Staying safe from scams
It is vital that businesses and individuals are on guard against potential scams.
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Scammers and fraudsters thrive on confusion and instability, so the coronavirus (COVID-19) pandemic and ongoing economic repercussions of Brexit have created opportunities for them to attack businesses, taxpayers and savers. Online scams rose 15-fold last year as criminals exploited national events, according to the National Cyber Security Centre (NCSC).
It is vital that businesses and individuals are on guard against potential scams. Here, we take a look at some of the most common methods used by criminals and highlight the steps necessary to protect against them.
Impersonating the taxman
There has been a significant rise in scam texts, emails and phone calls claiming to be from HMRC. These messages are increasingly sophisticated so it can be difficult to tell the real from the fake.
Self assessment tax return season is always a time to be alert, and the pandemic has given scammers many inviting opportunities to prey on confusion.
Emails mimicking HMRC, with invitations to apply for the Self-employment Income Support Scheme (SEISS) grant, and texts offering refunds or funding because of lockdown are among those in circulation. In the case of the SEISS, it can be even more confusing as HMRC has been contacting some claimants to carry out pre-verification checks. However, if this is the case, HMRC should notify you by letter in advance.
HMRC warns that if a message is unexpected; offers a refund, tax rebate or grant; is threatening; asks for personal information; or tells you to transfer money, it could be a scam.
Sometimes there are tell-tale signs to watch out for, bad grammar and spelling mistakes being two of them. HMRC is not likely to start its emails with a 'hello' or end with a chatty 'thank you for your co-operation'. It will not use WhatsApp or emails to tell you about a tax refund.
Most scams invite you to open an attachment or click on a link. Don't. They are likely to take you to a misleading 'phishing' website in order to get you to enter personal details that can then be exploited, or expose you to malicious software.
Import/export red tape
According to the NCSC, Brexit-themed UK government phishing was low during 2020. However, attempts to clone part of the gov.uk website were identified in December. In addition, the increase in red tape being experienced by importers and exporters this year is expected to create opportunities for scammers.
Devastating pension savers
Pension savers have long been a target of scammers, and losses from pension fraud rose to £1.8 million in the first three months of this year, according to figures from Action Fraud.
Pension scams often include free pension reviews, 'too good to be true' investment opportunities and offers to help release money from your pension, even for under 55s, which is not permitted under the pension freedom rules.
Pension fraud can have a devastating impact, both financially and emotionally, but anyone can fall victim to fraud if they are not careful.
Protecting your pension
Although a ban on cold calling in the UK, including emails and texts, was introduced at the beginning of 2019, the problem continues. Cold calls are a major red flag for scams and unsolicited offers should be ignored or rejected. Cold callers will often offer a free pension review. Professional advice on pensions is not free – a free offer out of the blue is probably a scam.
It is crucial that pension savers know who they are dealing with, so checking the Financial Conduct Authority (FCA) FCA Register is imperative. Dealing with an authorised firm gives access to the Financial Ombudsman Service or the Financial Services Compensation Scheme (FSCS), which can hold firms to account and give financial protection.
A common scam is to pretend to be a genuine FCA-authorised firm (called a 'clone firm'). The contact details on the FCA Register should always be used, not the details the firm gives out.
Pension savers should never allow themselves to be rushed or pressured into making a decision. They should not be afraid to miss out on an 'amazing deal' because of artificial deadlines, and if promised returns sound too good to be true, they probably are. Impartial information, financial guidance and advice are all key to making a good decision before altering pension arrangements.
Individuals and businesses are potential targets for fraudsters and scammers, so always check before you respond to messages, even if they appear genuine at first sight. If in any doubt about suspicious communications, please do get in touch.
Upskilling to level up
We consider some of the solutions being proposed.
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The UK's longstanding skills gap has proved a headache for both the government and employers for a number of years now. Employers often struggle to find potential employees with the required skills for the roles they need to fill. Consequently, the skills shortage has accentuated the divide between London and the south east of England and the rest of the country.
The government recently announced its Lifetime Skills Guarantee, which will create a post-16 and adult education and training system. It is the latest of several schemes aimed at closing the skills gap and levelling up the UK's economy. Here, we consider some of the solutions being proposed.
Damaged labour market
The coronavirus (COVID-19) recession has caused significant damage to the UK labour market and has led to fears of a 'brittle' and 'rigid' UK workforce that lacks the vital skills the economy requires in order to forge a recovery.
This was highlighted recently by research carried out by manufacturers' organisation Make UK, which revealed that a record level of Apprenticeship Levy funds expired in 2020 without being spent by businesses.
