As we all start to lift our heads again and peer at the horizon HMRC is starting to change gear and its normal plumage is starting to return and the “Mr nice guy” feathers start to drop off. The rhetoric is beginning to move away from helping to keep businesses afloat, to checking that these struggling businesses have been and are being straight with HMRC.

The rules for getting support have been complex and confusing and so inevitably there will be mistakes. We will have to wait and see how HMRC interpret these mistakes, whether they are innocent or fraudulent.

HMRC and SEISS 4 claims

HMRC will be shortly be contacting taxpayers who have met all the eligibility requirements for the SEISS4 grant to do some eligibility checks in advance.

SEISS 4 covers 1 February 2021 to 30 April 2021 and will be open to those who actively traded during the 2019 and 2020 tax years, as evidenced by their tax returns.

You will need to declare as part of the application process that you intend to continue trading in 2021 and that you suffered a significant drop in trading profits as a result of the pandemic. There is also the original threshold which was earning more than 50% of your income from self-employment (up to a maximum of £50,000 a year).

There are new eligibility criteria and HMRC have introduced some pre claim checks. One of these pre-checks consists of HMRC ringing some potential claimants to make further eligibility checks such as proof of identity and evidence of trade, consisting of 3 months of worth of business bank statements from the 2019-20 tax year.

The concern is that some people may have filed tax returns for last year in the hope of getting their hands on the grants. HMRC has selected a proportion of newly self-employed to do pre-claim checks. If they only did this after the claims were received, it would slow down the payment of the support.

 So HMRC want to see that there is cash coming into the trade and to ensure the taxpayer is eligible for a grant rather than having to claw it back afterwards.

HMRC is continuing to tweak the criteria and processes for SEISS claims to channel financial support to the people who they think need it most and so the fifth grant covering April to June, will be linked to amount the trader’s turnover has gone down.

Once it has run those final checks, HMRC said it will start sending out notices to claimants advising them of the date (in late April) from which they can log their claims for the next tranche of funding. They will be able to file their claim at any time from that date in late April until 1 June.

Any claimants who may have missed the deadline for providing the required evidence to HMRC should get back in touch with HMRC as the delay in payment is just a temporary pause, not a closing of the door. If you work with HMRC in the meantime, they may reinstate valid claims.”

Agents will not be able to claim the grants on behalf of clients using their government gateway log-in details. Indeed, it is apparent that this will trigger a fraud alert and result in significant delays to the claimant receiving payment.

HMRC – CIS changes even after 50 years of trying.

The first attempt at addressing what the Inland Revenue considered fraudulent practices in the construction sector came way back in 1972 with the introduction of the Construction Industry Tax Deduction Scheme. Major changes were introduced in 1999 and again in 2007.

The new changes may not seem earth shattering but they provide further evidence, if it was needed, that HMRC are not satisfied that they are effectively combatting tax collection problems in construction, so these may not be the last changes that we will see.

CIS set-off amendment

Some sub-contractor companies may be entitled to set-off any CIS deductions they may have suffered during the tax year against their liabilities as an employer. The tax you suffer on your income can be treated as a down payment of your PAYE liability to HMRC.

HMRC now has the power to amend and restrict the CIS deduction figure claimed on RTI via the Employment Payment Summary (EPS) to an amount which matches any evidence either held or provided to HMRC.

Where changes are considered necessary, HMRC may restrict the company from making any such set-off claims in the same tax year altogether.  

These changes have the potential to have a significant impact on the subcontractors cashflow.

Deemed contractors.

Where a business is not a mainstream construction business the CIS rules only apply where expenditure on construction operations exceeded £1m, on average, in each of the last three years the business If so, the business had to operate CIS from the next period of account. Conversely, when it was less than £1m in each of three consecutive years it no longer had to operate CIS.

The new rules means a business will have to monitor expenditure on construction operations far more frequently and will have to register as a contractor when the cumulative expenditure on construction operations exceeds £3m within the previous 12 month period. It will then need to operate the CIS on the next payment to a sub-contractor. This would continue until expenditure on construction operations falls below £3m within the previous 12 month period or when no further payments are expected to be made under any construction contract.

This will require much tighter monitoring of construction spend. Such oversight is essential to avoid the potential of being slapped with a penalty for failure to operate the CIS and, ultimately, being put on the HMRC naughty list and attracting much closer ongoing scrutiny from HMRC.

Materials

The rule change here is aimed at contractors and sub-contractors who claim the cost of materials on the same project even if they did not directly meet the cost of the materials.

It is incumbent on a contractor to make sure any material costs actually constitute the direct cost of materials actually bought and used, or to be used, by a sub-contractor in respect of the particular construction project.

The contractor must keep in mind that the responsibility rests with them under the CIS rules. It will require much closer scrutiny of all materials charged by subcontractors to the main contractor.

CIS registration

HMRC could impose a penalty for the provision of false information on registration for payment under deduction or Gross Payment Status.

This penalty regime has been expanded and will now apply to anyone that is able to exercise influence or control over a person who is registering for CIS. This will include agents, directors, company secretaries or indeed anyone HMRC considers to be able to influence or have control over the business or the person applying for CIS registration.

Recovery Loan Scheme open for applications

The RLS opened for applications on 6 April 2021 and provides financial support to businesses across the UK as they recover following the coronavirus pandemic.

It is available to businesses affected by the pandemic, including those who have already used existing loan schemes such as the Bounce Back Loan or Business Interruption Loan schemes. The Recovery Loan Scheme has a funding pot of £75bn and will operate until 31 December 2021.

The main stipulation is that the business must have been affected by Covid-19 and the finance can be used for any legitimate business purpose – including managing cashflow, investment and growth.

If a business has already borrowed from any of the other coronavirus loan schemes, the Recovery Loan Scheme is still available, although the amount borrowed under an existing scheme may in certain circumstances limit the amount available to borrow under RLS.

Accredited lenders include Bank of Scotland, Barclays, HSBC, NatWest, Lloyds Bank, Paragon, RBS, Santander, Skipton Business Finance, Yorkshire Bank and Clydesdale Bank.

A lender can provide up to £10m as one of the following facilities:

• term loan;
• overdraft;
• invoice finance;
• asset finance; and
• guarantees.

RLS gives the lender a government-backed guarantee against the outstanding balance of the facility but this is only in the last resort and you remain liable for the whole debt in the first instance.

For loans of £250,000 or less, the lender will not take any form of personal guarantee.

For amounts over £250,000, the lender has the discretion to decide whether to take personal guarantees.

The annual effective rate of interest, upfront fee and other fees cannot be more than 14.99%.

Lenders will be required to undertake standard credit, fraud, Anti-Money Laundering (AML) and Know Your Customer (KYC) checks for all applicants. When making their assessment, lenders may overlook concerns over short-to-medium term performance owing to the pandemic.

Applicants for finance will need to provide certain evidence to show they can afford to repay the RLS-backed facility. This is likely to include the following:

• management accounts;
• business plan;
• historic accounts; and
• details of assets.

It is important to remember that these are loans from your bank and not HMRC. Your bank will operate all their normal authorisation and collection procedures.  Only in the event of something going seriously wrong will any call be made by your bank on the governments guarantee.