Monthly Archives: July 2020

Government publishes detailed guidance on SDLT holiday

During his Plan for Jobs announcement, the Chancellor Rishi Sunak announced a temporary eight-month cut in Stamp Duty Land Tax (SDLT) that ensures there is not a charge on ‘any’ residential property transactions with a value under £500,000.

The Government has achieved this by immediately lifting the lower SDLT nil rate band from £125,000 to £500,000, which it claims will mean that nine out of 10 main home buyers will not pay SDLT until the thresholds revert in March 2021 to their previous levels.

In its latest guidance, the Government has confirmed that the SDLT holiday only relates to residential property transactions up to £500,000 – above which the original rates continue to apply.

The guidance also confirms that the additional homes surcharge of three per cent will continue to be charged.

However, this applies across the newly-outlined threshold meaning that those subject to the surcharge will now pay three per cent on the first £500,000, rather than the first £125,000, which represents a significant discount on the previous SDLT rate.

Companies also benefit from this increase to the threshold, including businesses that buy residential property of any value above £500,000 where they meet the relief conditions from the corporate 15 per cent SDLT charge.

The nil rate band which applies to the ‘net present value’ of any rents payable for residential property on new leasehold sales and transfers is also increased to £500,000.

To help you visualise what this change means, we have prepared a helpful table below:

SDLT Holiday – First Time Buyer Rates SDLT Holiday – Non-First Time Buyer Rates (no additional properties) SDLT Holiday – Additional Homes Buyer Rates
£0 – £500,000 – 0% £0 – £500,000 – 0% £0 – £500,000 – 3%
£500,001 –£925,000 – 5% £500,001 –£925,000 – 5% £500,001 –£925,000 – 8%
£925,001 – £1.5 million – 10% £925,001 – £1.5 million – 10% £925,001 – £1.5 million – 13%
£1.5m+ – 12% £1.5m+ – 12% £1.5m+ – 15%

On 1 April 2021, the reduced rates shown in the above tables will revert to the normal rates of SDLT that were in place prior to 8 July 2020.

£84 billion of R&D tax credits unclaimed – Could you be eligible for a share of this funding?

Innovative businesses, both large and small, are hungry for funding to assist them as they emerge from lockdown and begin their recovery.

While the Government has offered several loans and grants to COVID-stricken businesses, there is an existing tax relief that remains largely unclaimed.

Data from HM Revenue & Customs (HMRC) analysed by tax reclaim specialists Catax suggests that more £84 billion of Research and Development (R&D) tax credits have not been claimed, while it is estimated that around 80 per cent of eligible companies have either not claimed or have under-claimed.

This tax relief allows SMEs to claim up to 33p for every £1 spent on qualifying R&D activities, while large companies using the Research and Development Expenditure Credit (RDEC) can claim up to 10p for every £1 spent on qualifying R&D activities.

Claims can even be made against projects that result in a loss or previous R&D activities in the last two years. 

Eligibility 

To benefit from R&D tax credits, you must:

  • Be a UK limited company that is subject to Corporation Tax.
  • Have completed qualifying research and development activities.
  • Have spent money on an eligible project.
  • Have incurred qualifying expenditure.

Businesses can claim R&D tax credits where they develop a new product, service or process or if they enhance an existing one.

When submitting an R&D tax credit claim, there is a wide variety of expenditure that can be covered including employment costs, subcontracted R&D work, software and consumable items used in the development.

When you deduct R&D expenditure from your taxable profits or add it to your losses you can benefit from a Corporation Tax reduction if you are profit-making, a cash credit if you are loss-making or a combination of the two.

Why aren’t more businesses claiming R&D tax credits? 

Considering the availability of funding via this tax relief it may seem odd that more firms don’t make claims. The reasons why many businesses don’t utilise tax credits are often complex, but a key issue is that they do not believe they are eligible.

There is a common misconception that these tax credits are only available to firms in the most innovative of sectors such as IT and engineering. However, claims have been processed successfully for a wide range of sectors.

