Archive for November, 2020

Are you ready for 1 January 2021?

Wednesday, November 25th, 2020

When we awake to the new year we will no longer be in transition; we will be out of the EU and will have to cope with a wide range of regulatory changes if we buy or sell goods or services to EU suppliers and customers.

The Department for Business, Energy & Industrial Strategy recently sent a “YOU NEED TO ACT NOW” plea to all UK businesses that may be affected by these changes.

Many of these reminders will have found their way to waste bins at a rapid rate of knots or be sitting in post boxes awaiting the return of staff all working from home or required to stay at home as their business is in lock-down.

The circular makes four points:

  1. Check the new rules on importing and exporting goods between the EU and GB from 1 January 2021 – different rules will apply in Northern Ireland.
  2. If you are planning to recruit from overseas from 1 January 2021 you will need to register as a licensed VISA sponsor.
  3. Use GOV.UK to identify changes affecting manufactured goods, such as new marking requirements or approvals needed, to ensure your business is ready to sell them in the EU and UK.
  4. If you are moving goods into out of or through Northern Ireland check the latest guidance.

The circular is peppered with red type to underline the importance and urgency of the DBEIS concerns. Presumably, they felt a reminder was necessary due to the expected number of businesses who are not prepared for this momentous change.

If you want to avoid potential disruption to your supply lines after 1 January 2021 it makes sense to take a look at the GOV.UK website and see what you need to do as a minimum to reduce these disruptive risks.

We are leaving and with complications due to COVID we may well be leaving with no formal trade agreement.

If you need help considering your options to protect your business please call.

Furlough claims from 1 November 2020

Tuesday, November 24th, 2020

If you are making claims under the extended furlough scheme from 1 November 2020 you need to be aware of changes in the claims process.

Perhaps the most significant is that claims need to be registered within 14 days of the relevant period end. In their revised guidance on this topic HMRC say:

You can claim before, during or after you process your payroll as long as your claim is submitted by the relevant claim deadline. You cannot submit your claim more than 14 days before your claim period end date.

When making your claim:

  • you do not have to wait until the end date of the claim period for a previous claim before making your next claim
  • you can make your claim more than 14 days in advance of the pay date (for example, if you pay your employee in arrears)

If you do not finish your claim in one session, you can save a draft. You must complete your claim within seven days of starting it. All claims for periods from 1 July 2020 to 31 October 2020 must be submitted no later than 30 November 2020.

Claims from 1 November 2020 must be submitted by 11.59pm 14 calendar days after the month you’re claiming for. If this time falls on the weekend or a bank holiday then claims should be submitted on the next working day.

Claim for furlough days in

Claim must be submitted by

November 2020

14 December 2020

December 2020

14 January 2021

January 2021

15 February 2021

February 2021

15 March 2021

March 2021

14 April 2021

 

But what happens if you cannot submit a claim by the deadline?

HMRC accept that there may be circumstances when a claim cannot be made within the statutory time limits. They confirm that you may have a reasonable excuse if:

  • your partner or another close relative died shortly before the claim deadline
  • you had an unexpected stay in hospital that prevented you from dealing with your claim
  • you had a serious or life-threatening illness, including Coronavirus related illnesses, which prevented you from making your claim (and no one else could claim for you)
  • a period of self-isolation prevented you from making your claim (and no one else could make the claim for you)
  • your computer or software failed just before or while you were preparing your online claim
  • service issues with HMRC online services prevented you from making your claim
  • a fire, flood or theft prevented you them from making your claim
  • postal delays that you could not have predicted prevented you from making your claim
  • delays related to a disability you have prevented you from making your claim
  • a HMRC error prevented you from making your claim

HMRC will not consider reasonable excuses in advance of a claim deadline.

Are you eligible for further self-employed grants?

Thursday, November 19th, 2020

Two quarterly grants have been paid to UK self-employed traders that qualify for the Self- Employed Income Support Scheme (SEISS). These covered the periods up to 31 October 2020.

The Chancellor has announced that two further quarterly payments will be made. Traders will still need to qualify for the payments and in particular:

  • Have been previously been eligible for the SEISS first and second grant (although they do not have to have claimed the previous grants)
  • Declare that they intend to continue to trade and either:
    • are currently actively trading but are impacted by reduced demand due to coronavirus
    • were previously trading but are temporarily unable to do so due to coronavirus

If these conditions are confirmed then a claim can be made for the following periods:

Quarter 1 November 2020 to 31 January 2021

The maximum that can be claimed for this period is 80% of average, qualifying quarterly earnings capped at £7,500. This is an increase on the previously announced amount of 55%.

