News & Updates

There are two obligations under MTD (for VAT or income tax) – to keep a completely digital record of all the accounting data necessary to make the specified report to HMRC, and to make those reports using MTD-compatible software.

Essentially the accounting records must be digitised and all parts of the accounting system must be connected via digital links. However, this digitisation is not as daunting as you may think.

Spreadsheets are a digital record, and HMRC will continue to accept them as a digital record for the foreseeable future. A taxpayer who records all their business income and expenses on a spreadsheet and uses bridging software to read the relevant totals from that spreadsheet and to submit them, without rekeying, to HMRC, will meet their MTD ITSA obligations.

It is important to understand where the accounting system starts to recognise what needs to be digitised.

The business bank account is not part of the accounting system, so it is not a requirement to have a digital link between the bank statements and the accounting records. It may be helpful to have an automatic bank feed into the accounting system, but it is not necessary.

Similarly, suppliers’ invoices and receipts for expenses do not have to be read into the accounting system digitally. It may save work to use a piece of software to capture that information digitally instead of keying the details into the accounting software or spreadsheet, but it is not a requirement for MTD.

If the accounting system has several software packages doing different things, those pieces of software do need to be connected digitally to comply with MTD.

For example, a car hire firm has an automated booking system that generates the order and the invoice to the customer. It uses a separate system to record all the expenses of the business. Under MTD the booking software needs to be digitally linked to the expenses recording system, perhaps by both being digitally connected to the accounts production software which also submits the MTD reports to HMRC.

We don’t have the regulations or guidance on digital records for MTD ITSA yet, but they may be similar to the VAT requirements.

Written by the Tax Advice Network

Clients who have been hit hard by the pandemic maybe worried sick that they can’t pay the rent for their business premises and so face eviction.

The good news is that the moratorium against forfeiture of a commercial lease for non-payment of rent, which was due to end on 25 June 2021, has been extended to 25 March 2022.

The temporary restriction stopping landlords from bringing Commercial Rent Arrears Recovery (CRAR) proceedings against commercial tenants in arrears has also been extended to 25 March 2022.

The temporary prohibition that stops landlords from using statutory demands against commercial tenants who are in arrears of rent because of COVID-19 has also been extended, but only to 30 September 2021. This prevents the landlord from petitioning the court to have the tenant wound up if they do not pay a statutory demand for rent within 21 days.

The rent arrears don’t disappear once these restrictions are lifted, and businesses should pay their rent as soon as they are able to trade from their premises again. However, the government is proposing to bring in a new law to require landlords and tenants to go to arbitration to agree to waive some portion of the unpaid rent that built up during the pandemic.

Written by the Tax Advice Network

Welcome to our monthly newswire. We hope you find this newsletter useful.
Please contact us if you would like to discuss any matters further.

Content accurate as at 26.07.2021

COMPANY LOSS RELIEF CAN BE CLAIMED EARLY

Where a company makes a trading loss of no more than £200,000 in an accounting period it is now possible to claim relief for that loss even though the corporation tax return CT600 has not been submitted.

This will enable the company to carry back the loss to earlier years and obtain a repayment of tax previously paid.

HMRC will however need evidence of the loss to support the claim, in particular a PDF of the company’s management accounts for the period.

In determining whether the loss is no more than £200,000 the company is required to claim all available reliefs, in particular capital allowances.

Where companies are members of a group the £200,000 limit applies to each individual company. Note that for members of a group the £2,000,000 limit on the temporary extended carry back applies to the group as a whole. The extended carry back allows companies to carry back trading losses two further years in addition to the normal one year carry back.

We can of course advise you on the best use of trading losses.

Losses carried back will result in a repayment of corporation tax at 19% whereas if carried forward against profits the losses may save tax at up to 25% after April 2023.

GUIDANCE ON SEISS TURNOVER TEST ISSUED BY HMRC

The fifth (and final) SEISS grant will be available for the self-employed to claim towards the end of July. HMRC will contact those traders that may be eligible with their claim date.

The eligibility criteria remain broadly the same as the fourth grant. Self-employed profits in 2019/20 must not exceed £50,000 and must be more than 50% of your total income. If that test is not met, then the same £50,000 and 50% tests are applied to average profits and total income over the four fiscal years to 2019/20.

Self-employed traders need not have claimed grants under the previous scheme to qualify for the July payment and will be required to confirm that their business continues to be adversely affected by Covid-19. The amount that traders will be able to claim will depend on how much their turnover has reduced by. If the reduction is more than 30% the grant will be 80% of average profits capped at £7,500 but if less than 30% only 30% of average profits, capped at £2,850.

Details of the turnover comparison have now been issued by HMRC. Firstly, traders will need to calculate the turnover from their business(es) for a twelve-month period commencing between 1 April and 6 April 2020.

