Author: Femi Ogunshakin

Covid related VAT reduction extended to 31 March 2020

Written by Femi Ogunshakin on 15 October 2020. Posted in Budget, COVID-19, Tax. No Comments on Covid related VAT reduction extended to 31 March 2020

The temporary reduced standard VAT rate of 5% for the tourism and hospitality sector was due to end on 12 January 2021, but has now been extended to 31 March 2021.

You don’t get that many gifts from HM Government, so it’s worth repeating something you’ve no doubt already heard recently ie that with Covid-19 restrictions continuing for the foreseeable future, this winter is likely to be quite challenging for many tourism and hospitality businesses, so the extension will be welcomed across the sector.

The current reduced rate applies to food and non-alcoholic drinks from restaurants, pubs, bars and cafes. Holiday accommodation and admission fees to tourist attractions are also included.

Businesses can choose to pass on the VAT reduction to customers and benefit from increased footfall or pocket the savings.

Flat rate scheme

Flat rate percentages have been correspondingly reduced and these will also continue through to 31 March 2021. For example, the rate for restaurants and takeaways has been cut from 12.5% to 4.5%. Given the reduced rates do not apply to alcohol sales, any decision on joining or leaving the flat rate scheme is currently quite complex. Professional advice is essential.

Some anomalies

A gin and tonic consists mainly of tonic, but the 20% standard rate still applies (the tonic being an incidental extra). On the other hand, VAT is apportioned for an offer combining food (5% rate) and a pint (20% rate).
Hot takeaway food benefits from the reduced rate, but not confectionery, crisps, and the like. However, they qualify if eaten on the supplier’s premises.
Off-premises catering is not included within the reduced rate as it is not on the supplier’s premises.

The use of the flat rate scheme eliminates these anomalies, as just the one rate is used across a business sector.

VAT deferral

The government has also introduced an interest-free payment window for any VAT payments deferred from 20 March to 30 June 2020. Instead of paying the full amount by March 2021, businesses will now be able to make 11 equal instalments over the 2021/22 financial year.

Full details of HMRC guidance can be found here.

Photo by Marcos Paulo Prado on Unsplash

Bounce Back Loan Scheme Extended

Written by Femi Ogunshakin on 12 October 2020. Posted in Bounce Back Loans, Budget, Restructuring & Insolvency. No Comments on Bounce Back Loan Scheme Extended

The application date for the Bounce Back Loan Scheme (BBLS) has now been extended to 30 November, and the loan repayment process made more flexible.

To date, the BBLS has provided more than a million loans between £2,000 and £50,000 to businesses affected by the Covid-19 crisis.

Businesses can borrow up to 25% of their annual turnover, subject to a maximum loan of £50,000. Loans are 100% guaranteed by the government and are interest-free for the first 12 months, with no personal guarantees required. After 12 months, the annual interest rate is set at a very attractive 2.5%.

Flexible repayments

The original terms of the BBLS required repayment over six years. The new terms provide for more flexibility:

The repayment period can be over ten years, although full repayment can be made at any time without penalty.
It will be possible to make interest-only repayments for periods of up to six months. This option can be used three times.
A business can suspend repayments altogether for up to six months. This option can only be used once.

What can a loan be used for?

The BBLS was introduced quickly and relied on self-certification rather than extensive credit checks. There is little restriction on what a loan can be used for, so long as it benefits the business.

Even if you are unsure whether additional business finance is required, there is no downside to having the funds sitting unused for a year and then repaying in full. Alternatively, an interest-free bounce back loan could be used to repay existing finance, which is likely to be much more costly.

Additionally, the loan can be used to support your personal income, considering it drawn from self-employment, or remuneration/dividends from a company.

Not surprisingly, the BBLS is expected to result in widespread fraud, with the government unlikely to receive value for money.

The BBLS application process can be found here, along with a link to accredited lenders.

Photo by The New York Public Library on Unsplash

Chancellor Unveils Winter Economy Plan

Written by Femi Ogunshakin on 12 October 2020. Posted in Budget, COVID-19, Employment Law, Tax. No Comments on Chancellor Unveils Winter Economy Plan

The latest pandemic support measures are much less generous than before.

Despite cancelling this year’s Autumn Budget, Rishi Sunak has still made an early autumn appearance before the House of Commons to announce his ‘Winter Economy Plan’. He announced new employment support and amendments to existing schemes.

Job Support Scheme (JSS)

The JSS is the next stage of the furlough scheme (strictly the Coronavirus Job Retention Scheme (CJRS)), which comes to an end on 31 October. The JSS, which will run until 30 April 2021, is aimed primarily at small and medium-sized employers and will only apply to employees who work at least one third of their normal hours. For the hours that are not worked, the government and the employer will each pay one third of lost pay. The net results in terms of employee income and employer costs are shown in the table.

Hours Worked As % Normal Hours	Employee Income Earned % Full Pay	Employer Non-working Contribution % Full Pay	Government Non-working Contribution* % Full Pay	Total Employee Income % Full Pay	Total Employer Outlay % Full Pay
25.00	25.00	0.00	0.00	25.00	25.00
33.33	33.33	22.22	22.22	77.77	55.55
50.00	50.00	16.67	16.67	83.34	66.67
75.00	75.00	8.33	8.33	91.66	83.33
100.00	100.00	–	–	100.00	100.00

*Capped at £697.92 per month.

Payments under the JSS will not affect an employer’s entitlement to the £1,000 Job Retention Bonus.

Self-Employed Income Support Scheme (SEISS)

The existing scheme has been restructured and extended to April 2021. Only those already eligible will be entitled to claim. The first grant, covering the three months to 31 January 2021, will cover 20% of average monthly trading profits and is capped at £1,875. The terms of the grant for the next three months will be set ‘in due course’.

Both the JSS and revised SEISS are considerably less generous than the existing CJRS and SEISS, which have so far (to 20 September) cost the Treasury over £52 billion. This cut to support is understandable from the government’s financial viewpoint, but it is also a reminder of the importance that your personal financial planning makes provision for an adequate cash reserve.

Photo by Donnie Rosie on Unsplash

When is a van a car?

Written by Femi Ogunshakin on 21 September 2020. Posted in Company Car Tax, Employment Law, Law, Tax. No Comments on When is a van a car?

The tax treatment of cars and vans is quite different, with van classification far more beneficial from both an employer and employee perspective. However, the distinction is not always clear-cut, especially where vans have been modified to turn them into multi-purpose vehicles.

