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All VAT registered businesses had their VAT payments deferred automatically, for amounts due to be paid in the period 20 March to 30 June 2020. The direct debit to pay that VAT was not collected by HMRC, and no interest has been charged on that debt.

Those businesses could pay that VAT debt at any time, but now they must pay it in full by 31 March 2021 or make arrangements with HMRC to spread the payment of the debt over a number of months.

The online portal through which to apply to spread the deferred VAT will be open from 23 February to 21 June 2021. To avoid interest and penalties being charged on the deferred VAT the business must either use this portal to opt into a payment scheme, or contract HMRC by phone on: 0800 024 1222 by 30 June 2021.

We can’t arrange a VAT payment plan on behalf of our clients as we won’t have authority to agree to make payments from their business bank accounts, so our clients have to take action themselves. However, the good news is that HMRC will allow businesses to arrange a payment plan for deferred VAT even if they have already entered a time to pay arrangement for other taxes.

Before a business can use the online portal to spread their deferred VAT it must have submitted all outstanding VAT returns. It must also have enough cash to pay the first instalment of the VAT immediately, and set up a direct debit to pay the remainder of the debt by monthly payments. Where a direct debit can’t be set up the business owner must call HMRC on 0800 024 1222.

The Government wants all of the deferred VAT paid by 31 January 2022, so the later the business signs up to spread the payments, the fewer instalments will be available to it. For example, if the business joins the scheme by 19 March it can spread the payments over 11 instalments starting in March, but if it joins in June 2021 it can only spread the debt over eight instalments.

Written by the Tax Advice Network

HMRC has admitted that its CJRS claims calculator contained an error which was fixed on 21 January 2021. If you did not use the CJRS calculator for January pay periods before that date, you have nothing to worry about. The error did not affect December 2020 pay periods.

If you did calculate January CJRS claims before 21 January 2021, you should double check those calculations where the claim included all of the following elements:

• variable paid employees
• the variable paid employee’s pay for January 2019 was used as reference pay, instead of 2020;
• the variable paid employee’s pay was different in January 2019 to January 2020.

Where you used the employee’s January 2020 pay in the CJRS calculation, the claim should be correct, and no adjustment is required.

Where you believe the CJRS claim has been overstated for January 2021 or for any other month there are two options for the employer:

• correct the amount claimed on the next CJRS claim; or
• repay HMRC using the online facility

Another point which is tripping up employers making CJRS claims, is the treatment of salary sacrifice arrangements. Any non-monetary benefit provided under a salary sacrifice scheme should reduce the employee’s gross pay, before the 80% of the gross amount paid for furlough periods is calculated. The value of the benefit should not be deducted from the net furlough pay.

Many salary sacrifices involve contributions to a pension scheme. Where the pension contributions have been made through a net pay arrangement those can still be deducted from the furlough pay. HMRC has included a new example (no. 3.18) in the CJRS to illustrate this.

Written by the Tax Advice Network

We outlined the domestic reverse charge (DRC) conditions on 11 June 2020 and updated this on 7 January 2021, but new conditions and exemptions have been clarified since June of last year.

The 5% disregard rule applies where the invoice includes both work subject to the DRC and items which are not subject to the DRC. If the DRC work does not exceed 5% of the total invoice value the whole invoice can be treated as being outside of DRC and VAT at the relevant rates should be applied to the entire invoice.

Remember the DRC never applies to zero-rated work.

The 5% exemption could apply where a subcontractor is undertaking a range of tasks on new homes. The cost of labour will be zero-rated (not within DRC) as it is a supply of building work on new homes, but the supply of materials such as carpets, will be standard rated (within DRC).

If the labour is more than 5% of the total invoice value the whole invoice is outside of DRC. This applies even if the labour and materials are charged as one item as “supply and fit”, see section 16 of the DRC technical guidance.

The following construction related services which are always excluded from DRC:

• goods supplied on hire without labour
• professional fees such as from surveyors and architects
• employment businesses supplying staff

The last point is one to watch out for, as employment agencies should apply VAT to their invoices of labour to building firms.

Written by the Tax Advice Network

A product of devolution is a complex tax position for certain taxpayers who are resident in Scotland (Scottish taxpayers). Welsh taxpayers are saved complexity as the Welsh government has set its income tax thresholds and rates to mirror those in the rest of the UK.

