty point for each late VAT return Businesses that file quarterly will be charged a £200 penalty when they reach a penalty threshold of four points.

Subsequent late VAT returns will also incur a £200 penalty.
Points expire after two years, but not once the penalty threshold is reached.
Once the penalty threshold is reached, a business filing quarterly will have to submit returns on time for twelve months for their points total to be reset to zero.

More detail is available on both late penalties and interest and late submissions from HMRC.

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‘No jab, no job?’ and other workplace challenges

Written by Femi Ogunshakin on 24 September 2021. Posted in COVID-19, Employment Law. No Comments on ‘No jab, no job?’ and other workplace challenges

Now that more employees have been returning to the workplace, employers face several potentially challenging issues. Vaccination is one of the most problematic – businesses may wish to insist on employees being vaccinated, but there is concern that such policies could leave employers open to a legal claim of unfair dismissal or discrimination.

Reluctance to return

If workers feel they are not able to return to the workplace, this cannot be treated as a redundancy situation because the employee’s job still exists. Where an employee has been successfully working from home, it will be quite difficult for the employer to then reject a request to make home or flexible working permanent. Developing a clear and sustainable hybrid working model, where suitable for the position, may be the sensible way forward.

Safeguarding

Over the last 18 months most businesses have already invested in safeguarding measures for employees – from additional sanitising precautions to barriers in the workplace between desks and workstations. As more people return, additional measures may be required, including testing.

There is no reason why an employer cannot implement a policy requiring regular Covid-19 testing as a condition for workplace attendance. This could be achieved by:

the employer buying tests and setting up workplace testing;
paying an approved provider; or
asking employees to arrange their own testing.

Employers should draw up a clear plan on how positive test results are to be managed. Other issues to iron out may be around how testing will apply to everyone attending the workplace, such as visitors, or only employees.

Vaccination policy

Insisting on employees being vaccinated as a condition of workplace attendance is a more contentious issue, especially if it’s just one or two employees who are opposed to immunisation. UK employment rights mean that employers are expected to tread carefully.

Although there is no legal reason why an employer cannot adopt a full vaccination policy, this is a risky approach to take. Along with potential legal claims, it could also mean the resignation of key personnel. A more practical approach is for employers to encourage employees to get vaccinated support this by offering time off during working hours to do so and where possible discuss concerns. Homeworking might be the easiest way to deal with the issue of an employee who does not wish to be vaccinated and handling their colleagues’ expectations.

The employment service ACAS has produced a guide to workplace testing for Covid-19.

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Are you ready for MTD?

Written by Femi Ogunshakin on 21 September 2021. Posted in Income Tax, Making Tax Digital, MTD. No Comments on Are you ready for MTD?

Making Tax Digital for income tax self-assessment may still be 18 months away, but if you are self-employed or a landlord, it is time to get ready for digital record keeping, ahead of the deadline.

MTD ITSA (as it’s known) is set to begin on 6 April 2023, and it looks like businesses will need to enter the new regime from the first accounting period commencing on or after 1 April 2023; the proposed basis period rules deem an accounting period ending on 31 March as ending on 5 April.

More than four million taxpayers are set to start MTD ITSA from 6 April 2023, and the current timetable has met fierce opposition. The limited nature of the pilot scheme has not helped.

How MTD ITSA will work

MTD ITSA will initially apply to the self-employed and landlords with total annual turnover exceeding £10,000. There is no exclusion if you have, say, £6,000 of trading income and £6,000 of rental income.

Income and expenditure will have to be recorded digitally. Spreadsheets are fine, but, if you do it yourself, MTD-compatible software will be needed to submit quarterly updates.
A quarterly summary of income and expenses must be sent to HMRC, with a final declaration replacing the self assessment tax return.
There will be a new penalty system and no soft landing. However, a late filing penalty will not apply until four quarterly submissions are late.

The biggest impact will be for those currently maintaining paper records. A move to spreadsheets should not be too onerous, however, and it will then be fairly straightforward to use these as a basis for the filing requirements.

If you are thinking of moving to a software package, be warned there are currently only seven providers of suitable software. HMRC has issued guidance on MTD ITSA and of course we’re here to help.

Photo by Javier Allegue Barros on Unsplash

Managing the end of furlough

Written by Femi Ogunshakin on 13 September 2021. Posted in COVID-19, Employment Law, Employment Tax, Redundancy. No Comments on Managing the end of furlough

After playing a crucial part in managing the impact of Covid-19, the Coronavirus Job Retention Scheme (CJRS) is set to end on 30 September. Although some business sectors, such as hospitality, are currently seeing severe staff shortages, other employers may struggle when furlough is phased out.

For September, the CJRS only covers 60% of an employee’s wages, up to a cap of £1,875, with the employer having to top this up to at least 80%. All claims must be made by 14 October.

Redundancies

If you find you do need to restructure your staffing levels, any furloughed staff who are to be made redundant have the same legal rights as any other employees. So any decisions need to be mindful of unlawful discrimination or unfair dismissal.

A business may select staff for redundancy based purely on the fact that they were the ones to be furloughed. The level of risk to this approach will depend on the reasons why staff were chosen for furlough, the selection process used to do this, and whether these were fair. Large groups of 20 or more redundancies will require collective as well as individual consultation.

Alternatives

There are a few alternatives to redundancies to consider:

A hiring freeze;
Redeployment of staff to different areas of your business;
Postponing salary increases; or
A temporary reduction in hours across the workforce.

A temporary reduction in hours could be run on a similar basis to flexible furlough, just without the government support. Experienced employees are retained, and employees should be better off compared to being made redundant and having to claim universal credit. Employee consent is required to alter contractual terms.

Payments and support

If you do have to make employees redundant then they are entitled to statutory redundancy payment (after two years of employment) and untaken holiday pay. There may also be notice pay depending on circumstances.

the main form of support for most employees until they find alternative employment will be universal credit. This is a very different animal to furlough, and for many there will be a big drop in income.

This will certainly be the case for higher earners because universal credit doesn’t take account of previous income levels. Anyone with a high earning partner or significant savings may not be entitled to universal credit at all.

Guidance to making staff redundant can be found here. Let me know if you need bespoke advice in this area. I can be reached on 01691 655 060 x Ext.7 or by email at femi.ogunshakin@nexa.law

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No room for giveaways in OBR risk report

Written by Femi Ogunshakin on 4 September 2021. Posted in Budget, COVID-19. No Comments on No room for giveaways in OBR risk report

The Office for Budget Responsibility has given Rishi Sunak its new worry list. It gives the Chancellor little wriggle-room for potential Budget generosity.

