Accounting

5 November 2020

THE CORONAVIRUS JOB RETENTION SCHEME (CJRS) HAS BEEN EXTENDED – JOB SUPPORT SCHEME (JSS) POSTPONED

 

 

Following the announcement by the Prime Minister on the 31 October regarding the new lockdown in England for the commencing today, 5 November, the CJRS has been extended until December.

Today, Chancellor Rishi Sunak has made a further announcement that the furlough scheme will be extended until the end of March, amid increased measures for business support as the UK enters a four-week lockdown.

 

The Grant will ensure employees receive 80% of their current salary for hours not worked, up to a maximum of £2,500.

 

Businesses will have flexibility to bring furloughed employees back to work on a part time basis or furlough them full-time, employers will be asked to cover National Insurance and employer pension contributions.

 

As with the current CJRS, employers are still able to choose to top up employee wages above the scheme grant at their own expense if they wish.

 

The Government will confirm shortly when claims can first be made in respect of employee wage costs during November, but there will be no gap in eligibility for support between the previously announced end-date of CJRS and this extension.

 

The JSS, which was scheduled to come in on Sunday 1st November, has been postponed until the furlough scheme ends.

 

Who is eligible to claim the CJRS?

Employers

All employers with a UK bank account and UK PAYE schemes can claim the grant. Neither the employer nor the employee needs to have previously used the CJRS.

 

The government expects that publicly funded organisations will not use the scheme, as has already been the case for CJRS, but partially publicly funded organisations may be eligible where their private revenues have been disrupted. All other eligibility requirements apply to these employers.

 

Employees

 

  • To be eligible to be claimed for under this extension, employees must be on an employer’s PAYE payroll by 23:59 30th October 2020. This means a Real Time Information (RTI) submission notifying payment for that employee to HMRC must have been made on or before 30th October 2020.

As under the current CJRS rules:

  • Employees can be on any type of contract. Employers will be able to agree any working arrangements with employees.
  • Employers can claim the grant for the hours their employees are not working, calculated by reference to their usual hours worked in a claim period. Such calculations will broadly follow the same methodology as currently under the CJRS.
  • When claiming the CJRS grant for furloughed hours, employers will need to report and claim for a minimum period of 7 consecutive calendar days.
  • Employers will need to report hours worked and the usual hours an employee would be expected to work in a claim period.
  • For worked hours, employees will be paid by their employer subject to their employment contract and employers will be responsible for paying the tax and NICs due on those amounts.
  • We will make the claims for you as we have done with the current scheme.

 

SELF EMPLOYMENT GRANT

The Chancellor also announced a doubling of the self-employment grant to 80%, of average trading profits, worth up to a maximum of £7,500, for November, the grant will remain at 40% of average trading profits for December and January.

 

OTHER MEASURES

 

Mortgage payment holidays

 

Mortgage payment holidays will no longer end 31 October. Borrowers who have been impacted by coronavirus and have not yet had a mortgage payment holiday will be entitled to a six month holiday, and those that have already started a mortgage payment holiday will be able to top up to six months without this being recorded on their credit file.

 

The FCA will announce further information today and we will update you when we have seen it.

 

Business Grants

 

Businesses required to close in England due to local or national restrictions will be eligible for the following:

 

  • For properties with a rateable value of £15k or under, grants to be £1,334 per month, or £667 per two weeks;
  • For properties with a rateable value of between £15k-£51k grants to be £2,000 per month, or £1,000 per two weeks;
  • For properties with a rateable value of £51k or over grants to be £3,000 per month, or £1,500 per two weeks.

 

Details of how to apply for these grants will be on your local authority website.

 

JOB Retention Bonus Postponed

 

Due to the furlough scheme being extended, the Chancellor has also decided to postpone the Job Retention bonus of £1,000 per employee for any employees who had been on Furlough but were kept on as employees by the company until the end of January 2021.