In what is now being referred to as the “Coca Cola van case”, the Court of Appeal has ruled that three modified crew-cab vehicles provided by Coca-Cola to its employees, who used them privately, are cars rather than vans, despite the vehicles having the outward appearance of a van.

Modification

The three vans in question were panel vans modified with a second row of seats behind the driver, turning them into crew cabs. With two of the vehicles, the additional seats could only be removed with tools. For the other vehicle, the seats were removed during working hours.

Primarily suited

For benefit purposes, classification as a van depends on a vehicle being primarily suited to the carrying of goods.

The Court of Appeal’s view was that the modifications had transformed the three vans into multi-purpose vehicles, equally suitable for carrying either goods or passengers. Not being primarily suited to the carrying of goods, the vehicles therefore did not qualify as vans.

What a vehicle looks like on the inside overrides its outward appearance.

The decision could also see crew cabs reclassified for capital allowance purposes (so no annual investment allowance), but still considered vans for VAT purposes provided they can carry a payload of one tonne or more.

Implications

Employers should be aware of the tax implications of providing similar modified crew cab vehicles where private use is permitted.

The decision will mean a higher benefit charge for employees, and additional class 1A NICs for employers. The change should be applied from 2020/21 onwards, and also potentially backdated to 2018/19 (when the case was heard at the Upper Tribunal).

HMRC guidance on the difference between cars and vans for car benefit purposes can be found here .

Photo by Paul Hanaoka on Unsplash

HMRC targets employers over CJRS claims

Written by Femi Ogunshakin on 19 September 2020. Posted in COVID-19, Employment Law, Law, Tax. No Comments on HMRC targets employers over CJRS claims

With reports of two-thirds of furloughed employees continuing to work during the Covid-19 lockdown, despite the initial prohibition of work as an explicit condition of furlough, it is no surprise that HMRC has already written to 3,000 employers it believes may need to repay some or all of the grant they have received under the Coronavirus Job Retention Scheme (CJRS).

Until 30 June, it was a condition of the scheme that furloughed employees cease all work in relation to their employment. Flexible furlough was brought in from 1 July, so HMRC are likely to only pursue the most blatant cases of employees continuing to work, such as where an employer instructed them to do so.

Incorrect claims

HMRC will also be concerned where an employer has:

Claimed more grant than they are entitled to, for example, where a claim is based on inflated wage figures.
Claimed the grant despite not meeting the conditions such as including ineligible employees.
Not passed the grant on as wages to the furloughed employees.

HMRC’s target is those who have deliberately defrauded the system. However, even if they believe no mistake has been made in their claims, any employer contacted by HMRC should respond to the enquiry.

Amnesty

An employer can repay any overpaid amount of CJRS grant without incurring a penalty provided HMRC is notified within 90 days of the later of:

20th October 2020;
the date the grant was received, or
the date when circumstances changed so the employer is no longer entitled to keep the grant.

Failure to meet the deadlines could result in a minimum penalty of 30% of the grant improperly claimed, with a potential maximum penalty of 100%.

The overpaid amount may be recovered by HMRC making an assessment. Otherwise, the employer will be subject to a tax charge payable on the usual tax due dates for an individual or a company.

Latest HMRC guidance on eligibility for the furlough scheme can be found here.

Photo by Markus Winkler on Unsplash

Who pays capital gains tax?

Written by Femi Ogunshakin on 18 September 2020. Posted in Capital Gains Tax. No Comments on Who pays capital gains tax?

HMRC has published some interesting research into capital gains tax (CGT).

Here are three CGT questions for you to ponder:

How many individuals made enough capital gains in 2018/19 to face a CGT bill?

The answer is just 256,000, according to the latest provisional figures from HMRC – 9,000 fewer than in the previous tax year. Viewed another way, that is less than 1% of all income taxpayers. However, over the 10 years since 2008/09 the number of CGT payers has nearly doubled.

Now you know that individual CGT payers numbered only about a quarter of a million, try the next question…

How much tax did they have to pay in total?

The answer is £8,805m, which is over £3,400m more than was collected in inheritance tax (IHT) in 2018/19. IHT and CGT are both capital taxes, often levied on the same asset, albeit usually at different times. Yet CGT attracts much less criticism than IHT, which has been rated as the UK’s most-hated tax.

With the information on how many taxpayers and how much tax was collected, the third question might look easy…

What proportion of that £8,805m was paid by the top 5,000 CGT payers?

The top 5,000 – about 2% of all CGT payers – contributed 54.4% (£4,789m) of all CGT paid. They all had gains of at least £2,000,000. Expand the band a little and 18,000 individuals, with gains of at least £500,000, accounted for just under three quarters of the CGT paid.

The answers to these three questions highlight two points which give pause for thought, one to the Chancellor and the other for investors:

As with some other personal taxes, the amount raised from a small number of the wealthiest individuals is a significant proportion of the total. This means that the results of increasing the tax rate(s) will heavily depend upon how those individuals react. If some of them decide not to realise their gains, the overall tax take could fall rather than rise.
The annual CGT exemption is £12,300 in 2020/21. Investment returns that are received as capital gains are usually taxed more lightly than those received as income. The relatively small number of taxpayers is a reminder of the current generosity of the exemption.

There. Bet that made you think?

Photo by Kelly Sikkema on Unsplash

A new season, a new Budget

Written by Femi Ogunshakin on 17 September 2020. Posted in Budget. No Comments on A new season, a new Budget

As autumn arrives, attention is turning to possible measures in the next Budget.

Yet another extraordinary turn for 2020, normally seen only in an election year, will be upon us soon: the second Budget of the calendar year. The last Budget, on 11 March, now belongs to a different (pre-pandemic) era. Back then the Chancellor announced £12bn of “temporary, timely and targeted measures to provide security and stability for people and businesses” in response to Covid-19.

To put it mildly, matters have moved on since then. The latest estimate from the Office for Budget Responsibility (OBR) is that the direct effect of government decisions, in terms of increased spending and tax reductions, will amount to £192.3bn in 2020/21. That is not the end of the story because the other side of the government balance sheet has been hit by lower tax receipts due to the recession.