The Parliament in Westminster sets the rates and bands for NIC, capital gains, savings and dividend income, while the Scottish Parliament sets the rates and bands for everything else. The combination of two different tax bands leads to some very odd marginal tax rates, and challenging tax computations for Scottish taxpayers with an unusual mix of income sources.

For example, an employee in Scotland will face following marginal rates in 2021/22:

Income in band £	Scottish tax %	UK Wide NIC	Combined tax & NIC on brand
0 – 9,568	0	0	0
9,568 – 12,570	0	12	12
12,571 – 14,667	19	12	31
14,668 – 25,296	19	12	31
25,297 – 43,662	21	12	33
43,663 – 50,270	41	12	53
50,271 – 100,000	41	2	43
100,001 – 125,140	61.5	2	63.5
125,141 – 150,000	41	2	43
Over – 150,000	46	2	48

You need to advise Scottish clients how they could avoid the 53% marginal rate between £43,663 and £50,270. The later figure is expected to be the higher rate threshold in the rest of the UK: £37,700 + personal allowance: £12,570.

The personal allowance for 2021/22 was revealed in the Autumn Spending review as an increase in line with the September CPI figure of 0.5%. The 63.5% marginal rate is a result of the tapering away of the personal allowance above £100,000. That threshold could be changed in the UK Budget on 3 March 2021.

Where clients have annual income hovering around £50,000, and the family is in receipt of child benefit, there is a risk of falling foul of the high income child benefit charge (HICBC). This was designed to claw back child benefit from families where the highest earner pays tax at 40% or more, but the HICBC threshold will fall within the basic rate band in the rest of the UK from 6 April 2021.

The HICBC threshold could be changed in the UK Budget on 3 March, or even abolished!

Written by the Tax Advice Network

You will have been filing VAT returns using MTD compatible software for at least 18 months now, as most VAT registered traders had to enter the MTD regime from the first VAT period starting on or after 1 April 2019.

When you fire-up your MTD software to submit VAT returns for the December 2020 quarters you may receive a puzzling error message. Check whether you need to reauthorise your MTD software, which may require a two-step verification process.

The requirement to reauthorise MTD software at least every 18 months is an HMRC security demand. Some software packages require a reauthorisation more frequently.

On 21 July 2020 the Government announced the mandation dates for MTD for the rest of the VAT-registered population (1 April 2022) and for businesses and landlords who pay income tax (6 April 2023). These dates will soon roll-by, so is wise to have a plan as to how to get all clients on board the MTD train.

HMRC has updated its communication pack for these new start dates, which includes materials we can share with clients, in case they don’t believe us about the MTD requirements.

Written by the Tax Advice Network

All accountants have an obligation to report money laundering by clients, and where businesses have been drawn into organised crime. Covid-19 has placed enormous strain on many businesses, which could tempt them into accepting offers to launder money.

Here are five ways to spot criminal activities in your clients’ businesses.

1. Lack of sales records

If you are asked to create accounts based solely on the funds flowing through the bank account, this could be an indication of money laundering. You need to be certain the sales and purchases of the business are real.

2. Oddly time income

Where a business is not part of the night-time economy, processing sales after hours could be a sign that business card processing machine or account has been lent to a different illicit business. This can be an indication of money laundering. Do a spot check on the timing of credit card receipts.

3. Insufficient assets or supplies

Where the business hasn’t purchased enough goods to support the volume of sales, this is a clear red flag. A fraudulent service business is more difficult to spot, as it may need to make few purchases. But all businesses need premises to operate from, so check out whether the business address is genuine.

4. Low staff costs

Service businesses need staff. If the turnover is higher than the owners would be able to generate by their own labour, someone else is doing the work. The business may be exploiting workers using modern slavery or human trafficking.

A canny operator will spread their income over lots of connected businesses; companies and sole-traders, but may forget to open separate bank accounts for all. Are all the costs processed through the business relevant to that business?

5. Loans from odd sources

Business owners have been desperate for cash in the last year, so may have taken loans from non-banking sources such as family members, or even loan sharks.

Where a client is repaying an apparent loan check that the loan capital was actually received by the business. If no funds were received this is an indicator of extortion.

Loans may be secured on residential properties with very high levels of interest charged, sometimes more than 100%. This is also an indication of extortion.

If you come across any of these situations the circumstances should be reported to your firms MLRO for them to consider whether a report should be made to the National Crime Agency.

Written by the Tax Advice Network