Every other year the Office for Budget Responsibility (OBR) must issue a Fiscal Risks Report (FRR). Unlike the six-monthly economic outlooks the OBR produces for Budgets and (theoretically) Spring Statements, the FRR takes a longer view of the UK’s financial position and the risks it faces. Past reports have been, in the OBR’s words, “encyclopaedic”, but in 2021, the FRR focused on just three areas:

Coronavirus (Covid-19) pandemic The OBR says that despite all that has been spent to date, there is an as yet unfunded need for another £10 billion a year to cover:

NHS programmes such as test and trace, revaccinations and the backlog of
5 million elective treatments;
catch-up schooling for pupils; and
‘the holes in the fareboxes’ of the railways and Transport for London created by the collapse in passenger numbers.

Climate change Although the government has committed to the climate change agenda, the OBR highlights one elephant in the room that would frighten any politician: the loss of revenue from fuel and excise duties in an all-electric world. The OBR says these are worth about 1.5% of Gross Domestic Product (GDP) – £33 billion. In the short term some of the lost income may be replaced by carbon taxes, but in the long term the hole will have to be filled.

Government debt Government debt is currently just about equal to one year’s output of the UK economy, against 40% in 1980. However, at present the net interest the government pays on that debt is less than a quarter of the 1980 bill (as a proportion of GDP). Ultra-low interest rates are the reason, but the corollary is that even only a small rise in rates would increase that cost significantly.

Last month, the Chancellor asked the OBR to work on its next six-monthly report for presentation on 27 October. That might be Budget Day, although many commentators believe Mr Sunak will wait until spring, ditching the Autumn Budget once again. Whether or not that happens, the OBR’s message is that the Chancellor cannot afford any giveaways. You have been warned.

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Scammers step-up sophisticated frauds

Written by Femi Ogunshakin on 1 September 2021. Posted in Insights. No Comments on Scammers step-up sophisticated frauds

One side effect of the pandemic has been a surge in scams, with around £535 million reported as lost to investment fraud in the year to April 2021. One investment scam involving a retired detective shows just how sophisticated they can be.

Cloning fraud

A retired detective was pursuing a recommendation to invest in Vanguard, but when she attempted to find out more about the opportunity a Google search led to a cloned website. Further checks showed Vanguard’s logo, address and company number all matched, and the paperwork provided was convincing. The investor even had to comply with money laundering requirements.

Unlike many scams, the funds did not immediately vanish; the investment was available online for a few days. Encouraged by this, along with assurances regarding financial protection, the investor transferred a further substantial sum. It was only at this point that the scam became apparent, because this amount failed to appear on the online account. A call to Vanguard’s customer service confirmed the worst.

Contingent reimbursement model (CRM)

Most major banks are signed up to the CRM. They promise to refund scammed customers provided they were not unduly negligent. The idea is that the financial sector should be familiar with scams and how they operate, whereas the public generally is not.

The detective’s bank initially refused to refund the full investment, but ultimately relented. There are some scams so convincing that even an experienced customer cannot spot them.

Prevention

No website, text, phone call or product should be taken at face value, however credible. The FCA maintains a warning list, and this should always be consulted. It is not a quick check because a search can give several results, but what is very useful is that the correct contact details are provided for the genuine firm.

The payee’s bank details should be carefully checked since they obviously cannot match exactly those of the genuine firm. And of course, banks and other genuine financial institutions will not ask for your financial details over unsolicited phone calls, text messages or emails.

The FCA’s warning list also provides useful advice on how to avoid financial scams in general.

Photo by Jefferson Santos on Unsplash

HMRC: Upper Tribunal deems child benefit discovery assessments invalid

Written by Femi Ogunshakin on 24 August 2021. Posted in Benefits, High Income Child Benefit Charge, Self Assessment, Tax. No Comments on HMRC: Upper Tribunal deems child benefit discovery assessments invalid

A discovery assessment can be made by HMRC where income, which should have been assessed, has not been assessed for tax purposes. A recent decision in an Upper Tribunal case, however, found that neither child benefit, nor the related charge, is defined as income, thereby restricting HMRC’s use of discovery assessments to collect underpaid tax.

The high income child benefit charge (HICBC) applies to anyone who receives child benefit when their income, or their partner’s income, exceeds £50,000. Many have been caught out thinking the charge doesn’t apply to them or because they are unaware of their partner’s finances.

Individuals who pay tax under PAYE may never have needed to fill in a tax return. However, they are required to do so just to report the HICBC.

The decision

Jason Wilkes owed around £4,200 in unpaid taxes as a result of being subject to the HICBC for the tax years 2014/15 to 2016/17. Crucial to the decision was that Wilkes had not filed returns for these years or been issued with a notice to file.

HMRC raised discovery assessments to collect the tax due. However, since no income as such was ‘discovered’, the assessments raised were invalid.

Refunds all round?

The answer, sadly, is no. Discovery assessments are valid if tax returns have been submitted but the HICBC omitted; there is then ‘income’. This will be the case for many taxpayers.

It seems unfair that those complying with the law are at a disadvantage to those who have not. However, this is down to HMRC relying on discovery assessments rather than issuing a notice to file tax returns.

If you have been required to pay the HICBC for prior years then check to see if you fit the refund criteria: tax returns not filed, with discovery assessments used to collect the tax due.

Details of the high income child benefit charge can be found here. Let me know if you’d like to know more – or require assistance in this space.

Photo by Noble Mitchell on Unsplash

Probate fees reform, round three

Written by Femi Ogunshakin on 18 August 2021. Posted in Inheritance Tax, Lasting Will & Testaments, Wills & Probate. No Comments on Probate fees reform, round three

The Government’s third attempt at revamping the cost of obtaining grant of probate in England and Wales is much more modest in scope than the previous two. The introduction of the new fee structure is planned for early 2022.

Proposal

There is a two-tier fee structure under the current system. The cost is £215 for an application from an individual, and £155 if the application is from a solicitor. Fees were last amended seven years ago, and at that time the cost differential reflected some of the additional administrative work required by the probate service to process applications made by individuals.

The cost differential between professional and individual applications has substantially reduced, so the latest proposal is to have a single fee of £273; considerably less than the £20,000 maximum suggested back in 2016, or £6,000 in 2018.
No fee is payable for very small estates of £5,000 or less.
The same fees apply for obtaining letters of administration where the deceased was intestate.

Probate

Many estates do not need to go through probate. In some cases the value of the deceased’s assets is low. The cut-off point can be anything between £10,000 and £50,000. Each bank and financial organisation has its own rules on how much money it will release before seeing a grant of probate. If all assets are jointly owned, they automatically pass to the surviving owners.

