News & Updates

We outlined the new Kickstart scheme on 3 September 2020. Under this scheme the Government will provide funding for employers to take on new employees who are aged 16 to 24, for a six-month work placement. The grant covers the employee’s wages at the NMW rate for 25 hours per week, plus employer’s NI and pension contributions. The employer will also receive up to £1500 to cover administration costs.

We were disappointed that the Kickstart scheme seemed to shut out smaller employers, because the minimum number of jobs that can be offered by each employer, or group of employers, under the scheme is 30. However, since the launch of the scheme a large number of organisations have come forward to help small businesses take on fewer than 30 new employees by acting as an intermediary.

You can search the list linked to below for local organisations acting as Kickstart intermediaries or “gateways” in your area and direct clients towards their local provider.

In addition, the Federation of Small Businesses (FBS) has partnered with Adecco Working Ventures to act as a Kickstart gateway for any small business. This service will provide all the administration for the scheme, including payroll, and there is a rather slick website to sign up for further information.

Research and development (R&D) projects have been paused during the covid-19 crisis alongside other business activities. However, the employer may still incur costs such as the top-up of wages for furloughed staff, and more recently employer’s NI and pension contributions for those employees.

HMRC has now clarified which costs relating to furloughed staff can be considered to be directly related to the R&D project, and thus can form part of an R&D tax relief claim.

The good news is that holiday pay and sick pay paid to employees who normally work on R&D projects may be counted as relevant costs, even if that holiday or sick leave is taken while the R&D project is paused. The bad news is that redundancy costs, and payments in lieu of notice (PILON) can never be treated as relevant R&D expenditure.

Where the employee has been fully furloughed, none of the employment costs can be allocated to the R&D project, as the employee won’t have worked during that period. Where employee has been flexi-furloughed from 1 July onwards the cost of their time spent working can be treated as qualifying R&D costs, but not the costs associated with furloughed hours.

For any part of the employment costs to be allocated to the R&D project, the particular employee has to be directly involved in the R&D activities. It is not permissible to include in the R&D claim a proportion of costs of a wider pool of employees who are not involved at all in the R&D project.

It is also essential to correctly identify the R&D project using the guidelines on the meaning of R&D, and to accurately record the costs that directly relate to the project.

A number of specialist firms will approach companies asserting that they can get a tax refund for the company on the basis that R&D is carried out. The specialist adviser will take a significant proportion of the tax saved as their fee, and in some cases continue to charge a fee for some years after the R&D project has finished.

If you are approached by such a specialist R&D adviser, tell them about the AHK Recruitment Ltd case. A claim was submitted on behalf of the company but when challenged by HMRC the company couldn’t produce any evidence to support that claim. The case report doesn’t mention penalties for an incorrect return, but they were certainly applied.

From 1 September employers must top-up the wages of their staff on furlough to at least 80% of their usual wages, as the CJRS pays only 70% of wages up to £2,187.50 per month.

Employers may choose to take staff off furlough, but possibly not the entire workforce at the same time. For example, it makes sense to continue to furlough employees who are long-term sick, as the employer can reclaim more of the cost under CJRS than they can if they paid statutory sick pay.

HMRC has changed its guidance for employees who move off furlough or flexi-furlough part way through a claim period (eg the month of September). Now the employee’s usual hours should only be calculated up to the last day of furlough instead of to the end of the claim period. This applies for claims submitted on and after 14 September 2020, earlier claims do not have to be amended.

Where the CJRS claim covers 100 or more employees the employees’ details can be submitted as a spreadsheet using one of the HMRC templates. The HMRC .xls template has now been fixed so it can be used again.

However, all fields on the template need to be completed in all cases, including those fields for usual hours and actual hours worked. That would seem unnecessary where the employee is full-furloughed (ie works no hours), but if all fields are not completed the spreadsheet may be rejected.

This instruction applies even if the overall claim period starts before their individual furlough start date and, or ends after their individual furlough end date.