That figure is then compared with the turnover reported in the 2019/20 self-assessment tax return, referred to as the reference year. If 2019/20 was not a normal year, for example they were on carers leave, long term sick leave or had a new child then it is possible to use 2018/19 turnover.

Note that coronavirus support payments such as SEISS, eat out to help out, and local authority grants should be excluded from the turnover figure.

For members of a partnership or LLP the turnover comparison is based on the turnover of the partnership. However, where the partner also has another business a proportion of partnership turnover is used.

Like previous SEISS grants agents are not permitted to make claims on your behalf but we can assist you in determining your turnover and checking the amount that you are entitled to.

OFF-PAYROLL WORKING, WILL HMRC ACCEPT CEST RESULT?

Since 6 April 2021 large and medium-sized organisations have had to determine whether or not a worker supplying their services via their own personal service company would be treated as an employee if directly engaged.

HMRC suggest organisations use their Check Employment Status for Tax (CEST) tool on their website to check the worker’s status, although that is not obligatory.

HMRC have recently confirmed that they will be bound by the result of the software provided the information is accurate and it is used in accordance with their guidance. However, they will not stand by results achieved through contrived arrangements that have been deliberately created or designed to get a particular outcome.

MTD COMING SOON FOR INCOME TAX

VAT registered business making taxable supplies above the £85,000 registration threshold have been grappling with Making Tax Digital (MTD) since April 2019. The next roll-out will be the introduction of MTD for income tax which is scheduled to start in April 2023.

The obligation to keep records in a digital format and report information quarterly will apply to unincorporated businesses and property landlords with gross income in excess of £10,000 a year. Businesses operating MTD for VAT will already have MTD compliant accounting software but the extension of MTD to income tax will mean a major change for property rental businesses who are outside of the current rules.

There are a number of MTD compliant accounting software packages that you might wish to consider and we can of course advise you on the one that is most appropriate for your business. There are even relatively cheap software packages specifically designed for property rental businesses.

INFORMATION IN QUARTERLY MTD FOR INCOME TAX REPORTS

The precise details of what needs to be reported each quarter have yet to be finalised, but the categories of income and expenditure are likely to be the same as currently reported for self-assessment.

The accounting software will need to record income and expenditure into the following main categories:

• Turnover/gross rents
• Costs of goods sold
• Materials
• Wages and salaries of employees
• Sub-contractor costs
• Rent, rates, power, insurance
• Repairs and renewals
• Professional fees
• Telephone and other office costs
• Interest on bank and other loans
• Motor and travel expenses

It is unclear at this stage how loans to finance residential lettings will be reported as those costs are no longer deducted in arriving at rental profits as relief is now given by way of a basic rate tax deduction.

TIMING OF MTD FOR INCOME TAX REPORTS

It is currently proposed that there will be 4 quarterly reports to HMRC followed by a finalisation return when end of year adjustments will be made. For a buy to let business that would mean quarterly returns made up to 5 July, 5 October, 5 January and 5 April. There would then be a MTD finalisation submission the following 31 January.

ABOLITION OF BASIS PERIODS AND NEW TAX YEAR END?

We are awaiting further information on MTD from HMRC this summer but one significant announcement on 20 July was draft legislation to abolish basis periods for unincorporated businesses for the 2023/24 tax year to simplify MTD reporting.

That change would apply to sole traders, partnerships, as well as trusts with trading and property rental income. There would also be complicated transitional rules for 2022/23 which could result in a big tax bill that year for some traders.

The Treasury are also consulting on changing the tax year itself from the archaic 5 April year end to 31 March or even 31 December. A calendar tax year would bring the UK into line with most other countries at last!

We will keep you updated when more information comes available.

DIARY OF MAIN TAX EVENTS AUGUST / SEPTEMBER 2021

Date	What’s Due
01/08	Corporation tax for year to 31/10/20 (unless pay quarterly)
19/08	PAYE & NIC deductions, and CIS return and tax, for month to 5/8/21 (due 22/08 if you pay electronically)
01/09	Corporation tax for year to 30/11/20 (unless pay quarterly)
19/09	PAYE & NIC deductions, and CIS return and tax, for month to 5/9/21 (due 22/09 if you pay electronically)

Welcome to our monthly newswire. We hope you enjoy reading this newsletter and find it useful.

Strategic challenges in the new normal

As we move towards a post-pandemic recovery and the economy begins to stabilise in the next few months, businesses face new challenges and will have to adapt to a new normal.

Supply chain issues
Supply chains were disrupted as producers and manufacturers shut down during the pandemic. Some businesses are now facing difficulties in obtaining the materials or products that they need. In other cases, the price of raw materials has gone up due to scarcity caused by lack of production throughout the past 18 months or so.