Even when probate is required, you can save the high fees charged by probate specialists if the estate is uncomplicated; approximately 40% of applications for probate are made by individuals in such circumstances. The Death Notification Service lets you notify a number of financial institutions of a person’s death at the same time, and My Lost Account will help trace lost bank and building society accounts, and also NS&I products. It is worth obtaining multiple copies of a death certificate from the beginning as the cost of requesting these later can go up.

Because of Covid-19, probate applications are taking up to eight weeks to process.

If you are involved in a probate application, the government’s guide is a good starting point, otherwise, give me a call.

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Changes afoot for Basis period tax rules

Written by Femi Ogunshakin on 11 August 2021. Posted in Income Tax, MTD, National Insurance Contributions, Pensions, Self Assessment, Self-Employed. No Comments on Changes afoot for Basis period tax rules

Although it looks like the next Budget will be pushed back to spring 2022, several tax changes are already on the cards, some more certain than others. The government’s fast progress with reform of the basis period rules for unincorporated businesses has taken some by surprise.

Basis period rules

The basis of taxation for sole traders and partnerships looks like it will change to a tax year basis from 2023/24 onwards. The government’s plan is to simplify the rules by the time MTD for income tax becomes mandatory.

This will not impact on you if you already draw up accounts to 5 April (or 31 March), but for others 2022/23 will be the transition year.

Example

A partnership prepares accounts to 30 June. The profits assessed for 2022/23 will be those from 1 July 2021 to 5 April 2023 (or 31 March 2023), less any unused overlap profits. For 2023/24, profits assessed will be from 6 April 2023 to 5 April 2024 (or 1 April 2023 to 31 March 2024). Profits for the years ended 30 June 2023 and 2024 will have to be apportioned.

Any unused overlap profits can be offset in 2022/23, although some will find themselves taxed on up to 23 months of profits with little overlap profits to offset. In this case, an election will be possible so that the additional profits are spread over five tax years.

The need to apportion profits in future will mean having to estimate figures (with a subsequent amendment) where the second set of accounts is not prepared in time for the 31 January self- assessment deadline.

The simplest solution will be to change to a 5 April (or 31 March) accounting date. Making that change in 2021/22 could be a good option if current profits are low due to Covid-19.

Another change already on the cards is the increase to the normal retirement age for registered pensions from 55 to 57 in April 2028, which will be legislated in the Finance Act 2021/22. Less certain is a proposed 1% increase in NICs for the employed and self-employed to fund social care.

The Government’s policy paper on basis period reform can be found here.

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MTD income tax pilot

Written by Femi Ogunshakin on 5 August 2021. Posted in Income Tax, Making Tax Digital, MTD, Tax. No Comments on MTD income tax pilot

The pilot scheme for Making Tax Digital (MTD) for income tax is now open for self-employed workers and landlords. The scheme becomes mandatory for accounting periods commencing on or after 6 April 2023, so those who join now will get ahead of the game.

The first phase of MTD for income tax will be mandatory if your taxable turnover from self-employment or income from property is above £10,000. If you want to be one of the early adopters in the pilot scheme, there are various conditions that you will need to meet.

Who can join?

You can only join if you are a sole trader with income from just one business, a landlord renting out UK property, or both. If you need to report income from other sources, such as employment, pensions, or capital gains, then you cannot currently join. The other conditions should not be a problem for most:

UK resident;
registered for self assessment, and
up to date with tax returns and payments.

Your accountant can sign you up if you make a request.

Digital records

To join the pilot, you will need to use software that is compatible with MTD for income tax. Be warned that only five fully compatible products covering both self-employment and property are currently listed by HMRC, although this includes two with free versions.

You’ll need to keep digital records of all your business income and expenses, starting from the beginning of the accounting period you sign up for, and send updates to HMRC. At the end of the period, you will submit a final declaration instead of a self-assessment tax return.

If you’re already using software to keep records, you should almost certainly wait for your provider to update their product to be compatible with MTD for income tax rather than switching providers just to join the pilot scheme. HMRC’s list of software compatible with MTD for income tax can be found here.

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What is an adequate retirement income?

Written by Femi Ogunshakin on 1 August 2021. Posted in Property, Wealth, Wills & Probate. No Comments on What is an adequate retirement income?

A leading pension think tank has examined this question – but the findings aren’t straightforward.

Over the years, there has been much focus on the tax treatment of pensions and ways to encourage greater saving for retirement. Arguably, there has been less attention paid to the question of how much income you will need once work ceases.

The Pension Policy Institute (PPI) recently published a paper examining what an adequate retirement income means today in dollar terms. The paper notes that the last serious effort to address the issue was undertaken by the Pensions Commission nearly two decades ago, leading eventually to the introduction of automatic enrolment. The PPI makes the following points:

Individuals, employers, the state and society generally all have differing views on what constitutes adequacy. For example, the state view is set by the Guarantee Credit element of Pension Credit (£177.10 a week for a single person and £270.30 for a couple).
Changes to the pensions landscape since 2000 have altered the retirement picture both positively and negatively. For example, the new state pension is higher than its basic state pension predecessor, but state pension age has increased (to 66 for men and women) and will continue to increase.
The demands made on assets originally saved to provide a retirement income have increased, for example:
- For some people, there is a widening gap between leaving work and receiving their state pension, a situation exacerbated by pandemic-prompted early retirements.
- More often now debts, including mortgages, will be carried over into retirement.
- The shrinking of home ownership will see more retirees having to pay rent; and
- There may be a need to support other family members – the Bank of Mum and Dad may not be able to close at retirement.
The traditional emphasis on retirement income ignores the need to deal with ‘personal financial shocks’, which are better addressed by considering retirement capital.

The PPI says that many people make their retirement planning decisions ‘without support’. It goes on to warn that “As a result, many people struggle to make pensions and savings decisions which offer them the best chance of both achieving their aspirations for retirement and protecting themselves against future risk.” Don’t let that be you – talk to us about assessing what an adequate retirement income means for you and how it can be achieved.

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Leasehold shake-up on the horizon

Written by Femi Ogunshakin on 27 July 2021. Posted in Law, Wealth. No Comments on Leasehold shake-up on the horizon

Ground rents for residential properties on long leases in England and Wales will soon be abolished, with further reform to follow. This first step in the government’s plan to reform leasehold law affects new leases. However, many homeowners will benefit immediately following a commitment made by two big players in the leasehold sector.

Government reforms

The Leasehold Reform (Ground Rent) Bill currently passing through parliament will remove ground rents for residential leasehold properties with leases of more than 21 years.

