Monthly Archives: June 2020

Are you taking your business online? – Six steps to effective pricing

As a result of the recent restrictions, many businesses have, for the first time, switched their focus to online sales.

Whilst this has opened up many new opportunities it has also posed greater challenges, one being pricing.

Many business owners already struggle with the difficulties of pricing. In some cases, setting prices by their competition and in others charging amounts arbitrarily.

Neither of these approaches is effective in a digital age where consumers can review prices instantly.

By failing to grasp the importance of pricing when taking sales online, a business may unwittingly make their products or services less attractive.

To help businesses with their pricing strategies we will look at some of the established techniques that they can follow.

Psychological Pricing

Possibly one of the most commonly used forms of pricing, this dates back as late as the 1800s but remains effective even to this day.

At its core, Psychological Pricing relies on the strategic pricing of goods and services just below a nice, round number.

We will have all seen this. Maybe a car dealership offers its latest model at £9,999 or who can forget the 99p store.

Many businesses use this trick and consumers are aware of it, is it still effective? Amazingly, the simple answer is yes.

Even though the difference in price is negligible, irrational customers don’t round up the price and perceive the item to be cheaper than it is and are more inclined to buy.

The importance of nine

Unbelievably, most people perceive a price ending in the number nine as better value and more cost-effective.

This perception of value even applies when an identical competitor product is priced lower, as proved in a 2003 study, conducted by the University of Chicago and MIT.

This simple strategy may seem ridiculous but has been proven to work time and time again.

Relative Pricing

In this enlightened digital age, ensuring your price is relative to the rest of the market can be key, especially with the emergence of price checking apps.

Knowing how much to charge relates to several factors, one of which has to be how much a competitor charges. However, this shouldn’t be the driving force in setting an effective price.           

Constantly trying to charge less than a competitor will squeeze margins to potentially unsustainable levels and may lead some consumers to think of your product as inferior.

It is at this point where you may want to reconsider how your product or service is marketed. You may decide you want to be a premium or economy brand relative to your competitors and should then price accordingly.

It’s all contextual

Sometimes a price is justified by lots of different factors, not just the service or product on offer.

People will happily pay thousands for a Rolex that tells the time when a £5 watch will do the same. The products fulfil the same role, but there are other forces at play that determine the price.

The same applies online and sometimes it can be down to things beyond the price – even the look of a website or the services offered alongside products can make a difference in how much is charged.

A business should, therefore, look at non-product/service changes it can make that will justify a higher price.

Be different

When choosing a service or selecting a product, customers will rely on their own opinions of a product, which are entirely subjective, but they also rely on price, which is objective.

Prices for similar or identical products can be easily compared and may be a determining factor.

Where prices are identical this can complicate the purchasing decision of customers forcing them to rely on a subjective decision, which may mean that they do not decide to purchase anything at all.

In sales, this is referred to as analysis paralysis and means both businesses lose out.

By purposely pricing differently to a competitor you give customers a simple choice if they like or require the same services or product equally. This can help to ensure a sale, although it may not always fall in your favour.

Offering choice 

Research has shown that by selling three products alongside each other, you subconsciously push customers towards the middle product.

Therefore, if you strategically make the mid-priced product more expensive you can increase your average order value.

The savvier online seller can also then use this technique to develop a mid-priced offering that is more cost-effective and, therefore, more profitable.

The common thread

All of these pricing strategies rely on the way that customers perceive price and highlight that it can be one of the determining factors in a sale or order. This means that effectively adjusting your price could help increase sales and improve profitability.

In today’s modern online marketplace businesses cannot sit back and leave prices static. They need to create a pricing strategy that adapts to the market and the needs of customers.

This can be difficult to achieve alongside the other pressures of running a business and it is why, as a business expands online, seeking professional assistance can pay dividends.

HM Revenue & Customs publishes detailed guidance on calculating furlough claims from July onwards

HM Revenue & Customs has published detailed guidance on the operation of the Coronavirus Job Retention Scheme (CJRS) from 1 July 2020 onwards, including examples of how to calculate claims for the new flexible furlough option.

