Monthly Archives: November 2020

Spending Review highlights long-term economic impact of Coronavirus pandemic

The Chancellor’s statement to Parliament setting out his Spending Review decisions came against a backdrop of predictions from the Office for Budget Responsibility (OBR), which indicated that the UK economy will shrink by 11.3 per cent this year – the largest fall in output for 300 years.

In response, he said that the Coronavirus Pandemic would leave “long-term scarring”, which could mean that the UK’s economic output may not return to pre-pandemic levels until the final quarter of 2022.

Despite the damage to the economy, the Spending Review highlighted that the UK was now experiencing growth and that unemployment had risen slower than expected thanks to the economic support delivered during the last seven months.

Borrowing and public sector spending

Government borrowing will reach almost £400 billion this year, which is around 19 per cent of UK GDP – the highest level in peacetime.

The Chancellor announced a freeze on public sector earnings, apart from around one million NHS workers, who will continue to benefit from a cash increase of £33.9 billion a year by 2023-24.

The Government will also support public workers earning below the UK median wage of £24,000, who will be guaranteed a pay rise of at least £250 next year.

Employment

While the COVID-19 financial support measures may have slowed down the rate of unemployment, it does still continue to rise.

The Chancellor is committing £2.9 billion to fund a new three-year UK-wide programme, which will provide innovative and tailored support to help more than a million long-term unemployed people.

He also confirmed that the Government will increase the National Living Wage (NLW) in line with the recommendations of the independent Low Pay Commission (LPC) and continue to increase the National Minimum Wage (NMW) as well.

From April 2021, the NLW will increase by 2.2 per cent from £8.72 to £8.91. The age threshold for the NLW will also fall from 25 to 23, as per the recommendations of the LPC.

The other Minimum Wage (NMW) rates will also increase from April 2021 as follows:

  • 21 to 22-year-olds – increase by 2.0 per cent from £8.20 to £8.36 per hour
  • 18 to 20-year-olds – increase by 1.7 per cent from £6.45 to £6.56 per hour
  • 16 to 17-year-olds – increase by 1.5 per cent from £4.55 to £4.62 per hour
  • apprentices – increase by 3.6 per cent from £4.15 to £4.30 per hour
  • daily accommodation offset rate – increases by 2.0 per cent from £8.20 to £8.36.

The Government will also increase the 2021-22 Income Tax Personal Allowance and Higher Rate Threshold in line with the September 2020 CPI figure of 0.7 per cent.

This figure will also be used as the basis for setting all National Insurance limits and thresholds, and the rates of Class 2 & 3 National Insurance contributions, for 2021-22, according to the Spending Review.

Those with pensions should be aware though that the Retail Price Index (RPI) will be reformed to align it with the Consumer Price Index, including owner occupiers’ housing costs (CPIH), from February 2030. This could affect pension pots and investments and may cost savers up to £96 billion, according to some estimates.

Infrastructure spending and levelling-up 

During his speech, the Chancellor also announced the creation of an “infrastructure bank”, which will be set up and headquartered in the north of England.

This new organisation will finance major projects across the UK from next spring.

The Government’s investment in economic infrastructure will be £27 billion in 2021-22, which will be part of the Spending Review’s £100 billion total investment next year.

A new £4 billion levelling-up fund will also be created, which will allow local areas to apply for funding for major projects next year.

These projects, the Chancellor announced, would have to have “real impact” and be delivered within the lifetime of the current Government.

Changes to taxation

Despite some fears that the Chancellor may signal his intention to announce tax rises as soon as the Budget next spring, he remained silent on the matter.

Given the complex relationship between taxation and the economic recovery, it is likely that the Chancellor is deferring any decisions until nearer the next Budget.

If you are concerned that announcements made in the Spending Review may affect your business in some way, please contact us

Important deadlines approach for the furlough scheme

Businesses across the UK are being reminded of key deadlines and actions for the Coronavirus Job Retention Scheme (CJRS), which are just days away.

The CJRS was extended recently to 31‌‌‌ ‌March 2021 for all parts of the UK. Since 1 November 2020, the UK Government has agreed to pay 80 per cent of employees’ usual wages for the hours not worked, up to a cap of £2,500 per month. Employers are only required to cover the cost of National Insurance and Workplace Pension contributions.

The scheme is open to employees who have previously been claimed for through the scheme before 1 November 2020 and those who have not.

However, in the next few days, businesses that are using the CJRS need to do the following:

  • Submit any claims for periods up to 31‌‌‌ ‌October 2020 on or before 30‌‌‌ ‌November 2020 – they will not be accepted after this date.
  • Submit any claims for November, no later than 14‌‌‌ ‌‌December 2020 – Businesses can claim before, during or after they process their payroll as long as the claim is submitted by the deadline.
  • Keep all records to support each CJRS claim – HM Revenue & Customs (HMRC) may need to check them (copies of previously submitted claims can be found via the CJRS service on GOV‌.UK).