So far, the Chancellor, Rishi Sunak, has won plaudits for his do-whatever-it-takes approach to support the economy, but the next Budget could be less well received as he begins to address the financial consequences of his actions. The current state of the UK economy, which shrunk by 20.4% in the second quarter of the year, makes it highly unlikely that Mr Sunak will reveal any significant direct tax increases in his Autumn Budget. However, he may well start the long process of book-balancing by reducing some tax reliefs and exemptions. As Parliament resumed in September, the Chancellor was already trying to quell backbench unease while simultaneously talking about “short term challenges” and a plan “to correct our public finances”.

There are several obvious revenue-raising candidates where the government is already in the midst of consultation: inheritance tax (IHT), tax relief on pension contributions, capital gains tax (CGT) and yet another review of business rates. Lurking in the background is the possibility of some form of wealth tax, although this might just be cover for the alternative of raising more revenue from IHT and CGT.

The date for the Budget had not been announced at the time of writing, although the present expectation is that it will be in November. Ahead of the Chancellor returning to the despatch box, you should review whether any plans you have – such as realising capital gains – need to be brought forward.

Photo by Autumn Mott Rodeheaver on Unsplash

Defining ‘adversely affected’ for the self-employed

Written by Femi Ogunshakin on 4 September 2020. Posted in COVID-19, Law, Self-Employed, Tax. No Comments on Defining ‘adversely affected’ for the self-employed

Many self-employed workers will have already claimed their second, and final, Self-Employment Income Support Scheme grant, but otherwise have until 19 October to do so. A key condition is that the business must have been ‘adversely affected’ by Covid-19 on or after 14 July 2020, and HMRC has provided guidance as to what this means.

Timing

Since applications will close on 19 October, the adverse effect must occur before then. However, if a business subsequently recovers, eligibility will not be affected.

Amount

There is no minimum threshold over which income or costs need to have changed, so just a small drop in income or an increase in costs will meet the ‘adversely affected’ requirement. Of course, the change must be Covid-19 related.

There are several ways in which Covid-19 could impact on income and costs. For example:

Not being able to work due to shielding, self-isolation, sickness or having caring responsibilities;
Having to scale down or stop trading due to supply chain interruptions, fewer customers or clients, staff being unable to work or having contracts cancelled; and
Additional costs incurred to buy protective equipment to meet social distancing rules.

A business is still classed as ‘adversely effected’ should contracts lost prior to 19 October be subsequently revived.

Records

You need to have records of how and when the business has been adversely affected. This should be fairly straightforward and will often just be a case of noting relevant dates when you were unable to work or trade or saving invoices for additional costs.

As regards income, retain any correspondence for cancelled work. A comparison to the same period for previous years may be needed if a business is open but has fewer customers.

The ‘adversely effected’ requirement will not be met if income has risen compared to last year, even if income would have been even higher if not for the Covid-19 pandemic.

Full details of HMRC guidance can be found here,

Photo by Andre Benz on Unsplash

Coping With Brown Envelope Syndrome

Written by Femi Ogunshakin on 1 September 2020. Posted in COVID-19, Insights, Law, Tax. No Comments on Coping With Brown Envelope Syndrome

It’s estimated roughly 100,000 people a year enter one form of formal personal insolvency or another and Covid-19 is likely to significantly increase this figure. This article is written in the hope that it may provide comfort to some and encourage others to avoid the potholes the content deals with.

Every so often a new client is referred to me for assistance with a challenge in dealing with debt owed to HMRC, and typically, I get the introduction when HMRC’s Debt Management team has stepped in to either collect the unpaid taxes or refer the matter for enforcement action which mostly means the matter has escalated to the point of threats of a statutory demand, bankruptcy proceedings or winding up petition.

There are usually, two main reasons why escalation kicks in: either HMRC is playing hard-ball and not giving the client time to settle the liability or more often than not; the client has suffered from what I like to call “Brown Envelop Syndrome” or BES for short. Not a new term, I’m sure. A quick search of googles reveals tons of articles on this subject; I’m probably not discussing anything new here, but I’ll continue anyway as this is a live and topical issue for many.

Some of you out there may no sympathy for BES sufferers whatsoever, after all, they earned (or in the case of PAYE and VAT, collected) the money and should (when due) pay what is owed. I don’t disagree with you on this but, having dealt with scores of ‘sufferers’, I can assure you this is a real (if not medically diagnosed) ailment – suffered by hundreds of thousands of individuals across the UK. And, like COVID-19, it has no respect for gender, race, religion, politics, football club or anything else we human beings use to differentiate ourselves from others.

The ailment starts with the receipt of, and you will not be surprised to hear this: the arrival of a brown envelope.

Approaching the floor mat with trepidation, then separating out the brown envelope(s): the former opened almost immediately, the latter either opened at a future date or in some instances, not at all. The problem with BES is that despite ignoring the content of the envelope, and wishing the problem will go away, the fact of the matter is credit card bills, HMRC demands, utility bills etc don’t go away because we ignore them. They only attract further demand, the accrual of interest, the arrival of debt collectors, or threats of county court judgements.

Back to my clients – sometimes an individual, often a company. Having finally opened the envelopes and read through the various correspondence from the creditor, I break the bad news to the client on the quantum of the debt owed, and this is then followed a conversation on how best to resolve the matter is had, after which I am engaged to correspond with the creditor to put in place a repayment arrangement, stop any enforcement action and provide my client with the peace of mind in knowing that the tax liability is not going to lead to a county court judgement, an adverse credit rating or insolvency (personal or commercial).

So, if you are a BES sufferer and have a pile of brown envelopes stashed away somewhere. Do not panic, and most importantly: do not ignore them. Set aside your dread and trepidation and go retrieve them, then give me a call on 01925 937 499, or email me at femi@lofusstowe.com or, if you’re really feeling brave; book an initial consultation with me at: https://calendly.com/femiogunshakin

Femi joins Tax Advisers Network

Written by Femi Ogunshakin on 1 September 2020. Posted in Tax. No Comments on Femi joins Tax Advisers Network

I am proud to announce that I have been accepted as a member of this prestigious and long-standing network of independent tax advisers.

The website www.FindATaxAdviser.online is highly ranked and used by thousands of visitors each month to source specialist tax advisers across a wide range of tax issues and topics.

Members like me provide tax support to accountants, business people and anyone else needing independent advice, guidance and expertise.