The next step, if the Government follows through with its intentions, will be to give leaseholders the right to extend a lease to a maximum term of 990 years, with no ground rent payable. This term is more than 10 times the current standard 90-year extension. An online calculator will be introduced to make it simpler for leaseholders to find out how much it will cost them to extend.

Persimmon and Aviva

The Competition and Markets Authority (CMA) has been investigating the leasehold sector, with doubling ground rent clauses of particular concern. Also, many homes that should ordinarily be sold as freehold have been mis-sold as leasehold. Crucial changes have recently been agreed by housebuilder Persimmon and insurance company Aviva (which buys leaseholds from housebuilders), including:

Aviva will remove leasehold clauses that double ground rent every 10 to 15 years, with leaseholders refunded for past increases.
Persimmon will grant leaseholders the chance to acquire the freehold of their property at a concessionary price (capped at £2,000), and refund homeowners who have already bought their freehold at a higher price.

As yet there is no date for the implementation of the new leasehold rules. The CMA is continuing its investigations into several other housebuilders and investors in freeholds. The Leasehold Reform (Ground Rent) Bill doesn’t help existing leaseholders, but the hope is that that the recent move by Persimmon and Aviva will send a clear signal without the need for costly court cases.

Photo by Michael Dziedzic on Unsplash

IR35: The Question of Control

Written by Femi Ogunshakin on 18 July 2021. Posted in IR35, Law, Tax. No Comments on IR35: The Question of Control

The off-payroll working (IR35) tests are still relevant despite the blanket approach often in place regarding contractors’ employment status. They must always be applied if you are contracting for a small organisation.

Two recent decisions in the Upper Tribunal closely examined the question of control.

In both cases, the Upper Tribunal upheld First-Tier Tribunal decisions, with one going the way of HMRC, and the other for the contractor. The court was prepared to look beyond the contract in question and consider the contractor’s wider business structure.

A win for HMRC

Robert Lee’s company was contracted to work for the Nationwide Building Society from 2007 until 2014. Even though Lee’s contract contained a substitution clause, the Upper Tribunal did not consider there to be a genuine right of substitution because the Nationwide valued Lee for his specialist expertise and familiarity with the work.

One way to strengthen contractor status is to make sure your substitution clause can be actioned. In the words of one commentator, “give your right of substitution clause teeth”.

The degree of control by the Nationwide was held to be significant, with Lee having to work when and where he was told. In addition, he was required to obtain approval for project plans and his performance was monitored.

The contractor comes out on top

Kaye Adams, via her company, presented a radio show for the BBC during the tax years 2015/16 and 2016/17.

Although there were factors indicating employee status, the Upper Tribunal found that the BBC did not have the level of control that would exist in an employment relationship. Despite some 50% to 70% of Adams’ income coming from the BBC contracts, the Upper Tribunal looked at the bigger picture of her career in the surrounding years when Adams generally acted as an independent freelance journalist.

Up to date HMRC guidance for contractors can be found on its website.

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Bounce Back Loans – Repayment Options

Written by Femi Ogunshakin on 15 July 2021. Posted in Bounce Back Loans. No Comments on Bounce Back Loans – Repayment Options

The bounce back loan scheme (BBLS) has kept many businesses afloat over the past year, but, with the first repayments now starting to become due, many of the 1.5 million businesses that borrowed money could fall into difficulty.

Default position

The BBLS was launched in May 2020, with no interest charged or repayments required for the first twelve months. Bounce back loans are repayable over five years, so 1/60^th of the capital is repaid each month, plus the interest accrued for that month, at a fixed annual interest rate of 2.5%. Repayments will therefore reduce over the term of loan as capital is repaid. The first repayment on a £20,000 loan, for example, will be £375.00 (£333.33 capital plus £41.67 interest).

Although loans are guaranteed by the government, banks will be under pressure to recover cash without triggering guarantees. However, since lenders were not permitted to require personal guarantees, even unincorporated businesses are not at risk of having their home or car seized.

Managing repayment

There are various measures that you can take if repaying a BBL is going to cause difficulty:

The term of the loan can be extended to ten years so that capital repayments are reduced.
You can move to interest-only repayments for a period of up to six months (this option can be used three times).
You can pause repayments altogether for a period of up to six months (this option can only be used once).
Consider topping up your finances under the recovery loan scheme launched in April, although your existing BBL will be taken into account and you must be able to afford the additional debt.

Your BBL lender will inform you of the first three measures, known as pay as you grow. They will all result in more interest being paid overall. Do let me know if you need advice on how best to deal with repaying your BBL. I can be reached at femi.ogunshakin@nexa.law

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Focus on national insurance contributions

Written by Femi Ogunshakin on 8 July 2021. Posted in DOTAS, Employment Tax, National Insurance Contributions, Tax. No Comments on Focus on national insurance contributions

New government proposals target the promoters of national insurance contribution (NIC) avoidance schemes, while plans are in place to introduce a zero rate of employer contributions in Freeports. Both measures are included in the National Insurance Contributions Bill 2021.

Crackdown on avoidance

NIC avoidance is already within the scope of the Disclosure of Tax Avoidance Schemes (DOTAS) regime, but these measures will strengthen HMRC’s ability to clamp down on the market for NIC avoidance. HMRC will be able to act quickly and decisively where promoters fail to provide information on their NIC avoidance schemes.

One area which has received considerable publicity is the use of mini-umbrella companies, where a temporary workforce is split into hundreds of small, limited companies. Each company benefits from the £4,000 employment allowance, avoiding the annual employer NICs on this amount.

HMRC is on the lookout for particular actions. The new measures target promoters that:

Respond by restructuring their business when challenged by HMRC;
Engage in protracted circular correspondence; or
Simply deny they are a promoter even with clear evidence.

Freeport employees

From 6 April 2022, employers with business premises in a Freeport tax site will be able to benefit from a zero rate of employer NICs (visit www.britishports.org.uk/Freeports to find out more about Freeports). Eligible employees will be those who spend at least 60% of their working time at the site. However, only new hires will qualify, and then only on annual earnings up to £25,000. Relief will apply for 36 months per employee. At current rates, a Freeport employer will save a potential £6,690 in NICs per employee over 36 months.

Relief is available until at least 5 April 2026, although it might run for a further five years. Regardless of whether relief is extended, new hires employed by 5 April 2026 will qualify for 36 months of relief.

Photo by Jefferson Santos on Unsplash

The future of capital gains tax takes shape

Written by Femi Ogunshakin on 5 July 2021. Posted in Capital Gains Tax, Tax. No Comments on The future of capital gains tax takes shape

A recently released report on capital gains tax (CGT) by the Office of Tax Simplification (OTS) has made several recommendations on the future of a tax, about which it says many people have limited awareness or understanding. The 30-day reporting and payment deadline for residential property disposals comes in for particular criticism.