The research revealed that £1,039 million in Levy funds expired in the nine months from May 2020 without being spent by firms. Expired funds cannot be used.
Make UK has urged the government to extend the lifetime of the funds from 24 to 36 months for a period of one year in order to help businesses recover from the coronavirus pandemic.
Business groups say that apprenticeships and training schemes are key to unlocking the recovery and building a strong industrial base in the UK.
The Lifetime Skills Guarantee
As part of efforts to upskill the UK's workforce and meet Prime Minister Boris Johnson's levelling up agenda the government is introducing the Lifetime Skills Guarantee. This will create a post-16 and adult education and training system that aims to provide opportunities to train throughout a lifetime.
- a new student finance system, which will give every adult access to a flexible loan for higher-level education and training at university or college, useable at any point in their lives
- employers will have a statutory role in planning publicly-funded training programmes with education providers, through a 'Skills Accelerator' programme
These build on schemes already underway to update the skills and training offer across the country, including the introduction of new T Level courses and access to free, job-relevant 'bootcamp' courses.
The government says the restructured skills system will put local employers at the centre of skills provision through the 'Skills Accelerator programme'.
The programme will build stronger partnerships between employers and their local Further Education colleges, or other local training providers, ensuring that provision meets local needs in sectors including construction, digital, clean energy and manufacturing.
The Kickstart Scheme
The government's £2 billion Kickstart Scheme opened last year for employer applications.
It aims to create work placements for young people who are at risk of becoming unemployed for the long-term. Businesses can join the scheme, with the government paying employers £1,500 to help set up support and training.
Selected out-of-work young people will be offered six-month work placements for at least 25 hours a week to help them gain experience, skills and confidence. The scheme is designed to be a steppingstone to further employment and runs until December 2021.
However, the Confederation of British Industry (CBI) has urged the government to extend the Kickstart Scheme to help young people who are bearing the brunt of the subdued job market.
The CBI says the extra lockdown at the beginning of the year means it needs to stay open for longer to allow businesses the time to deliver opportunities for young people.
In creating a skills system which is fit for the future, the government needs to ensure that the ambitions to drive up the quality of post-16 education and training to meet employer needs are made a reality.
International skills benchmarking shows the UK needs to catch up on other major global economies in valuing high-quality skills to help drive economic competitiveness and productivity.
By raising standards for young people and employers to not only help attract more inward investment to boost job creation and economic recovery but also support the government's levelling up agenda.
As we continue down the roadmap out of lockdown businesses are looking to the future. It is vital they invest wisely, using the available government support, to develop a skilled and motivated workforce.
We are happy to advise on the best approach to suit your circumstances. Please contact us for more information.
Making use of the super-deduction
Reviewing the new tax break for companies.
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The super-deduction is a £25 billion tax break that is intended to spur business investment, aid post-pandemic economic recovery and give a boost to the UK's productivity levels. It was announced by Chancellor Rishi Sunak in this year's Budget as 130% first-year relief on assets. The super-deduction is described by some as the largest tax cut in UK history and by the Chancellor himself as 'bold and unprecedented'.
For two years from April 2021, companies' investments in plant and machinery will qualify for a 130% capital allowance deduction, providing 25p off company tax bills for every £1 of qualifying spending on plant and machinery.
Here we take a look at the super-deduction: what are the terms and conditions? How does it sit alongside the usual rules on capital allowances, and are there any pitfalls?
Who is eligible for the super-deduction?
It is important to note that the super-deduction is not available to every business. It is targeted at companies, not unincorporated businesses. These will have to continue to look to the Annual Investment Allowance (AIA), with its temporarily extended higher £1 million limit, for major capital spending up to 31 December 2021.
How does it work?
It works by giving first-year tax relief in the form of capital allowances for expenditure incurred between 1 April 2021 and 31 March 2023. For assets that would normally qualify for 18% main rate writing down allowances, the super-deduction gives first-year relief of 130%. Assets normally qualifying for 6% special rate writing down allowances (such as integral features in buildings, like lifts and long-life assets) can qualify for a first-year allowance of 50%. But this 50% allowance is likely to be relevant only to companies that have used their AIA. Unlike the AIA, there is no cap on eligible expenditure. The rate of the deduction will be apportioned for a business making eligible expenditure in an accounting period straddling 1 April 2023.
What are the exclusions?
Plant or machinery must be new, not used or second hand. Expenditure incurred on contracts entered into before the Budget on 3 March 2021 does not qualify. The general exclusions that are in existing legislation relating to first-year allowances apply. For example, expenditure on cars and assets for leasing are excluded – the latter point meaning that commercial landlords may benefit less than the initial publicity of the proposals might have led them to expect.