Written by the Tax Advice Network

Charities are normally charged zero-rate VAT on advertising they take out in media directed at the general public: radio, TV, newspapers, but targeted mail shots by post or email are standard rated. The VAT treatment of online advertising has now been clarified in R&C Brief 13/2020.

Targeted advertising which is directed at specific individuals according to data the website has collected about them as a subscriber or member, is still standard rated. This would apply to Facebook advertising which is directed at individuals who have logged into the site and have given permission for targeted adverts.

Advertising which is more broadly based, but targeted according to what other websites a person has visited, demographics of the reader, time of day, or what content appears next to the advert, is zero-rated. A full list of the conditions is found in R&C brief 13/2020.

If you act for a charity which has been charged standard rate VAT on advertising that should have been zero-rated, the charity can ask for the VAT to be refunded by the supplier.

Where you act for the supplier of the advertising, such as an online publisher, that organisation should correct its VAT returns for the last four years and claim a refund from HMRC of the VAT overpaid (see VAT notice 700/45).

Where the advert is zero-rated, all of the services connected to that advert, such as design and production should also be zero-rated, so a correction will have to be made by those organisations as well.

Some of our clients may be restructuring their businesses in response to Covid-19 pressures. This may involve terminating supplier service contracts for power, telecoms, or security. Early termination of those contracts can trigger a cancellation fee.

In the past such cancellation fees were regarded as outside the scope of VAT as no goods or service were being provided for the consideration. However, two European Court of Justice cases involving telecoms companies have determined that cancellation fees are part of the agreement to supply the services, so they should be subject to VAT in the same manner as the service provided.

HMRC has set out its revised view on cancellation and termination fees in Revenue and Customs Brief 12/2020 published on 2 September. However, this doesn’t just affect cancellation fees paid from that day forward, the change in VAT treatment is retrospective.

Where our client has charged any cancellation fees in the last four years, they need to check whether they accounted for VAT on that fee, and what rate of VAT applied to underlying service. For example, venues frequently charge a cancellation fee if a booking is cancelled within a set period. There are special rules for tour operators who use TOMS, as explained in Revenue & Customs Brief 9/2019.

If VAT should have been charged the supplier needs to issue a corrected VAT invoice to the former customer. The supplier will also have to correct the error which has understated VAT due in earlier returns.

Where the understated VAT is no more than £10,000, or is less than £50,000 and doesn’t exceed more than 1% of net outputs (box 6), that error can be corrected on the current VAT return. Where the understated VAT is more than £50,000 the correction must be made using form VAT652.

Clients who have paid cancellation fees during the last four years, should contact the supplier for a corrected VAT invoice. The supplier should not charge additional VAT on top of what has been paid as the cancellation fee, the VAT should be treated as part of the fee already paid.

Once the corrected invoice has been received, the customer can reclaim the VAT, using the same error correction limits above.

HMRC is sending compliance letters to certain employers about the claims they have made under the CJRS. We should get a copy of this letter if our client is targeted.

A compliance letter will be triggered where employer has apparently made a claim for ineligible employees, or a claim has been miscalculated.

HMRC has said that it will focus on fraudulent claims and not on cases where the employer has made an innocent error. However, the difference between a genuine mistake and an apparent fraud may not be discernible to the HMRC computer without further investigation.

There are penalties for submitting an excessive CJRS claim, as set out in Notice CC/FS48. The penalty is not applied if the over-claim is corrected within the later of; 90 days from the receipt of the grant, and 20 October 2020. There are no penalties for submitting an inaccurate CJRS claim which resulted in a grant that was lower than the employer was entitled to.

Where employers are making CJRS claims for 100 or more employees at one time they can submit the data on a spreadsheet. HMRC provides a template for this purpose. The HMRC guidance says that files submitted as .xls .csv and .ods are all acceptable, but recently the .xls files have been rejected. If you get an error message submitting an .xls file, convert it to .cvs and resubmit it.

Written by the Tax Advice Network