Welcome to our latest newsletter providing a summary of the latest announcements made by the Government

Written 22 October 2020

PLAN FOR JOBS: CHANCELLOR INCREASES FINANCIAL SUPPORT FOR BUSINESSES AND WORKERS

The government today announced it will increase the amounts and reach of its winter support schemes.

 

In recognition of the challenging times ahead, the Chancellor said he would be increasing support through the existing Job Support and self-employed schemes and expanding business grants to support companies in high-alert level areas.

H M Treasury states that open businesses which are experiencing difficulty will be given extra help to keep staff on as the Government will increase contributions to wage costs under the Job Support Scheme, and business contributions drop to 5%.

Business grants are expanded to cover businesses in particularly affected sectors in high-alert level areas.

Grants for the self-employed doubled to 40% of previous earnings

Job Support Scheme (JSS)

When originally announced, the JSS – which starts on 1 November, saw employers paying a third of their employees’ wages for hours not worked and required employees to be working 33% of their normal hours.

Today’s announcement reduces the employer contribution to those unworked hours to 5%, and reduces the minimum hours requirements to 20%, so those working just one day a week will be eligible. That means that if someone was being paid £587 for their unworked hours, the government would be contributing £543 and their employer £44.

Self-employed grant

Today’s announcement increases the amount of profits covered by the two forthcoming self-employed grants from 20 per cent to 40 per cent, meaning the maximum grant will increase from £1,875 to £3,750.

Business Grants

The Chancellor has also announced approved additional funding to support cash grants of up to £2,100 per month primarily for businesses in the hospitality, accommodation and leisure sector who may be adversely impacted by the restrictions in high-alert level areas. These grants will be available retrospectively for areas who have already been subject to restrictions and come on top of higher levels of additional business support for Local Authorities moving into Tier 3.

These grants could benefit around 150,000 businesses in England, including hotels, restaurants, B&Bs and many more who are not legally required to close but have been adversely affected by local restrictions.

See: https://www.gov.uk/government/news/plan-for-jobs-chancellor-increases-financial-support-for-businesses-and-workers?utm_source=923e5ab2-e10c-490d-ac93-4287f524ee0e&utm_medium=email&utm_campaign=govuk-notifications&utm_content=immediate

 

Written 22 October 2020

SUPPORT FOR THE SELF-EMPLOYED HAS BEEN EXTENDED

The Government has announced more support will be available for the self-employed in the form of two grants, each available for three-month periods covering November 2020 to January 2021 and February 2021 to April 2021.

To be eligible for the Grant Extension self-employed individuals, including members of partnerships, must:

  • have been previously eligible for the Self-Employment Income Support Scheme first and second grant (although they do not have to have claimed the previous grants)
  • declare that they intend to continue to trade and either:
  • are currently actively trading but are impacted by reduced demand due to coronavirus
  • were previously trading but are temporarily unable to do so due to coronavirus

The first grant will cover a three-month period from 1 November 2020 until 31 January 2021. The Government will provide a taxable grant covering 40% of average monthly trading profits, paid out in a single instalment covering 3 months’ worth of profits, and capped at £3,750 in total.

The second grant will cover a three-month period from 1 February 2021 until 30 April 2021. The Government will review the level of the second grant and set this in due course.

The grants are taxable income and also subject to National Insurance contributions.

HMRC will provide full details about claiming and applications in due course and we will update you when the guidance is available.

See: https://www.gov.uk/government/publications/self-employment-income-support-scheme-grant-extension/self-employment-income-support-scheme-grant-extension

 

THE JOB SUPPORT SCHEME STARTS 1 NOVEMBER

The Job Support Scheme (JSS) provides different types of support to these businesses so they can get the assistance according to their situation. Businesses that are open but facing decreased demand can get support for wages through “JSS Open”. Those businesses that are legally required to close their premises as a result of coronavirus restrictions set by one or more of the four governments of the UK, can get the support through “JSS Closed”.