Assets purchased with a view to leasing to third parties do not qualify for the new super-deduction or special rate first-year allowance for capital allowances purposes.
Leased assets make up a significant proportion of plant and machinery used in trading activities and their exclusion would reduce the impact that these temporary allowances have on incentivising commercial investment and growth.
The Construction Plant Hire Association estimates that the UK's plant hire industry is worth £4 billion per annum. Meanwhile, the Construction Equipment Association estimates that between 60% and 65% of all construction equipment sold in the UK goes into plant hire.
However, at a time when some businesses can ill-afford to make large capital expenditures, leasing or short-term hire are particularly attractive routes to acquiring newer and more productive plant and machinery. For others, these options make good business sense because the assets will only be used for limited periods or need to be updated regularly.
Good record-keeping is essential
Rules on what happens when the assets are disposed of make the picture more complex. Disposal proceeds will be treated as a taxable balancing charge. So, companies that dispose of the assets before the end of the regime could find that it ends up costing more in tax than the super-deduction originally saved them. It will be important to keep records of assets on which the super-deduction is claimed so they can be correctly treated on sale.
Whether the super-deduction significantly benefits your company will depend on the forecast level of capital expenditure, the type of asset, financing method and your expected corporation tax rate.
This is complex area, and the right decision for your business will be unique to your firm. Please contact us for further advice.
Creating green growth
Reviewing the push towards a greener economy.
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This year will see the UK host COP26, where parties from around the world will gather together to find ways to work towards the goal of a low-carbon future. The UK government itself must accelerate the reduction of carbon emissions in order to hit the country's climate target by 2050. The desire to reach these goals has been further fuelled by the coronavirus (COVID-19) pandemic, with many people urging governments to 'build back better' and businesses assessing their own roles in the 'Green Industrial Revolution'. For this to happen, the government will need to deliver fundamental change to help the UK meet its net-zero target while aiding an economic recovery. Chancellor Rishi Sunak has already laid out some steps towards creating a greener economy. Here, we take a look at what could be done to drive these ambitions further.
Committing to green growth
In the 2021 Budget the Chancellor made a number of commitments to green growth. This included the first ever UK Infrastructure Bank, which will have an initial capitalisation of £12 billion and will invest in green public and private projects.
The Chancellor also unveiled a retail savings product to give UK savers the chance to support green projects to sit alongside a Sovereign Green Bond that was announced last year. Mr Sunak also committed investment to offshore wind, with funding for new port infrastructure to build the next generation of projects in Teesside and Humberside.
The Confederation of British Industry (CBI) has urged the government to go further in order to encourage the green industrial revolution.
It says that greening the tax system must go beyond simply looking at different environmental taxes – transport, pollution and energy taxes – as one-offs. Instead it should deliver fundamental change with a holistic, coherent tax plan to help the UK meet its net-zero target.
The CBI has put forward guiding tax principles to work towards this, including:
Polluter pays – in simple terms, green taxes should be targeted to a pollutant or a polluting behaviour, especially when there are viable low-carbon alternatives. Taxes should be designed to introduce a price signal into the supply chain to promote alternative, less environmentally damaging behaviour by making alternative options more economically viable.
'Carrot and stick' – in line with the 'polluter pays' principle, the government should tax a 'bad', such as generating pollution, but also reward a 'good', such as actions that will reduce pollution. Incentives should continue to be offered, particularly when we are seeking to grow the demand that can help fuel a green recovery from the pandemic.
Greenhouse gas hierarchy – taxation must focus on incentivising carbon reduction ahead of carbon offsetting. Offsetting allows businesses and consumers to continue with a carbon producing behaviour in a way that will potentially slow a step change in a sustainable reduction of the carbon emissions.
A Just Transition – it is important that tax policies are designed in a way that the costs of the net-zero transition do not fall unfairly on those least able to pay for them. This is vital not only for fairness but also to maintain public acceptance of the actions needed to achieve net-zero.
International co-operation – the UK must fully utilise its leadership role at COP26 and the G7 in imploring other countries to bring forward their plans to cut emissions and set net-zero targets. For example, collaborating on carbon pricing by linking the UK and EU Emissions Trading Systems.
Bumps in the road
However, the UK government has also come in for criticism for cutting electric vehicle grants by £500 while continuing to freeze fuel duties of petrol and diesel vehicles. The Department for Transport will now provide grants of up to £2,500 for electric vehicles on cars priced under £35,000. This is a reduction from the previous £3,000 available for vehicles costing up to £50,000.
The government says this means the funding will last longer and be available to more drivers. However, critics say the cut in grants sends the wrong message, while the fuel duty freeze highlights the challenge facing the government as it seeks to assist the post-COVID recovery whilst also building back better.
