News article

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.

Capital taxes

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.

Corporation tax

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.

News article

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.

News article

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.

VAT alterations

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.

Customs changes

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.

Customs Duty

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:

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.

News article

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.

News article

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.

News article

Analysing the Job Support Scheme

The JSS Open and JSS Closed are introduced from 1 November 2020.

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Chancellor Rishi Sunak presented his Winter Economy Plan on 24 September. A Job Support Scheme (JSS) was announced, which is designed to support viable UK employers who face lower demand due to the coronavirus (COVID-19), and to keep their employees attached to the workforce.

Following the initial announcement, the Chancellor announced an extension of the JSS. The Job Support Scheme Closed (JSS Closed) is designed to provide further support for businesses that have been legally required to close as a direct result of the COVID-19 restrictions set by one or more of the four governments of the UK. On 22 October the government revised the JSS to increase the scale of support available.

The JSS Open and JSS Closed are introduced from 1 November. The existing Job Retention Scheme, known as the furlough scheme, ends on 31 October.

Taking a look at the JSS

For employers to participate in the scheme:

  • employees will need to work a minimum of 20% of their usual hours
  • for every hour not worked, the employer will pay 5% of the employee's 'usual hourly wage' up to a cap of £125
  • for every hour not worked, the government will pay 61.67% of the employee's 'usual hourly wage'
  • the government contribution will be capped at £1,541.75 per month
  • Class 1 employer national insurance contributions (NICs) and pension contributions will be due on the employee's earnings and will be payable in full by the employer.

'Usual wages' calculations will follow a similar methodology as those for the furlough scheme. The scheme will run for six months from 1 November 2020.
Full details will be set out in guidance which is to follow.

Employees using the scheme will receive at least 77% of their pay, where the government contribution has not been capped. The government has issued some examples of how the JSS will work. Here we set out the details of one of these examples.


Dave normally works five days a week and earns £1,400 a month working in a restaurant. His employer is experiencing reduced sales due to COVID-19. Rather than making Dave redundant his employer puts Dave on the JSS, working 20% of his usual hours.

Under the JSS:

  • his employer pays Dave £280 for these hours
  • for the time he is not working (80%) he will get 66.67% of his pay for that time. His total wage package is 73%, being £1,027
  • the government will give a grant worth £691 (61.67% of hours not worked) to Dave's employer and his employer will pay a further £56 for hours not worked (5% of wages).


All small and medium-sized enterprises will be eligible and will not be subject to financial assessment. Large businesses will have to meet a financial assessment test, so the scheme is only available to those businesses whose turnover has stayed level is lower now than before experiencing difficulties from COVID-19. The government also expects that large employers will not be making distributions while using the scheme.

Job Support Scheme Closed

The JSS Closed provides temporary support to businesses whose premises have been legally required to close as a direct result of COVID-19 restrictions set by one or more of the four governments of the UK.

The scheme will be available from 1 November for six months and will be reviewed in January. Employers will be able to make a claim on a monthly basis online through gov.uk from December.

Claims must not overlap and must be made monthly in arrears. The payments will be taxable and employers will be required to cover employer NICs and automatic enrolment pension contributions in full, where applicable. HMRC will check claims and payments may be withheld or need to be paid back if a claim is found to be fraudulent or based on incorrect information.

The grant per eligible employee is two thirds of their 'normal pay', up to a limit of £2,083.33 per month. The government will provide further detail on how normal pay is calculated.

Employers will be able to use the JSS Closed whilst their premises are closed and move employees onto the JSS Open if they are eligible when they are able to re-open.

Further details on the JSS will be issued by the end of October. The government has produced a policy paper on the JSS and a factsheet on the JSS Open.

Please contact us for further information on the JSS.

News article

Who can claim the Job Retention Bonus?

Taking a look at the Job Retention Bonus.

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One of the most headline-grabbing announcements of Chancellor Rishi Sunak's Summer Economic Statement saw the promise of a Job Retention Bonus (JRB) aimed at encouraging employers to keep employees on the payroll until the end of January.

The JRB is designed to follow the end of the Coronavirus Job Retention Scheme (CJRS), which is being wound down and will finish at the end of October. The Chancellor said furloughing had been the right step to take to protect jobs during the first phase of the coronavirus (COVID-19) pandemic. Here, we look at the JRB and assess which employers and employees will be eligible.

What is the JRB?