The online portal to make a claim will open 30 November 2020 and payments should be received before Christmas.

Quarter 1 February 2021 to 30 April 2021

Details of the amount that will be paid for this quarter will be announced January 2021.

Self-employed traders who, for what ever reason, do not qualify for this grant, but are still suffering financial hardship due to COVID disruption, may be able to claim under the Universal Credit.

The SEISS is taxable…

And don’t forget, when you prepare accounts covering any period during which you received an SEISS grant these will need to be added to your taxable earnings in the relevant tax period.

Need help applying?

Please call if you need assistance claiming these additional SEISS grants.

Current businesses subject to lock-down

Tuesday, November 17th, 2020

We have reproduced below a list of businesses which must close during the period 5 November to 2 December 2020.

Business based in England and required to close

To reduce social contact, the regulations require some businesses to close and impose restrictions on how some businesses provide goods and services. These include:

  • Non-essential retail, such as clothing and homeware stores, vehicle showrooms (other than for rental), betting shops, tailors, tobacco and vape shops, electronic goods and mobile phone shops, and market stalls selling non-essential goods. These venues can continue to be able to operate click-and-collect (where goods are pre-ordered and collected off the premises) and delivery services
  • Hospitality venues such as cafes, restaurants, pubs, bars and social clubs; with the exception of providing food and drink for takeaway (before 10pm; and not including alcohol), click-and-collect, drive-through or delivery
  • Accommodation such as hotels, hostels, guest houses and campsites. Except for specific circumstances, such as where these act as someone’s main residence, where the person cannot return home, for homeless people, or where it is essential to stay there for work purposes
  • Leisure and sports facilities such as leisure centres and gyms, swimming pools, tennis and basketball courts, golf courses, fitness and dance studios, climbing walls, archery, driving, and shooting ranges
  • Entertainment venues such as theatres, concert halls, cinemas, museums and galleries, casinos, amusement arcades, bingo halls, bowling alleys, skating rinks, go-karting venues, soft play centres and areas, circuses, fairgrounds, funfairs, zoos and other animal attractions, water parks and theme parks. Indoor attractions at botanical gardens, heritage homes and landmarks must also close, though outdoor grounds of these premises can stay open
  • Personal care facilities such as hair, beauty, tanning and nail salons. Tattoo parlours, spas, massage parlours, body and skin piercing services must also close. It is also prohibited to provide these services in other peoples’ homes
  • Community centres and halls must close except for a limited number of exempt activities as set out below Libraries can also remain open to provide access to IT and digital services – for example for people who do not have it at home – and for click-and-collect
  • Places of worship, apart from for the purposes of independent prayer, for funerals or funeral commemorative events, to broadcast an act of worship, to provide essential voluntary services or urgent public support services, for registered childcare, and to host permitted gatherings.

These businesses and places will also be permitted to be open for a small number of exempt activities, including:

  • education and training (for schools to use sports, leisure and community facilities where that is part of their normal provision)
  • childcare purposes and supervised activities for children (in community centres and halls, and places of worship; and supervised activities for children in indoor sports and leisure facilities)
  • hosting blood donation sessions and food banks (in community centres and halls, places of worship, and libraries)
  • to provide medical treatment
  • for elite sports persons to train and compete (in indoor and outdoor sports facilities), and professional dancers and choreographers to work (in fitness and dance studios)
  • for training and rehearsal without an audience (in theatres and concert halls)
  • for the purposes of professional film and TV filming (in retail, entertainment and leisure venues, as well as visitor attractions)

 

Businesses based in Wales, Scotland and Northern Ireland are subject to regional variations and current restrictions for business owners in these areas will need to be accessed from regional government websites.

A capital idea to pay for the pandemic?