How we can help
As the push towards a greener economy takes shape, tax laws may change while new funding streams become available for eligible businesses and projects. As your accountants we can help with both your tax and finance requirements: please contact us.
How does the 2021 Budget benefit you?
A review of measures announced.
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On Wednesday 3 March, Chancellor Rishi Sunak presented the 2021 Budget, pledging to 'do whatever it takes' to support UK jobs and workers in the wake of the coronavirus (COVID-19) pandemic and promising to fix UK public finances and begin building the future economy.
Amongst the announcements was an extension to the Coronavirus Job Retention Scheme (CJRS) until 30 September; confirmation of fourth and fifth grants for the self-employed under the Self-employment Income Support Scheme (SEISS); an extension of the stamp duty holiday in England until 30 September; and £5 billion in 'restart' grants to boost businesses once the lockdown in England ends. Mr Sunak also announced an increase in the rate of corporation tax to 25%, effective in 2023, and a capital allowances super-deduction providing allowances of 130% on most new plant and machinery.
Here, we take a look at these measures in greater detail.
Rise in corporation tax rate
The main rate of corporation tax is currently 19% and it will remain at that rate until 1 April 2023, when the rate will increase to 25% for companies with profits over £250,000. The government stressed that this is still the lowest rate compared to other G7 countries. The 19% rate will become a small profits rate payable by companies with profits of £50,000 or less and companies with profits between £50,000 and £250,000 will pay tax at the main rate reduced by a marginal relief providing a gradual increase in the effective corporation tax rate.
Meanwhile, companies have been encouraged to invest in new plant and machinery in order to take advantage of the super-deduction, which provides allowances of 130%.
COVID-19 financial support schemes
From 6 April 2021 the Recovery Loan Scheme will provide lenders with a guarantee of 80% on eligible loans between £25,000 and £10 million to give them confidence in continuing to provide finance to UK businesses. The scheme will be open to all businesses, including those who have already received support under the existing COVID-19 guaranteed loan schemes. The Bounce Back loan scheme (BBLS), Coronavirus Business Interruption Loan Scheme (CBILS) and the Coronavirus Large Business Interruption Loan Scheme (CLBILS) will be accessible until the end of March 2021.
Additionally, to support businesses in re-opening following the current lockdown in England £5 billion in 'restart' grants will be made available. Non-essential retail businesses re-opening first will be eligible for up to £6,000 and the leisure and hospitality sectors, which have been worse affected and will re-open later, will be eligible for up to £18,000.
Extension of the CJRS
The Chancellor confirmed the extension of the CJRS until 30 September 2021. The level of grant available to employers under the scheme will stay the same until 30 June 2021.
From 1 July 2021, the level of grant will be reduced and employers will be asked to contribute towards the cost of furloughed employees' wages. To be eligible for the grant an employer must continue to pay furloughed employees 80% of their wages, up to a cap of £2,500 per month for the time they spend on furlough.
The reduction in the level of the grant means that the percentage recovery of furloughed wages will be as follows:
- for July 2021, 70% of furloughed wages, up to a maximum of £2187.50; and
- for August and September 2021, 60% of furloughed wages, up to a maximum of £1,875.00.
Employers will need to continue to fund employer national insurance contributions (NICs) and mandatory minimum automatic enrolment pension contributions.
Confirmation of fourth and fifth grants under the SEISS
Budget 2021 confirmed details of a fourth SEISS grant. This will be 80% of three months' average trading profits to be claimed from late April 2021. Payment will be in a single instalment and capped at £7,500 in total and will cover the period February to April 2021. The scheme has been extended to those who have filed a 2019/20 self assessment tax return prior to 3 March 2021, meaning that newly self-employed from April 2019 now qualify subject to satisfying the other conditions.
A fifth and final grant was announced and can be claimed from late July 2021 to cover the period May to September 2021. This grant will be determined by a turnover test.
The Chancellor announced an extension of 100% business rates relief for eligible retail, hospitality and leisure properties in England. The extension is valid until 30 June 2021. Following this, business rates relief of 66% will apply for the period spanning 1 July 2021 to 31 March 2022. This will be capped at £2 million per business for properties that closed on 5 January 2021 and £105,000 per business for other eligible properties.
Reduced VAT rate for hospitality sector
In July 2020, the government introduced a temporary 5% reduced rate of VAT for certain supplies of hospitality, hotel and holiday accommodation and admissions to certain attractions. In September 2020 the Chancellor extended the reduced rate to 31 March 2021.