The JSS starts on the 1 November 2020 and runs for 6 months, until 30 April 2021. The government will review the terms of the scheme in January. Employers will be able to claim in arrears from 8 December 2020, with payments made after the claim has been approved. Neither the employer nor the employee needs to have benefitted from the Coronavirus Job Retention Scheme to be eligible for the Job Support Scheme.

From 8 December, employers will be able to claim salary for pay periods ending and paid in November. Subsequent months will follow a similar pattern, with the final claims for April being made from early May.

Further guidance on the steps that employers need to take to calculate and make a claim to the Job Support Scheme will be published by the end of October. We will update you when the information is made available.

How will the JSS scheme work and who is eligible?

An employer can claim the JSS Open and JSS Closed grant at the same time for different employees, however, an employer cannot claim for a single employee under both schemes at the same time.

Employers will be able to access the Job Support Scheme if they have enrolled for PAYE online and they have a UK, Channel Island or Isle of Man bank account.

Additional eligibility criteria will apply depending on whether the employer is claiming a JSS Open grant or JSS Closed grant.

Eligible employers will be able to claim the Job Support Scheme grant for employees who were on their PAYE payroll between 6 April 2019 and 23 September 2020.

Employers facing decreased demand (JSS Open)

For businesses facing reduced demand the JSS Open scheme will give employers the option of keeping their employees in a job on shorter hours rather than making them redundant.

The government has announced that it will increase the scale of support available to employers through JSS Open above what was initially announced, in order to protect more jobs.

The employee will need to work a minimum of 20% of their usual hours and the employer will continue to pay them as normal for the hours worked. Alongside this, the employee will receive 66.67% of their normal pay for the hours not worked – this will be made up of contributions from the employer and from the government. The employer will pay 5% of reference salary for the hours not worked, up to a maximum of £125 per month, with the discretion to pay more than this if they wish. The government will pay the remainder of 61.67%, of reference salary for the hours not worked, up to a maximum of £1,541.75 per month. This will ensure employees continue to receive at least 73% of their normal wages, where they earn £3,125 a month or less.

Employers who are legally required to close their premises (JSS Closed)

Employers who have been legally required to close their premises as a direct result of coronavirus restrictions set by one or more of the four governments of the UK are eligible for JSS Closed.

This includes premises restricted to delivery or collection only services from their premises and those restricted to provision of food and/or drink outdoors.

Businesses premises required to close by local public health authorities as a result of specific workplace outbreaks are not eligible for this scheme.

Employers are only eligible to claim for periods during which the relevant coronavirus restrictions are in place. Employers will not be able to claim JSS Closed to cover periods after restrictions have lifted and the business premises are legally allowed to reopen. They may then be able to claim JSS Open if they are eligible.

Each employee who cannot work due to these restrictions will receive two thirds of their normal pay, paid by their employer and fully funded by the government, to a maximum of £2,083.33 per month, although their employer has discretion to pay more than this if they wish.

 

Eligible employers will be able to claim the JSS Closed grant for employees:

  • whose primary workplace is at the premises that have been legally required to close as a direct result of coronavirus restrictions set by one or more of the four governments of the UK
  • that the employer has instructed to and who cease work for a minimum period of at least 7 consecutive calendar days

 

See: https://www.gov.uk/government/publications/the-job-support-scheme?utm_source=5fc2e41c-06b0-471e-bd4f-f80d60940299&utm_medium=email&utm_campaign=govuk-notifications&utm_content=immediate

 

 

 

See our latest newsletter detailing the chancellors winter economy plan announced yesterday, if you have any questions please contact us.

 

C19-Business-News-Update-24-September-2020

Please see below the latest updates and guidance in relation to the Coronavirus pandemic.

 

C19-Business-News-Update-11-September-2020

Making Tax Digital for VAT became compulsory in April 2019 which means another important digital deadline is looming. What is it?

