News & Updates

Welcome to our latest monthly tax newswire. We hope you enjoy reading this newsletter and find it useful. Contact us if you wish to discuss any issues further.

BUDGET DAY IS 3 MARCH

There has been a lot of speculation on what will be in Rishi Sunak’s second Budget in early March and whether there is any tax planning that you should consider before then.

The government will have to start paying down the massive £2 trillion of borrowings at some stage. Increasing tax rates would send the wrong message when the government is trying to stimulate economic recovery.

What the Chancellor is more likely to do is abolish or restrict some of the generous tax reliefs that we have got used to taking advantage of. That would have the effect of raising tax revenue without increasing headline rates.

Although likely to be unpopular with Conservative party voters and backbenchers, it is possible that the Chancellor will target pension tax relief and capital taxes in his Budget. The changes may well be announced as a “simplification” of the rules but that often hides tax raising measures in the small print!

Those buying property might also want to speed up those transactions if they can as the beneficial stamp duty land tax rates are scheduled increase from 1 April 2021.
Listen out in the Budget as the chancellor might possibly announce an extension of the SDLT relief to support the property sector for a few more months.

Another bit of good news to listen out for would be yet further extensions in the CJRS furlough and SEISS grant schemes. These grant schemes are currently scheduled to end on 30 April and it would be nice to get a bit more notice this time.

PENSION TAX RELIEF UNDER THE SPOTLIGHT?

One area where the Chancellor could raise a substantial amount of tax would be to restrict higher rate tax relief on pension contributions.

There have been recent consultations with the pensions industry and it has been suggested that the government top up might be increased to 30% but with no further tax relief. That would continue to encourage people to save for their own pension but the better off would get less tax relief. The pension rules continue to be complex and this may be announced as a simplification measure.

If you have spare cash that you are considering investing in your pension you might want to consider bringing that investment decision forward.

POSSIBLE CHANGES TO CAPITAL TAXES

The Office of Tax Simplification (OTS) have been asked by the Treasury to review both Inheritance Tax (IHT) and Capital Gains Tax (CGT) recently which again suggests there could be changes to those taxes that may require pre-emptive planning action.

WILL CGT RATES GO UP?

The OTS report highlighted the mismatch between CGT and income tax rates which currently encourages taxpayers to prefer to take profits as capital rather than income. This potential opportunity has been addressed recently in the case of company liquidations where there is now a targeted anti-avoidance rule. There has also been increased scrutiny of share for share exchanges and company share buy backs by HMRC. Both of these transactions, if properly structured, can currently be taxed as capital gains instead of income.

The CGT annual exempt amount is currently £12,300 which is considered a very generous de minimis. It is important that taxpayers do not need to report trivial disposals of capital assets but perhaps we will need to get used to a more modest limit going forward. Consider making use of the current generous limit whilst it is still there.

A possible change that has featured in a couple of OTS reports recently concerns the treatment of property passing on death. Although the value of the property is subject to IHT, there is currently no CGT and also a tax free uplift to market value for CGT purposes.

The OTS recommendation is that the value for CGT purposes should be the deceased person’s base cost. Although there would still be no CGT to pay on death, the reduced base cost would mean a larger gain and CGT liability on subsequent sale.

We are hoping that the current business asset disposal relief that provides business owners with a 10% CGT rate on disposals will continue to apply as this encourages entrepreneurs to build successful businesses.

POSSIBLE INHERITANCE TAX CHANGES

As reported in an earlier newsletter, the OTS suggested simplifying IHT on lifetime gifts including reducing the period of potential exemption from 7 to 5 years. Such a change would mean that the donor would only be required to survive for 5 years following a gift for the transfer to be exempt from IHT.

The OTS also suggested that the conditions for Business Property Relief might be tightened up by aligning the rules with the definition of a trading company for CGT. This relief currently provides 100% relief on the transfer of shares in an unquoted company. The suggested change would mean that more transfers of shares would potentially be liable to inheritance tax and may require a careful review of your plans if you are looking to pass on your business.

GET READY FOR NEW OFF-PAYROLL WORKING RULES (IR35)

This time last year businesses were preparing for important changes to the rules where workers supply their services via their own personal service companies. The start date was then deferred from 6 April 2020 to 6 April 2021.

The new rules are scheduled to apply to large and medium-sized businesses as defined by the Companies Act. Those businesses will be required to consider whether or not the worker would be regarded as an employee if directly engaged and so deduct tax and national insurance from payments as if they were an employee. This change does not apply where the end user is a small business under the Companies Act rules, where the current IR35 rules will continue to apply.

Thus, small organisations will not yet be required to consider the status of the worker or deduct tax.