The JRB is a one-off payment to employers of £1,000 for every employee who they previously claimed for under the CJRS and who remains continuously employed through to 31 January 2021.

Eligible employees must earn at least £520 a month on average between 1 November 2020 and 31 January 2021. Employers will be able to claim the JRB after they have filed PAYE for January and payments will be made to employers from February 2021.

Which employers can claim the JRB?

An employer will be able to claim the JRB for any employees that were eligible for the CJRS whom they have claimed a grant for. Where a claim for an employee was incorrectly made, a JRB will not be payable.

Employers must keep their payroll up to date and accurate and address all requests from HMRC to provide missing employee data in respect of historic CJRS claims. Failure to maintain accurate records may jeopardise an employer's claim. HMRC will withhold payment of the JRB where it believes there is a risk that CJRS claims may have been fraudulently requested or inflated until the enquiry is completed.

Which employees can an eligible employer claim the JRB for?

Claims will only be accepted for employees that were eligible for the CJRS. Employers will be able to claim for employees who meet the following criteria.

  1. Were furloughed and had a CJRS claim submitted for them that meets all relevant eligibility criteria for the scheme.
  2. Have been continuously employed by the relevant employer from the time of the employer's most recent claim for that employee until at least 31 January 2021.
  3. Have been paid an average of at least £520 a month between 1 November 2020 and 31 January 2021. The employee does not have to be paid £520 in each month but must have received some earnings in each of the three calendar months that have been paid and reported to HMRC via RTI.
  4. Have up-to-date RTI records for the period to the end of January.
  5. Are not serving a contractual or statutory notice period that started before 1 February 2021 for the employer making a claim.

How is the £520 a month average minimum earnings threshold calculated?

Only earnings recorded through RTI records can count towards the £520 a month average minimum earnings threshold.

Where employees are on fixed-term contracts or have been on statutory parental leave, the calculations become more complex. Please contact us for additional assistance.

How can employers claim the JRB?

From February 2021, employers will be able to claim the JRB through the GOV.UK website. The bonus will be taxable, so the business must include the whole amount as income when calculating their taxable profits for corporation tax or self assessment.

Employers should ensure that their employee records are up to date, including accurately reporting their employees' details and wages on the Full Payment Submission through RTI. Employers should also make sure all their CJRS claims have been accurately submitted and any necessary amendments have been notified to HMRC.

Further information on the JRB can be found here.

We are here to help and advise you in these difficult times. Please contact us for more information.

News article

Closing the UK's skills gap

Outlining ways in which the UK can boost employment.

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Employers and business groups have been issuing warnings about the UK's skills shortage for some time now, but the gap between the skills needed to fill vacancies and those possessed by applicants has widened still further during the coronavirus (COVID-19) lockdown. Despite the rise in unemployment and the flood of applications for each vacancy, many recruiters are unable to find the employees they need.

It is a problem that will require both government and employers to look beyond the short-term and focus on future investment in skills. Here, we look at the areas where the issue is most acute and consider some of the solutions being proposed.

Under-skilled workforce

Prior to the pandemic, a 2019 report by the Industrial Strategy Council estimated that 20% of the workforce will be significantly under-skilled for their jobs by 2030.

According to the Quarterly Recruitment Outlook for the second quarter of 2020 published by the British Chambers of Commerce (BCC), of the firms that have still been attempting to recruit during the pandemic, 65% faced recruitment difficulties, particularly for skilled manual/technical or managerial roles.

Brittle workforce

The COVID-19 recession is doing significant damage to the UK labour market and unemployment is rising. This is also being accompanied by a slump in the number of self-employed individuals as freelancers fall through the cracks of the government's support schemes. The situation 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.


The BCC urged the government to take further action to support, upskill and reskill employees as businesses adapt to change. The Chartered Institute of Management Accountants (CIMA) says that while the government must tackle immediate issues such as restoring jobs and increasing consumer spending, it must also put greater emphasis on creating long-term recovery, including boosting social mobility.

The CIMA believes investing in education and skills development in sectors such as digital technology, education technology, healthcare, financial services, engineering and construction will be critical.

Targeted support

Funding boosts are needed for vocational and technical education, for apprenticeships and for incentives to help more employers provide high-quality job-related training.

To address the ongoing challenges that the economy faces, the Chancellor of the Exchequer, Rishi Sunak, announced a large-scale plan to support people in finding jobs in his July Summer Economic Update. The Chancellor made funds available to enable jobseekers to gain the skills they need to get jobs and provide targeted help for young people to get into work.

