Monthly Archives: February 2021

VAT Deferral New Payment Scheme goes live

HM Revenue & Customs (HMRC) has announced that its online VAT Deferral New Payment Scheme is now open for applications to help businesses arrange smaller monthly repayments of deferred VAT.

Under the New Payment Scheme, you can repay VAT deferred between 20 March and 30 June 2020 in up to 11 instalments from March 2021 (the length of repayment and number of instalments will depend on when you join).

To use the online service, you must:

  • Join the scheme yourself – agents cannot directly assist you;
  • Have deferred VAT to pay;
  • Be up to date with VAT return filings for the last four years;
  • Correct any errors on VAT returns, as soon as possible;
  • Make sure you know how much VAT you owe;
  • Pay the first instalment when you join; and
  • Pay instalments by Direct Debit (there are alternative payment methods of payment on request).

If you intend to use this scheme, you will need to opt-in online between 23 February and 21 June 2021.

Click here to join the scheme today

Businesses can also repay their deferred VAT in full by 31 March 2021 or agree extra help to pay with HMRC by calling 0800 024 1222 by 30 June 2021.

Businesses may be charged interest or a penalty if they do not pay the deferred VAT in full by 31 March, opt-in to the VAT Deferral New Payment Scheme or seek additional help to repay deferred VAT by the deadlines outlined above.

If a business decides to use the New Payment Scheme it will not affect its ability to request a Time to Pay arrangement from HMRC in future.

Although agents, such as accountants, can’t join the scheme on your behalf, our team can help you get your VAT affairs in order and figure out how much VAT you may owe. To find out more, please contact us

Self-Assessment late payment penalties relaxed but interest still accrues

Following HM Revenue & Customs’ (HMRC) announcement that it is waiving late filing penalties for Self-Assessment taxpayers who file by 28 February, it has now announced that it is waiving the five per cent late payment penalty that usually applies from 3 March for taxpayers who pay or set up a payment plan by 1 April 2021.

Self-Assessment taxpayers who are unable to pay all the tax they owe can set up a self-serve Time to Pay arrangement online, if the debt is less than £30,000, allowing them to pay in monthly instalments until January 2022.

Meanwhile, those who owe more than £30,000 can contact HMRC by phone on 0300 200 3822 to request a Time to Pay arrangement.

Crucially, however, interest continues to accrue on outstanding Self-Assessment tax payments and has been doing so since 1 February.

If you have not yet filed your Self-Assessment tax return, you should do so before 28 February to avoid a £100 penalty.

Please contact us today to find out more about our services for Self-Assessment taxpayers.

The VAT Deferral New Payment Scheme

Any business that deferred VAT payments due between 20 March and 30 June 2020 as a result of the Coronavirus pandemic, must now consider how they will repay this outstanding tax.

They can choose from the following options in order to do this:

  • Pay the deferred VAT in full by 31 March 2021;
  • Join the VAT Deferral New Payment Scheme (VDNPS); or
  • Contact HM Revenue & Customs (HMRC) to agree extra help to pay by 30 June 2021.

The VDNPS will remain open between 23 February and 21 June 2021 and will provide businesses with the option to pay deferred VAT in equal interest-free instalments.

Taxpayers will be given the option to make between two and 11 instalments to suit their needs (the length of repayment may depend on when a business joins the scheme).

Businesses that are already on the VAT Annual Accounting Scheme or the VAT Payment on Account Scheme, will be invited to join the VDNPS in March.

Other businesses wishing to use the scheme will need to apply online. To use the online service, they must:

  • Join the scheme themselves – agents cannot directly assist them;
  • Still have deferred VAT to pay;
  • Be up to date with their VAT return filings;
  • Pay the first instalment when they join; and
  • Pay instalments by Direct Debit (there are alternative payment methods for those without access to Direct Debit on request).

Before joining, businesses must:

  • Obtain a Government Gateway account – if they do not already have one;
  • Submit any outstanding VAT returns from the last four years;
  • Correct any errors on VAT returns as soon as possible; and
  • Make sure they know how much they owe, including the amount originally deferred and how much you may have already paid.

If a business decides to opt-in to the New Payment Scheme it will not affect its ability to request a Time to Pay arrangement from HMRC for other debts and outstanding tax payments in future.

Businesses who are unable to use the scheme or that need extra help repaying deferred tax must call HMRC on 0800 024 1222 by 30 June 2021.

Businesses may be charged interest or a penalty if they do not pay the deferred VAT in full, opt-in to the VDNPS or seek additional help to repay deferred VAT by the deadlines outlined above.