Please contact us if you are affected by these changes as we may be able to help you with the determination of your workers’ employment status. If you are a worker supplying your services through your own company, we will also be able to advise you on the implications of these changes.

EUROPEAN PROPERTY OWNERS FACE HIGHER TAX BILLS

Now that the UK has finally left the EU some taxpayers will start to see additional tax costs. One example is where UK residents own holiday homes in EU countries that they rent out for part of the year.

Owners of EU rental properties may now be required to pay more tax in those countries, having previously benefited from a lower rate of tax for EU nationals. Those renting out Spanish properties for example will see the rate of tax they pay in Spain increase from 19% to 24%. There would be double tax credit relief for the overseas tax suffered against the UK tax liability on the rental income, but those who pay UK tax at 20% will see their overall tax bill increase as a result. The UK leaving the EU may also have the effect of increasing the amount of capital taxes and social security taxes payable by property owners.

The property tax rules vary from country to country, so contact us if you are likely to be affected by these changes.

DON’T BE LATE IN PAYING YOUR PERSONAL TAX BILL

2019/20 income tax, CGT, class 2 and 4 NIC liabilities should have been paid by 31 January 2021 unless you have agreed a payment plan with HMRC.

Note that if the balance is still unpaid at the end of February 2020, a 5% surcharge penalty is added in addition to the normal interest charge unless a payment plan has been agreed.

DIARY OF MAIN TAX EVENTS FEBRUARY/ MARCH 2021

Date	What’s Due
01/02	Corporation tax payment for year to 30/4/20 (unless quarterly instalments apply)
19/02	PAYE & NIC deductions, and CIS return and tax, for month to 5/02/21 (due 22/02 if you pay electronically)
01/03	Corporation tax payment for year to 31/5/20 (unless quarterly instalments apply)
02/03	5% penalty imposed on 2019/20 income tax, CGT, class 2 and 4 NIC still unpaid at this date unless a payment plan has been agreed with HMRC
19/03	PAYE & NIC deductions, and CIS return and tax, for month to 5/03/21 (due 22/03 if you pay electronically)

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

Key trends to watch in 2021

The challenges faced by businesses in 2020 have driven firms across the world to develop, adapt and innovate. Here are some of the key business trends to watch in 2021. Remote working technology

Working from home is here to stay. Now that staff have adapted to remote working, they will expect to continue to be able to do so, even when the pandemic is over. Many large orgnisations have already committed to home-working. Tech companies like Twitter, Mircosoft and Facebook have already put policies in place to allow a significant number of their people to work from home permanently.

Evolution in retail

2020 was a tough year for retail businesses around the world. The trend towards online shopping really picked up as customers were locked down at home. Many firms have invested in developing and improving their online customer experience in order to appeal to a broader range of potential consumers.

Flexible payments

Businesses in 2020 had to be more flexible with their payment terms. This has resulted in businesses embracing new ways for customers to pay such as instalments, accepting credit cards, offering finance, etc. Diversity & Inclusion is here to stay

Businesses are now expected to commit to Diversity and Inclusion (D&I). Some industry sectors may even require firms to report on their diversity statistics.

This year, firms will be focusing on improving female representation on company boards and ensuring that their workforce includes representatives from diverse ethnic and cultural backgrounds. Customers are now making purchase decisions based on D&I criteria.

Delivering effective training, remotely

Providing training for your team when they are working remotely can be challenging.

Delivering a training session to a room full of people can be difficult enough. Engaging with your audience remotely presents a whole new challenge.

The first thing to think about is the delivery method. Your firm may already have a webinar or conference platform in place. If not, there are lots of good options available such as Zoom, Microsoft Teams or Skype.

Ideally you will want to use a platform that allows you to screen share, instant message and share files.

Getting people to attend training sessions when they are busy and working remotely can be a challenge. Creating a training schedule and sharing it well in advance can help.

Provide sufficient notice, explain the benefits of the training session and people will tend to prioritise attending your sessions.

Ideally you should record your session giving anyone who can’t make it the option to view the training session at a convenient time.

Remote employees will want to begin their training by knowing what the process will look like and what the expectations are, so outline a schedule reflecting the aims of the training and the overall principles it will explore – but save from going into the detail of the course itself.

Your training is only as successful as your pre-planning allows it to be, so make sure you invest the time before the training is rolled out. It’s also a good opportunity to troubleshoot any problems before they have a chance to arise, whether that’s to do with the platform you’re using, screen sharing, testing that any video content works, or having a test run through the learning content itself.

Keep your training session interesting by including videos, polls and asking questions which stimulate dialogue among your audience. The more discussion you can encourage, the more immersive the training session will be. Provide post-training materials that your attendees can refer back to.