Although around half a million people need to report disposals each tax year, the majority will only be affected on a one-off basis. Reporting may be via self-assessment, 30-day reporting or the real time CGT service, so the OTS has suggested integration into a single customer account.

Residential property

The OTS considers 30 days to be a challenging requirement and has therefore recommended the reporting deadline is increased to 60 days. An alternative proposal suggests estate agents and conveyancers could be more involved.

However, HMRC may well resist extending the deadline given that over £1.3 million was raised in late filing penalties for the last six months of 2020.

Private residence relief nominations

The OTS found a lack of awareness of the nomination procedure for second homes, and recommends:

A review of the practical operation of nominations;
Raising the level of awareness of how the rules operate; and
Using a new, single customer account for nominations.

Some 1.5 to 2 million homeowners are estimated to benefit from private residence relief annually, although a common misunderstanding is to assume all private homes are exempt.

Divorce and separation

Divorced and separated couples do not incur any CGT on transfers between themselves for the tax year of separation, but very few are able to come to an agreement and transfer assets during this timeframe unless separation occurs near the start of the year.

The OTS therefore suggests relief be extended until the later of:

At least two years after separation, and
Any reasonable time set for the transfer of assets in accordance with a financial agreement.

Whether the government takes on board any of these suggestions may be unveiled in the anticipated autumn Budget.

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Unhappy families – challenging inheritance issues

Written by Femi Ogunshakin on 24 June 2021. Posted in Inheritance Tax, Lasting Will & Testaments, Wealth, Wills & Probate. No Comments on Unhappy families – challenging inheritance issues

The outcome of a recent High Court case is a warning for anyone challenging a will.

As inheritances become more valuable, the number of disputes about wills have increased. Court cases rose by almost 50% to 188 in 2019 compared to the previous year according to the latest Ministry of Justice figures. Many more are settled or abandoned along the way. The cases which do reach the High Court tend to be those involving the ‘right’ mix of large sums and elevated emotions. An example that appeared in April 2021 is Miles v Shearer.

Tony Shearer died in October 2017, leaving nearly all of an estate worth about £2.2 million to his second wife, Pamela. His two daughters, Juliet and Lauretta, born in the early 1980s to his first wife, received nothing. This prompted them to make a claim under the Inheritance (Provision for Family and Dependants) Act 1975.

Lauretta wanted a payment from her father’s estate to cover:

The cost of a home, so that she could move out of her mother’s property;
Fees for training as a dog behaviourist, to enable her to support herself; and
The expenses of caring for her autistic daughter.

Juliet sought funds to:

Reduce her mortgage by about £245,000, so that it would become affordable for her on a repayment basis: and
Buy out her ex-husband’s share of a flat in which she was living – about another £100,000.

In 2008, shortly after his divorce, Tony gave £177,000 to Juliet and £185,000 to Lauretta. At the time he made clear there would be no further financial support to his daughters. This was an important factor in the case as it reinforced the decisions Tony made in the creation of his will.

The judge rejected the claims of both daughters, stating that neither had established a need for maintenance to be funded from their father’s estate. Two lessons can be drawn from the case:

Make your intentions clear in advance to try to reduce potential disappointment and the likelihood of legal action when a will is finally read.
Tony’s will achieved what he wanted to happen. Had he left matters to English intestacy laws, Pamela would have received only £125,000 and personal chattels outright, with Juliet and Lauretta immediately jointly receiving half the residue (less about £285,000 of inheritance tax).

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Wheat, Chaff and Umbrella Companies – Separating Them Out

Written by Femi Ogunshakin on 16 June 2021. Posted in Employment Tax, IR35, Tax. No Comments on Wheat, Chaff and Umbrella Companies – Separating Them Out

Contractors have turned to umbrella companies as a hassle-free way of providing their services to clients following the recent changes to the off payroll working rules. They receive no tax savings, but pass on some administration and pay less than a standalone limited company would charge. However, not all umbrella companies are equal.

The main advantage to using an umbrella company is that the off payroll working rules will not apply. All of your earnings become subject to PAYE in the hands of the umbrella company. HMRC has published a useful guide explaining how and what you will be paid when working through an umbrella company (www.gov.uk/guidance/working-through-an-umbrella-company).

Employment

You, as the contractor, will be an employee of the umbrella company, and the umbrella company will therefore pay you for the work carried out for clients, whether contracted directly, or via an employment agency. Gross pay is calculated after various costs, such as:

the umbrella company’s administration costs;
employer NICs;
workplace pension contributions; and
holiday pay.

As an employee, you are entitled to 5.6 weeks of paid holiday pay a year, and the umbrella company must pay you for this if you leave with holiday entitlement accrued.

However, holiday pay must normally be taken in the year it is accrued and cannot be carried forward. This is one area where an unscrupulous umbrella company can cost you, with some simply pocketing pay for unclaimed holidays.

Tax avoidance

Most umbrella companies are compliant with tax rules, but some use tax avoidance schemes. Be wary of an umbrella company that:

Claims they can help you keep more of your earnings than others; or
Asks you to sign an annuity, loan or other agreement involving a non-taxable element of pay, especially if this involves a different organisation to the umbrella company.

Moreover, avoidance schemes may come with a high, non-refundable, fee.

HMRC has published guidance to identifying schemes that wrongly claim to increase take-home pay.

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Business Relief, IHT and Holiday Homes

Written by Femi Ogunshakin on 7 June 2021. Posted in Inheritance Tax, Tax, Wealth. No Comments on Business Relief, IHT and Holiday Homes

There are various tax advantages to a rental property being treated as a furnished holiday letting, but inheritance tax (IHT) business relief is generally not one of them. Even though the law supports HMRC’s view, property owners regularly appeal against their refusal to give relief.

The tax advantages

The most immediate benefit is full tax relief for finance costs. For normal rentals, relief is restricted to the basic rate, so a higher-rate taxpayer with a £250,000 mortgage at an interest rate of 2.5% will receive extra tax relief of £1,250 annually.

When it comes to disposing of a property, business asset disposal relief and holdover relief will be available.

Business relief

Some £225,000 in IHT was at stake in the recent appeal by the executors appointed by Sheriff Graham Loudon Cox against business relief being denied. Although the late taxpayer worked hard to ensure guests enjoyed their stay in his three furnished holiday flats, the First Tier Tribunal dismissed the appeal, finding that there was nothing exceptional about the business to elevate it beyond being one of mainly investment.

And that is the essential problem. The level of additional services provided must be sufficient that the activity is considered as non-investment. This needs to be more than just:

cleaning;
providing heating and hot water;
a welcome pack; and
being on call to deal with queries and emergencies.