Think you might be eligible for a claim?

If you believe you might be eligible for R&D tax credits it is highly recommended that you speak to specialists who can assess and assist you with your claim.

New corporate insolvency rules come into effect

A range of new corporate insolvency rules have come into effect after the Corporate Insolvency and Governance Act 2020 (the Act) received Royal Assent.

The Act contains a combination of permanent reforms to the corporate insolvency rules and short-term governance measures to deal with the fall-out from the Coronavirus crisis.

The new legislation was fast-tracked through Parliament amid fears that a large number of businesses will be at risk of insolvency as a consequence of the crisis.

One of the most eye-catching provisions in the Act is the introduction of a new free-standing moratorium. The free-standing moratorium will provide an extendable 20 days’ breathing space for companies from their creditors while they implement rescue measures, including restructuring and seeking new investment.

Under these provisions, the existing directors would be able to continue running the company themselves, overseen by a ‘monitor’ in the form of a licensed insolvency practitioner.

Companies are generally eligible for a free-standing moratorium unless one of a limited set of exclusions applies.

To enter a free-standing moratorium, directors must confirm that the company either is or is likely to be unable to pay its debts.

The monitor must also make a statement confirming that a moratorium would be likely to bring about the rescue of a company as a going concern.

Crucially, suppliers must still be paid during a moratorium and failing to do so can lead to the monitor cancelling the contract or ending the moratorium.

The temporary measures in the Act have been in place for some time and are provided for retrospectively.

This includes the temporary relief from winding-up petitions until 30 September 2020 and relief from wrongful trading measures.

Research finds lack of knowledge, information and skills are key barriers to Making Tax Digital compliance

A report commissioned by HM Revenue & Customs (HMRC) to find out why 16 per cent of businesses have failed to comply with Making Tax Digital (MTD) for VAT more than a year after the rules came into effect has been published.

The IPSO Mori research found that a “lack of knowledge, information and skills were frequent barriers to MTD compliance” but notes that “the vast majority of businesses involved in the research were keen to comply with MTD for VAT”.

Since April 2019, most businesses with a taxable turnover of £85,000 or more have been required to keep digital records and make quarterly submissions using HMRC compatible software.

The researchers conducted 44 telephone interviews with businesses that were not yet MTD-compliant to find out the reasons why have not complied and to find out how businesses in this position can be encouraged to become compliant.

They found that “overall businesses lacked a clear understanding of [the] purpose and rationale driving MTD for VAT and were unaware of any potential benefits to them or HMRC”.

The report goes on to recommend that “having a better understanding and awareness of the drive and reasons behind MTD for VAT has the potential to increase motivation amongst non-compliant businesses to sign up to and comply with MTD”.

The language used by HMRC around MTD for VAT also attracted criticism from the researchers, who said that the use of words like ‘might’ or ‘may’ “does not resonate with businesses”. Instead, they say “the use of language across all messages and communications needs to be more direct and definitive to avoid confusion and mitigate the risk of businesses not taking the messages seriously enough or ignoring the messages altogether.”

Future Fund expanded to more businesses

The Government has announced that the Future Fund – the support scheme for early-stage, high-growth firms – will be expanded so that more firms can benefit.

The scheme, which was announced by the Chancellor in April, offers Government loans ranging from £125,000 up to £5 million to high-growth start-ups that can attract equal match funding from private investors.

Under the original terms of the scheme, businesses were required to be UK-based. However, this has proven to be difficult for those that have participated in highly selective accelerator programmes that require them to have parent companies outside the UK.

The change means that businesses that have participated in accelerator programmes, such as TechStars or Y-Combinator, can now access the scheme if they have a parent company outside the UK in circumstances where at least half their employees are UK-based or at least half of revenues are from UK sales.

At the same time, HM Treasury has revealed that more funding has been made available for the scheme than the £250 million originally planned, with a total of around £320 million now invested.

Chancellor, Rishi Sunak, said: “Our start-ups and innovative firms are one of our great economic strengths. As we begin to bounce back from Coronavirus, they will help drive our recovery and create new jobs.