The CJRS currently provides grants to employers covering 80 per cent of the usual wages of furloughed employees – who remain on the payroll but must not carry out any work – up to a cap of £2,500 a month as well as employer National Insurance Contributions (NICS) and pension contributions.

However, from 1 July employers will be able to make new flexible furlough agreements with employees that enable them to return to work on a part-time basis, while the employer will still be able to claim a CJRS grant for the hours not worked. Only employees who have been furloughed for a full three-week period up to this point will still be eligible to be furloughed.

From 1 August, CJRS grants will cease to cover the costs of employer NICs and pension contributions in respect of furlough pay.

Then, in September, the value of CJRS grants will reduce to 70 per cent of furloughed employees’ usual wages, with employers required to top-up the remaining 10 per cent so that furloughed employees still receive 80 per cent of their usual wages, capped at £2,500 a month.

Finally, October will see the value of CJRS grants fall to 60 per cent of furloughed employees’ usual wages, with employers having to contribute the remaining 20 per cent.

Employers are responsible for calculating the correct amounts to claim from the scheme, with HMRC expected to take a hard line on errors that are not corrected quickly.

The new guidance walks employers through the various calculations needed to work out the amounts they need to claim in respect of furloughed employees in different circumstances over the remaining months of the scheme.

This includes information about:

  • Calculating flexible furlough claims;
  • calculating employer NICs and pension contributions on hours worked and furlough hours;
  • dealing with considerations around the National Living Wage (NLW) and National Minimum Wage (NMW);
  • employees returning from parental leave;
  • employees returning from Statutory Sick Pay (SSP) and
  • the reduction in the value of the main grant in September and October.

To help employers deal with the potentially wide range of permutations, HMRC has published example calculations dealing with different situations.

Where employers find that they have overclaimed, they can report this as part of their next claim, which will be adjusted down to take the previous overpayment into account. HMRC says it is working on a mechanism to deal with circumstances where an employer has overclaimed but does not wish to make further claims. In the event of underclaims, employers should contact HMRC directly.

As part of the changes to the scheme, HMRC has also confirmed that claims for periods ending up to 30 June must be made by 31 July, while claims periods from 1 July onwards must begin and end in the same calendar month and last at least seven days. If an employee is furloughed in June and continues to be furloughed for their full hours in July, separate claims will need to be submitted, even if this differs from an employer’s own pay periods.

Further clarification issued on eligibility for second round of Self-Employment Income Support Scheme

HM Revenue & Customs (HMRC) has issued further details of eligibility for the second round of the Self-Employment Income Support Scheme (SEISS), which will provide taxable grants to self-employed individuals.

The grants will be 70 per cent of average monthly trading profits, capped at £6,570 and paid in a single instalment.

HMRC has now clarified that in order to qualify for the second grant, a self-employed individual must confirm that their trading has been adversely affected by the coronavirus outbreak on or after 14 July 2020.

This means it is possible for a self-employed individual not to have qualified for the first round of funding by virtue of not having been adversely affected, but to qualify for the second round because they have subsequently been adversely affected. This might be in circumstances where they become unwell with Coronavirus in July and are then unable to trade as a consequence.

However, this also means that some self-employed individuals who were able to confirm that their business was adversely affected for the first round of funding may find that this is no longer the case and so do not qualify for the second round of funding.

The criteria to qualify for the scheme otherwise remain unchanged and apply to self-employed individuals and members of partnerships:

  • you traded in the tax year 2018 to 2019 and submitted your Self Assessment tax return on or before 23 April 2020 for that year
  • you traded in the tax year 2019 to 2020
  • you intend to continue to trade in the tax year 2020 to 2021
  • you carry on a trade which has been adversely affected by coronavirus

Applications for the current round of funding, worth 80 per cent of monthly trading profits and capped at £7,500 in total remain open here until 13 July 2020.

Meanwhile, details of the second round of funding will be published at a later date.