These are considered as simply incidental or ancillary activities. The extra services which would have helped the appeal, such as dog-sitting, childminding, transport, breakfast and supper, were not provided to guests with sufficient regularity. Owners of holiday lets could consider making use of the CGT reliefs by gifting furnished holiday property to the intended beneficiaries during their lifetime. The property then drops out of charge to IHT after seven years.

Details about the reliefs available for furnished holiday lettings, and the qualifying conditions, can be found here.

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Wealth Divide Increase Through Inheritance

Written by Femi Ogunshakin on 27 May 2021. Posted in Inheritance Tax, Property, Stamp Duty, Tax, Wealth. No Comments on Wealth Divide Increase Through Inheritance

Research by the Institute for Fiscal Studies provides a stark warning of how important inheritances are going to be for younger generations in terms of both lifetime income and wealth.

Wealth passed down from one generation to the next is fast becoming the most important determinant of how well off a person will become, with those born in the 1980s projected to inherit almost twice as much as those born in the 1960s. The average inheritance for those born in the 1980s will be worth 16% of their lifetime (non-inheritance) income. One in ten can expect to receive more than £500,000, and it will come as no surprise that graduates generally have wealthier parents.

Security comes from inheriting property

With a potential £1 million exemption from IHT, your inheritance may well be tax-free if you inherit the family home. Depending on your circumstances, you may then be able to live mortgage-free or enjoy rental income.

Be warned, however, that the inequalities created by inheritances could see a wealth tax imposed at some point.

Struggle for those without family funds

Without parental help, it is becoming increasingly difficult to get a first step on the property ladder. The temporary stamp duty cut should have helped, but any saving has been wiped out by a surge in property prices. Despite this, there is better news:

A new government guarantee scheme has been launched, alongside the return of 95% mortgages. Mortgage rates are of course lower for those who can find a 10% deposit.
The latest version of the help to buy equity loan scheme means you can borrow up to 20% (40% in London) towards the cost of a newly built home, so a smaller mortgage is then required.
First-time buyers will again have a stamp duty advantage later in 2021 once the temporary reliefs come to an end.

Guidance on help to buy, including the equity loan scheme, is available on the government website.

Photo by Elena Mozhvilo on Unsplash

Thinking of retiring anytime soon?

Written by Femi Ogunshakin on 22 May 2021. Posted in Insights. No Comments on Thinking of retiring anytime soon?

A recent survey of people who have retired or plan to retire in 2021 provides interesting insights, whatever your intended retirement year.

The average age of people planning to retire in 2021 is 60, according to a recently published survey by investment manager, Standard Life Aberdeen. That is six years before current state pension age, which will rise from 66 to 67 between 2026 and 2028. Those 2021 retirees will, on average, live for another 25 years if they are men, and 28 if they are women, according to the Office for National Statistics (ONS). A quarter will survive to age 92 and 94, respectively, implying over a third of their life is spent in retirement.

The Class of 2021 report found that 37% of respondents had brought forward their retirement date because of the Covid-19 pandemic – a reminder of the importance of building flexibility into your retirement planning. Perhaps the acceleration of plans also explains why only about two in five felt very confident they were financially ready to finish working this year. The lack of financial confidence also showed up in other responses:

Nearly half intended to cut their spending in an effort to support their retirement.
Just over a quarter said they would work part-time for the same reason.
One in five planned to sell their property or downsize to meet their retirement costs.

Those costs may have been underestimated, as the average planned retiree’s household spending was £21,000 a year, almost a third less than the average 2020 household income, according to the ONS.

The most concerning statistic was not one directly supplied by the retirees, but the result of an assessment by the survey’s sponsor, the Pensions and Lifetime Savings Association. They calculated that even using the £21,000 annual spending target and allowing for the eventual arrival of the state pension, two thirds of the 2021 retirees were at risk of running out of money. The association’s estimate was that a savings pot of £390,000 was needed to cover 30 years of retirement expenditure.

All food for thought, whatever your planned year of retirement…

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HMRC Official rate of interest, beneficial Loans et al

Written by Femi Ogunshakin on 21 May 2021. Posted in Benefit-In-Kind, Benefits, Budget, Employment Tax, Tax. No Comments on HMRC Official rate of interest, beneficial Loans et al

HMRC’s official rate of interest has been cut from 2.25% to 2% from 6 April 2021. This will affect any directors or employees who have a beneficial loan from their employer, as well as directors who have an overdrawn current account with their company. The official rate is also used in some other tax calculations.

Beneficial loans

Assuming no change to the official rate throughout 2021/22, the cut will reduce the tax payable by a higher rate taxpayer with an employer-provided interest-free loan, of, say, £50,000 from £450 to £400. Alternatively, the director or employee will need to pay interest of £1,000 rather than £1,125 for 2021/22 to avoid the tax charge.

Where an employer-provided loan is cheap rather than interest-free, the benefit charge is based on the difference between the official rate and the amount of interest actually paid. There will be no benefit if:

The balance of beneficial loans provided to a director or employee throughout 2021/22 does not exceed £10,000.
The loan is for a qualifying purpose, such as buying shares in a close company.

Directors should be particularly careful to not let an overdrawn current account go just over £10,000 at any point during the tax year.

Other uses

The official rate is also used in regard to employer-provided living accommodation and pre-owned assets tax (POAT).

Living accommodation – There is an additional benefit charge on the excess of the cost of the accommodation over £75,000. For example, if living accommodation cost £250,000, then the additional benefit charge for 2021/22 will be (£250,000 – £75,000) at 2% = £3,500.
Pre Owned Asset Tax (POAT) – There is an income tax charge on certain inheritance tax planning arrangements. Where chattels and intangible assets are concerned, the amount of deemed income subject to tax is the value of the asset multiplied by the official rate.

More detail on beneficial loans from an employer’s perspective can be found here.

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Repaying Furlough Grants

Written by Femi Ogunshakin on 18 May 2021. Posted in Budget, COVID-19, Employment Tax, Tax. No Comments on Repaying Furlough Grants

The government reports that 3,000 businesses have voluntarily repaid over £760 million of furlough grants received under the Coronavirus Job Retention Scheme (CJRS) where the reality of the impact of the pandemic was not as bad as first anticipated. For those less forthcoming, the government is targeting fraudulent claims.

The March Budget unveiled a new task force to find those who have exploited the various Covid-19 support schemes, including the CJRS. With over £100 million invested, this represents one of the largest responses to a fraud risk by HMRC. The task force will have around 1,000 investigators.