Saturday, November 14th, 2020

A CAPITAL IDEA TO PAY FOR THE PANDEMIC?  An Opinion: Donald Parbrook, 14th November 2020

In amongst the “noisy” media stories about Trump, Covid, Salmond and the Yorkshire Ripper, there was significant coverage of a story that capital gains tax rules may change to help pay for the pandemic.  I won’t deny the over-worked tax professionals around the UK were probably dismayed to have to add a necessity to read a 135 page report on the possible future of capital gains tax whilst trying to help clients with the reintroduction of the furlough job retention scheme at short notice.  In any case, being busy is generally a good thing.  The report can be found here, and the interesting stuff is in the first 19 pages (especially pages 16 to 19).

https://www.gov.uk/government/publications/ots-capital-gains-tax-review-simplifying-by-design

Why does this report matter?  Well, let me start by saying that for most people, changes to capital gains tax will make little difference to their lives.  Over 30 million UK citizens pay income tax but around 265,000 paid capital gains tax (according to the report).  Capital gains tax receipts are under £10bn (18/19) and less than 1% of the tax income to the Treasury.

So, let’s be honest, it would take some remarkable changes to capital gains tax to pay for the pandemic.  By the end of September 2020, the Government had already borrowed over £200Bn this year, compared with £34bn at that point in 2019 (source: statista.com).  So, the minnows of taxation income (capital gains tax and inheritance tax (“CGT” and “IHT”)) which bring in, together less than 1% of total treasury income (all sources, not just tax) would really not be the ideal starting point to pay for the pandemic.

As such, and given talk of reviewing IHT and CGT was in place before March this year, it seems this review is more about political choices and the perceptions of what is fair than actually raising money to pay for the pandemic.  The media probably made that up, or the Government press office.

Can I start here by observing that it seems odd to me that the Office of Tax Simplification produced this report.   The Executive Summary of the report starts by explaining what the purpose of that body (the OTS) actually is.  According to the first paragraph of page three, the OTS exists to improve administrative processes, as well as to simplify rules.  It is curious to me.  The request to perform such a wide review of capital gains tax seems to me beyond an ordinary interpretation of the stated OTS remit.  However, it is a really interesting and great report by the standards of tax reports!

But I can’t get away from the nagging feeling that, as the review does not seem to suggest any simplification of any tax and really summarises potential changes to CGT that may be perceived as issues of fairness in taxation, that it is a political report in some ways, rather than a technical paper of a typical style for the OTS.

It is, by its nature, going to be political because the Chancellor’s instruction to the OTS included looking at “areas where the present rules distort behaviour or do not meet their policy intent”.  My rather cynical view is that the Chancellor shouldn’t be asking about whether current rules meet policy intent unless he says whether he wants the review to consider the past policy, or his own current policy.  Many of these rules go back to the time of Gordon Brown. Are his political policies the same as Mr Sunak’s?  Hmm.

But, my concern about the OTS being drawn into the subjective question of fairness in taxation is really irrelevant.  This report makes some interesting reading really.  For those with their own businesses, those with investment portfolios and those with significant assets at the time of death, some of the ideas, if taken forward, will be likely to see a much larger tax bills in future (not enough to pay for the Pandemic though!).

The report suggests the Government, if interested in simplification, should either align income and capital gains tax rates more closely, or look at the boundary between income tax and capital gains tax.

  1. Make the tax rates for gains closer to income tax rates.

At the moment, capital gains tax is charged at 20% for individuals (assuming they are higher rate taxpayers), with a £12,300 annual exemption.  Residential property gains attract a 28% rate.  Those selling shares in private companies often pay 10% (Business Asset Disposal Relief / was Entrepreneur’s Relief).  The first question being asked is whether capital gains tax should be charged at income tax rates (or rates close to this).   This could see taxpayers suffer up to 45% tax on gains.  The proposals here might include the reintroduction of indexation.

Such a move would be very much “back in time” and those of us whose careers started more than twenty years ago remember the time when capital gains tax was structured in such a way.  I also remember well that the introduction of a taper relief (now gone) in place of indexation was supposed to ensure that inflation was not unfairly subject to CGT  – there being no true economic gain if your assets only rise in value with inflation (I am aware some tax practitioners disagree with my view on this point but would observe the OTS recognises the concept, as did tax policy in the past).

For those who have real gains, above inflation, a move to higher tax rates on gains would encourage them to “harvest” gains against their annual exemption where possible.  The report also contains a suggestion that the annual exemption is cut.  This would be particularly unpleasant for those with stocks and shares and is, perhaps, a reminder to discuss the use of ISA investment structures and pensions with a good IFA.