The Government’s guidance on the VDNPS can be found in full by clicking here.

Money and clock

COVID-19 Bounce Back Loan repayment period extended

The Government has announced changes to the Bounce Back Loan Scheme (BBLS) available to small businesses in the UK that will give companies longer to repay what they have borrowed.

Around 1.4 million small and medium-sized businesses have taken out a loan since they were introduced last year, amounting to around £45 billion of financial support.

Under the current scheme, firms get interest-free loans for the first year. However, many businesses that took out a loan last year will have to begin repaying the money lent to them in May.

With large parts of the country likely to remain in lockdown for many weeks to come, the Government is making changes to its existing ‘Pay as you Grow’ (PAYG) initiative that are designed to give small businesses greater support to repay their loan, without it adversely affecting their recovery.

Under the new arrangements, businesses will have the option to:

  • Extend the length of the loan from six years to 10
  • Make interest-only payments for six months, with the option to use this up to three times during the life of the loan
  • Pause repayments entirely for up to six months.

The Treasury has said that the PAYG scheme gives borrowers the flexibility to tailor their repayment schedule to meet the needs of their business.

The initiative will now be available to all borrowers from their first repayment, rather than after six repayments have been made.

This will mean that businesses can choose to make no payments on their loans until 18 months after they originally took them out.

Applying for a Bounce Back Loan

Although the Government is already looking at how existing borrowers can repay the money that they have borrowed, the BBLS remains open to new claims until the end of March.

It enables small and medium-sized businesses to borrow between £2,000 and up to 25 per cent of their turnover (capped at £50,000).

The BBLS is 100 per cent backed by the Government, which means that only minimal checks are required by lenders. Following the first interest-free year, a fixed interest rate of 2.5 per cent a year applies.

If you already have a loan but borrowed less than you were entitled to, you can still top up your existing loan to your maximum amount.

Businesses that intend to use the BBLS must make an application or top up an existing loan by the 31 March 2021.

If you haven’t yet made an application for the scheme or would like help with the PAYG scheme, please contact us.

Basic rate taxpayers could face ‘high income’ child benefit charge

Due to a mismatch of earnings thresholds, basic rate taxpayers may unexpectedly come under the scope of the High Income Child Benefit Charge in April.

The Low Incomes Tax Reform Group (LITRG) has issued a warning to families that they may be subject to a tax charge when claiming Child Benefit due to a discrepancy between two earnings thresholds used by the Government.

This is because the High Income Child Benefit Charge (HICBC), which begins to be levied where either parent earns £50,000 or more, will no longer align with the thresholds for higher rate taxpayers later this year, which means those paying the lowest rate of tax may now face new charges.

The higher rate tax threshold continues to rise each year, and while it currently stands at £50,000, this figure will rise to £50,270 from 6 April 2021.

The HICBC, however, has remained unchanged since 2013. Those found within the charge will see one per cent of the child benefit they receive effectively withdrawn via the charge for every £100 earned above £50,000. This means that those earning £60,000 or more lose all the benefit through tax.

The Low Incomes Tax Reform Group, part of the Chartered Institute of Taxation (CIOT), has said that the policy “no longer meet its original intent to only target higher rate taxpayers”.

It has suggested that the Government should compensate for inflation and rising wages by raising the £50,000 income threshold to at least £60,000. It also believes that the point at which Child Benefit is fully recovered should increase from £60,000 to £75,000.

LITRG believes that the structure of the charge encourages those liable for the tax charge not to claim Child Benefit, which may affect a claimant’s state pension record, as they potentially miss out on National Insurance credits.

It may also mean that children of those who aren’t claiming may not automatically get a National Insurance number when they turn 16.

Link: Concern as high income child benefit charge hits basic rate taxpayers

The VAT Reverse Charge for the Construction Industry Scheme – Are you ready?

From 1 March 2021, businesses within the Construction Industry Scheme (CIS) must record, report and pay VAT under the new VAT domestic reverse charge rules.

This change affects both contractors and subcontractors and the supply of certain kinds of construction services in the UK.

Under the new rules, VAT registered subcontractors who provide a service and any related goods to a VAT-registered contractor who is CIS-registered no longer need to account for the VAT.

Instead, it is the contractor or developer who will account for the VAT as an input tax, as if they made the supply to themselves.

For reverse charge purposes, consumers and final customers are called end users. They are businesses, or groups of businesses, that are VAT and Construction Industry Scheme registered but do not make onward supplies of the building and construction services supplied to them.