Fraudulent activity

There has been no specific requirement for a business to demonstrate they have been financially impacted by the pandemic to claim under the CJRS. HMRC guidance simply says employees can be furloughed where a business cannot maintain its workforce because operations have been affected by Covid-19.

The new task force is therefore likely to focus on businesses who have:

furloughed more people than actually employed, or used inflated wage figures;
claimed for workers who continued doing their jobs;
not passed the grants on as wages to furloughed employees; or
abused the flexible working arrangements.

Given that each CJRS claim provides the opportunity to repay any amounts previously overclaimed, HMRC is likely to consider incorrect claims as deliberate and concealed. This means a penalty of up to 100% of the grant.

Repaying furlough grants

Even if CJRS rules have been complied with, voluntarily repaying a grant where it is not needed creates the right impression for your business.

Regardless of whether repayment is voluntary or because of an overclaim, repayment is normally done with a correction on the next claim. If an overclaim is corrected, no penalty is incurred provided HMRC is notified within 90 days of when the grant was received. You can find out about paying back CJRS grants here.

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Some ‘new’ tax year opportunities

Written by Femi Ogunshakin on 12 May 2021. Posted in Budget, Capital Gains Tax, Employment Tax, Self Assessment, Self-Employed. No Comments on Some ‘new’ tax year opportunities

“A bit late in the day, Femi” I hear you thinking. But is it? Some tax planning should happen before the end of the tax year; but the start of a new tax year also presents opportunities. With many people experiencing a drastic change to their circumstances due to the pandemic, it is more important than ever to keep on top of your tax affairs.

If your income is now at a different level than pre-pandemic, you need to re-evaluate any previous tax planning. For example:

Child benefit – A claim may now be worthwhile if income is below £60,000. Act soon to benefit from a full claim for 2021/22.
Marriage allowance – A claim may now be possible if neither you nor your spouse/civil partner is a higher rate taxpayer. You can claim for 2021/22 or backdate a claim for three years.
Working from home – Employees can claim a £26 per month deduction if required to work from home. Claim for 2021/22 or backdate a claim to 2020/21. Although the tax year 2020/21 has ended, some carry backs are possible. Gift Aid donations and SEIS/EIS investments made during the current tax year can all be carried back.

Investments

Savings rates hit record lows last year, and many companies cut their dividend payments. You may also have used up savings to replace lost income. Therefore, make sure you and your partner are making the best use of the savings and dividend allowances, and decide whether any ISA saving is still the best option.

You might also have had to realise investments during 2020/21. If you are now facing a CGT bill, it might be possible to crystallise some capital losses to offset against the gains. This is done by making a negligible value claim for assets that have become virtually worthless.

Tax payments

Some simple procedural checks can make a difference:

Employees – Check your PAYE codes for 2021/22. Your allowance might be too low if deductions have increased (such as professional subscriptions) or taxable investment income has fallen.
Self-employed – If profits have fallen, you might be able to reduce payments on account. This will reduce the payment coming up in July, as well as obtain a refund from this January’s payment.

A good starting point when reviewing your tax affairs is HMRC’s income tax webpage. This contains many useful links and can be found here.

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HMRC’s April interest rate cut

Written by Femi Ogunshakin on 12 May 2021. Posted in Benefits, Employment Tax, Self-Employed, Tax, VAT. No Comments on HMRC’s April interest rate cut

Beneficial loans

The balance of beneficial loans provided to a director or employee throughout 2021/22 does not exceed £10,000.
The loan is for a qualifying purpose, such as buying shares in a close company.

Directors should be particularly careful to not let an overdrawn current account go just over £10,000 at any point during the tax year.

Other uses

The official rate is also used in regard to employer-provided living accommodation and pre-owned assets tax (POAT).

Living accommodation – There is an additional benefit charge on the excess of the cost of the accommodation over £75,000. For example, if living accommodation cost £250,000, then the additional benefit charge for 2021/22 will be (£250,000 – £75,000) at 2% = £3,500.
POAT – There is an income tax charge on certain inheritance tax planning arrangements. Where chattels and intangible assets are concerned, the amount of deemed income subject to tax is the value of the asset multiplied by the official rate.

More detail on beneficial loans from an employer’s perspective can be found here.

Photo by M. B. M. on Unsplash

Freeport tax incentives

Written by Femi Ogunshakin on 4 May 2021. Posted in Budget, Business Rates, Employment Tax, Tax. No Comments on Freeport tax incentives

Among the development measures the Chancellor announced in the March Budget were eight new freeports in England. These are due to enter operation in late 2021, with each freeport including a defined tax site within which a range of tax incentives and reliefs for businesses will apply. These tax breaks will mostly last for five years.

Discussions are ongoing regarding the creation of freeports in Scotland, Wales and Northern Ireland. Businesses operating within a freeport’s tax site will benefit from several incentives:

Enhanced capital allowances – Investment in plant and machinery that is new and unused will qualify for a 100% deduction against profits, regardless of whether the expenditure falls into the main or special rate capital allowances pool. The assets purchased must primarily be for use within the freeport tax site. Relief will be available from when a site is designated until 30 September 2026.
10% rate of structures and buildings allowance – This enhanced rate will mean that investment in non-residential structures and buildings within a freeport tax site will be written off over ten years rather the usual 33⅓-year period. To qualify, the structure or building will have to be brought into use by 30 September 2026.
Relief from stamp duty land tax – Land and property purchased in an English freeport tax site and used for a qualifying commercial purpose will benefit from 100% relief, with relief available from designation until 30 September 2026.
Business rates relief – Full relief will be available for all new businesses and certain existing businesses where they expand. Relief will apply for five years from the point at which relief is first given.
Employer NICs – Still to be confirmed, but the intention is to give full relief from employer NICs for employees working in a freeport tax site. Relief will run from April 2022 (or when a site is designated) to April 2026 but could be extended until April 2031.

The government published a series of questions and answers following the freeport bidding process which can be found here.

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Missing out on tax-free childcare?

Written by Femi Ogunshakin on 29 April 2021. Posted in Benefits, Law, Self Assessment, Self-Employed, Tax. No Comments on Missing out on tax-free childcare?

By setting up an online childcare account, you can get a government top-up to help with the costs of childcare. However, thousands are missing out on this payment.

Tax-free childcare is worth up to £500 every three months (£2,000 a year) for each of your children, which doubles if a child has disabilities. Despite the impact of lockdowns, nearly 250,000 families saved money using the scheme in December 2020, an increase of more than 40,000 compared to a year earlier.

How tax-free childcare works

Your child must be aged under 12, with eligibility ceasing on 1 September after their 11th birthday (under 17 if a child has disabilities).