The Kickstart Scheme

One of the main announcements in the Update was the introduction of a new Kickstart Scheme designed to 'fund the direct creation of high-quality jobs for young people at the highest risk of long-term unemployment'.

This is a £2 billion fund aimed at creating hundreds of thousands of high-quality, six-month work placements for those aged 16-24 who are on Universal Credit and are deemed to be at risk of long-term unemployment. Funding available for each job will cover 100% of the relevant National Minimum Wage (NMW) for 25 hours a week, plus the associated employer national insurance contributions (NICs) and employer minimum automatic enrolment contributions.

Training and apprenticeships

The government is also funding high-quality traineeships for young people by paying employers who provide trainees with work experience £1,000 per trainee. 

Additionally, there is now a payment of £2,000 to employers in England for each new apprentice they hire aged under 25, and a £1,500 payment for each new apprentice they hire aged 25 and over. This applies from 1 August 2020 to 31 January 2021.

Providing opportunities

Many businesses are still suffering from a cash crunch and reduced demand despite the welcome interventions made in the Summer Economic Update. Those looking to the future must invest wisely, using the available government support, to develop a skilled and motivated workforce.

We are happy to advise in detail on the best approach to suit your circumstances. Please contact us for more information.

News article

Extending Making Tax Digital

Taking a look at the extension of Making Tax Digital to other taxes.

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The government's landmark Making Tax Digital (MTD) initiative, which sees taxpayers move to a fully digital tax system, is to be gradually extended over the next three years.

The Treasury's roadmap for MTD is currently going through Parliament as part of this year's Finance Bill. New legislation will make MTD compulsory for all VAT registered businesses, including those with a turnover below the VAT threshold from April 2022. In April 2023 MTD will apply to taxpayers who file income tax self assessment tax returns for business or property income over £10,000 annually. Here, we look at MTD and what the extension means for small businesses and those filing self assessment returns.

What is MTD?

Making Tax Digital for Business was introduced in the 2015 Spring Budget. The government's 'Making Tax Easier' document was published shortly after, which outlined plans for the 'end of the tax return'. It also set out the government's vision to modernise the UK tax system, with digital tax accounts set to replace tax returns for ten million individuals and five million small businesses.

Under the rules, businesses with a turnover above the VAT threshold (currently £85,000) must keep digital records for VAT purposes and provide their VAT return information to HMRC using MTD functional compatible software. Since it was introduced in 2019, more than 1.4 million businesses have joined the programme, submitting over six million returns.

The advantages of MTD

According to the government, MTD only changes the way that taxes are reported, not the level of tax that is collected. It says MTD will help to minimise avoidable mistakes, saving the Treasury billions in lost taxes.

In addition, the government states that MTD makes it easier for businesses to keep on top of their tax affairs. It points to the 300,000 smaller VAT-registered businesses that are not yet required to use MTD, but have chosen to do so voluntarily because of the wider benefits the digital tools offer, including fewer errors and increased productivity.

Under MTD, self assessors will have to make quarterly submissions of income and expenses. HMRC says this will allow it to give taxpayers an estimated tax calculation based on the information provided to help them budget for their tax. At the end of the year, they will be able to add any non-business information and finalise their tax affairs using MTD-compatible software.

According to the government, the long lead-in time for the extension of MTD will allow businesses, landlords and agents time to plan. It will also give software providers enough notice to bring a range of new products to market, including free software for businesses with the simplest tax affairs.

Errors and costs

However, a survey of businesses and their advisers carried out by the Chartered Institute of Taxation (CIOT) and the Association of Taxation Technicians (ATT) revealed that nearly 90% of respondents said that Making Tax Digital for VAT (MTD for VAT) had not reduced errors and just 14% of respondents said there had been an increase in productivity in their organisation as a result of MTD for VAT.

The Low Incomes Tax Reform Group (LITRG) is urging HMRC to make effective use of the next three years, running full pilots and supporting taxpayers in making the transition to the new MTD system.

Using third party software and keeping digital records

Businesses must keep specified records in 'functional compatible software', which calculates the VAT return and submits it to HMRC via an Application Programming Interface (API).

HMRC acknowledges there are different ways to do this. However, the transfer of data to HMRC, from the mandatory digital records to the filing of the return, must be entirely digital.