“This change means that those start-ups who have strived to be the very best, and taken opportunities to grow their business, will be able to benefit from our world-leading Future Fund.”

Business Secretary, Alok Sharma, added: “As we restart our economy, it is crucial that our innovators and risk-takers get all the support they need to flourish.

“Our decision to relax this rule recognises the importance of many of the UK’s most cutting-edge start-ups as we bounce back from Coronavirus.”

Government confirms Coronavirus tax concessions in amended Finance Bill

The Finance Bill 2020 has now reached the report stage in Parliament. In response to the impact that COVID-19 has had on the country, the Government has confirmed several temporary tax concessions.

To help you make sense of these changes we have prepared a useful summary:

Taxation of Coronavirus support payments

The Government has confirmed that grants to help businesses, employers and individuals affected by the Coronavirus crisis are taxable income. This includes payments made under the:

  • Coronavirus Job Retention Scheme (CJRS)
  • Self-Employment Income Support Scheme (SEISS)
  • Coronavirus Statutory Sick Pay Rebate Scheme (CSSPRS)
  • Business supporting grant schemes.

The legislation ensures that grants made under the schemes are within the scope of Income Tax and Corporation Tax. However, whether any tax is paid will depend on the overall tax position in each case.

The amendment to the Bill also provides HM Revenue & Customs (HMRC) with additional compliance and enforcement powers in relation to the CJRS and SEISS.

Protected pension age of members employed as a result of Coronavirus

The tax regime applicable to registered pension schemes will be amended to ensure that those who have retired but return to employment to support the Coronavirus response do not suffer adverse tax impacts.

This amendment ensures that individuals in this position do not lose their ability to receive pension benefits at an age below the current normal minimum pension age. The changes are retrospective to 1 March 2020.

Modifications of the statutory residence test in connection with the Coronavirus

The statutory residence test will be modified so that a day on which an individual is required to be in the UK to undertake work specifically related to coronavirus will be disregarded for the purposes of determining whether they are tax resident in the UK in the 2019-20 or 2020-21 tax years.

Future Fund – EIS and SEIS relief

Through its latest amendments to the Bill, the Government has confirmed that investors in a company who support the company using a Future Fund convertible loan note will not lose relief on any previous EIS or SEIS investments when that loan is redeemed, repaid or converted.

If any of these actions occur in the relevant holding period for the shares, they may be treated as the passing of value from the company to the investor.

Interest and surcharges on liabilities deferred due to the Coronavirus pandemic

Section 135 Finance Act 2008 provides that no interest or surcharge applies to payments due to HM Revenue & Customs (HMRC) deferred as a result of a disaster or emergency specified by HM Treasury (HMT).

A new measure outlined in the Bill enables HMRC to disapply interest and surcharges which would otherwise arise in relation to the specified deferrals that have been offered during the pandemic.

The disposal of interest from a main residence in a three-year period

Through amendments to the Bill the Government will introduce an extension to the three-year time limit in which to dispose of a previous main residence, and so qualify for a refund of the three per cent higher rate tax, where exceptional circumstances prevent the sale of a previous main residence within that period.

This temporary change only applies where the three-year time limit to sell the previous main residence ended on or after 1 January 2020.

Enterprise management incentives – disqualifying events

The Government will introduce a time-limited exception for participants of enterprise management incentives (EMI) share schemes who are not able to meet the necessary working time commitment due to COVID-19.

The modifications affect all matters from 19 March 2020 and will come to an end on 5 April 2021. This includes a provision for HM Treasury to extend the exception for a further 12 months by regulations if the Coronavirus pandemic has not ended by April 2021.

Seven tips to get start-ups off the ground

Out of the doom and gloom of the pandemic, new businesses are sprouting up – many built around successful concepts launched and developed during lockdown.

Launching a business can be daunting and risky, to help, we have prepared seven tips that all start-ups can follow: 

Conduct research 

You must undertake thorough market research to ensure your idea will work and is competitive. This will help you to identify customers and competitors, analyse potential markets and consider the costs associated with the business.