The 3 most popular areas on which I am asked to advise are: tax disputes/investigations, tax consultancy and time-to-pay arrangements

You can find me on the website here

Taxation of electric vehicles (from 6 April 2021)

Written by Femi Ogunshakin on 24 August 2020. Posted in Company Car Tax, Tax. No Comments on Taxation of electric vehicles (from 6 April 2021)

With the government announcing there will be no van benefit charge for fully electric company vans from 6 April 2021, you might be forgiven for thinking that having a company electric vehicle avoids any tax cost. However, this is not quite always the case.

You can currently be subject to a van benefit charge if you have the use of a company van which is also used privately. Unlike company cars, the definition of ‘private use’ for a company van does not include your normal commute to work.

Over recent tax years, the fully electric van benefit charge has been set at an increasing percentage of the full charge, and for 2020/21 it is 80% (£2,808) of the full amount. The exemption to be introduced from 6 April 2021 will apply in all circumstances.

Company cars

Although fully electric company cars escape any car benefit charge for the current tax year, the percentage charge will be set at 1% next year, increasing to 2% for 2022/23. This will still make fully electric company cars very tax effective.

For a higher rate taxpayer, the monthly tax cost of a Tesla Model S, for example, with a list price of £96,000 will be just £32 in 2021/22 and £64 a year later.

Fuel benefit

For benefit purposes, electricity is not treated as a fuel. This means there can be no fuel benefit for a fully electric vehicle, even if the employer installs a vehicle charging point at the employee’s home or provides a charge card to allow access to commercial or local authority charging points.

However, a benefit will arise if the employee charges their company car at home and is then reimbursed in excess of the 4p per mile advisory electricity rate for business travel. However, this advisory rate cannot be used for company vans.

Check here to see if tax is payable on the cost of charging an employee’s electric car.

Photo by Michael Marais on Unsplash

Expanding digital tax strategy

Written by Femi Ogunshakin on 24 August 2020. Posted in Law, Tax. No Comments on Expanding digital tax strategy

Details of an ambitious ten-year strategy to create a tax system fit for the 21st century have been released alongside Finance Bill legislation. With the rapid growth of information and communications technologies, the aim is to have a fully integrated digital tax system able to support taxpayers across the whole range of their needs.

There are three elements to the government’s strategy, outlined in the July report.

Making tax digital

At present, making tax digital (MTD) applies to businesses with a turnover above the VAT threshold of £85,000. These businesses are required to keep digital records and to file VAT returns using online software.

Recently announced plans will see MTD extended:

From April 2022, the VAT filing requirements will apply regardless of turnover.
From April 2023, MTD will apply to all taxpayers filing self-assessment tax returns where their annual business or property income exceeds £10,000.

Once self-assessment taxpayers are included within MTD, HMRC will have access to up-to-date, real time business information which is no more than four months old.

HMRC intends to expand its MTD pilot service from April 2021 to allow businesses and landlords to test the service well in advance of the requirement to join. A consultation later this year will look at how MTD is to be extended to limited companies.

Payment of tax

Although the report makes it clear the extension of MTD to self-assessment taxpayers will not initially see any change to when tax is paid, it then considers what might happen in the longer term. Tax payments could be brought into line with the increasingly real-time nature of tax reporting, with the change making it easier for many taxpayers and businesses to manage their cash flow.

Tax administration

Various suggestions are made under this heading. One very useful proposal is for the government to go ahead with a simplified registration process, so that a business need only register once with HMRC for all taxes.

With HMRC having had to quickly develop additional online systems and help for taxpayers during the Covid-19 pandemic, moving towards a more integrated, real time approach should make such interventions easier to manage in future. Help and support for MTD can be found on the .GOV site.

Photo by Scott Graham on Unsplash

Capital gains tax review new on the agenda

Written by Femi Ogunshakin on 13 August 2020. Posted in Capital Gains Tax, Tax. No Comments on Capital gains tax review new on the agenda

The Chancellor has asked the Office of Tax Simplification to review capital gains tax (CGT).

Within a week of giving his Summer Statement, the Chancellor wrote to the Office of Tax Simplification (OTS) asking it to “undertake a review of CGT and aspects of the taxation of chargeable gains in relation to individuals and smaller businesses”. The request was unexpected and prompted some press speculation that Rishi Sunak was beginning his hunt for extra tax revenue after the unprecedented spending on Covid-19.

CGT is certainly an interesting place to start:

The latest data from HMRC show that there were fewer than 300,000 CGT payers in 2017/18.
Nearly two thirds of the tax raised in that year came from 3% of CGT payers who made gains of £1 million or more.
Over half of the CGT payers either paid no income tax, or paid it only at the basic rate, as the graph below shows.

The main reason why CGT payers are such a rare breed is the annual exemption. For 2020/21 this allows up to £12,300 of net gains to be realised before any tax becomes payable. Even then, the maximum tax rate is 20% (28% for residential property).

At the last election, both the Labour Party and the Liberal Democrats called for gains to be taxed at full income tax rates and for the exemption to be cut to just £1,000 or abolished. The Conservative manifesto made no comment – CGT was not one of the taxes for which a rate freeze was promised.

Neither Mr Sunak nor the OTS has put any date on when the review might be published. However, the OTS has asked for all comments to be in by 12 October, so government proposals might emerge in the Autumn Budget, particularly if that Budget appears later in the year. There is a precedent for changing CGT rates part way through a tax year – as then Chancellor George Osborne did in 2010. With this in mind, a wise precaution could be to review your portfolio and consider whether you wish to realise any gains in the next few months, while the current generous CGT regime is in place.

Photo by Markus Spiske on Unsplash

Remote witnessing of Wills in the era of COVID-19

Written by Femi Ogunshakin on 8 August 2020. Posted in Lasting Will & Testaments, Law. No Comments on Remote witnessing of Wills in the era of COVID-19

At a point during the early days of the pandemic, this author, being of a certain age, weight, and ethnic group, took the decision to get his affairs in order – the Coronavirus intensely on the rampage through the country between March and late April. Having discussed update details with my lawyer, and upon concluding on the content and then came the hard part. How does one execute the document? The lockdown and a consequence of social distancing meant this was nigh on impossible

Thoughts went to anecdotal evidence of people turning up outside the homes of friends nominated to act as witnesses: the plan being to sign the Will in their presence then pass the document through the window or under the door for their signature. Apparently, some brave souls actually stepped out of their homes to use car bonnets to both witness the testator’s signature to the Will as well as to add their signatures to same. These challenges were prerequisites of The Wills Act of 1837 which requires two witnesses to be physically present at the moment the testator signs the Will.