Government delays VAT Reverse Charge

The Government has announced that the controversial VAT Reverse Charge rules for the construction sector will be delayed until 1 March 2021 due to the Coronavirus pandemic.

The VAT Reverse Charge rules, which effectively transfer the responsibility of paying VAT from a supplier to the business using their services, was originally due to come into force in October 2019 before being delayed for a year until October 2020.

Due to this latest extension, VAT-registered businesses and individuals that supply or receive specified services that are reported under the Construction Industry Scheme (CIS) will now have an additional five months to prepare for the complex new rules.

The Government has also introduced new amendments to the system as part of the delay. These will require firms that are end-users of goods and services to notify suppliers and subcontractors of their status.

HMRC introduced this change to ensure subcontractors are clear as to how to treat VAT payments and charges.

For further details on the rules surrounding the VAT Reverse Charge, please click here to read the Government’s latest guidance.

Despite the latest delay, it is recommended that those businesses that are likely to be affected by the change seek additional support now to make sure they are compliant when the scheme is introduced and not adversely affected by the new rules.

VAT deferral refund available

Taxpayers that wished to defer VAT payments, but did not cancel their Direct Debits in time can claim a refund, according to HM Revenue & Customs (HMRC).

The tax authority has confirmed that taxpayers that intended to defer VAT payments due between 20 March 2020 and 30 June 2020 that were unable to cancel their Direct Debit to HMRC could now do so.

To obtain a refund, taxpayers should submit a Direct Debit Indemnity Claim to their bank. On this submission, all they must state is that they want to claim a refund under the Direct Debit Indemnity Scheme (DDI) and HMRC has said it will honour the request.

HMRC has also said that there will be no time limit in making this request, but businesses are encouraged to do so soon to obtain a quicker refund.

Taxpayers can also request repayment from HMRC directly rather than contacting their bank, but they must ensure that their bank details are updated using the tax authority’s online service.

Due to COVID-19 restrictions, Payable Orders are not being issued and it may take up to 21 days for a refund to be received if the Direct Debit Indemnity Claim process is not used.

HMRC is due to provide further guidance on the payment of tax at the end of the deferral period next March.

Businesses also need to make arrangements to pay VAT falling due from 1 July 2020 to 31 March 2021.

Trade Credit Insurance backed by £10 billion guarantee

The Government will provide up to £10 billion of guarantees to Trade Credit Insurance schemes for business-to-business transactions.

The spending commitment, known as the Trade Credit Reinsurance scheme, has been agreed following extensive discussions with the insurance sector.

The new scheme will be available temporarily for nine months and backdated to 1 April 2020 for insurers operating in the UK market.

Due to Coronavirus and businesses struggling to pay bills, there was a concern that credit insurance might be withdrawn or premiums increased to unaffordable levels for some businesses, which would cause serious issues for liquidity and working capital across business supply chains.

The substantial guarantee will help to support supply chains and businesses during the coronavirus pandemic allowing them to trade with confidence, safe in the knowledge that they will be protected if a customer defaults or delays on a payment.

This important form of insurance covers hundreds of thousands of business-to-business transactions every year. More than £350 billion of economic activity of more than 630,000 businesses in the UK is underwritten by Trade Credit Insurance.

Under the scheme rules, participating insurers must comply with certain undertakings regarding the conduct of their business during the period of the scheme including conditions that they will forgo profits and not pay dividends or bonuses for senior staff for their guaranteed Trade Credit Insurance business.

Implementation of the scheme will be subject to state aid approval, agreement of full form documentation with insurers and acceptance of applications from insurers for participation.

Guidance on exceptional circumstances for higher rate SDLT refunds updated

HM Revenue & Customs (HMRC) guidance that sets out the exceptional circumstances allowing homeowners to claim higher rate Stamp Duty Land Tax (SDLT) refunds beyond the usual timeframes has been updated.

The updated guidance means that homeowners in England and Northern Ireland can now claim a refund in respect of the three per cent higher rate of SDLT in circumstances when their previous home was not sold within the usual time limit of three years, as long as the three-year period ended on or after 1 January 2020.