Having conducted thorough research, entrepreneurs should be able to calculate their pricing strategy and begin to think about the development of their business in the future.

Comprehensive market research is also an important step in preparing your business plan and is likely to be essential if you want to raise capital at any point. 

Assess your finances 

To launch a business, you will need sufficient capital to carry out your plans. Finance is often one of the biggest barriers to launching a business and in the current climate lenders and investors are likely to be more risk-averse, which may make sourcing funding more challenging.

The finance you require depends entirely on the business you are launching. Some companies are relatively low-cost to set up and run, while others are resource and cost-intensive.

If you have properly identified the costs of setting up your company then you should be able to break the necessary investments up into three distinct categories. 

Essential costs – Your business cannot operate without these. 

Useful investments – These make your business more efficient but would not prevent your business from operating.  

Additional investments – These offer small benefits to the business but are by no means essential or necessary.  

Create a business plan 

Start-ups need to have a comprehensive business plan that acts as the blueprint for their company.

If you have done sufficient market research and worked out your financial situation, then you should be in a strong place to tailor your plan to your needs.

A business plan is often a requirement for any form of financing you may be seeking and will help keep you on track.  

Choose a business structure 

You’ll need to decide if you’re going to start a business as a sole trader, a partnership or as a limited company.

Depending on which model you choose could lead to different tax and governance issues for you to consider.

Many businesses prefer the protection of operating as a limited company, as the liability is only tied to the amount you have invested within the business and not directly to the founders.  

Establish and monitor KPIs 

If you do not monitor key performance indicators it can be difficult to assess how well your business is doing. The most important growth metrics for young businesses tend to be:

Gross Profit Margin – The amount you receive once you have covered the cost of goods or services sold.

Customer Acquisition Cost – The price you pay to acquire a new customer.

Spend Rate – The speed at which the company spends its capital.

By monitoring data around each of these KPIs, you should be able to spot weaknesses quicker and also identify areas of growth in which to invest more resources.

Many start-ups find that investing in cloud accounting technology helps them to monitor and assess their performance, especially if they collaborate closely with their accountant. 

Scale carefully  

Entrepreneurs are encouraged to avoid premature scaling by carefully monitoring their spending, minimising debts and keeping overheads to a minimum.

Overspending before establishing a market for your product or service is believed to be one of the key reasons for most premature business failures.

If you are carefully monitoring your KPIs and have a robust business plan in place you should be able to scale progressively. 

Seek help  

New business owners do not have to go it alone. One of the first and most important things they can do is seek help from professional advisers, such as a trusted accountant.

A little invested early on in expertise can go a long way to helping a company survive and thrive.

Guidance on hospitality and tourism VAT cut published

HM Revenue & Customs (HMRC) has published guidance on temporary cuts to the rate of VAT from 20 per cent to five per cent from Wednesday 15 July 2020 to 12 January 2021 for certain goods and services in the hospitality and tourism sectors.

The reduced rate was announced by the Chancellor at the Summer Economic Update on 8 July 2020 and applies to:

  • food and non-alcoholic beverages sold for on-premises consumption, for example, in restaurants, cafes and pubs
  • hot takeaway food and hot takeaway non-alcoholic beverages
  • sleeping accommodation in hotels or similar establishments, holiday accommodation, pitch fees for caravans and tents, and associated facilities

The reduction also applies to admission to the following attractions, where they do not qualify for the cultural VAT exemption:

  • theatres
  • circuses
  • fairs
  • amusement parks
  • concerts
  • museums
  • zoos
  • cinemas
  • exhibitions
  • similar cultural events and facilities.

The dedicated guidance documents that set out the VAT treatment of catering and takeaway food and hotels and holiday accommodation have also been updated to reflect the temporary change.

The guidance informs small businesses that use the Flat Rate Scheme that certain percentages have been reduced in line with the new temporary five per cent rate of VAT.