In response to the difficulties presented by the pandemic, a major overhaul of probate justice will soon take place in the UK when the Ministry of Justice introduces new rules permitting the ‘remote’ signing of Wills. In an historical move, the government has introduced a statutory instrument allowing testators’ signatures to be witnessed using video conferencing software.

In practice, the new legislation will allow for the testators to apply a signature to the Will and then post the document out to the witness who in turn will sign their signatures via a video link – with the proviso that the online capturing of the signing must ensure it includes the physical act of the witness signing the document. The testator is also required to keep a record of the act of the witnesses’ signing the Will.

The legislation will be laid before Parliament in September and will be retroactive, applying to Wills witnessed virtually dating back to 31 January this year. For further information on video witnessing of Will during the pandemic, click here You can also find practical guidance on making wills using video conference by clicking this link.

Photo by Melinda Gimpel on Unsplash

Update on Coronavirus and my services

Written by Femi Ogunshakin on 6 August 2020. Posted in COVID-19. No Comments on Update on Coronavirus and my services

The global COVID-19 pandemic may be with us for a while yet and as such, I would like to take the opportunity to assure my clients (and potential clients) that as my practice is cloud-based, there will be no disruption to my 0delivery of services to you.

My trusted practice management software and my cloud based systems mean I can work anytime, anyplace, anywhere.

Like you, I would prefer a physical meeting, however, that may not yet be possible. In the meantime, I am set up for video meetings via e Zoom, MicrosoftTeams, Skype, Google Meet or GoToWebinar.

If urgent advice is required, please click here and book a fixed fee consultation with me.

Photo by Martin Sanchez on Unsplash

Business rates review back on the table

Written by Femi Ogunshakin on 5 August 2020. Posted in Business Rates, Tax. No Comments on Business rates review back on the table

The government committed to undertake a fundamental review of business rates in England at the Spring Budget. It has now issued a call for evidence, with views on reliefs and the ‘multiplier sort’ by 18 September. Although fundamental reform is for the longer term, the intention is to have some improvements in place for April 2021.

High street retailers were already struggling against online competition prior to the Covid-19 crisis, but months of closure and reduced sales have exacerbated the impact of business rates, with online competitors having much lower bills. The review will look at these issues and concerns around complexity, rigidity and how the regime could be improved and made fairer.

The next revaluation of business property was scheduled for 1 April 2021. This was then put back by a year, but will now not take place until 1 April 2023. In the meantime, however, the government intends to introduce some intermediary changes.

Reliefs

Business rates reliefs can be complex and often poorly targeted. Small business rate relief, for example, is based on rateable value, taking no account of the actual size of a business or how profitable it might be.

There is significant regional variation in eligibility.
Landlords may negate any benefit by increasing the rent for eligible properties.

The government review will look at how reliefs can be targeted more effectively, made robust against abuse, and whether their administration can be simplified.

The multiplier

A business rates bill consists of a property’s rateable value calculated by a multiplier.

Businesses have raised concerns about the level of this multiplier and the rate at which it has been increased.
There is also criticism that business rates are unresponsive to changes in the property market.

One option being considered is the introduction of additional multipliers that vary by geography, property value, or property type.

Longer term

An online sales tax has been suggested as a possible replacement for business rates. Such a tax, however, would be unlikely to raise comparable revenue, so is more likely to run alongside business rates.

Details of the various business rates reliefs can be found here.

Photo by Adeolu Eletu on Unsplash

COVID-19 Hit to the housing market

Written by Femi Ogunshakin on 27 July 2020. Posted in Property. No Comments on COVID-19 Hit to the housing market

The COVID-19 pandemic stalled property transactions and first-time buyer mortgage applications, but now the residential property market has opened up estate agents are scrambling to deal with pent up demand.

Price outlook

The range of forecasts is markedly wider than usual, with a forecast price fall for 2020 of anything between 4% and 13% with considerable regional difference. Re-opening will have unlocked many of the estimated 400,000 halted transactions, but it is likely to take longer for new deals to build up in what may well be a buyer’s market. People could be affected in two ways.

Negative: Employees face job insecurity, with the furlough scheme being wound down over the coming months and a potential increase in redundancies. Many self-employed people will struggle to get profits back to a pre-Covid level.
Positive: Interest rates are historically low, with the bank base rate currently just 0.1%.

The 5 April effect

The estimated number of residential property transactions in April was more than 50% down on the previous year. However, the Covid-19 pandemic was not the sole factor in play here.

From 6 April, tax reliefs for homeowners were cut back, especially letting relief, so many sellers will have made sure they completed prior to then. The introduction of a 30-day due date for paying CGT will have also favoured earlier completion.

Mortgages

Some homeowners will have benefited from the crisis ̶ remortgages by current homeowners looking to save money from lower interest rates have more than doubled year-on-year.

Although lenders are generally prepared to base mortgage applications on furloughed income, they require confirmation that an employee can go back to work. This means that only the reduced salary is taken into account, so higher earners subject to the £2,500 upper income limit will feel a disproportionate impact. A more expensive home may well have to wait until a return to work.

Although not wholly up to date, the UK house price index at the Land Registry has a vast amount of searchable information.

Insolvency Bill To Help COVID-19 Affected Businesses

Written by Femi Ogunshakin on 24 July 2020. Posted in Law, Restructuring & Insolvency. No Comments on Insolvency Bill To Help COVID-19 Affected Businesses

A new Corporate Insolvency and Governance Bill, introduced on 20 May, will amend insolvency and company law to support businesses in distress from the impact of the COVID-19 pandemic.

The Bill, to be fast-tracked through Parliament, includes some measures which have been previously announced, but are now being enshrined in law. The aim is to provide businesses with the flexibility and breathing space they need to continue trading during the current crisis. Three key measures are a moratorium period, protection from legal action against Covid-19 debts and relaxation of AGM and statutory accounts requirements.

Moratorium period

The introduction of a new moratorium period will give companies a 20-business day breathing space from their creditors to explore rescue options. This can be extended to 40 business days, with further extensions at the agreement of creditors or the court.

The company will remain under the control of its directors during the moratorium, although the process will be overseen by a licensed insolvency practitioner.

Covid-19 related debts

Temporary measures will prevent aggressive creditor action against otherwise viable companies struggling because of COVID-19.

Although commercial landlords have been prevented from enforcing the forfeiture of leases for unpaid rent, some landlords have resorted to other measures.