Managing supply chain issues is difficult and the best thing that businesses can do is to manage the expectations of their customers. It is important to stress that supply chain challenges tend to be temporary. As the global economy recovers, manufacturing, production and shipping should eventually return to normal.

Staffing
Many businesses are struggling to fill roles. Perhaps potential candidates are unwilling to move during uncertain times, or maybe the booming tech industry has absorbed all the best talent. Either way, many businesses are struggling to hire good people.

Some businesses are adding creative perks or benefits to attract staff. Besides health care or pension contributions, some firms are attracting talent with unlimited holiday, remote working opportunities or career development through staff education programmes and sponsored learning.

Profitability issues
Businesses that have survived the pandemic may have burned up their cash reserves or taken on additional debt to finance themselves throughout the last 18 months.

Businesses should plan for a difficult trading environment for some time yet. Sales could continue to struggle, the cost of materials could be higher for some time yet and labour costs, taxation or regulatory costs could be higher. As such, businesses should try to keep costs down where possible. In addition, they should double down on their marketing efforts in order to drive sales and ultimately, revenue.

Last year, businesses had to adapt to conditions created by the pandemic. In 2021, they must adapt to the aftermath. There will be opportunities to innovate and evolve business models, introduce new products or services, etc. The businesses that adapt and create new opportunities or competitive advantages will be the most successful.

Unlimited holiday

Unlimited paid holiday allowance sounds appealing but it can be difficult to implement.

Unlimited holiday allowance is becoming an increasingly popular benefit. Such policies are particularly popular with American tech businesses such as Netflix, LinkedIn, and the like. In an increasingly competitive market where businesses are battling to attract talented employees, unlimited holiday allowance is seen by many potential employees as an incredibly attractive benefit.

On the face of it, allowing staff the freedom and flexibility to take time off as they please certainly gives your business an edge over rivals who don’t offer such a benefit.

From your team’s perspective, they can work and play as they want, and this can make for a happier and more productive workforce. However, implementing an unlimited holiday allowance policy is harder than it seems. People can be bad at taking holiday and may be reluctant to do handovers and pass responsibility for deadlines over to others. Instead they may choose to just keep working. Some staff may become anxious about being seen to take too much holiday and may end up taking less as a result.

In an environment that has set objectives and performance metrics, it can be hard to get people to take time off. With a fixed holiday allowance, you can encourage them to take say 25 or 30 days holiday each year. If holiday is unlimited and there is no clear expectation, management can struggle to get people to take holiday. If holiday allowance is open and completely flexible, some employees may abuse the system and leave other colleagues to pick up the slack which can lead to tension between colleagues.

If team members regularly take extended holiday, they could end up paying the price when they return to the office. They may have to work day and night to catch up. This could have a negative effect on their home life and lead to stress or burnout. Due to the ongoing pandemic, many businesses are now experimenting with flexible working arrangements in order to find what works best for their team. As such, the limitations of unlimited holiday policies could soon be more widely tested.

Stop networking and focus on connecting

Networking is about knowing more people. Connecting is about knowing people more.

We all know lots of people professionally or personally, but we are only really connected with a small percentage of those people.

When you are at a business, social or charitable event, you will likely run into many people you know. But in many cases, you will know them “socially” or “professionally”, which is a way of saying you know them, who they are, but are not deeply connected with them and have no investment in their successes or failures. A good example of this is LinkedIn. You may have 2,000 people in your LinkedIn network but if you run through that list, you may find that you are only truly connected with 50-100 of those people.

True connections make up your community. They are the people with whom you have built a relationship based on mutual respect and trust. They may send you business referrals or you may be the person they ask for advice before they make a personal decision. True connections often cross the line between business and personal. If you build a great connection with a business contact, you may, for example, end up socialising with their family and yours.

So how do you go about building more connections? Learn how to talk about yourself in a meaningful, engaging and memorable way. If we want to build a mutually beneficial relationship with a person, we have to be clear about who we are, what we’re doing and how we could potentially help one another along the way. Figure out how to help and support the person that you are trying to connect with.

Focus on creating a mutual transfer of knowledge and information. Share success stories and discuss challenges that you both face. This may help you to find some common ground.

Don’t reach out to a contact and ask for a favour straight away. Get to know them first, demonstrate your potential and then do something of value for them. For example, offer to make a helpful introduction to someone in your network. Once you have done that, they will be more open to doing a favour for you at some point in the future. Developing your connections may be a bit more difficult in the current environment so you may have to adapt your approach. For example – rather than meeting a contact for a drink after work, you may have to set up a virtual drink on Zoom or Skype. The key is to adapt your strategy and to give it a go. The more you try to build connections, the better you will get, over time.

