News & Updates

Welcome to our monthly newswire. In this issue we cover a number of recent tax changes and things to be aware of in the future. As usual contact us if you wish to discuss any matters further.

NEW PERSONAL SERVICE COMPANY RULES START THIS MONTH

The “off-payroll” working rules that apply to certain workers supplying their services to clients via their own personal service companies start from 6 April 2021.

Under this new regime end user businesses will be required to determine whether that individual would have been treated as an employee or not if directly engaged. This will be a significant additional administrative burden on the large and medium-sized businesses to whom the new rules apply. This is a complex area based on different decisions by the courts and HMRC suggest that end user organisations use the CEST (Check Employment Status for Tax) online tool on their website to help with the determination. The end user business is then required to issue the worker with a Status Determination Statement setting out the reasoning for their decision, a copy of which is also given to any agency supplying the worker if relevant.

The determination notifies the agency that PAYE and NIC should be deducted from payments to the worker’s personal service company. That information should be passed down the labour supply chain if other entities are involved, and the ultimate fee payer is liable for making the tax and NIC deductions. If HMRC are unable to collect the tax from the fee payer, the liability will pass up the labour supply chain thus encouraging the end user organisation to carry out due diligence to limit their exposure.

Please contact us if you need assistance in complying with the new rules.

NO CHANGE FOR “SMALL” EMPLOYERS

“Small” businesses will be outside of the new obligations and services supplied to such organisations will continue to be dealt with under the current IR35 rules with the worker and his or her personal service company effectively self-assessing whether the rules apply to that particular engagement.

The definition of “small” is based on the existing Companies Act 2006 definition. That is where the business satisfies 2 or more of the following features:

• Annual turnover of £10.2million or less
• Balance Sheet total of £5.1 million or less
• 50 employees or less

UBER DRIVERS ARE WORKERS NOT SELF EMPLOYED

The Supreme Court has ruled that drivers for the ride hailing App Uber are workers not self-employed individuals and hence are entitled to holiday pay, pension rights and the right to be paid the national minimum wage. This case will have implications for other workers in the “gig” economy and may also have a bearing on the tax status of such workers. HMRC will certainly be taking an interest in the Supreme Court ruling. Note that tax law doesn’t necessarily follow employment law, but the boundaries are becoming increasingly blurred making it difficult to determine an individual’s employment status with absolute certainty.

The court determined that the drivers were in a position of subordination to Uber. The only way the worker could increase their earnings would be to work longer hours as Uber set the fare charged to the customer. This indicates that the driver is under the control of Uber, a key factor in determining employment status. However, it could be argued that there is limited Mutuality of Obligation as the drivers are able to refuse certain rides, although that may result in sanctions by Uber.

MORE DETAILS ON THE NEW SUPER-DEDUCTION FOR EQUIPMENT

In the Budget on 3rd March the Chancellor announced a new 130% tax relief for expenditure on new plant and machinery incurred between 1 April 2021 and 31 March 2023. It turns out that this new tax relief is only available to limited companies and the latest Finance Bill reveals a nasty sting in the tail when the equipment is sold, as the clawback on disposal is potentially at the same 130% rate. So, if a new item of plant cost £100,000 the company would be able to deduct £130,000 in arriving at taxable profits thus saving £24,700 in corporation tax at 19%. However, if the plant was sold for £80,000 on 1 April 2023 130% of the proceeds would be clawed back and £104,000 added to taxable profit which could result in up to £26,000 corporation tax payable at the new 25% rate. The claw-back rate reduces on a time basis from 1 April 2023 onwards so it would be advisable to retain the asset long term.

The 130% rate does not apply to equipment such as air conditioning and central heating that normally qualify for a 6% writing down allowance. Such “integral features” qualify for a special 50% first year allowance for the same two-year period.

Please contact us to discuss the tax implications of major capital expenditure decisions.

NEW ENHANCED LOSS RELIEF RULES MAY RESULT IN EXTRA TAX REFUNDS

In the March Budget it was announced that the normal one year carry back for trading losses would be extended to three years. This means that many businesses that have made losses during the COVID-19 pandemic may be able to obtain a repayment of tax paid in that three-year period. This enhanced carry back applies to unincorporated businesses as well as limited companies and the details are set out in the latest Finance Bill.

For corporation tax purposes the loss-making accounting period must end between 1 April 2020 and 31 March 2022 to qualify for the three year carry back. For unincorporated businesses, the trading loss must be incurred in 2020/21 or 2021/22.