There is a temporary relaxation of the wrongful trading rules so that directors can continue trading through the crisis without the threat of legal action. This measure will run from 1 March to 30 June.

Meetings and filing requirements

Backdated to 26 March, a company that has held an AGM adhering to social distancing measures, but not meeting the company’s constitution, will be treated as having complied with the law. If a company has been forced to postpone an AGM after 26 March, they will be allowed to hold the meeting (socially distanced if necessary) up to the end of September.

Companies House has already said that companies can apply for an automatic three-month extension to file statutory accounts, and the Bill adds automatic extensions for confirmation statements and changes of details.

Detailed explanatory notes published in conjunction with the Corporate Insolvency and Governance Bill can be found here.

HMRC Pauses Inheritance Tax Investigations

Written by Femi Ogunshakin on 24 July 2020. Posted in Law, Tax. No Comments on HMRC Pauses Inheritance Tax Investigations

HMRC’s recent suspension of IHT investigations during the Covid-19 crisis opens up a brief opportunity for executors to get their IHT accounts in order.

HMRC normally investigates around 5,500 IHT cases every year, around 25% of the estates for which IHT is payable, recovering an average of £50,000 extra tax each time. The complexity of IHT means that extra tax will often be due just because mistakes have been made. There can also be a temptation to use low valuations so that assets are covered by the available nil rate bands. HMRC, not surprisingly, can be expected to look quite closely at such estates.

Common problem areas are:

Business relief – Some business activities are borderline and holding non-business assets within a company may mean relief is not available.
Agricultural relief – This is only available if land and property is used for agricultural purposes, so HMRC may query whether there is active use, especially if land is just rented out under a grazing licence.
Pension transfers – A particularly confusing area of tax, pension transfers are normally not subject to IHT. However HMRC will look at any transfer made within two years of death to see if this was done to avoid IHT. If so, the pension will be included as part of the deceased’s estate.
Lifetime gifts – Gifts made to individuals within seven years of death can easily be overlooked, and whether gifts are exempt under the normal expenditure out of income rule can be unclear given the lack of a statutory definition.
Post Covid-19
Given how much the Covid-19 crisis has cost the government, expect to see HMRC being quite aggressive once compliance work resumes.

There have been calls to simplify IHT and the Office for Tax Simplification published two reports into the issue last year. This now seems unlikely to be high on the Chancellor’s to do list when it comes to the next Budget.

Find out how to work out and report the value of an estate to HMRC here.

Empty baskets: calculating inflation under lockdown

Written by Femi Ogunshakin on 23 July 2020. Posted in Benefits. No Comments on Empty baskets: calculating inflation under lockdown

The disappearance of normal spending habits has created problems for the statisticians who calculate the rate of inflation.

Source: Office for National Statistics

Inflation, as measured by the Consumer Prices Index (CPI), fell sharply in April to just 0.9% against 1.5% in the previous month. The main reason for the drop was energy costs:

Ofgem’s new price caps for gas and electricity standard variable rate took effect in April and these were about 10% lower than the rates from April 2019. Even so, the bills set by the caps are generally much higher than those that can be found on any comparison website.
Petrol and diesel prices were also much reduced year on year – by 15.1p a litre for petrol and 17.0p a litre for diesel.

Missing items

In addition to the sharp moves in energy costs, there was also a serious problem with gathering the data. The Office for National Statistics (ONS) has an annually reviewed ‘shopping basket’ of goods and services which it uses to calculate the various inflation indices. However, for the latest numbers, the ONS discovered about 90 of the items in its basket – about one sixth of the total value – “were unavailable to consumers in the UK”. Haircuts, cinema tickets and a pint in a pub are just some of the many examples. Other items were theoretically available but in short supply, making the ONS’s price-tracking task more difficult – self-raising flour being a typical problem item. Ultimately the ONS was forced to “impute” (i.e. estimate) some prices.

Although some of the goods are still available, the restrictions on our movements mean they are no longer being bought. The ONS basket contains items which can be bought but are just being ignored in lockdown – many travel services fall into this category. For now, at least, the basket is not representative of historical spending patterns. We may find that creates problems in the long term, as inflation indices are widely used by government to adjust benefits, prices and tax allowances.

Inflation may be under 1% and somewhat distorted at present, but it has not gone away. Some economists fear that it could roar back because of all the borrowed money being pumped into the economy by the government. Others think a recession/depression will keep inflation in check. Either way, it still needs to be factored into your plans: £1 in April 2015 has only 92p of buying power today.

Deferring July’s income tax payment

Written by Femi Ogunshakin on 23 July 2020. Posted in Insights. No Comments on Deferring July’s income tax payment

HMRC is allowing your second self-assessment payment due on 31 July 2020 on account for the tax year 2019/20 to be deferred, due to the Covid-19 pandemic.

This means no interest or penalties will be charged on the deferred payment provided it is paid by 31 January 2021. All taxpayers within self-assessment can take advantage of the deferral option, not just those who are self-employed. There is no need to tell HMRC that the payment on account is being deferred.

Paying the deferred amount

Although you can still make the payment by 31 July 2020 as normal if you’re able to do so, deferral will be attractive if cash flow is a concern. The deferred amount can then be paid between 31 July 2020 and 31 January 2021:

in full using normal payment methods, or
in instalments by setting up a budget payment plan with HMRC.

Snowball effect

Although you do not need to pay the deferred payment until 31 January 2021, there is likely to be a snowball effect if it is not paid off by then. This is because that is also the deadline for paying any balancing amount for 2019/20, plus the first payment on account for 2020/21. If you make your accounts up to 31 March or 5 April, then these amounts will be based on profits for the year ended 31 March/5 April 2020, so mainly pre-COVID-19.

Photo by Leon Dewiwje on Unsplash

Even though payments on account for 2020/21 can be reduced to an estimate of the tax and NICs that will actually be due for this year, these might not be as low as you expect once council COVID-19 grants and amounts received under the self-employment income support scheme are included.

As things currently stand, HMRC will apply the usual interest, penalties and debt collection procedures for payments missed from 31 January 2021 onwards.

Reductions to income caused by Covid-19 could affect your tax bill in other ways:

It may now make sense to restart child benefit payments because your drop in income means they will not be taxed away to zero.
You may have regained some or all of your personal allowance for 2020/21.
You might become eligible for a higher personal savings allowance.

