To May’s Tax Tips & News, our newsletter designed to bring you tax tips and news to keep you one step ahead of the taxman.
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We are committed to ensuring none of our clients pay a penny more in tax than is necessary and they receive useful tax and business advice and support throughout the year.
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Coronavirus (COVID-19) update
The coronavirus (COVID-19) outbreak has brought an unprecedented array of challenges for businesses and their agents. Information is changing on an almost daily basis, making it difficult to keep up-to-date with business support measures and where to find the necessary guidance.
The first port of call for Covid-19 guidance for employees, employers and businesses is on the gov.uk website at https://www.gov.uk/government/publications/guidance-to-employers-and-businesses-about-covid-19. In particular, this guidance will help employers and businesses in providing advice to their staff on:
– the Coronavirus Job Retention Scheme;
– the Self-employment Income Support Scheme;
– deferring VAT and Self-Assessment payments;
– statutory sick pay relief package for small and medium-sized enterprises (SMEs);
– a 12-month business rates holiday for all retail, hospitality, leisure and nursery businesses in England;
– small business grant funding of £10,000 for all business in receipt of small business rate relief or rural rate relief;
– grant funding of £25,000 for retail, hospitality and leisure businesses with property with a rateable value between £15,000 and £51,000;
– the Coronavirus Business Interruption Loan Scheme to support long-term viable businesses who may need to respond to cash-flow pressures by seeking additional finance;
– a new lending facility from the Bank of England to help support liquidity among larger firms, helping them bridge coronavirus disruption to their cash flows through loans; and
– the HMRC Time To Pay Scheme to help with tax.
The Government has launched a new website Coronavirus Financial Support, which has details of various government schemes available UK-wide, including the Coronavirus Business Interruption Loan Scheme, the Coronavirus Job Retention Scheme, the Self-employment Income Support Scheme, the Coronavirus Large Business Interruption Loan Scheme, Covid-19 Corporate Financing Facility, Statutory Sick Pay Rebate, Time to Pay tax from HMRC, and VAT and income tax self-assessment deferral.
Self-employment Income Support Scheme (SEISS)
In summary, SEISS takes the form of a cash grant for use by self-employed individuals or members of a partnership, which will be made in one lump sum, covering three months initially. It will provide a taxable grant, worth 80% of monthly trading profits averaged over the three years 2016 to 2019, or whichever of those years the business traded for, to a maximum of £2,500 per month. Those with ‘a trading profit of less than £50,000 in 2018/19 or an average trading profit of less than £50,000 from 2016/17, 2017/18 and 2018/19’ and half of whose income in these periods comes from self-employment, are eligible. They must however have filed a 2018/19 tax return showing income from self-employment, by 23 April 2020.
The first payments are expected at the start of June. HMRC will contact those it thinks are eligible on the basis of its own records, to invite applications as soon as the system is up and running.
Coronavirus Job Retention Scheme (JRS)
Broadly, the scheme is available to all UK employers with a PAYE scheme that started on or before 19 March 2020. It covers part of the salary of employees who would otherwise be laid off because of the crisis – known as ‘furloughing’.
To access the support, employers have to ‘furlough’ employees, which means asking them to stop working but retaining them on payroll. This is a formal process with employment law implications and needs to be followed through carefully. Only furloughed employees on the payroll on or before 19 March can be covered. HMRC will pay a grant worth 80% of an employee’s usual wages, up to £2,500 a month, and associated employer NICs and minimum automatic enrolment employer pension contributions on the subsidised wage. Note that furloughed employees cannot carry out work for their employer during furlough and there are also rules around volunteer work and training.
HMRC guidance Check if you can claim for your employees’ wages through the Coronavirus Job Retention Scheme provides an overview for employers, and Check if your employer can use the Coronavirus Job Retention Scheme gives information for employees.
As part of a number of measures to support the country during the coronavirus (COVID-19) pandemic, the Government t has announced that working tax credit (WTC) payments will be increased by £1,045 to £3,040 per year from 6 April 2020 until 5 April 2021. The amount a claimant or household will benefit from will depend on their circumstances, including their level of household income. But the increase could mean up to an extra £20 each week. Further information on the increase, and how to claim, can be found at https://www.gov.uk/government/news/increase-to-working-tax-credits-what-this-means.
Commercial tenants protected from rent arrears
The Government has confirmed that commercial tenants who cannot pay their rent because of coronavirus will be protected from eviction.
Many landlords and tenants are already reaching voluntary arrangements about rental payments, but the Government recognises that businesses are struggling with cashflow due to coronavirus and remain worried about eviction. Measures, included in the emergency Coronavirus Act 2020, mean that no business will be forced out of their premises if they miss a payment in the next three months.