For example, if Albion Ltd incurred trading losses of £200,000 in year ended 31 December 2020 having made profits of £50,000 in year ended 31 December 2019 it would normally only be possible to relieve £50,000 of the losses.

The new temporary carry back rules would permit losses to be set against trading profits made in the years ended 31 December 2018 and then 31 December 2017 as well. If profits in those years were £150,000 or more then the company would be entitled to a £38,000 corporation tax refund (19% of £200,000).

CONSULTATIONS ISSUED ON “TAX DAY” BY TREASURY

The Treasury normally issue a bundle of tax consultation documents on Budget Day. This year however they chose to delay the publication until 3 weeks after the Budget. We were expecting the consultation documents to include major changes to CGT and IHT, but it would appear that these have yet again been delayed. The Treasury have accepted a number of recommendations by the Office of Tax Simplification (OTS) on simplifying IHT reporting. From 1 January 2022 over 90 per cent of non-taxpaying estates each year will no longer have to complete IHT forms for deaths when probate is required. The government will also consider introducing a new digital system for IHT and probate reporting.

Another consultation is seeking views on modernising the tax administration system including changes to the payment dates for those outside PAYE. It would appear that HMRC are reconsidering a possible Pay as You Go system for the self-employed that was originally consulted on in 2016.

REVIEW OF BUSINESS RATES

Among the documents published was an interim report on the government’s Fundamental Review of Business Rates, which sets out a summary of responses to last year’s call for evidence. The final report will be published in the Autumn. The government will also legislate to tighten tax rules for second homeowners meaning they can only register for business rates (and business rates relief) if their properties are genuine holiday lets. This will close a loophole that allowed some second homeowners to avoid paying council tax on that property, and some were even claiming coronavirus support grants for their “business”.

DIARY OF MAIN TAX EVENTS

APRIL/MAY 2021

Date	What’s Due
1/04	Corporation tax payment for year to 30/6/20 (unless quarterly instalments apply)
6/04	2020/21 tax year ended on 5th. 2021/22 tax year begins. New “off-payroll” working rules start.
19/04	PAYE & NIC deductions, and CIS return and tax, for month to 5/04/21 (due 22/04 if you pay electronically)
1/05	Corporation tax payment for year to 31/7/20 (unless quarterly instalments apply)
19/05	PAYE & NIC deductions, and CIS return and tax, for month to 5/05/21 (due 22/05 if you pay electronically)

MTD for VAT has been in place for nearly two years now, and the soft-landing for the digital links element of the system is being withdrawn. For VAT periods beginning on and after 1 April 2021 businesses must have digital links in place between the different software packages that make up their VAT accounting system.

Where the business has a complex or legacy IT system, which is making it difficult to install digital links, it can apply for an extension of the soft-landing period. However, that application must be submitted before the start of the VAT period that begins on or after 1 April 2021.

HMRC are running a webinar on digital links to help us brush-up on this topic. There are ten opportunities to join this live webinar and ask questions.

The Agent Services Account (ASA), which is our core tool for managing clients’ affairs under MTD, has been revamped. It should now be more obvious where to find key services, like client authorisation.

The tax services accessible through the ASA are now compacted into four “accordions”:

• Making tax digital for VAT
• Trusts and estates
• Capitals gains on UK property
• Other tax services

We need to click on the plus sign to expand the detail of each service.

The ‘Other tax services’ are those older online tax services which cannot currently be accessed through the ASA. The links will take you those legacy services, including corporation tax for agents, PAYE for agents, self-assessment for agents and ATED returns.

Written by the Tax Advice Network

Some specialist R&D claims firms have automated selling processes that are designed to convince businesses that they are undertaking R&D, and so will qualify for a tax repayment by claiming R&D tax credits.

Those R&D claims often succeed because HMRC hasn’t properly reviewed them, but this is changing. There are more cases of unsupported R&D claims being taken to the tax tribunals. For example see the case of AHK Recruitment Ltd, which is worth reading.

HMRC has also updated its Corporate Intangibles Research and Development Manual to include common errors it finds when it examines an R&D claim (see CIRD80500).

These errors cover almost every aspect of the R&D scheme but the list starts with the basic: “project activities outside the scope of R&D for tax purposes”.

A myth being circulated in the building trade is that alterations to offices or buildings to accommodate covid-secure working qualify as R&D – they don’t.

For a project to qualify as R&D for tax purposes it needs to involve “an attempt to achieve an advance (in knowledge or capability) in a field of science or technology, through the resolution of scientific or technological uncertainty.”