To qualify for the refund, the previous home must have failed to sell for reasons outside of the homeowner’s control and these reasons can now specifically include “the impact of coronavirus (COVID-19) preventing the sale”.

Whistleblowers make almost 2,000 allegations of furlough fraud

Figures show that almost 2,000 allegations of furlough fraud have been made by whistleblowers against employers, with HM Revenue & Customs (HMRC) expected to impose steep penalties on businesses and directors found to have abused the scheme.

Such claims come in several forms, including requiring furloughed employees to work, failing to pass the full value of the grant to the employee and backdating claims to include periods when the employee was, in fact, working.

Draft legislation published by the tax authority indicates that retrospective auditing of the Coronavirus Job Retention Scheme will be rigorous with severe penalties for employers found to be in breach of the rules.

The proposed legislation provides for HMRC to raise Income Tax assessments to recover amounts wrongly claimed from the scheme and to charge penalties in instances of deliberate wrongdoing.

Significantly, the legislation also contains provisions for holding company directors jointly and severally liable for any breaches.

Employees returning from parental leave continue to be eligible for furlough scheme

Employees returning from statutory maternity and paternity leave in the next few months will remain eligible for furlough through the Coronavirus Job Retention Scheme (CJRS).

Since 10 June, it has no longer been possible to furlough an employee for the first time, with the Government set to introduce part-time furlough from 1 July onwards. To facilitate this, the scheme will only be available to employers that are using the CJRS and employees that have previously been furloughed.

Because workers must complete 21 days of furlough to be eligible for part-time furlough, this means that the cut-off date for employees to be placed on furlough leave was Wednesday 10 June.

However, employees returning from parental leave will be eligible for the CJRS as they return to work, with further details set to be announced by the Government imminently.

The CJRS has helped more than one million employers so far, with more than one quarter of the UK workforce being furloughed.

Rishi Sunak, Chancellor of the Exchequer, said: “When I announced these changes to the furlough scheme last month, I was clear that we wanted to do this in a fair way, that supports people back to work as the country begins to re-open following coronavirus.

“But for parents returning from leave, their circumstances has meant that they are still in need of support, and I’m pleased that they will be able to receive the financial assistance they and their family will need.”

Self-Employment Income Support Scheme (SEISS) extended

The Chancellor has confirmed the extension of the Self-Employment Income Support Scheme (SEISS), with the announcement of a second and final grant to support the income of self-employed individuals during the Coronavirus outbreak.

The first and current round of grants under the scheme allows self-employed individuals to claim a taxable grant worth 80 per cent of three months’ average monthly trading profits, capped at a total of £7,500 and paid in a single instalment.

It has seen 2.3 million claims to date, collectively worth £6.8 billion.

Applications for this round of grants will close on 13 July 2020. However, the Chancellor has now announced that self-employed individuals will be able to claim a second grant in August. This will be worth 70 per cent of three months’ average trading profits and will be capped at £6,570 in total, also paid in a single instalment.

Individuals do not need to have claimed the first grant to be able to claim the second.

Unlike the Coronavirus Job Retention Scheme (CJRS) for employees, self-employed individuals may continue working, begin a new trade or take on new employment while in receipt of a grant.

The full criteria for qualification for the scheme remain unchanged. Applicants must:

  • Be self-employed or a member of a partnership;
  • Have lost trading/partnership trading profits due to COVID-19;
  • File a tax return for 2018-19 as self-employed or a member of a trading partnership;
  • Have traded in 2019-20; be currently trading at the point of application (or would be except for COVID-19) and intend to continue to trade in the tax year 2020 to 2021; and
  • Have trading profits of less than £50,000 and more than half of their total income come from self-employment. This can be with reference to at least one of the following conditions:
    • Trading profits and total income in 2018-19
    • Average trading profits and total income across up to the three years between 2016-17, 2017-18, and 2018-19.

The scheme is not available to people working through their own limited companies.

Further details about how to apply for the second and final grant will be announced on 12 June 2020.