HMRC has started to autocorrect 2020/21 tax returns where the SEISS grants reported do not match its records and has restarted pre-claim checks in advance of the fifth grant. ICAEW’s Tax Faculty has the latest information.
From 19 June 2021, HMRC has started to automatically correct 2020/21 returns where the information reported on SEISS grants does not match HMRC’s records. HMRC will issue a revised SA302 calculation showing the correction and is also developing further communications for those affected. Returns received before 19 June will need to be corrected manually by HMRC and may take some time to clear.
The different scenarios and required actions by taxpayers/agents are as follows:
- Grant omitted from the return – accept HMRC’s correction if the SEISS grant figure is correct, otherwise contact HMRC to dispute the amount of the correction.
- Grant was reported on the return but in the wrong box – accept the correction and amend the return to remove the grant from where it was erroneously included.
- Grant amount reported does not match HMRC’s records – check against records and either accept or dispute the correction.
- No grant was received – this may suggest that a grant was claimed fraudulently using the client’s personal details, contact HMRC on 0800 024 1222.
- Return does not include self-employment or partnership pages – HMRC will interpret this is as a cessation of trade and correct the return to recover the whole of the grant on the basis that the client was not entitled to claim.
In advance of claims for SEISS 5 grants opening in late July, HMRC is writing to a further 27,000 taxpayers who started trading in 2019/20 to ask them to confirm their identity and provide evidence of trading. The checks are the same as those carried out in advance of SEISS 4.
Software development costs
Many companies do not account for their software development costs as part of intangible assets or as research and development.
Most companies incurring material amounts of costs on software development, either outsourced or in house, capitalise these costs. It also seems as though software development is more likely to be recognised as an asset by more dynamic companies, perhaps because they want to show aggressive growth in profits, so stick it in the balance sheet.
One big consideration here is whether companies are claiming the significant tax incentives currently available to Research and Development. Whatever size of company you are, there are some significant tax savings to be had.
Useful Tax Breaks
Capital gains tax: business assets disposal relief (BADR)
Business assets disposal relief (BADR) (formerly entrepreneurs’ relief) provides a preferential rate of capital gains tax (CGT) of 10% (for higher and additional rate taxpayers) on the first £1m of lifetime gains. There are a number of conditions that need to be satisfied and so some care is required.
In order for shares to qualify, generally the individual needs to be an employee or director during the two-year period ending with the date of the disposal. If you leave a few months before the package is agreed, you will not qualify. You must still be a director or employee at the time of the disposal.
The company needs to be a trading company or the holding company of a trading group. If the company holds material non-trading assets for a prolonged period, this could mean that BADR will be lost.
If a taxpayer sells their otherwise qualifying shares and accepts an earn out, then there may be a further gain on the payment of the earn out which would not attract BADR.
Share for share exchanges.
When shares in one company are sold in exchange share issued in another it is often possible to roll over the capital gain into the new shares and pay only when you sell these shares.
But the new shares must be issued by the new company. If existing shares are used in the exchange, you do not get the roll over. Also, the new share must be in the company that is buying your shares.
Where the consideration is a mixture of new shares and cash, the shares element could qualify for rollover CGT relief, but the cash would not.
Enterprise/Seed Enterprise Investment Scheme
Enterprise Investment Scheme (EIS) and Seed Enterprise Investment Scheme (SEIS) provide valuable income tax and capital gains tax reliefs to investors in high-risk start-up companies. There are a lot of qualification rules, and you need to keep an eye on developments with the investments. If there is a group re-organisation this could, if certain conditions are not met, result in the loss of relief. Likewise, if the investor receives certain types of value from the issuing company.
£500k covid loan abuse
Since February 2021, the Insolvency Service has petitioned the courts to wind up five limited companies and have disqualified a director for 12 years after they collectively claimed £490,000 in fraudulent covid-19 support loans.
These businesses include a furniture retailer in Manchester and three Scottish companies which all claimed £50,000 in bounce back loans on the basis of false information. A Glasgow-based-company was wound down after it secured two coronavirus business interruption loans totalling £240,000, based on false information.
A Birmingham business director has also been disqualified for 12 years for fraudulently claiming £50,000 through the bounce back loan scheme (BBLS).
The 26-year-old, Raashid Khan was director of Ikandy Wholesale Ltd and forged a document to convince his bank that the winding up order that his company had received had been revoked, which allowed him to transfer around £70,000 out of the account, including a £50,000 bounce back loan, which he had secured less than two weeks previously, days before the company went into administration.
The Insolvency Service will soon be given stronger powers to investigate directors of companies that have abused covid-19 support schemes.
One of the measures will offer the Insolvency Service the power to give relevant sanctions such as disqualification from acting as a company director for up to 15 years. It will also help to prevent directors of dissolved companies from setting up a near identical business after the dissolution.
The new powers will be entirely retrospective and will allow the Insolvency Service to conduct investigations into all instances that took place before the law came into force.
Opting out of NHS pension scheme
Over the last four tax years approximately 180000 NHS staff have opted out of the NHS Pension Scheme.
Many of those who have opted out will also be opting back in again which is referred to as a ‘hokey cokey’. This is a mechanism used by members to reduce the pension growth for one or more years to avoid being hit by the annual allowance tax charges.
The annual allowance is a threshold which restricts the amount of pension savings you are allowed each year before tax charges apply currently £40,000. Included in this is a calculated of the growth in the value of the individual’s pension in the year, which is added together with other pension contributions to determine whether the £40,000 limit has been breached. The NHS pension is contributed through a superannuation deduction from salary, and we have seen reports of doctors reducing their hours to reduce their pay and superannuation payments due to these tax charges.
There is also the question of the lifetime allowance, which was frozen at £1.07m in the March 2021 Budget as once the LTA threshold is exceeded, pension contributions are again subject to a tax charge.
Temporary Workplace – Claiming Expenses
HMRC has reaffirmed that it is not changing its approach to tax relief on employees’ travel expenses to temporary workplaces in light of the impact of coronavirus pandemic.
Under the 24-month rule, employees spending at least 40% of their time at a temporary workplace for up to 24 months of “continuous work” are entitled to tax relief on their travel expenses. However, if it becomes apparent that the placement at the temporary workplace will go on for longer than 24 months then the employee is no longer entitled to any relief.
This means that employees working at a temporary workplace and then furloughed will no longer be entitled to claim tax reliefs on their remaining time at the temporary workplace if the furloughed time takes them over 24 months of “continuous work”.
It could be that the contract is for 22 months but at the start they are furloughed to 3 months. When they return to the contact work, it is known that the “continuous period of work including furlough is over 24 months and so no deduction is available, and any expenses paid will be taxable.
If you have any questions about any of these, you know where to find us. If you prefer, just give me a ring on 07770 738770 or email me at firstname.lastname@example.org.