In future, all claims for periods starting on or after 1‌‌‌ ‌November 2020 must be submitted within 14 calendar days after the month they relate to – unless this falls on a weekend, in which case the deadline is the next weekday.

For claim periods from 1‌‌‌ ‌December 2020, you cannot claim CJRS grants for any days that your employee is serving a contractual or statutory notice period, including notice of retirement or resignation.

After this date in December, HMRC will also begin publishing the names, an indication of the value of claims and company registration numbers of employers who make CJRS claims. HMRC has said it will write to businesses with details of when this information will be published.

Details of claims will also be available to employees through their online Personal Tax Account for claim periods from December 2020.

It is important that you meet these upcoming deadlines. If you require support with claiming the CJRS, please speak to our team today.

Third round of Self-Employment Income Support Scheme (SEISS) opens on Monday with tighter eligibility criteria

The third round of the Self-Employment Income Support Scheme (SEISS) will open on Monday 30 November 2020 with tighter eligibility criteria than have applied to the previous two rounds of the scheme.

The third grant is worth 80 per cent of a self-employed individual’s usual trading profits over three months, capped at £7,500 in total and paid in a single instalment.

As with the previous rounds, the third round of the scheme is open both to self-employed individuals who can continue trading and those who cannot.

Applicants must have traded in 2018-19 and submitted a Self-Assessment tax return by 23 April 2020, have traded in 2019-20 and intend to continue to trade in future.

However, unlike previous rounds, the third round of the scheme is only open to those who “reasonably believe” they will have a “significant” reduction in profits caused by reduced demand or being unable to trade as a consequence of Coronavirus between 1 November 2020 and 29 January 2021. Previous rounds of the scheme only required individuals to self-certify that they had been “adversely affected” by the pandemic.

The new requirements mean self-employed individuals affected by increased costs as a consequence of Coronavirus will only be eligible for the third round of the SEISS if they have also experienced a reduction in trade or have been unable to trade. This condition applies even if they were eligible for previous rounds.

HM Revenue & Customs (HMRC) has not provided a precise definition of what constitutes a “significant” reduction in trading profits, saying that self-employed individuals will need to consider their individual and wider circumstances in deciding this.

Likewise, HMRC provides little elaboration as to what constitutes a “reasonable belief”. However, it does say that applicants must keep evidence showing how their trading has been impacted by Coronavirus.

Guidance from HM Revenue & Customs (HMRC) provides examples of circumstances in which an individual could be affected by reduced demand:

  • Have fewer customers or clients than you’d normally expect, resulting in reduced activity due to social distancing or government restrictions;
  • Have one or more contracts that have been cancelled and not replaced;
  • Carried out less work due to supply chain disruptions.

The HMRC guidance also gives examples of circumstances in which an individual could consider themselves to have been previously trading but temporarily unable to do so:

  • your business has had to close due to Government restrictions;
  • you’ve been instructed to shield or self-isolate in-line with NHS guidelines and are unable to work from home (if you’ve been abroad and have to self-isolate, this does not count);
  • you’ve tested positive for Coronavirus and are unable to work;
  • you cannot work due to parental caring responsibilities, for example as a result of school or childcare facility closures.

The guidance goes on to give a range of hypothetical examples of these circumstances, which suggest that self-employed individuals will only be eligible if they reasonably expect a reduction in profits resulting from Coronavirus causing a reduction in trade or preventing them from trading.

Applications for the scheme will be open from 30 November 2020 and will close on 29 January 2021 through HMRC’s online portal.

Companies House to scrap paper reminder letters

Companies House has announced that businesses will no longer receive reminder letters, as it seeks to end paper communications.

Businesses across the UK have been receiving a notification letter by post letting them know that Companies House is withdrawing this service, as it seeks to save £1.2 million annually.

Instead, companies will be asked to use the email reminder service, which sends automated alerts to up to four addresses when documents are due and allows businesses to file information immediately from a link within the email.

You can sign up for the new email reminder service below by following the simple application process.

Click here sign up for the Companies House email reminder service

As part of this process, you will be required to sign in to the Companies House online filing service. If you are not yet registered for this, you need to do so before starting.

These reminders play an important role in ensuring you remain compliant with your Companies House obligations. Failure to submit the right documents on time could result in a penalty.

If you require assistance with any Companies House matters, please feel free to contact us.