Digital links. Making Tax Digital for VAT (MTDfV) is about keeping particular VAT records in digital form, then sending your VAT return information to HMRC digitally. But if your digital records aren’t all in one place, or one program, they will involve points of data transfer/exchange between different bits of software. The points where that transfer or exchange take place are called digital links.

What’s changing? HMRC wants a digital trail using links from your accounting systems all the way to the figures on your VAT return. In other words, any transfer of information between software programs, applications or products that make up part of your records has to be electronic/digital.

Legal requirement. Although required by law, HMRC hasn’t insisted on digital links for the first year of MTDfV. Thereafter, subject to very specific exceptions, no manual links will be permitted and HMRC will enforce this with penalties if necessary (see The next step ).

When? The new linking rules will apply from the first anniversary of when you were required to use MTDfV. For example, if your first MTDfV return was for the quarter beginning on 1 April 2019, the date is 1 April 2020. Tip. If your affairs are really complicated, you can ask HMRC for an extension (see The next step ).

What will be allowed? The following count as digital links: linked cells in spreadsheets; e-mailing a spreadsheet with digital records so the information can be imported into another software product; transferring digital records onto a pen drive or memory stick to give to someone else, e.g. your accountant, so they can import the data into their software. You’re also OK with XML, CSV import and export; download and upload of files; automated data transfer and API transfer. Cut or copy and paste will no longer be allowed as legitimate digital links.

HMRC will call time on its soft approach to digital links on 1 April 2020. This will be enforced from the beginning of your first VAT period after that date. Penalties can apply.
Your company needs an injection of money. The bank will charge a stiff interest rate even if it agrees to a loan. How might you be able to use your pension fund to provide cash and increase tax relief?

Off limits

As a rule, your pension fund is off limits until the scheme or government rules allow you to access it. Even then it isn’t allowed to give or lend money direct to your company. Loans are possible with some types of occupational pension scheme but not in any circumstances from your personal pension. However, indirect arrangements are OK.

Accessing and reinvesting

If you’re 55 (or younger if your scheme allows) you’re entitled to take a lump sum from your pension savings. Once in your hands it’s entirely up to you what you do with it, which means you can give or lend it to your company if you want. To repay you in a tax-efficient way it can pay into your pension fund rather than you direct.

Trap. Taking money from your pension and reinvesting it (even via your company) is called “pension recycling”. HMRC places limits on how much you can recycle and there are tough penalties for breaking these. But, provided you stay within the rules recycling can be worthwhile.

Example. Terry’s company, Acom Ltd, requires £20,000 for repairs to its premises. The bank will lend the money at an APR of 12%. The repayments would be £391 per month, that’s £28,152 in total. Acom can claim a tax deduction for the interest element, which will reduce the cost by £1,549, making the net repayments £26,603.

Instead, to pay for the repairs Terry could draw a tax-free lump sum of £20,000 from his pension fund. To ensure his pension fund is worth no less as a result, Acom must pay £321 per month into Terry’s fund. The total cost to Acom is £23,112 (£18,720 after 19% corporation tax relief). That’s a saving of almost £3,500 over a bank loan. It also produces some extra tax saving for Terry (see The next step ) and is more flexible.

Tip. If Acom can’t afford to pay the pension contributions (or make the loan repayments), but must have the new equipment, using Terry’s pension fund as the source of capital can still work. He could take the £20,000 pension tax-free lump sum and lend it to Acom and allow it to pay pension contributions into his fund as and when it can.

No loss of tax-free cash

If Acom doesn’t recompense Terry by paying into his pension it might seem that it rather than Terry has benefited from his tax-free lump sum entitlement, but actually that’s not the case.

Power tip. The money from Terry’s pension fund can be credited to his director’s loan account. This means that if and when it repays him there’s no tax or NI for Terry to pay. Or, if Acom doesn’t repay Terry and he eventually sells the company or winds it up instead, £20,000 of whatever he receives out of the arrangement won’t be taxable. Therefore, Terry won’t lose his tax-free lump sum, only delay the personal advantage from it.