The reverse charge does not apply to supplies to end users where the end user informs a supplier or building contractor that they are an end user. This should be done in writing to maintain accurate records.

HM Revenue & Customs (HMRC) has defined a list of construction services that the new reverse charge rules apply to, which can be found here.

Where a mixed supply is made containing a reverse charge and ‘normal element’ then you should apply the reverse charge to the entire supply.

You will need to make changes to your invoicing and accounting procedures to take the reverse charge into account, but this may differ depending on whether you are a contractor or subcontractor.

You should also consider the cash flow implications on your business of moving to the new regime, as there may be ways to mitigate the impact.

The reverse charge will apply to all jobs completed on or after 1 March 2021, but it may also apply to work that was commenced before this date but completed afterwards.

Determining when the switch to the new VAT regime takes place depends on the tax point i.e. the date of issue of the VAT invoice or the receipt of payment.

Where the tax point is on or after 1 March 2021 then the reverse charge should be applied even for work commenced before this date. Otherwise, the existing VAT rules apply.

These new rules are mandatory – you cannot opt-in or opt-out, or only apply it to certain invoices – which is why you should seek help now if you believe you are likely to be affected.

Link: The VAT Reverse Charge

Large and medium-sized businesses need to be ready for IR35

Large and medium-sized businesses now just have a couple of months left to prepare for the changes to the off-payroll working rules (IR35).

From 6 April 2021, in most cases, the engager (employer) will be responsible for deciding whether to deduct tax and National Insurance Contribution (NICs) from freelancers and contractors, operating via a Personal Service Company (PSC), as if they were employees.

The new IR35 rules do not affect small businesses, as defined by the Companies Act 2006, where they meet two or more of these criteria:

  • Annual turnover is no more than £10.2 million;
  • A total of fixed and current assets (before deducting current liabilities, long-term liabilities and deferred tax provisions) over £5.1 million; or
  • No more than 50 employees.

When a business grows from a small to a medium or large-sized business there is a two-year transition period before the IR35 regulations fully apply to that business.

Engagers are required to undertake this IR35 determination for every contract they agree with a worker. The official guidelines are as follows:

  • Pass your determination and the reasons for the determination to the worker and the person or organisation you contract with
  • Make sure you keep detailed records of your employment status determinations, including the reasons for the determination and fees paid
  • Have processes in place to deal with any disagreements that arise from your determination.

The Government has created an assessment tool, CEST, which can be found here. This can be used to assess whether the engagement is classed as employment or self-employment and a report can be printed out as a record of your assessment if challenged by HMRC.

If the determination results in a contractor being within the IR35 rules, you will need to deduct and pay tax and National Insurance contributions to HM Revenue & Customs via PAYE.

Where an employer fails to correctly identify a disguised employment scheme, the worker’s tax and National Insurance Contributions (NICs) become their responsibility.

Where you hire a contractor via an agency it is the responsibility of the closest intermediary to the PSC to calculate, deduct and pay tax and NICs via PAYE on the contractor’s remuneration.

It is estimated that almost a quarter of the UK’s workforce now works on a contingent basis, either in the public or private sector, and so businesses must be prepared for the changes ahead.

Here are some basic steps that all businesses can take to help them prepare:

Conduct an audit of freelancers and contractors

As it will be the responsibility of the person engaging the services of a contractor to determine whether their work falls inside the new rules, you should carry out an audit of all employees and contractors currently working within your business to determine who may be affected.

Determine who falls under the rules

Last year, many businesses were considering a blanket approach to freelancers, but recent research suggests that more companies are taking a measured approach to ensure they aren’t disadvantaging contractors. You will need to determine whether each contractor falls “inside” or “outside” of the new rules.

This should be done on a case-by-case basis, as you could face serious repercussions for failing to demonstrate reasonable care to correctly classify such roles for employment tax purposes.

If the engager fails to correctly determine status, they will be held liable for any tax charges or NICs and could face a penalty from HMRC.

Communicate all changes

Once you have determined whether a person falls within the rules or not you should communicate any changes to them. It is important to demonstrate that you are taking reasonable care to assess their status.

If you determine that a person should be within the new rules and you switch them to the PAYE system, as required, they could see their take-home pay reduced considerably. You should take the time to discuss these changes with them.

There is a disagreement procedure created by the Government to be used by the contractor and the organisation paying the fees if all parties do not agree with the determination.