The idea of post-training is to provide remote employees with the tools to refresh what they learned or build on it in their own time. Post-training should include some resources that help people to implement what they learned – short videos, infographics and ‘how-to’ guides can be a helpful way of revisiting the training content.

Reinvigorate your Business Development efforts

Top tips for driving your Business Development (BD) efforts this year.

BD is often misunderstood. Some might say that it’s all about relationships, another will say it’s all about sales and others will talk about marketing. They are all right, in a way. BD is the creation of long-term value for a firm, through effective management of customers, markets and relationships.

Understand your customers

Customers pay the bills and should be front and centre of your BD strategy. Invest time and energy into researching and understanding your customers. Who are they, what products or services would add value for them and how can your firm help them to make a purchase decision? In the current environment, your customer research may help you to identify a new gap in the market. For example, your customers may need to buy online. Can you offer a better online experience than your competitors? Do you have a delivery mechanism that ensures that your products or services can be distributed to your customers easily and efficiently? You may find that your customers have turned to online marketplaces such as Amazon to buy everything. Maybe your firm needs to have a storefront on Amazon, in order to make it easier for your customers to buy from you.

Consider your target markets

Your customers are part of a specific market. For example, if they are businesses based in the UK then, from your perspective, they are part of the UK B2B market. Customers based in the USA might be part of your online and international market. Markets are constantly evolving. Customers who may not have purchased online 18 months ago may now be doing so on a daily or weekly basis due to lockdowns.

Perhaps overseas clients will be more receptive to buying from your business as they can no longer purchase products or services in a face to face environment. This shift to online presents new opportunities for businesses. Perhaps you could begin to have sales meetings with clients over Zoom or Skype video? Before March 2019, this would have been an alien concept, whereas today is has almost become the ‘new normal’.

Focus on building relationships

Relationships are the gravity that keep the planets aligned. The best businesses build, manage and leverage relationships that are based on trust and the ability to add value. Your relationship building efforts should focus on maintaining contact with customers, targets, employees, suppliers, referrers and industry bodies. Due to remote working, many of your contacts will be feeling a bit lonely and will be more open to the offer of a catch up call, virtual meeting, etc. You can leverage this as an opportunity to keep your firm front of mind, so that when a potential opportunity arises, your firm will be first on the list to get a call.

An opportunity to innovate

The current trading environment offers many businesses an opportunity to innovate. Customers have changed their buying habits, are more open to change and so now is a good time to rethink your sales process. If you don’t currently have an online product or service offering or a way of interacting with customers remotely, then now is the time to rethink how you engage with your target market.

A motivated start to the year

It can be challenging to get yourself motivated in the first couple of months of the year.

Here are some practical ideas which may help.

Give yourself time

It may sound counter-intuitive but waking up earlier can set you up for a more productive day.

Waking earlier and giving yourself time to have breakfast and to focus on the day ahead can allow you to prioritise key tasks.

Celebrate wins

Every day is a fresh start. Celebrate the little victories in your day. It could be as simple as sending an email today rather than delaying until tomorrow or making some progress on a project. If you make time to celebrate each little victory, you will feel more rewarded and happier with yourself, increasing your work mentality and boosting your motivation.

Set new goals for the year ahead

The start of a new year is an opportunity to take on challenges. Maybe this will be the year that you win your biggest client or launch a new product or service. Once you set your goals, review them regularly and try to focus on progressing at least one of them each day.

Prioritise

Always start with what is most important to you. Make time for your family – even if it’s just sitting down and having a meal together each day. When it comes to work, focus on progressing your key objectives rather than allowing your inbox to dictate your day. Multi-tasking is not an effective approach. Focus on doing one thing at a time and doing it properly.

Take control of your wellbeing

One hour of exercise is only 4% of your day. View it as an investment in your wellbeing. The return on that investment is more energy, less stress, better sleep and more productive and focused work. As investments go, it’s worth committing 4% of your time to your wellbeing.

On 10 September 2020 we explained HMRC’s revised view on fees paid on contract cancellation and terminations, as set out in Revenue and Customs Brief 12/2020. The shocking point was that the change in VAT treatment was to be retrospective to cover payments made in the last four years.

There was a lot of push-back from businesses and VAT specialists about this change in practice, and now HMRC has reversed its position. It has reissued Revenue and Customs Brief 12/2020 that now says the change in VAT treatment will apply from a date in the future, which has yet to be defined.

This leaves businesses with no clear guidance at all.

HMRC now say that if the previous policy (of the business) was to treat the payment to end the contract as outside the scope of VAT, then that treatment can be followed. Alternatively, if the business wants to treat the contract cancellation payment as further consideration under the contract, that’s fine too.