2. Boundary Issues – what’s a gain?  

The alternative to make the rates higher as above, is to look to tax more gains as income.  In particular there are suggestions that measures be introduced to try to ensure that the gains made by those who own their own businesses are taxed as income.  An example is a company with cash reserves that is no longer trading, where the owner might liquidate to receive the funds accumulated in a capital gains form.   The perception of the OTS is that employees and owner-managers are accessing capital gains tax treatment on remunerative reward too easily.  I don’t agree with this perception but that is what it is.  I find it hard to think of a simple and fair way to ensure that the extraction of profit from a business is always income not capital.

Other OTS Proposals and Ideas

It is well known that if a person passes away, their assets are potentially subject to IHT.  For CGT, many readers will know that assets are “rebased”, so the recipient of the inherited assets does not require to pay CGT.  IHT does not arise if the estate is left to a surviving spouse but the assets are still subject to rebasing which allows the simplest opportunity for a surviving spouse, wishing to avoid IHT and CGT to receive property and shares (say) from their late husband (or wife) and to then pass that wealth down a generation free of tax.  Previous IHT reviews have suggested that it is time to end this position.  Time will tell but it would certainly lead to some changes in behaviour and I can understand why people may feel it is unfair for a person to inherit something with no IHT whilst receiving such assets at full market value for their future CGT on disposal.

The most interesting change is the last (page 19) which is that “The Government should consider replacing Business Asset Disposal Relief with a relief more focused on retirement”.  

This is the 10% tax rate for disposal of a trading business, or shares in a trading company that many of our clients have accessed in recent years, and used to be called Entrepreneur’s Relief.

What is proposed instead is explored in brief on page 16, and in Chapter 6 (page 85) of the report.  The OTS clearly thinks the relief should go (see para 6.21 page 87).    The changes, if they proceed along the lines of this report, will be profound.  At page 89 they recommend the Chancellor consider returning to a Retirement Relief scheme :

a. Only have a relief that is available to this with 25% (rather than 5%) interest in a business;

b. Only have a relief for people after ten years of ownership; and

c. Only have a relief if the disposal is at a time of retirement in accordance with pension rules.

This sounds reasonable in some ways, but the loss of the 10% effective rate for minority shareholders or those at a younger age, would be a huge reversal of long standing tax policies introduced by Gordon Brown to encourage entrepreneurship.  If the rates of capital gains tax rise as well, then emigration to avoid capital gains tax will again become widespread.

The “£10m at 10%” which was enjoyed by some lucky people in recent years is now cut to £1m at 10% (from April 2020).  But a new system that could see those selling their business, otherwise than at retirement age, paying 20%, 30% or even 45% type tax rates would be brutal by comparison.

SUMMARY

The Office of Tax Simplification, having been charged by Mr Sunak with a review of Capital Gains Tax, have certainly provided an interesting report.  It is food for thought.  The proposals look, to a seasoned tax practitioner, like a possible return to pre 1997 type rules. 

Whilst some of the changes (e.g. around rebasing values at death or higher rates with indexation allowances) seem quite logical and fair, I am concerned about the other ideas:

  1. A decrease in the annual exemption would create additional tax returns for older taxpayers, many of whom are those most likely to be “digitally excluded” from doing the returns themselves.  It’s debatable how much income the Treasury would get as people would stop “harvesting” gains routinely.
  2. The loss of the “10% at exit” for many entrepreneurs would be hugely unpopular with the small number of taxpayers who benefit from it.  Whilst that may be tough luck, these very people are often the people who are genuinely internationally mobile and who set up and run businesses, who reinvest into new businesses.  There has to be some thanks in the tax system for those who set up a business, who fight their way through the challenges, who employ staff, rent properties and contribute to the economy.   A detailed review of why Gordon Brown introduced the incentive in the late 1990s should be undertaken.

Overall, with Capital Gains Tax paid by so few taxpayers, and being such a small contribution to the Treasury, I’m rather baffled why politicians and the media are interested in changes, unless the world is about being seen to punish wealth, rather than effective taxation.

If we want to pay for the pandemic, the truth is everybody will have to pay more and modest temporary changes to Income Tax, National Insurance and VAT would make a bigger impact than radical punitive capital gains taxation.  Asking over 30 million income tax payers to contribute more is going to make a big difference.  Asking 265,000 people with gains for more will not.

**
This article is the personal view of Donald Parbrook CTA, Tax Director, Milne Craig.  His views are his own and are not an expression of opinion or policy on behalf of Milne Craig.

 

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