If you have suffered a drop in income, it is worth checking with on which actions to take now and which can be left to come out in the final HMRC tax calculation.

HMRC guidance on options for paying a deferred payment on account is available.

Time to look at an alternative tax?

Written by Femi Ogunshakin on 22 July 2020. Posted in Tax. No Comments on Time to look at an alternative tax?

The adoption in the UK of a transatlantic approach to income tax could appeal to a cash-strapped Chancellor.

“…only the little people pay taxes.”

That 1980s comment by the New York Hotel owner Leona Helmsley sums up an attitude that many taxpayers still believe to be true. Today the same idea often comes up in headlines suggesting that the chief executive pays a lower rate of tax than his (it’s usually his) cleaner. There is an element of truth in such assertions, as the wealthy generally have greater opportunity to plan when, where and how they receive their income.

The US has long attempted to address the problem with the Alternative Minimum Tax (AMT). The rationale behind AMT is simple: those with income above a certain threshold ($197,900 in 2020) must pay a minimum rate of tax on their income after deducting a flat exemption. If their tax bill calculated on a normal basis is lower than the one produced by applying the AMT rates, then it is the AMT amount that must be paid. There comes a point, therefore, at which tax planning has no benefit.

Two UK academics with links to leading think tanks recently published a paper examining the possibility of a UK version of AMT. With the help of anonymised HMRC data, the pair were able to show that the average effective rate of tax paid by one in ten people with income (including capital gains) of over £1m was lower than for somebody earning £15,000. The inclusion of capital gains is open to challenge and one reason why the result was produced – capital gains are more lightly taxed than income.

The headline proposal of the paper was that the UK government could raise £11bn a year – about the same as 2p on the basic rate of tax would produce – by applying an AMT rate of 35% to anyone with income (again including gains) above £100,000. For a government that was elected with a pledge not to increase income tax rates, AMT offers an interesting revenue raising opportunity.

If nothing else, these AMT proposals are a reminder that – at least for now – tax planning can save you money.

Revised furlough scheme stretched through October

Written by Femi Ogunshakin on 22 July 2020. Posted in Employment Law. No Comments on Revised furlough scheme stretched through October

The Covid-19 furlough scheme has been effectively revised into a new scheme running from 1 July until 31 October, but this comes with a level of complexity that did not exist in its original guise.

Much of the complexity arises because employers can now bring furloughed employees back to work flexibly on a part-time basis, while still being able to claim under the scheme for the hours not worked.

One very important change is that claims cannot now straddle months. This is because the scheme rules will change from month to month.

From 1 July, only employees who were furloughed under the original scheme ending on
30 June are eligible for further grants. However, the minimum three-week furlough period has now been removed.

Hours worked

For flexibly furloughed employees, employers will have to calculate the employee’s:

Usual hours – There are two different calculations depending on whether an employee works fixed or variable (or zero) hours. The calculation can be confusing and may not always deliver the obvious answer, especially for employees on variable or zero hours.
Actual hours worked – This could be an issue for directors who have no fixed hours. Accurate record keeping will be essential for both employees and directors. For hours actually worked, employees must be paid their normal wage.
Furloughed hours worked – Simply calculated as usual hours less worked hours.

A new written agreement is required for flexibly furloughed employees to confirm the new arrangements.

When claiming for flexibly furloughed employees, employers should not claim until they are sure of the exact number of hours that will be worked during the claim period. If a claim is made in advance and fewer hours are worked than expected, a refund will have to be made to HMRC.

Maximum number

With certain exceptions, the maximum number of employees included in a furlough claim from 1 July onwards cannot exceed the highest number of employees included in any claim up to and including 30 June.

HMRC has provided various worked examples of how to calculate an employees’ wages, NICs and pension contributions.

Calling time on the triple lock?

Written by Femi Ogunshakin on 22 July 2020. Posted in Benefits. No Comments on Calling time on the triple lock?

The state pension triple lock may not survive much longer.

The impact of Covid-19 on earnings could mean a change in the way that state pensions are increased in each year. If nothing is done, it could give pensioners a large income boost, but cost the government dearly.

At present, the new (single tier) state pension and its predecessor, the basic state pension, both benefit from increases based on the ‘triple lock’. This was introduced by the Coalition government in 2010 and means that these two state pensions increase each April by the greater of:

yearly CPI inflation to the previous September;
average weekly earnings growth to the previous July; or
2.5%.

This basis means that for 2021, the increase is likely to be 2.5% because CPI inflation will be lower (it was 0.5% in May) and earnings could well be falling due to the impact of furloughing.

It is in 2022 that a potential problem emerges for the Treasury. The furlough scheme ends at the end of October 2020, and if the economy starts to recover, by July 2021 earnings could be back to near ‘normal’. The fact that by then some of the formerly furloughed employees will be unemployed makes no difference to average earnings figures.

Economists reckon that the difference between ‘normal’ average earnings in July 2021 and furlough-depressed average earnings in July 2020 could be significant. In its Covid-19 ‘reference scenario’ the Office for Budget Responsibility has estimated earnings growth of over 18% in 2021 (against a 7.3% fall for 2020). No Chancellor would want to fund such a large rise in state pensions, not only because of the expense, but also on grounds of intergenerational fairness.

The Treasury and many economists have long argued that the triple lock is an unnecessary cost, but politicians have always been wary of upsetting an important section of the electorate. This additional problem now created by Covid-19 gives the government the best justification it is ever likely to have to dispense with the lock. There are even suggestions that state pensions could be frozen for the next two years until the issue (hopefully) disappears.

State pensions play an important role in many people’s retirement income planning, but their payment is ultimately a state decision, as evidenced by the many changes of recent years (for example to starting age). For that reason, if no other, private provision remains a vital component of your retirement planning.

Consumer credit Covid-19 measure extended

Written by Femi Ogunshakin on 22 July 2020. Posted in Benefits. No Comments on Consumer credit Covid-19 measure extended

Help for consumers to manage their credit and debt has been extended to the end of October.

In mid-June, the Financial Conduct Authority (FCA) told firms to extend measures to provide help to people with credit cards, store cards, catalogue credit and personal loans who faced difficulties with their finances as a result of the Covid-19 crisis. This help was set to last initially for three months from April, but a recent update means there will now be a further three months’ flexibility ending on 31 October 2020.

Payment freeze

If you have already taken a payment freeze, you may now be able to take a further payment deferral or reduce payments to what you can afford. For anyone who has not yet requested a payment freeze, they can do so during the extended period.