It’s a mess, and there is no HMRC ruling to say a particular payment should be treated in the same way by the customer and the supplier. We expect there to be further HMRC guidance issued very soon on the VAT treatment of payments for dilapidations, which are often made when a property lease comes to an end. Watch this space.

Written by the Tax Advice Network

On Monday 25 January HMRC finally bowed to pressure from the professional bodies and agreed to relax the penalty regime for individuals who found it impossible to submit their 2019/20 SA tax return on time. If that return is submitted by 28 February no penalty notice will be raised.

This is an improvement on the previous HMRC concession which was to allow 90 days in which to appeal against late filing penalties instead of 30 days.

However, the tax payment deadline has not changed. Interest will accrue at 2.6% from 1 February 2021 on any part of the tax bill paid after 31 January, even if it is paid under an agreed payment plan (time to pay arrangement).

If you will find it difficult to pay all your tax by 31 January, you should apply to HMRC for payment plan as we explained on 14 January 2021. But HMRC will not consider the taxpayer’s application for time to pay until your 2019/20 return has been received and processed.

Working out a payment schedule for a self-employed taxpayer over 2021 is particularly difficult, as we still have no idea of how much the fourth SEISS grant will be, or when it will be paid. It appears that the Chancellor wants to reveal this information as part of his Budget statement on 3 March, which will be a month too late for most self-employed traders.

The tax return completion process also involves reviewing the tax return for the prior year: 2018/19, to check that all elections and claims relating to that year have been submitted. Most of those elections for 2018/19 will have a filing deadline of 31 January 2021, and that hasn’t changed.

Taxpayers who are claiming working or child tax credits had to renew their tax credits claim for 2020/21 by 31 July 2020, and finalise the 2019/20 claim by the same date. If estimated figures were provided in July 2020 the final income figures need to be provided to HMRC by 31 January 2021.

Written by the Tax Advice Network

The next deadline for submitting CJRS claims for pay periods in January is Sunday 14 February, but before you launch into those calculations you should read the revised HMRC guidance and the new CJRS Direction.

The changes mainly affect claims for employees who don’t receive a fixed rate of pay each month, so are defined as variable pay employees. In order to calculate the reference figure for these employees, on which to base 80% for the CJRS claim, the employer can use either:

• the calendar lookback method (look at an equivalent earlier month), or
• the averaging method (look at the average pay in a defined period).

Lookback method

For pay periods in January and February 2021 the employer should lookback to those months in 2020, but for March and April 2021 they should look back to March and April 2019.

If the employee was not employed by that employer in the earlier period, the employer can only use the averaging method to calculate the base wages for the 80% CJRS claim.

Averaging method

Where the employee was included in a CJRS-1 or CJRS-2 claim as they were employed before 19 March 2020, the averaging method uses the pay reported under RTI for 2019/20.

If the individual joined the payroll later the averaging method should look at the average pay payable between 6 April 2020 (or when the employment started if later) and the date they were first furloughed on or after 1 November 2020.

You should also know that HMRC now publishes the name of every business which submits a claim under CJRS. The list of those who made claims for pay periods in December 2020 is now out.

The list for CJRS claims made relating to January 2021 pay periods will include an indication of the value of claim within a banded range, and the company reference number. These details of CJRS claims will also be published every month until the scheme ends.

From February 2021 employees will also be able access their online personal tax account and see whether their employer has made a CJRS claim including wages they should have received.

Written by the Tax Advice Network

UK businesses who sell digital or broadcasting services to non-business customers in the EU will be used to completing an EU VAT MOSS return by 20th of the month following the end of the calendar quarter. Those with small volumes of cross-border digital sales could avoid VAT MOSS returns altogether if their annual sales fell under the de-minimis threshold of £8,818.

Now that the UK is no longer treated as a member of the EU, as the Brexit transition period has ended, UK businesses are not eligible to use the EU VAT MOSS system. Those UK businesses who continue to sell digital services to non-businesses customers in the EU must use the non-EU VAT MOSS scheme, for which there is no de-minimis sales threshold.

To register for non-EU VAT MOSS the trader must first have an EU VAT number, and UK VAT numbers don’t qualify. The trader must register for VAT in an EU country, and this may require appointing a local tax agent.

The UK trader should register for non-EU VAT MOSS by 10th of the month following the month in which the first digital services sale is made to a non-business customer within the EU. If such a sale is made in January 2021 the UK trader needs to register for non-EU VAT MOSS by 10 February 2021.

The alternative to registering for non-EU VAT MOSS in one EU country, is to register for VAT in each EU country where the business supplies broadcasting or digital services.

Written by the Tax Advice Network