All those elements need to be present:

• an attempt to advance knowledge or capability
• in science or technology
• resolving a scientific or technological uncertainty.

Even if the project does qualify as R&D there are plenty of other mistakes that can be made with an R&D claim; from including the wrong categories of expenditure, to claiming under the wrong scheme (SME or large company).

If you have undertaken genuine R&D work we would be happy to review your R&D claim to ensure HMRC don’t have a reason to challenge it years down the line.

Written by the Tax Advice Network

The pandemic has prompted fraudsters to cash in on the Government business support schemes, often using ID details of genuine businesses to access grants or loans. Once the ID has been proven to work, the fraudsters try to increase their take by submitting false tax refund claims.

HMRC are now writing to taxpayers who have claimed a recent tax refund that is not typical for that taxpayer. You should get a copy of the HMRC letter as the tax agent, but this isn’t always happening.

There are two versions of the HMRC letter.

In the first letter HMRC are concerned that the taxpayer’s UTR has been used to submit a self-assessment tax return that claims a tax refund. Many businesses are submitting tax refund claims for the first time as they have made losses during the pandemic.

The taxpayer is asked to call HMRC within 30 days on: 0300 200 3310, and confirm their ID, quoting their UTR number. It appears the taxpayer must make this call themselves, the tax agent can’t call on their behalf.

Following this call the taxpayer may receive the second letter, which requires a written response including copies of three forms of ID to prove their name and address. This second letter may also be used as the initial letter to the taxpayer in serious cases.

The taxpayer is asked to fill in a ‘repayment questionnaire’ that asks about the process they took to submit the tax return – who did it, what was the fee, and where the repayment was authorised to be paid. To obtain the tax repayment the taxpayer is asked to repeat all the details in the first claim by completing a R38 tax refund form.

If the taxpayer does not respond to either letter, they will not receive the tax refund and their self-assessment account will be closed. They may also be blocked from claiming any further SEISS grants.

Written by the Tax Advice Network

HMRC gathers information about businesses from many different sources, which is processed through ‘Connect’, its data analysing tool. The results help HMRC understand more about a business than has been declared on tax returns.

This intelligent use of data has allowed HMRC to find businesses who are not VAT registered, when their turnover indicates they should be. HMRC has written to those businesses asking them to register for VAT or to tell HMRC why they don’t think the business has to be VAT registered.

If clients receives one of these letters they need to respond without delay as HMRC will follow the letter up with further tax enquires. We will not have received a copy of the letter as the tax agent, but HMRC does ask the business to show the letter to their accountant.

HMRC acknowledges that there have been significant processing delays for VAT registrations recently, part due it says, to errors in completing the VAT registration form. One way to avoid simple errors is to use the online registration tool, as this will check for omissions and boxes that don’t make sense as the form is completed.

Written by the Tax Advice Network

Last week we told you about the six steps new traders need to take in order to reach the point where they can apply for the fourth SEISS grant. Now HMRC are asking certain established traders to prove that they are still trading, before they can claim the next SEISS grant.

To be eligible for any of the SEISS grants the trader must have traded in the tax years 2018/19 to 2020/21, or in 2019/20 and 2020/21, if the business commenced after 5 April 2019. A pause in trading is acceptable, but the trader must be intending to continue to trade once the covid-19 restrictions are lifted.

HMRC has checked the SA tax returns for 2018/19 and 2019/20, and has emailed taxpayers who have indicated that their trade has ceased in either period, but who have also claimed an SEISS grant. You won’t have received a copy of this email as the tax agent.

Clients may also have missed this email as HMRC are not in the habit of sending emails directly to taxpayers. However, it is important that clients reacts quickly, as if HMRC do not receive a response by Monday 22 March, the trader will be blocked from receiving further SEISS grants and may also be subject to a tax enquiry.

The “trade has ceased” box may be been checked on the tax return if one of the partners left the business, changing the business structure from a partnership to a sole trader. An individual may also have ceased one trade, or started a new business in those tax years. As long as they traded for at least part of both 2018/19 and 2019/20, even in two separate trades, they will qualify for the SEISS grants.

In that case the taxpayer needs to prove the trade has continued, and HMRC suggest that evidence could be provided in the form of:

• advertising by the business
• business receipts or sales invoices
• contracts to provide goods or services
• payments made out of a business bank account

It seems that the taxpayer doesn’t have to show evidence of sales completed, but it does need to show there is an intention to carry on trading.

Written by the Tax Advice Network