The government announced an extension of the reduced rate until 30 September 2021. To help businesses manage the transition back to the standard 20% rate, a 12.5% rate will apply for the subsequent six months until 31 March 2022.
In 2020 the government consulted on proposals to create up to ten Freeports across the UK. A UK Freeport will be a geographical area with a diameter up to 45km which is closely linked to a sea port, airport or rail port. East Midlands Airport, Felixstowe and Harwich, Humber, Liverpool City Region, Plymouth and South Devon, Solent, Teesside and Thames have been successful in the Freeports bidding process for England.
The government is now proposing a range of measures covering customs, tax reliefs, planning, regeneration funding and innovation to create Freeports as national hubs for global trade and investment across the UK.
Stamp duty land tax
The stamp duty nil rate band on residential properties in England up to £500,000 will continue until the end of June. It will taper to £250,000 until the end of September, and then return to the usual level of £125,000 from 1 October.
Land and buildings transaction taxes are devolved to Scotland (Land and Buildings Transaction Tax (LBTT)) and Wales (Land Transaction Tax (LTT)). Stamp Duty Land Tax (SDLT) applies to transactions in England and Northern Ireland. All these taxes have had a temporary increase in the nil rate threshold for residential properties. The thresholds were set to return to the previous thresholds from 1 April 2021. Following the Budget, the Welsh Finance Minister confirmed that the LTT temporary reduction period will be extended by a further three months so that it will end on 30 June 2021.
Mortgage guarantee scheme
The government will introduce a new mortgage guarantee scheme in April 2021. This scheme will provide a guarantee to lenders across the UK who offer mortgages to people with a deposit of 5% on homes with a value of up to £600,000.
Under the scheme, all buyers will have the opportunity to fix their initial mortgage interest rate for at least five years should they wish to. The scheme, which will be available for new mortgages up to 31 December 2022, is designed to increase the availability of mortgages on new or existing properties for those with small deposits.
To discuss how these Budget measures may affect you, please get in touch. We would be delighted to speak with you.
What will the Budget bring?
Considering the issues that may be covered in the upcoming 2021 Budget.
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When Chancellor Rishi Sunak gives his second Budget statement on 3 March, he will have to perform a delicate balancing act. The Chancellor will be caught between supporting the businesses and individuals still affected by the coronavirus (COVID-19) pandemic, recouping the billions spent on support schemes over the past 11 months and stimulating an economic recovery. The nature of the tricky task facing the Chancellor has become clear recently as various groups have lobbied for extensions to support or against mooted changes to the fiscal system. Here, we take a look at what the Budget might have in store for businesses and individuals.
The Institute for Fiscal Studies (IFS) has urged Mr Sunak to announce 'well-targeted extensions in emergency support to households and employers' over the coming months. A fourth round of the Self-employment Income Support Scheme (SEISS) grant has already been confirmed. However, no information has been announced on the amount of the grant, or who will qualify, and further details are expected in the Budget.
Similarly, the Coronavirus Job Retention Scheme (CJRS) is due to close at the end of March. The government has repeatedly said that details on any extension or successor scheme will be revealed in the Budget.
However, after running up a record deficit during the pandemic, the Chancellor will be keen to begin the long process of rebalancing the books. This would mean tax reform or increases to taxes, so which areas could Mr Sunak target?
The future of national insurance
When the Chancellor unveiled the SEISS last March, he warned that it would be harder to justify inconsistent contributions from people of different employment statuses.
This has been interpreted to mean that he will increase national insurance contributions (NICs) for the self-employed. However, a simple increase in the rate for the self-employed (or increasing NICs for high earners, which has also been mooted) does not level the playing field unless the issue of directors avoiding NICs is also addressed.
Any quick fix is likely to be controversial, so the question is whether the Chancellor will start the ball rolling on significant reforms to the NICs system on 3 March.
Tax relief and pension contributions
The issue of whether higher and additional tax relief will be cut on pension contributions is often debated in the lead up to a Budget. There is a significant cost to the Exchequer from tax relief on pension contributions and the tax-free growth of pension funds. A reduction in income tax relief or a reduction in the Annual Allowance could reduce these costs.
Speculation of a hike in capital gains tax (CGT) rates has been rife following the publication of the first report in November 2020 by the Office of Tax Simplification (OTS) into its review of CGT. Currently, CGT raises just £8.3 billion a year in the UK from around 265,000 taxpayers. The Chancellor asked the OTS to undertake this review in July 2020, leading to speculation that CGT is one of his target areas for change.
Similar reviews have been undertaken by the OTS on inheritance tax (IHT). Although there is a strong case for reforming these capital taxes there are also genuine concerns about the future of valuable IHT reliefs like Business Property Relief (BPR). Any such reform will require significant consultation so now may not be deemed the right time.