A very important consideration is that you must still pay the debt back at the end of the deferral period, so there is potential to simply store up problems for a later date. With many people now returning to work, it makes sense to try to resume payments as soon as possible. It is at the discretion of the firm involved whether you will be charged interest during the payment freeze.

In theory, payment deferral should not affect your credit rating, but there is no guarantee that all loan providers will abide by this.

Overdrafts

Bank customers have been able to apply for an interest-free overdraft of up to £500. The interest-free period will now also run until 31 October 2020. Anyone who has not yet taken advantage of this measure has further time to do so. You can also request a lower rate of interest on borrowing in excess of the £500 interest-free buffer.

However, the FCA has not extended the temporary measure that meant overdraft customers were no worse off, with regards to their potential overdraft charges, than before April when a new temporary pricing structure for overdrafts was introduced. Although only a single rate of overdraft interest can now be charged, this can be around 40%.

The FCA provides detailed guidance on what Covid-19 means for your finances.

Card tax payments to incur charges

Written by Femi Ogunshakin on 22 July 2020. Posted in Tax. No Comments on Card tax payments to incur charges

When making tax payments to HMRC, you are currently only charged a fee if you pay by business credit card, while payments by personal credit card are not permitted. However, from 1 November 2020, payments made using a business debit card will also attract a fee.

The rationale behind the change is to avoid any cost to the public purse, so business debit card users will be charged a fee equal to the total cost incurred by HMRC when receiving the card payment.

Alternatives

HMRC accepts a wide range of alternatives which will not incur charges for the taxpayer, including:

Online banking – Quick and easy to set up, with the advantage that details are saved for the future, with Faster Payments normally being immediate. You can also pay with CHAPS or Bacs or use telephone banking.
At your bank or building society – This method is only an option if you still receive paper statements from HMRC and also have the paying-in slip HMRC sent you (printing one is not an option).
Direct debit – Set up is via your HMRC online account, this is not quite as convenient as online banking, with payments normally taking longer to process. You need to plan ahead if paying by direct debit. HMRC says to allow five working days to process a Direct Debit the first time one is set up, and three working days the next time if you’re using the same bank details.
By cheque through the post – You can print a payslip to use if HMRC has not sent you one. Allow three working days for the payment to reach HMRC, with an obvious delay if the cheque is not completed correctly.

The fee-change is only to business debit cards, so payments made using a personal debit card can continue to be made to HMRC free of any charges.

HMRC has online guidance on paying your taxes.

Breaking News

Written by Femi Ogunshakin on 3 July 2020. Posted in Employment Law. No Comments on Breaking News

A quick update on the operation of the Coronavirus Job Retention Scheme (CJRS) previously opined on (see our blog xxx). HM Treasury has announced directions on the modification of the scheme effective i.e. the cut-off date for making a claim under the original scheme I s 31 July 2020.

As such, employers will be able to participate in the original scheme only if a claim had been made under the original scheme and the employee must have been on furlough for at least 3 weeks from a date on or before 10 June 2020. For further information on the operation of the new scheme, qualification for participation and key dates to be aware of clickhere.

Furlough scheme to be tapered from August

Written by Femi Ogunshakin on 13 June 2020. Posted in Tax.

On 12 May, the Chancellor announced changes to the operation of the Coronavirus Job Retention Scheme (CJRS) and set out details on how the scheme will operate as people return to work. The good news is the scheme will continue in its current form until August. The not so good news: from September, the amount of the grant to employers will be tapered to reflect employees returning to work.

Initially, employers will be required to pay their employees’ National Insurance and pension contributions with the government paying 70% of wages up to a cap of £2,187.50 and employers will contribute 10% of wages to make up the 80% total up to a cap of £2,500. Then, from October, the government’s

contribution will be reduced to 60% of wages up to a cap of £1,875 with employers required to pay the remaining 20%.

The revised scheme includes an announcement that new entrants to the scheme will need to have been furloughed for at least three weeks prior to 1 July i.e. those employees who on 30 June had been on furlough at least three weeks under the existing scheme. The CJRS is currently scheduled to close at the end of October.

Workers eligible under the self-employment income support scheme will be able to claim a second and final grant in August. The grant will be worth 70% of their average monthly trading profits paid in a single instalment covering three months’ worth of profits and capped at £6,570.

HMRC to investigate fraudulent COVID-19 claims

Written by Femi Ogunshakin on 10 June 2020. Posted in Tax. No Comments on HMRC to investigate fraudulent COVID-19 claims

HMRC has shot yet another salvo across the bows of employers claiming grants under the government’s Coronavirus Job Retention Scheme (CJRS), by announcing an increase in the number of reports it has received regarding potentially fraudulent claims. Apparently, at the date of this piece, the new number is 1,868 up by 1,073 from the original number announced on 12 May 2020.

A word to the wise: the fact that HMRC has made two announcements in less than four weeks on the number of reports received is indicative of a potential launch of investigations into to the receipt of CJRS grants by some employers. The problem with this lies with the potential for making of anonymous reports by disgruntled employees whose actions could cause unnecessary interventions by HMRC with costs being incurred either by way of disruption to business or the cost of engaging profession representation.

HMRC has advised that whilst it is currently reviewing the information received before taking any action, it will continue to encourage employees to report perceived abuses of the scheme via it’s portal on the.GOV website. Examples of abuse include where an employer claims a grant but does not pay this to the employee(s). using the grant to fund a redundancy payment, making employees work whilst on furlough or asking them to work while on furlough.

Naming fraudulent companies and directors.
Requesting repayment of monies claimed and possible penalties
Criminal investigation and prosecution under the Fraud Act 2006

As anyone who has had dealings with HMRC’s investigation officers, just proving your innocence can be a challenge once an enquiry has commenced, so do not hesitate to seek professional assistance if required.

New Advisory fuel rates apply from June

Written by Femi Ogunshakin on 10 June 2020. Posted in Tax.

HMRC has announced new fuel rates for company cars. They apply to all journeys on or after 1 June 2020, until further notice. For one month from the date of the change, employers may use either the previous or new rates.

The new rates are;

Engine size Petrol LPG

1,400cc or less 10p 6p

1,400cc to 2,000cc 12p 8p

Over 2,000cc 17p 11p

Engine size Diesel

1,600cc or less 8p

1,600cc to 2,000cc 9p

Over 2,000cc 12p