Furlough scheme update – Publication of claims and employees serving notice

HM Revenue & Customs (HMRC) has confirmed that employees serving notice cannot be claimed for from the Coronavirus Job Retention Scheme (CJRS) from 1 December 2020 onwards.

It has also confirmed further details of plans to disclose details of claims made by employers from December onwards.

Notice periods

The change means employers cannot claim furlough grants in respect of employees serving any contractual or statutory notice periods from 1 December onwards. This includes employees serving notice of redundancy, as well as those who are serving notice of resignation or retirement.

In circumstances from 1 December onwards where you have already submitted a claim and an employee subsequently begins a notice period, you must make an adjustment.

For claims relating to November, you can still claim for employees serving statutory notice periods. However, CJRS grants cannot be used to substitute redundancy payments.

Redundancies must be made in accordance with employment law, while statutory redundancy and statutory notice pay must be calculated based on an employee’s usual wages.

Publications of claims

HMRC has also published further details of plans to publish information about claims for periods from December onwards.

HMRC previously confirmed plans to publish the names and registration number of limited companies and Limited Liability Partnerships (LLPs) claiming CJRS grants.

It has now clarified that this applies to all employers claiming from the scheme, including individuals, ordinary partnerships and trusts, unless they can demonstrate doing so would lead to a “serious risk of violence or intimidation”.

HMRC will require evidence of this threat, which could include:

  • A police incident number;
  • Documentary evidence of a threat or attack; or
  • Evidence of possible disruption or targeting.

At the same time, HMRC has also said that, in addition to employer names and reference numbers, it will also publish “an indication of the value of the claim”.

Further information about what this will mean in practice and how to request that claim information is not published is expected by the end of November.

For advice on furlough and the CJRS, please contact us today.

IFS predicts tax rises of more than £40 billion a year by the middle of the decade

The Institute for Fiscal Studies (IFS) has predicted that taxes will need to rise by more than £40 billion a year by the middle of the decade to prevent Government debt from growing out of control.

The widely-respected think tank issued the warning following the news that the Government’s Coronavirus response has cost more than £200 billion to date.

At the same time, the IFS predicts the economy will be five per cent smaller in 2024-25 than had been projected in March, creating a £100 billion loss of tax revenues.

In August, the UK’s national debt rose to about £2 trillion for the first time.

Paul Johnson, Director of the IFS said: “We are heading for a significantly smaller economy than expected pre-COVID and probably higher spending too.

“Without action, debt – already at its highest level in more than half a century – would carry on rising. Tax rises, and big ones, look all but inevitable, though likely not until the middle years of this decade.”

The prediction from the IFS has led to widespread speculation about the possibility of tax rises.

Link: Tax rises of more than £40bn a year ‘all but inevitable’

More than 50,000 people claim working from home tax relief through HM Revenue & Customs online portal

HM Revenue & Customs (HMRC) has received more than 50,000 claims for tax relief for working from home since opening a new online portal on 1 October.

Since the start of the current tax year on 6 April 2020, employers have been permitted to pay employees up to £6 a week in respect of the additional costs of working from home.

Employees who have not received working from home expenses directly from their employer, but who have been told to work from home to limit the spread of Coronavirus can use the new portal to claim tax relief from HMRC.

Tax relief is provided at the rate at which a person pays income tax. This means that basic rate taxpayers receive tax relief of £1.20 a week (20 per cent of £6 a week) and higher rate taxpayers receive tax relief of £2.40 a week (40 per cent of £6 a week).

The relief will offer an annual reduction in an employee’s tax bill of £62.40 or £124.80 for the current tax year.

The relief will be provided through a change to an individual’s tax code, which will mean they will pay less tax between now and the end of March 2021.

Karl Khan, Interim Director General of Customer Services at HMRC, said: “We want everyone to get the money that they are entitled to, so we’ve made the online service as easy to use as we can – it takes just a few minutes to claim.”

The tax relief can be claimed here: https://www.gov.uk/tax-relief-for-employees/working-at-home.

Link: 54,800 customers claim tax relief for working from home

HMRC called on to simplify the administration of tax reliefs

The Office of Tax Simplification (OTS) is calling on HM Revenue & Customs (HMRC) to simplify the process of applying for tax reliefs so that fewer taxpayers miss out.

In total, the UK has 1,190 tax reliefs, that each require taxpayers to claim or make an election to benefit from them.

The OTS in its report has considered the administrative processes for making claims and feels that most could be simplified, across income tax, corporation tax, capital gains tax (CGT) and VAT.

As a result of its investigation into tax reliefs the OTS has made 15 recommendations that would help to either improve the general operation of claims throughout the tax system or assist taxpayers with specific elections where processes could be simplified.