For every £8 you pay into your childcare account, the government will pay £2. These amounts can then be used to pay for approved childcare, such as:

childminders, nurseries and nannies;
after school clubs and play schemes; and
home care agencies.

The childcare provider must also be signed up to the scheme, but there is no other reason why childcare cannot be provided by a relative.

You can only get help paying for care outside of normal school hours, so, for example, private music lessons during school hours don’t count. Money can be saved during term time, earning the government top-up, and then used for summer camps or play schemes during school holidays.

Restrictions

There are certain restrictions on eligibility:

Other benefits – You cannot have tax-free childcare and also receive universal credit, tax credits or childcare vouchers, so it is worth checking if tax-free childcare is the right option.
Minimum income – Both parents must normally earn at least the national minimum/living wage. However, you may still be entitled if temporarily earning less as a result of Covid-19.
Maximum income – Both parents must earn less than £100,000. If previously ineligible, you might now qualify if income has fallen, for example due to being furloughed.

You can check if you’re eligible for tax-free childcare, find out how to apply and how to pay your childcare provider here.

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Brain teaser: should you incorporate?

Written by Femi Ogunshakin on 27 April 2021. Posted in Self Assessment, Self-Employed, Tax, VAT. No Comments on Brain teaser: should you incorporate?

The planned increase in corporation tax has changed some of the mathematics on incorporation.

The Budget announced a significant change to corporation tax from 2023:

Small companies, with profits of up to £50,000, would continue to pay the tax at the current rate of 19%, subject to adjustments for associated companies and financial periods of other than 12 months.
Large companies with profits of over £250,000 will pay corporation tax at a rate of 25%.
For companies whose profits fall between £50,000 and £250,000 HMRC have said that there will be “marginal relief provisions”, which have now been set out in the Finance Bill. As under previous corporation tax regimes, the marginal relief is given by applying the lower rate up to the small companies limit and then applying a higher than standard marginal rate to profits above that threshold. With the new rates from 2023, the £200,000 band of profits above £50,000 will suffer a marginal tax rate of 26.5%.

At present, from a tax viewpoint, it can be better to run a business via a company rather than on a self-employed basis. This is mainly because a company will allow the bulk of earnings to be received as dividends, thereby avoiding national insurance contributions (NICs). While this approach will still work for businesses with profits that would attract only the 19% small companies’ rate, it is a different picture for higher profits, as the example below shows.

Higher corporation tax rate bites

Phil’s business generates £100,000 of profit. If he has no other income, the tax situation as self-employed or as a company now and in 2023/24 is:

	Self-employed	Company 2021/22	Company 2023/24
Gross profit	£100,000	£100,000	£100,000
Salary	N/A	£8,840	£8,840
Taxable profit	£100,000	£ 91,160	£ 91,160
Corporation tax		(£17,320)	(£20,407)
Dividend		£73,840	£70,753
Income tax	(£27,432)	(£13,211)	(£12,207)
NICs	(£ 4,816)
Net income	67,752	£69,469	£67,386

If Phil decides to incorporate, then the tax savings will turn into a tax loss after two years.

The decision on business structure should never be made based on tax alone as there are many other factors involved. However, the deferred tax changes announced in the Budget may tip the scales for some. As ever, advice based on your personal – and business – circumstances is essential.

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Changing tax payments for SMEs

Written by Femi Ogunshakin on 22 April 2021. Posted in Making Tax Digital, MTD, Tax. No Comments on Changing tax payments for SMEs

As making tax digital extends to businesses and landlords from April 2023, the government is considering whether to increase the frequency of tax payments, both for the self-employed and companies.

The recently published consultation is part of the government’s ten-year strategy to build a modern tax administration system.

Current problems

The newly self-employed can go up to 22 months after commencement before their first tax bill, which can lead into debt. A similar problem arises if there is a large increase in profits from one year to the next.

The consultation is only concerned with companies outside the quarterly instalment regime. The normal due date for such companies to pay their corporation tax is nine months and one day following the accounting period end, so again a significant time lag. It is all too easy for funds to have been spent if a year of high profits is followed by one with much lower income.

Spreading payments

One option likely to be available soon is an improvement to HMRC’s budget payment plan, making it easier for taxpayers to voluntarily budget for future tax payments.

The consultation considers a move to quarterly or even monthly tax payments and points out that the majority of taxpayers already pay monthly or weekly under PAYE. However, a move to quarterly or monthly tax payments will mean more time spent on calculation and reporting, increasing the administrative burden on SMEs. More frequent tax payment also throws up other issues:

The funds available to a business in-year will be reduced.
The chosen frequency may not be appropriate for different trades or sectors.
Income tax and corporation tax are designed to be calculated on an annual basis, with reliefs, allowances, adjustments, and certain deductions factored in at the year-end.

The closing date on the call for evidence on the consultation is 31 July.

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Shaping the future for business rates

Written by Femi Ogunshakin on 12 April 2021. Posted in Business Rates. No Comments on Shaping the future for business rates

A comprehensive review of business rates is underway in England. The government recently published an interim report, with the final report delayed until autumn. One definite change coming is the closing of a loophole that has allowed people to avoid rates on holiday lets.

The current economic uncertainty has seen the government extending full relief through to the end of June for eligible retail, hospitality and leisure properties in England, as well as freezing the business rates multiplier in 2021/22. From 1 July 2021 to 31 March 2022 the rate falls to 66% in England. The governments of Scotland, Wales and Northern Ireland have extended business rate relief for twelve months. However, many high-street businesses want a more permanent overhaul to business rates to help them cope with the competition coming from online retailers.

Interim findings

The initial consultation, published as part of ‘Tax Day’ on 23 March, found the idea of replacing business rates with a capital value tax is not popular. Responses instead focused on improvements to the current system. For example:

Reliefs and exemptions are too complicated.
Small business rates relief can be a deterrent to expansion.
Empty property rates unfairly penalise landlords.
The current system, based around the business rates multiplier, is too inflexible and unresponsive to economic fluctuations.

A common view expressed by respondents is that the complexity of reliefs and the high overall burden create an incentive to attempt avoidance.

Holiday let loophole

Owners of holiday lets and second homes in England have been able to avoid council tax by registering their properties as businesses and therefore subject to business rates. In the vast majority of cases, small business rates relief then means no business rates are payable.

Business registration has been possible if a property was available to let for 140 days or more in a year. This is open to abuse when little or no realistic effort is made by landlords to attract lettings. New legislation will change the criteria so a property must actually be let out for 140 days to receive relief, somewhat stricter than the 105-day furnished holiday letting condition.

The interim report was published alongside a call for evidence, open until 31 October, and both can be found here.

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