While your personal pension fund can’t lend direct to your company, if you’re 55 or over you can take a tax-free lump sum and make a personal loan to it. It can repay the loan by making contributions to your pension fund on which it can claim a tax deduction. This can also increase your overall entitlement to tax-free cash.

The Chancellor has announced the date for the first post-Brexit Budget. What can we expect?

 

Announcement. Sajid Javid said This will be the first Budget after leaving the EU. I will be setting out our plan to shape the economy for the future and triggering the start of our infrastructure revolution”.

What happens in the event of “no deal”? If Britain leaves the EU on 31 October without a deal, emergency measures will be announced but the full Budget will be delayed by a number of weeks.

What tax adjustments can we expect?  The Chancellor is committed to increasing public spending and stimulating the economy, so tax changes are on the cards. Corporation tax rates are already set to reduce to 17% from April 2020. The Office of Tax Simplification published two reports on inheritance tax this year, at the request of the previous Chancellor, Phillip Hammond. The reports made some practical recommendations, such as bringing reliefs for businesses in line with capital gains tax reliefs and reducing the period for gifts to escape inheritance tax from seven years to five. However, at the Conservative party conference earlier this month, Sajid Javid expressed that he is against inheritance tax and said that changes are on his mind. This has led the press to speculate about radical changes to the inheritance tax system, such as scrapping the tax altogether.

You’re selling your business and as part of the deal you’ll stay on in a managerial role for three years. You’ll then be paid an additional sum based on the profits made over that period. How should you structure the payment to avoid tax traps?

Earn outs

If you sell a business in which you’ve played a key role it’s quite common for the buyer to want to keep you on board for at least for a short while. The buyer may partly link the amount they’ll pay for the business to its future performance to encourage your commitment. The wording of this type of type agreement, known as an earn out, requires careful drafting to avoid tax traps.

What are the proceeds of sale?

The capital gain or loss from the sale of an asset, say your business, is the difference between what it cost you and the proceeds you’ll receive. However, calculating the capital gains tax (CGT) position for an earn out is not as straightforward because the final proceeds aren’t known until after the earn out period. To work out the gain the amount payable at the later date must be estimated.

Example. In 2000 Ben started a business from scratch. In March 2019 he signed a contract to sell the business. He’ll stay with the business as an employed manager. Ben receives £500,000 on completion of the sale plus an amount equal to 25% of the average annual profits, to the extent they exceed a base figure, in the three years to 31 March 2022, but not to exceed £400,000.

Trap. In our example the terms of the contract have triggered a trap. Because it specifies a maximum there’s no need to estimate the future profits to work out the proceeds, instead the maximum is used. This means Ben’s gain will be worked out assuming he will receive £900,000. A trap also applies if a minimum is specified (see The next step ).

Tip 1. Where possible, avoid including a maximum or minimum figure in a contract in relation to earn out proceeds.

Tip 2. To the extent that any part of the proceeds are payable more than 18 months after the contract date, you can elect to pay any corresponding tax by instalments.

Capital gains or income tax

While tackling the CGT position of an earn out is tricky, there is a more fundamental trap to avoid when wording a contract.

Trap. If the value of the earn out amount is expressed or implied to depend on the individual’s performance during the earn out period, HMRC can argue that the additional payment is earnings rather than a capital payment. The risk is potentially high as the maximum CGT rate payable on an earn out is 20% whereas income tax is up to 45%. Further, if the earn out is taxed as employment income it will be liable to Class 1 NI employers’ and employees’ contributions.

Tip. Make sure the contract doesn’t indicate in any way that the earn out payment relates to the seller’s future role in the business. Make it clear that it relates only to the value of the business being sold/bought.

The first big test for Making Tax Digital for VAT (MTDfV) is history. There was a fairly high failure rate but not as bad as originally feared. What lessons were learned and how might they help you overcome future MTDfV problems?