The UK has seen a downwards trend on corporation tax rates for nearly 50 years but rumours in the national press suggest that the Chancellor may be considering reversing this trend. This appears to be at odds with keeping the UK competitive, particularly post-Brexit. However, in a post-COVID world, the need to recoup the enormous cost of the myriad support schemes whilst at the same time supporting the economic recovery for affected businesses and consumers will mean performing a precarious balancing act.
The Institute of Directors (IoD) has urged the Chancellor to put entrepreneurs 'at the heart' of the economic recovery from the pandemic. The IoD called for the creation of a stimulus package to 'unleash investment in start-ups and scale-ups through targeted reliefs', and for the government to provide a grant package to owner-directors who have been without significant financial support for almost a year.
The business group also called for the government to avoid tax hikes and an extension of the COVID-19 business support measures.
We will be analysing the Chancellor's Budget and our 2021 Budget Summary will be available on our website. Please contact us if you require further guidance.
Making the most of R&D
Considering how SMEs can maximise any R&D tax relief available to them.
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UK companies spent over £25 billion on Research and Development (R&D) during 2018, and HMRC's statistics show that the volume of R&D relief claimed by small and medium sized companies (SMEs) is increasing. However, many eligible SMEs are still not claiming the relief. This is often due to a lack of awareness, or a misunderstanding of the requirements for relief. There have also been warnings that that genuine R&D businesses could be impacted by government proposals to combat tax relief abuse. Here, we explore how you can make the most of any R&D tax reliefs available to you.
There are some common misunderstandings around R&D relief for SMEs. The definition of R&D for tax purposes is quite wide – not everything has to be created in a laboratory. This means that some activities may be classed as R&D that might not qualify at first glance.
R&D tax reliefs: the benefits
The government actively encourages companies to carry out R&D in order to promote growth and increase profitability. A wide range of tax incentives exist, which are designed to encourage investment in R&D. Different types of incentives are available, depending on the size of the company. These include an increased deduction for R&D spending, alongside a payable R&D tax credit for those companies not yet in profit.
The government has stated that it is 'committed to improving access to R&D' for SMEs.
Claiming R&D tax reliefs
SMEs are permitted to claim R&D tax relief if they have fewer than 500 members of staff and a turnover of under €100 million, or a balance sheet total of less than €86 million. The relief permits SMEs to deduct an additional 130% of qualifying costs from their yearly profit. This is in addition to the normal 100% deduction, giving a total deduction of 230%.
A company may be able to surrender losses for cash repayments in instances where the R&D tax claim creates a tax loss. Currently, this is calculated at 14.5%.
In order to make the most of R&D tax relief, a company must have incurred expenditure on qualifying R&D projects that are related to its trade. Projects must be innovative and should assess and attempt to resolve scientific or technological issues.
Qualifying expenditure falls into different categories. These include staffing costs; software costs; expenditure on consumables or transformable materials; costs of work done by subcontractors; and costs of clinical trial volunteers.
Using the Research and Development Expenditure Credit (RDEC) scheme
The RDEC scheme is a replacement for the large company scheme but can also be used by SMEs that have received a grant or a subsidy for their R&D project or are subcontracted to carry out R&D work by a large company. The credit is taxable and is calculated at 12% of a company's qualifying R&D expenditure incurred. This credit may be used to discharge the corporation tax liability, depending on whether the company makes a profit or a loss. It could also result in a cash payment. Where no corporation tax is due, the amount can be repaid net of tax or used to settle other debts.
R&D tax credit cap
Government concern about abuse of SME R&D tax relief means that with effect from 1 April 2021, there is a cap on the amount of payable SME tax credit which can be claimed in any period.
If the proposals go through as anticipated, this will be £20,000 plus three times the total PAYE and national insurance contribution (NIC) liability for the period. The PAYE/NICs bill to look at is not just the bill for those involved in the R&D work: it applies to the company's entire PAYE and NICs spend, as well as the PAYE and NICs of connected persons carrying out subcontract R&D for the company or supplying workers to the company.
There have been warnings that genuine businesses will be impacted, but the measure is not intended to penalise bona fide claimants.
Companies claiming a payable credit less than £20,000 will not be affected. If the company meets two tests, a claim of any size will not be capped. The conditions are that its employees are creating, preparing to create, or managing intellectual property; and that less than 15% of its R&D qualifying expenditure is spent with connected persons.
How we can help
R&D tax relief is sometimes said to be a missed opportunity for SMEs, who often undertake an innovative scientific or technological project advancing their business, without realising the activity could qualify for relief.