Under MTD, the required digital records can be held within more than one piece of software, however there must be a digital link between them: the data cannot be transferred manually between software products. HMRC has confirmed that all businesses now have until their first VAT return period starting on or after 1 April 2021 to ensure digital links are in place.

A HMRC communications pack on Making Tax Digital can be found here.

How we can help

No matter if your business is big or small, MTD affects you. As your accountants, we can help you to stay compliant with the MTD rules and advise on suitable software packages for your business.

For more information, please contact us.

News article

Chancellor unveils a plan for jobs

Analysing the measures announced in the Summer Economic Update.

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On 8 July Chancellor Rishi Sunak unveiled a three-point plan to support jobs as the UK economy begins its recovery from the coronavirus (COVID-19) lockdown. The first phase of the COVID-19 pandemic created extraordinary challenges for businesses and the wider economy, prompting the UK government to respond with a raft of unprecedented measures.

As lockdown rules are being relaxed and support schemes are being wound down, the Chancellor announced a raft of measures to create jobs, protect jobs and help people find work. Here, we look at Mr Sunak's Summer Economic Update and what it means for businesses and individuals.

Furlough scheme replaced with job retention bonus

The Coronavirus Job Retention Scheme (CJRS) and Self-employment Income Support Scheme (SEISS) are being wound down after helping support 11 million people through the crisis.

The Chancellor said furloughing had been the right measure to protect jobs through the first phase of the crisis and it will be followed by a Job Retention Bonus. This will see UK employers receive a one-off payment of £1,000 for each furloughed employee who is still employed as of 31 January 2021. To qualify for the payment, the employee must be paid at least £520 on average in each month from November to January. Payments will be made from February 2021 and further details on this scheme will be announced by the end of July.

Kickstart Scheme for young people

The Chancellor also launched a £2 billion Kickstart Scheme that will aim to create high-quality, subsidised six-month placements for young people at risk of long-term unemployment.

The aim of the scheme is to give young people the chance to build their confidence and skills in the workplace and then to gain experience that will improve their chances of going on to find long-term, sustainable work.

The Kickstart Scheme will see the creation of work placements aimed at those aged 16-24 who are on Universal Credit and are deemed to be at risk of long-term unemployment. Funding available for each job will cover 100% of the relevant National Minimum Wage for 25 hours a week, plus the associated employer national insurance contributions (NICs) and employer minimum automatic enrolment contributions. Employers will be able to top this wage up if they so wish.

More changes to support jobs

To address the ongoing challenges that the economy faces, the government has a large-scale plan to support people in finding jobs, enable them to gain the skills they need to get jobs and provide targeted help for young people to get into work.

Measures will include a boost to the National Careers Service, enhanced work search support and payments of £1,000 for employers who hire new apprentices.

Eat Out to Help Out

One of the more eye-catching announcements made by Mr Sunak is the launch of a 'eat out to help out' scheme designed to encourage people to return to eating out in restaurants and cafés.

This will entitle every diner to a 50% discount of up to £10 per head on their meal at any participating restaurant, café, pub or other eligible food service establishment. The discount can be used unlimited times and will be valid Monday to Wednesday on any eat-in meal (including on non-alcoholic drinks) for the month of August across the UK. Participating establishments will be fully reimbursed for the 50% discount.

In order to further support the hospitality and tourism sector, the Chancellor cut the rate of VAT from 20% to 5%. This applies to supplies of food and non-alcoholic drinks from restaurants, pubs, bars, cafés and similar premises, as well as supplies of accommodation and admission to attractions, including theme parks and zoos, across the UK.

Stamp duty temporarily reduced

The Chancellor also introduced measures to bolster the construction sector and boost confidence in the flagging housing market in his Summer Economic Update.

Property transactions fell by 50% in May this year and house prices have fallen for the first time in eight years. In response, the government will temporarily increase the nil-rate band of residential Stamp Duty Land Tax (SDLT) in England and Northern Ireland from £125,000 to £500,000. This will apply from 8 July 2020 until 31 March 2021.

However, both Scotland and Wales have their own versions of SDLT, namely the Land and Buildings Transaction Tax (LBTT) and the Land Transaction Tax (LTT). Neither of the devolved governments have yet commented on their plans in regard to the taxes.

Additionally, the Chancellor announced a £2 billion Green Homes Grant, providing at least £2 for every £1 homeowners and landlords spend to make their homes more energy efficient, up to £5,000 per household. The scheme aims to upgrade over 600,000 homes across England, helping to reduce energy bills and support the green economy.

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