As commercial tenants will still be liable for the rent after this period, the Government is also actively monitoring the impact on commercial landlords’ cash flow and continues to be in dialogue with them. Further information on this measure can be found at https://www.gov.uk/government/news/extra-protection-for-businesses-with-ban-on-evictions-for-commercial-tenants-who-miss-rent-payments
Beware of coronavirus scams
Unfortunately, HMRC have reported a significant increase in the number of bogus contact and phishing emails being received by individuals from scammers purporting to be HMRC. A recent scam email advises customers they can claim a ‘goodwill payment’ if they provide certain personal information. If received, such emails should not be opened and should be deleted straight away. Keep up-to-date with known HMRC scams at https://www.gov.uk/government/publications/phishing-and-bogus-emails-hm-revenue-and-customs-examples. There is also helpful guidance on fraud, tricks and scams available at https://www.gov.uk/government/publications/frauds-tricks-and-scams/fraud-tricks-and-scams
VAT:Deferral Of Payment
Temporary changes have been made to the rules governing VAT payments due between 20 March 2020 and 30 June 2020 to help businesses manage their cash flow during the coronavirus (COVID-19) pandemic.
Under the temporary easement, a UK VAT registered business with a VAT payment due between 20 March 2020 and 30 June 2020 has two options:
- defer the payment until a later date; or
- pay the VAT due as normal.
This relaxation of the rules does not cover VAT Mini one stop shop (VAT MOSS) payments (broadly, a scheme designed for payment of VAT on supplies of certain digital service).
It is not necessary to tell HMRC that the business is deferring its VAT payment.
Importantly, HMRC will not charge interest or penalties on any amount deferred as a result of the Chancellor’s announcement.
HMRC will continue to process VAT reclaims and refunds as normal during this time.
Businesses opting to defer payment must pay the VAT due on or before 31 March 2021. This is the date for those that pay VAT monthly.
The position is more complex for most VAT-registered businesses that are on quarterly instalments. HMRC have yet to confirm their position, but the likely payments dates, depending on return due dates, are likely to be 31 March 2021; 30 April 2021; or 31 May 2021.
HMRC are advising businesses that usually pay by direct debit to cancel the debit mandate as soon as possible.
HMRC have yet to confirm their position regarding this, but the likely payments dates will be, depending on return due dates: 31 March 2021; 30 April 2021; or 31 May 2020.
It is entirely possible that there will be an extension in July to the current VAT deferment. Businesses paying by direct debit payers will need to review this before reinstating their payments.
Businesses must continue to submit their VAT returns to HMRC on time.
The normal due date for sending a VAT return and any required VAT payment is normally the last day of the month following the end of the VAT return period. However, persons who electronically pay the VAT due on their returns automatically receive a seven?calendar-day extension for the submission of the return and the payment. This can be taken on a return-by-return basis.
Businesses using the payment-on-account scheme for large traders and those using the annual accounting scheme are not entitled to the additional seven day extension.
MTD for VAT: Second phase delayed
HMRC have announced the postponement of phase two of their Making Tax Digital (MTD) for VAT project.
This ‘phase two’ required businesses to digitally link their software all the way from entry of each transaction at one end of the process through to submission of the VAT return at the other, irrespective of how many pieces of software were used.
This means the rules on maintaining digital links from original transaction to tax return will not be enforced until 1 April 2021.
Businesses now have until their first VAT return period starting on or after 1 April 2021 to put digital links in place. HMRC have updated VAT Notice 700/22 Making Tax Digital to reflect this extension.
Digital links summary
MTD requires businesses to maintain relevant information about sales and purchases in an electronic format, using ‘functional compatible software’. This means a software programme which allows information to be recorded in an electronic form which sends and receives information to/from HMRC using the API platform (including API-enabled spreadsheets). It is possible to use more than one software programme but there must be a digital link between them.
Broadly, the functions of the compatible software must include:
- keeping records in a digital form as required by regulations;
- preserving digital records in a digital form as required by regulations;
- creating a VAT return from the digital records held in functional compatible software and providing HMRC with this information digitally;
- providing HMRC with VAT data on a voluntary basis;
- receiving information from HMRC via the API platform in relation to a relevant entity’s compliance with obligations under the regulations.
Digital records can be kept in a range of compatible digital formats. They do not all have to be held in the same place or on one piece of software. For example, a spreadsheet can be a component of digital record keeping provided the product that consolidates records, or summary records from the spreadsheet, can exchange data digitally with HMRC.