If you want to know more about R&D tax relief, please don't hesitate to contact us for an in-depth discussion.
Preparing for the end of the Brexit transition period
Considering the changes set to take effect from 1 January 2021.
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It is now less than a month until the Brexit transitional period comes to an end. Although the UK officially left the European Union (EU) on 31 January 2020, it has since been in the 11-month transition period, during which time it has remained part of the Single Market, the EU Customs Union and the VAT Territory. The UK will leave the EU VAT Territory on 31 December 2020. After this date, Great Britain (England, Wales and Scotland) will not be subject to EU VAT legislation. Northern Ireland will remain subject to EU VAT legislation in respect of transactions involving goods, but not for services. Here we take a look at what will change and how businesses can prepare.
Acquisitions (purchases of goods from EU member states) will be treated as imports. A new system, Postponed Accounting, will be introduced and will apply to imports received from all over the world, with some exceptions such as low-value consignments. The system is intended to mitigate the cashflow disadvantage posed by paying import VAT upfront and waiting to reclaim it in a later VAT return. Under the new system, import VAT can be deferred and declared to HMRC in the VAT return for the period of importation. The VAT can be reclaimed in the same return subject to the normal rules for reclaiming input tax.
Dispatches (zero-rated sales of goods to business customers in EU member states) will be treated as exports. Exports are zero-rated, provided certain conditions are met. Distance sales (sales of goods to non-business persons in the EU) will also be treated as exports. The EU distance-selling regime and thresholds will no longer apply to UK suppliers.
When the UK leaves the EU Customs Union on 1 January 2021 the UK will operate a full, external border with the EU. New border controls on imports from the EU to Great Britain will be introduced in stages, with customs declarations for goods which are not controlled being delayed until 30 June 2021.
From 1 January 2021, there will be new rates of Customs Duty for imports – called the UK Global Tariff. To check the tariffs that will apply to different categories of imported goods, please see https://www.gov.uk/guidance/uk-tariffs-from-1-january-2021.
It is important to be ready for these changes. Some practical actions to take now include:
Obtaining an Economic Operator Registration and Identification (EORI) number, which will be required when trading with the EU post Brexit. It is free to obtain an EORI number and you can do so by visiting https://www.gov.uk/eori.
Deciding whether to use an agent freight forwarder to help with making customs declarations. The following guidance outlines the services they can provide: https://www.gov.uk/guidance/appoint-someone-to-deal-with-customs-on-your-behalf
If you buy goods from the EU, checking whether those goods are 'controlled'. Ascertaining which declarations are required and when they will need to be made. For more information please see https://www.gov.uk/guidance/list-of-goods-imported-into-great-britain-from-the-eu-that-are-controlled.
Checking the UK Global tariff to see the rate of Customs Duty that is likely to apply to the goods you import.
Deciding whether to use the Postponed Accounting system (https://www.gov.uk/guidance/check-when-you-can-account-for-import-vat-on-your-vat-return) to defer import VAT and familiarising yourself with the procedure for declaring the deferred import VAT on the VAT return.
The end of the Brexit transition period will affect many businesses across the UK. We can help you plan for tax and administrative changes. Please contact us for further advice.
Is it time to re-evaluate business rates?
Looking at how business rates can be reformed and re-evaluated.
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A number of voices in the business community have been calling for an overhaul of business rates for some time due to the perceived unfairness of the system. The need for reform has now been magnified by the economic disruption caused by the coronavirus (COVID-19) pandemic. In response, the clamour for the government to act from business groups, including the Institute of Chartered Accountants in England and Wales (ICAEW) and the Confederation of British Industry (CBI), has become louder. Here, we take a look at business rates and consider some of the options for fairer, better solutions to support businesses.
Critics acknowledge that business rates are and should remain an important source of revenue across the UK, for both central and local authorities. However, the government has recognised the need for reform by launching a fundamental review and a subsequent call for evidence.
Unfairness and uncertainty
Many of the problems businesses face with rates are caused by a lack of information about the calculation of rateable values, which only serves to highlight the perceived unfairness of the system. This in turn is exacerbated by the lack of certainty around how much businesses need to pay.
In addition, although the government is committed to completing revaluations every three years, more timely data would maintain a more accurate valuation. These problems mean that a fundamental rethink of property and business tax is needed in order to find a long-term solution.
According to the ICAEW, better use of technology and more transparency could help to address some of the unfairness within the business rates system.
The cost to business
Business rates aim to provide revenue for local government and are a combination of business tax and property tax. According to data published by the ICAEW, business rates generated £30 billion in tax revenue across the UK during the 2018/19 financial year. However, the business rates holiday introduced to support organisations through the COVID-19 pandemic is estimated to result in foregone revenues of £10 billion.