Evernote

Evernote is a note taking app designed for business users.

Evernote is a free app for smartphones and computers that is designed to help you to manage and store everything from notes, to do lists, receipts, boarding passes, articles you want to read, and more.

The app works well across multiple devices and keeps everything in sync between your smartphone, tablet and computer.

It works on various platforms including Windows, Mac, iPhone / iPad and Android. The desktop PC version of Evernote is a powerful and quick tool that allows you to create, sync and update notes and clips from your desktop and then sync them to a cloud account to share your content across all of your devices.

To use Evernote, you need to download it to your chosen device and create a free account. Once you have signed up, you’ll be presented with the main Evernote screen. Here you can access all of the features such as notes, notebooks, tags and your most commonly used notes (favourites).

You can also create collections of notebooks such as your Work stack or Personal stack. Evernote has an excellent search function which allows you to search for text in typed notes, images, text in PDFs and text in attached office files. Evernote also offers a wealth of tools for sorting and finding your notes in other ways such as tags and even geolocation tags.

From a business user’s perspective, a particularly helpful feature is the ability to scan and digitize business cards – which works very well when using Evernote on your mobile device.

Evernote offers three tiers from Basic (which is free) to Premium and Business, which offer additional features for a monthly fee. The Basic option is quite limited with up to 60mb of new uploads per month and synchronization across 2 devices. The Premium option costs $69.99 or just over £50 per year and offers 10GB of new uploads per month, sync across all of your devices and customer support via live chat. If you need more storage you can upgrade to the Business package which offers 20GB of new uploads per month and an additional 2GB per user.

If you would like to try Evernote before committing to it, you can sign up for the Basic (free) account on evernote.com.

Claims for CJRS grants need to be made for furlough periods falling within a calendar month as the rules change nearly every month. The hours the employees work may also vary right up until the end of the month, especially when staff are required to isolate, so it is advisable not to complete the CJRS claim until after the month end.

If you have already started a CJRS claim for July and the employer then tells you that staff worked different hours, you can delete that claim within 72 hours of starting it, and begin again. Otherwise, you will have to correct any errors in the CJRS claim within 28 days (plus weekend) of the end of the month the claim relates to, which will be 31 August for July claims.

If you are claiming for 16 or more employees you can use the HMRC template, which makes the process a bit easier.

It is perfectly acceptable to put staff on furlough if they are unable to work because they are self-isolating. Using the CJRS the staff member should receive at least 80% of their usual wage, which will almost certainly be more than the SSP rate of £96.35 per week.

Remember that CJRS claims relating to furlough periods in July can only include 70% of the employee’s usual wage, although the employer must pay 80% of the usual wage for those furloughed periods capped at £2,500 per month. The employer must therefore carry 10% of the wage cost for furlough time plus all the employer’s NIC and all employer’s pension contributions.

The CJRS claims for July furlough periods must be submitted by Monday 16 August.

For furlough periods in August and September the CJRS claim will only cover 60% of the employee’s usual wages, up to £1,875 per employee for the month. The employer must continue to pay the employee 80% of their usual wage for furlough periods. The CJRS will come to an end on 30 September 2021.

Written by the Tax Advice Network

The fifth SEISS grant is on its way, but the application process has not opened yet. HMRC has not given a definite date on which the claims portal will open other than “late July”.

However, that has not stopped the scammers doing their best to entrap taxpayers who are desperate to apply for this last grant. A number of scam emails are circulating pretending to be from HMRC inviting the recipient to apply by clicking a link in the email. We are warning all clients to check the address the email has come from and do not click on a link in such an email – ever.

HMRC is writing to some self-employed traders who started trading in 2019/20, to check that they are eligible for the fifth SEISS grant. The HMRC letter simply warns the taxpayer to expect a phone call from HMRC on the number that they included on their 2019/20 tax return. Unfortunately, the trader needs to do this verification check themselves, we can’t do it on behalf of our client.

The taxpayer will be asked to confirm an email address to receive a link to a Dropbox account. The taxpayer will then have to upload documents to this account to prove their ID and to provide evidence of trading, such as bank statements. This Dropbox link will remain live for only TWO DAYS, so taxpayers need to act quickly to confirm their ID.

Established traders who have already submitted their 2020/21 tax returns may receive a notice of correction to their self-assessment relating to SEISS grants received in that year, as we explained on 24 June 2021. This notice should be copied to us as the agent, but it may not be.

However, the notice will not say that the taxpayer is permitted to reject the correction to their self-assessment within 30 days of the issue of the notice. This is a serious omission by HMRC, but it doesn’t change the law (TMA 1970 s 9ZB) – the taxpayer can reject HMRC’s figures and we can do so on behalf of our client.

Written by the Tax Advice Network