First test for businesses and MTD

The deadline for the first mandatory filing of quarterly VAT returns using HMRC’s Making Tax Digital for VAT (MTDfV) service was 7 August 2019. It applied to businesses in the so-called “stagger one group”, that’s those whose VAT quarter ended on 30 June 2019. Two hurdles needed to be cleared to comply with MTDfV: registration and using software compatible with HMRC’s new system to submit the VAT figures.

How did businesses fair?

HMRC’s statistics show that only 76% of businesses registered for MTDfV in time. This meant that at least 24% stood no chance of meeting the 7 August deadline. There were over 60,000 VAT filings per day and over 900,000 VAT returns were filed by the 7 August deadline. As this figure included businesses which file their figures monthly we don’t know, or HMRC isn’t saying, how many of the 76% that registered on time also managed to submit their figures before the deadline. HMRC acknowledged that many businesses experienced issues with the registration and filing processes.

Registration issues

Some businesses overlooked the tighter registration window because they paid their VAT bill by direct debit. This is something to remember if you still need to register for MDTfV, especially businesses whose last VAT quarter ended on 31 August. Another issue was that some businesses weren’t sure if they had successfully registered. This was because HMRC was slow in sending confirmatory e-mails. These were supposed to arrive within 72 hours. Tip. HMRC’s advice is that if confirmation of registration doesn’t arrive when expected don’t attempt registration again. Also, don’t try filing your VAT return until confirmation does arrive as HMRC’s system won’t recognise your details.

No filing confirmation

Don’t expect an e-mail from HMRC to say your VAT return has been received. It’s not sending any. This change from the old system caused considerable concern for some businesses and accountants. The good news is that some software will let you know when your VAT return is accepted. Tip. If you haven’t bought MTDfV software yet, confirmation of submission of your VAT figures is worth looking for when you do. Lack of confirmation could spell problems down the line if you need to prove to HMRC that you genuinely thought you had filed your VAT figures on time.

Other problems

Another bugbear is that HMRC’s system doesn’t make clear if the cause of any filing problems is at its end or yours. For example, before starting the transfer of VAT data your software “shakes hands” with HMRC’s computer and sets up the obligation to file. In August this didn’t always go smoothly which left businesses not knowing how to proceed. Tip. Use HMRC’s service availability and MTD error codes to identify where the problem is (see The next step ).

HMRC’s guidance on the new IR35 regime for the private sector is light on information for contractors. If you’re a contractor personally providing services, what steps should you take before the new regime applies?

New guidance. HMRC has published new guidance regarding the major changes to the IR35 regime for private sector contracts which take effect on 6 April 2020 (see The next step ). Unfortunately, it doesn’t clearly explain what will happen on 6 April if you’re the one providing services personally through your limited company, an agency, etc.

Understanding the guidance. HMRC’s guidance refers to you as a “worker” if you’re the person actually doing the job. Your company, partnership or other organisation that bills for the work you do is an “intermediary” and the business etc. you’re working for is the “client”. From 6 April clients must decide if the new regime applies to them. If it does they must review the terms and conditions on which you provide your services and decide whether, if you worked direct rather than through your company, you would be an employee instead of a freelance contractor.

Employee status. If the client decides you would be an employee it will deduct tax and NI for all future payments it makes to the intermediary, e.g. your company. While it must inform you of its decision to do this, it doesn’t have to until it pays you. This means the first you might know about it is when you are paid less than your company billed.

Tip. For current and new contracts that will run until 6 April 2020 or later, ask the client to carry out a review well before that date. HMRC has a “check employment status for tax” (CEST) online tool (see The next step ). However, it’s being overhauled as the current version can produce the wrong answer. You can challenge the client’s assessment. It then has 45 days to explain how it arrived at its decision. This will give you an opportunity to persuade HMRC that it’s wrong (see The next step ).

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