The OTS has also called on HMRC to improve the functionality of its online tax accounts, both personal and business, including adding the ability to make more claims and elections within the account and store information and supporting documentation about them.

Another key proposal would be to change employee expenses to improve the claim process and reduce the different levels of flat-rate expenses.

The OTS said that more than five million employees each year currently claim tax relief on expenses that are not reimbursed by their employer.

The report also highlighted inconsistencies in the time limits for amending claims and elections and recommends that they should be made the same whether within or outside of a return.

Looking at HMRC’s online forms, the OTS said that many taxpayers found them hard to fill in because users often cannot see what information will be needed beforehand and that the forms cannot be saved part-way through and returned to.

Bill Dodwell, OTS Tax Director, said: “Millions of people make claims and elections every year. However, there are still those who aren’t making claims for all that they are entitled to.

“Claims for employee expenses are a particular focus, together with claims for higher rate relief for pension contributions and gift aid donations.

“We welcome the commitments that the Government set out in its recent vision for the future of tax administration, including the introduction of a single online tax account that is capable of doing more.

“Increasing the functionality of the personal tax and business tax account, as recommended in this report and in our tax reporting and payment arrangement report, would significantly ease the process for many people.”

Link: OTS Claims and Elections review

A quarter of businesses don’t think they will be ready for post-Brexit Britain

A survey of almost a thousand company directors by the Institute of Directors (IoD) has found that nearly a quarter of businesses are not prepared for Brexit and do not expect to be ready by the end of the transition period on 31 December 2020.

A further 21 per cent said they were still not ready, but hoped to be prepared by the start of 2021 when the UK will formally leave the EU single market and customs union.

The survey also found that 28 per cent of businesses didn’t think that Brexit would affect their company in any way.

Of the actions already taken by businesses to prepare, most had or were looking at building up cash reserves, with more than a third of respondents having done so already.

However, many firms still needed to obtain EU licences and authorisations to continue trading once the transition ends and new customs arrangements come into place.

Half of the businesses surveyed said that the Coronavirus pandemic would magnify the impact of a no-deal Brexit on their organisation, while less than one in 10 thought the reverse. The remaining businesses thought that it would have little or no effect.

Allie Renison, Senior Policy Advisor at the IoD, said: “The prospect of no-deal would be daunting enough, let alone dealing with it in the middle of a global pandemic. These disruptions won’t cancel each other out, if anything they would compound the pain for British businesses.

“When it comes to preparing for Brexit proper, directors’ hands have been tied by a number of constraints and competing pressures. Reacting to the pandemic has taken up so much of business leaders’ time and energy throughout the year. On top of this, much of the information companies need is still subject to negotiations.

“Brexit adjustments will further add to businesses’ cash flow challenges in the months ahead. The Government must look to how it can smooth that process. Financial support as seen in other countries, whether through vouchers to help access advice or through extending tax reliefs to facilitate that adjustment, would give small firms a much better chance of coping.”

Link: Quarter of businesses not ready for Brexit

HMRC warns taxpayers still aren’t ready for Making Tax Digital

The Director of Making Tax Digital (MTD) at HM Revenue & Customs (HMRC) has warned that “not all taxpayers are ready for a digitalised tax system.”

Roy Wallace spoke with the Institute of Chartered Accountants in England and Wales (ICAEW) about the implementation of the new digital tax system after HMRC was criticised by the Public House Committee, who said that “it is not clear that Making Tax Digital will help reduce the tax gap”.

Members of the Parliamentary committee said: “The Making Tax Digital programme is a logical plan in a world where more and more activity is carried out digitally, but it will impose extra, and possibly unreasonable, costs on some individual taxpayers and small businesses, and may be disproportionate to the gain to HMRC, some of these businesses may be less able to afford the changes since COVID-19.”

In his talk with the ICAEW, Mr Wallace said that “the Coronavirus pandemic’s impact on the uptake of digital technologies has helped to strengthen the case for MTD” but he admitted that not “all taxpayers are ready for a digitalised tax system”.

His comments come as the tax authority looks to introduce the next phase of MTD, which from 1 April 2022, will require all VAT-registered companies to switch to the MTD for VAT system that is currently in place, regardless of their turnover.

A year later self-employed businesses and landlords with annual business or property income above £10,000 will need to report and record income tax digitally from their next accounting period starting on 6 April 2023.

Mr Wallace said that HMRC couldn’t be “complacent about costs, nor be cavalier in our attitude towards businesses transitioning to MTD, for many businesses, this still means significant change”.

He added that many businesses and individuals would need help to transition to the new system and that for some it wouldn’t be easy.

Link: Digital tax system must be inclusive