Further guidelines also set out the arrangements that apply where supplies straddle the temporary reduced rate

Details of ‘Eat Out to Help Out’ scheme confirmed

The Government has now confirmed details of the ‘Eat Out to Help Out’ scheme, announced by the Chancellor at his Summer Economic Update on Wednesday 8 July.

The scheme covers the cost to restaurants, cafes and pubs that sell food of providing a 50 per cent discount, capped at £10 per head, on food and non-alcoholic drinks purchased for consumption on the premises from Mondays to Wednesdays in August.

The scheme is open to businesses that were registered with their local authority as food businesses on or before 7 July 2020, provides or shares a dining area for eat-in meals and sells food for consumption on the premises.

HM Revenue & Customs says this could include:

  • restaurants
  • cafés
  • public houses that serve food
  • hotel restaurants
  • restaurants and cafes within tourist attractions, holiday sites and leisure facilities
  • dining rooms within members’ clubs
  • workplace and school canteens

Participating businesses are expected to provide the offer throughout their opening hours on the days that the scheme is in operation.

The scheme applies to food or non-alcoholic drinks, meaning that a coffee purchased without food to drink in a café’s seating area would be eligible for the discount.

The guidance also gives details of how businesses should apply the discount to customers’ orders. Service charges are not covered, while the £10 a head cap is based on the number of people at the table, including children. This means that the discount available to a table of six would be capped at £60, even if the discount for one or more individuals exceeds the £10 cap, assuming the table is covered by a single bill.

The scheme does not apply to takeaway food and drink, or catering services for private functions. It also does not apply to mobile vans or takeaways that provide tables and chairs on the pavement.

However, the guidance does confirm that the scheme can still be used where a customer orders food for dining in but then takes away the remainder of their meal.

The scheme also cannot be put towards:

  • alcoholic drinks
  • tobacco products
  • food or drink that is to be consumed off-premises
  • food or drink that is sold as part of a private party, event or function taking place within an eligible establishment

Eligible businesses can register to take part in the scheme using an online portal, which is set to go live from 13 July 2020 here.

The discount can be provided alongside existing offers and comes in addition to a cut in VAT from 20 to five per cent for food and non-alcoholic drinks, as well as for accommodation and admission to attractions, which will apply from Wednesday 15 July until 12 January 2021.

Summer Statement

When the Chancellor, Rishi Sunak, delivered his Spring Budget on 11 March to the packed benches of the House of Commons, the hope was that the economic impact of the Coronavirus outbreak would be ‘V-shaped’, with an immediate bounce back to prosperity.

Since then, nearly four months of onerous restrictions have shuttered large sections of the economy, GDP has fallen by an unprecedented 25 per cent and 9.4 million people have been furloughed from their jobs, leaving the shape of the recovery highly uncertain.

With lockdown measures now having eased substantially, businesses reopening and early signs of growth returning, but some of the Government’s key interventions soon coming to an end, the Chancellor rose to the dispatch box in a half-empty, socially distanced House of Commons.

The speech was billed as a ‘Summer Economic Update’, rather than an ‘Emergency Budget’, leading to speculation as to whether the Chancellor would announce much of significance or adopt a wait-and-see approach, leaving bold announcements for the Autumn Budget.

It turned out, as things tend to, that what came to pass was somewhere in the middle with the speech being used to unveil the Government’s Plan for Jobs, described by the Chancellor as the second phase in the Government’s economic response to the crisis.

 

Coronavirus Job Retention Scheme and Job Retention Bonus

The first major announcement from the Chancellor was the confirmation that the Coronavirus Job Retention Scheme (CJRS) will close, as planned, at the end of October, arguing that “leaving the furlough scheme open forever gives people false hope that it will always be possible to return to the jobs they had before”.

The scheme currently offers employers grants worth 80 per cent of a furloughed employee’s usual salary up to a cap of £2,500 a month plus the associated Employer National Insurance Contributions (NICs) and minimum automatic enrolment pension contributions. Furloughed employees will be paid 80 per cent of their usual pay up to a cap of £2,500 a month until the end of the scheme in October and, since the beginning of July have been able to return to work part-time, with employers claiming a grant only in respect of usual hours not worked.