Create an agreement policy

Businesses should prepare an agreement policy for any new contractors they take on from April 2021, which clearly outlines the contractor’s employment status.

Existing contractors might also need their agreements adjusted in light of the IR35 changes if they run into the new financial year.

Consider the costs

Many contractors have indicated that they intend to increase their daily or hourly rate to compensate for their income tax and NICs being deducted by employers.

You should discuss this with contractors as soon as possible so you can factor any additional costs into your employment budget.

If you rely on the services of contractors or freelancers it is important that you prepare your payroll systems and process for these changes.

Link: Understanding off-payroll working (IR35)

Don’t forget to claim home working tax relief

Due to the ongoing restrictions of the Government’s Coronavirus response, millions of UK workers continue to work from home.

Many may not be aware that they can claim tax relief for additional household costs if they are required to work from home regularly, either for all or part of the week.

This tax relief is not available to those who choose to work from home, only those that must do so.

This tax relief has been designed to cover additional costs, such as heating, metered water bills, home contents insurance, business calls or a new broadband connection.

A worker may also be able to claim tax relief on equipment used in their role, such as a laptop or mobile phone. Details of this can be found here.

However, the tax relief available does not cover costs that would stay the same whether a person was working at home or in an office, such as mortgage interest, rent or council tax.

Workers can either claim tax relief at a rate of:

  • £6 a week from 6 April 2020 (for previous tax years the rate was £4 a week) – no evidence is required to make this claim.
  • the exact amount of extra costs incurred above this weekly amount – this will need to be evidenced with receipts, bills or contracts.

Taxpayers get tax relief based on the rate at which they pay tax. For basic rate taxpayers (taxed at 20 per cent), for example, claiming £6 a week would mean they receive £1.20 per week in tax relief.

Employees can claim this relief by clicking here. They will need to use or set up a Government Gateway ID using their National Insurance number and information from their P60 form.

 Link: Claim tax relief for your job expenses

Voluntary and compulsory strike-off processes paused in response to national lockdown

Companies House will pause both the voluntary and compulsory strike-off processes for one month from 21 January until 21 February to support businesses affected by COVID-19, it has been announced.

The extended measure comes in response to delays to the system caused by the third national lockdown.

In a notice to customers, Companies House said reduced resources have led to delays in processing correspondence, documents and forms, which could potentially disadvantage companies during this period.

The regulator said it will continue to publish first Gazette notices for voluntary strike-off applications, but to give business owners more time to update their records, the second Gazette notice will not be published and companies will not be removed from the register during the pause.

Both the first and second Gazette notices for compulsory strike-off applications will not be published, however, and companies will not be compulsorily removed during this period.

Commenting on the changes, Companies House said: “Pausing our strike-off processes will provide companies with more time to update their records and help them avoid being struck off the register. It’ll also protect creditors and other interested parties who might have had difficulties in receiving notices or registering an objection, or whose objections have not yet been processed.

“We’ll continue to remind customers about their filing responsibilities during this period. Our digital services are available as normal, and we encourage all customers to file online if you’re able to.”

The Companies House strike-off process was also paused during the first and second national lockdown.

What is the Companies House strike-off process?

Registered businesses are removed from the official register of companies after a period of inactivity.

You can choose to close down your own limited company by getting it “struck off” voluntarily, providing it meets a strict set of requirements.

A company can also be forcibly struck off if company documents are outstanding and the regulator has received no response, or if the company has no registered directors.

Link: Companies House pauses voluntary and compulsory strike off processes

Consultations on future of Companies House could see filing deadlines slashed

A set of consultations on the future of Companies House published in December 2020, include proposals for mandatory digital filing, requirements to tag accountants digitally with IXBRL and shortening filing deadlines to three months for public companies and six months for private companies.

The Department for Business and Industrial Strategy (BEIS) is also seeking feedback on extending the powers of Companies House to allow it to undertake further checks on filings before they are added to the register, with the authority to reject them where necessary.

Finally, BEIS is consulting on banning corporate directors, meaning only individuals could hold the position of a company director. At the moment, companies are only required to have a single individual director.

There is no guarantee that any of the proposals being discussed will be implemented and, if they are, it is likely to take some time.

Lord Callanan, the Minister for Corporate Responsibility, said: “Today’s proposals set out further detail on our far-reaching reforms to ensure the Companies House register is fit for the 21st century – allowing us to crack down on fraud and money laundering while providing businesses with greater confidence in their transactions.”

Link: Companies House reforms could cut filing deadlines