Construction Industry Scheme: top tips
The start of the new tax year often marks the beginning of an extremely busy time for those using the construction industry scheme (CIS). HMRC have issued a reminder of some of the help that is currently available to help ease the workload. Here is a summary of the top tips HMRC provide:
HMRC offer a digital repayment offer for CIS customers. Claims can be made through the CIS I-form.
The I-form can be completed by either the agent or the taxpayer. They need to provide their name, address, employer references, the amount of repayment they are claiming, if they want the repayment offset to any other Head of Duty and how they want the repayment to be made – payable order or BACS. Once submitted, the I-form will drop into a queue to be worked by a HMRC adviser.
Sending repayments to an agent or nominee
HMRC can send repayments to someone other than the customer. However, it should be noted that requests for CIS repayments to be made directly to an agent or nominee must be made in writing using form R38 form or signed letter of authority.
Quicker processing timeframe
Usually, HMRC wait until 24 April to start reviewing repayment claims because of the CIS monthly submission dates: the 19th to submit returns and the 22nd to make any payments. This year, however, HMRC have committed to reviewing claims as soon as they are received. HMRC do stress that it does take time to review and process repayments, so claimants should allow 40 working days before following up on any claims.
HMRC support for CIS users
HMRC agents and CIS helplines are currently only available 8am until 4pm Monday to Friday. However, the HMRC CIS webchat facility is available later in the evening and on Saturdays too. Further information can be found at Construction Industry Scheme: general enquiries. Follow the link that says ‘speak to an adviser online’ from that webpage.
Finally, information about financial support available for businesses affected by the coronavirus can be found at https://taxagents.blog.gov.uk/2020/04/17/construction-industry-scheme-top-five-tips-for-tax-agents/
May questions and answers
Q. I am thinking of buying a new house that I will use as my main residence. I won’t sell my current home until I move into the new property. Will I have to pay the additional 3% stamp duty land tax (SDLT) change when I buy the new property?
A. The short answer is yes.
However, in the situation where the purchase of a new residence precedes sale of the old, tax initially paid on the purchase of the new residence will be refundable if the old residence is disposed of within the three-year window.
The original land transaction return may be amended within the later of:
- three months beginning with the effective date of the subsequent sale of the old residence; and
- twelve months beginning with the filing date for the original return.
Q. I started trading on 1 September 2019 and am now thinking about completing my 2019/20 tax return. I have not incurred any capital expenditure and my turnover is less than the current VAT threshold. Should I use 31 March (or 5 April) as my accounting year-end?
A. If you make your business accounts up to 31 March, HMRC will treat this as being made up to 5 April. One advantage of a 31 March/ 5 April year-end is that no ‘overlap’ profits will be created. Broadly, overlap profits are bought about by being taxed twice in the first two years of trading. You would get relief for this overlap, but potentially this won’t be until a much later stage (for example if you change your accounting date, or if you cease to trade). Quite often, profits in a new business are smaller at the start and gradually increase. An advantage of a 30 April year-end is that tax is paid later. So, for a 30 April 2020 year-end, tax will become due for payment on 31 January 2022, and the tax on profits earned between 1 May 2020 and 30 April 2021 will be payable by 31 January 2023. If the business had a 31 March 2021 year-end, the tax on profits earned between 1 April 2020 and 31 March 2021 would not become payable until 31 January 2022. Of course, if you chose a later year-end, you should make sure that you keep enough money aside to pay your tax bill when is becomes due.
Q. How do I register as a self-employed subcontractor in the construction industry?
A. You need to register with HMRC for both self-assessment as self-employed, and under the construction industry scheme (CIS). This does mean that there means that there are two separate registrations, but these can both can be done at the same time.
In most cases you can register as self-employed by calling the HMRC Newly Self-employed Helpline on 0300 200 3504. If you are already registered as self-employed, but need to register under the CIS scheme, you should contact the CIS Helpline on 0300 200 3210.
The contractor for whom you are working will ask you for your unique tax reference (UTR) and you need to provide this before you are first paid, in order to determine which tax deduction rate to use.
The UTR is issued when you are first set up under self-assessment to complete a tax return. If you have not previously been required to prepare a tax return, you will be given a UTR when you register as self-employed.
For further guidance on registration and other obligations for subcontractors, see the Gov.uk website at https://www.gov.uk/what-you-must-do-as-a-cis-subcontractor.
May key tax dates
2 – Last day for car change notifications in the quarter to 5 April – Use P46 Car
19/22 – PAYE/NIC, student loan and CIS deductions due for month to 5/5/2020
31 – Deadline for copies of P60 to be issued to employees for 2019/20