The Chancellor’s announcement confirms that grants from the scheme will cease to cover Employer National Insurance Contributions (NICs) and minimum automatic enrolment pension contributions from August. In September, the value of grants will fall to 70 per cent of usual wages up to £2,187.50 a month with employers making up 10 per cent. Finally, in October, the grant will fall to 60 per cent of usual wages up to £1,875 a month, with employers expected to make up 20 per cent.

However, the Chancellor looked to cushion the blow with the announcement of a Job Retention Bonus. The new scheme will see the taxpayer give employers £1,000 for each previously furloughed employee they retain and keep in employment until January, as long as they are paid at least £520 a month. Further details of the scheme are expected later in July.


Kickstart Scheme and measures to help people find work

Moving to his plans to support people in finding jobs, the Chancellor announced the Kickstart Scheme, which will provide £2 billion to support the creation of “high quality” six-month work placements for 16 to 24 year-olds on Universal Credit and at risk of long-term unemployment.

The taxpayer will provide employers that offer the placements funding equivalent to 100 per cent of the relevant level of the National Minimum Wage (NMW) for 25 hours a week. It will also cover the associated Employer NICs and minimum automatic enrolment pension contributions.

Outlining further plans to support people in finding jobs, the Chancellor confirmed 10 additional measures, including funding for traineeships and employers that hire new apprentices, as well as funding for several careers and job-finding programmes.

The apprenticeships funding will provide £2,000 to employers in England for every apprentice hired under the age of 25 and £1,500 for each newly hired apprentice aged 25 or older. This funding is in addition to schemes already in place to support employers in taking on apprentices.


Stamp Duty Land Tax Holiday and job creation measures

Housing, construction and infrastructure were at the core of the measures announced by the Chancellor to catalyse job creation, with a temporary cut to Stamp Duty Land Tax (SDLT) by raising the nil-rate band from £125,000 to £500,000 from now until 31 March 2021. The Treasury estimates that, as a consequence, around nine in 10 people buying a main residence will pay no SDLT.

Staying with the focus on housing, the Chancellor announced a £2 billion Green Homes Grant for homeowners and landlords, covering two-thirds of the cost, up to a cap of £5,000 per household, towards making homes more energy-efficient, with more for low-income households.

These measures came in addition to £5 billion of infrastructure spending announced a week earlier by the Prime Minister and came on top of various other measures targetted at the housing and construction sectors.


VAT cut for Hospitality and Tourism Sectors

Before the speech, there was considerable speculation about whether there would be a VAT cut, as had been called for by at least two former Chancellors, and, if so, whether this would see the rate cut in general or targeted at specific sectors.

In the event, Chancellor opted against a general cut to the rate of VAT, opting instead to cut the rate for the Hospitality and Tourism sectors from 20 per cent to five per cent. The measures relate specifically to food and non-alcoholic drinks and to accommodation and admission to attractions, with further details expected to be published later.

The change comes into effect on Wednesday 15 July 2020 and will be in place temporarily until 12 January 2021.


Eat Out to Help Out 

Perhaps the most eye-catching of the measures announced by the Chancellor was the Eat Out to Help Out scheme, which will provide a discount of 50 per cent of up to £10 a person on eat-in meals, including non-alcoholic drinks, at participating establishments on Mondays, Tuesdays and Wednesdays in August.

A website for restaurants, cafes and pubs to use to sign-up for the scheme is expected to launch on Monday 13 July 2020.


Conclusion

The measures outlined by the Chancellor continue to put support for jobs firmly at the centre of the Government’s approach to rebuilding the economy as we emerge from the Coronavirus outbreak.

However, with today’s measures expected to cost around a further £30 billion, it remains to be seen how they will be funded in the long-term, with the Chancellor having previously hinted at tax changes in future Budgets.

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