In addition, a report issued by the CBI showed that the burden of business rates in England – at nearly 50p in the pound – will continue to climb without reform. The analysis revealed that this could cost businesses at least an extra £6 billion over the next five years.
Critics of business rates say the current system means they fail to reflect either property values or business activity accurately.
The call for change
The growing consensus that the current business rates system is out-of-date and unsustainable has only been magnified by the strain businesses have been under during the COVID-19 pandemic, further fuelling the calls for change.
The ICAEW says there must be a clearer link with current market values. It says better use of technology could provide a better link between market rents and business rates. It also says that the roll-out of digital tax systems should make it possible to enable more timely maintenance of valuations.
Furthermore, the ICAEW suggests that the government investigates whether the Valuation Office Agency could share more details about assessments, including how a valuation was calculated.
In addition, the CBI has set out a package of measures for England, which it says would save business £21.8 billion over the next five years.
It says the government should delay the next valuation date until 1st October 2021, shortening the valuation period to 18 months. This would ensure bills reflect the current economic situation and the property market in a post COVID-19 world. Also, the CBI says subsequent revaluations should consider reducing this period to 12 months.
The CBI proposes that the government should also remove transitional arrangements for properties whose rateable value decreases following a revaluation. The business rates bill of those properties reflects the true rateable value, while upwards transitional relief should be maintained to allow a smooth transition to a new higher business rates bill for those properties.
Supporters of these changes say that without them business rates will continue to rise, sinking many investment plans, hitting bottom lines and inadvertently growing inequality between England's richest and poorest areas.
To prevent this the current government review must be the catalyst for a system that is fairer, encourages investment and supports the levelling up agenda.
Although the CBI has focussed on England in its measures the case for reform to business rates applies across the UK.
How we can help
Business rates affect businesses of all sizes. As your accountants, we can help you plan tax your tax payments as efficiently as possible. Please contact us for further advice.
Outlining the extension of the Job Retention Scheme
Considering the changes to the Coronavirus Job Retention Scheme.
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On 5 November, Chancellor Rishi Sunak extended the Coronavirus Job Retention Scheme (CJRS) until the end of March 2021. The CJRS was supposed to have ended after being scaled back to cover 60% of salaries during October. However, on 31 October Prime Minister Boris Johnson announced a new national lockdown for England that runs from 5 November until 1 December. Here, we consider the changes.
Extension of the CJRS
The extended CJRS applies to all of the UK. The scheme follows the flexibility of the CJRS and so can be used for employees for any work pattern, including full-time furlough. Employees will receive 80% of their usual salary for hours not worked, up to a maximum of £2,500 per month. Employees will be paid for worked hours by their employer on the terms in their employment contract.
Under the scheme, employers can claim for the salary received by the employee for hours not worked. Employers will need to cover the employer Class 1 national insurance contributions (NICs) and employer pension contributions. There is no gap in support between the previously announced end date of the CJRS and the extended CJRS.
The government will review the amount of support given in January 2021 to decide whether economic circumstances are improving enough so that employers will need to make more contributions for hours not worked.
All employers with a UK bank account and a UK Pay as You Earn (PAYE) scheme can make a claim. Neither the employer nor the employee needs to have previously claimed or have been claimed for under the CJRS to make a claim under the extended CJRS.
An employer can claim for employees who were employed and on their PAYE payroll on 30 October 2020. The employer must have made a PAYE Real Time Information (RTI) submission to HMRC between 20 March 2020 and 30 October 2020, notifying a payment of earnings for that employee.
In addition, employees who have recently been made redundant or stopped working for the employer can be re-employed. The employees must have been employed and on the payroll on 23 September. The employer must have made an RTI submission to HMRC from 20 March 2020 to 23 September 2020, notifying a payment of earnings for those employees.
Making a claim
The extended CJRS will operate as the previous scheme did, with businesses being able to claim either shortly before, during or after running payroll. Claims can be made from 8am on Wednesday 11 November.
Claims made for November must be submitted to HMRC by no later than 14 December 2020.
Claims relating to each subsequent month should be submitted by day 14 of the following month to ensure prompt claims following the end of the month which is the subject of the claim.
Job Support Scheme
As part of the Winter Economy Plan, Chancellor Rishi Sunak announced the introduction of the government's new Job Support Scheme (JSS). There have been two revisions to the plan since then. The JSS was due to be introduced from 1 November until 30 April 2021. The JSS may be introduced after March.
Please contact us if you have any queries on the extension of the CJRS.