Every week we take a look at what is trending in the accountancy and tax press and share items that we think will interest you. However, these are only outlines and where they relate to tax planning should not be acted upon without looking into them more completely as everyone’s circumstances are particular to them. You need to take specific advice appropriate to your own circumstances.
While every effort is made to deliver accurate, informative and balanced articles this content is general in nature and should not be used as the sole basis for making decisions.
The government plans to bring umbrella companies into the scope of the framework that regulates employment agencies and employment businesses which are currently covered by the Employment Agency Standards Inspectorate (EAS).
A40-page consultation document has been published.
The government seems to intend to regulate the minimum requirements umbrella companies will be expected to comply with and once this is achieved, there can be an inspection process implemented to ‘enforce compliance ‘and prevent non-payment of wages and payroll skimming, where umbrella companies ‘skim’ money from payslips.
It will also address non-payment of holiday pay and ‘joint-employment’ contracts, where an umbrella company and an employment business confusingly both employ the worker.
The 38 questions published in the consultation call for evidence from work-seekers about their experience of working through umbrella companies and from employment businesses and end clients about their use of umbrella companies.
CBILS and Recovery Loan Schemes
The Recovery Loan Scheme is set to end on 30 June 2022. CBILS ended in March of this year. A large number of banks currently require any outstanding CBILS to be repaid before they will even consider refinancing applications, although they may not explicitly say that to the borrower.
If the same approach is applied to RLS loans, this will mean that it is going to be extremely difficult for businesses with outstanding CBILS or RLS funding to secure continued financial support after the RLS closes.
There are moves to try to get the Recovery Loan Scheme extended past 30 June 2022. However, one problem that has not been addressed is banks reluctance to use the facility.
£150k Bounce Back Loan fraud
Muneef Ihsan (26) opened bank accounts for three companies in June 2020, solely to fleece the Covid support scheme. He then put the 3 companies into voluntary liquidation and spent the fraudulently obtained cash.
This triggered an investigation from the Insolvency Service. There was no evidence that the companies even traded, so it became clear that Ihsan only opened the bank accounts to get his hands on the £50,000 Covid-19 loans.
A close friend Mahir Towid Ul Haque also did the same with his own company.
Following an investigation from the Insolvency Service, the pair were both disqualified as directors. Ihsan, as the one that scooped up three fraudulent BBLs, received the longer ban of 13 years, while Haque faces a six-year ban. Neither can now form or manage a company without permission of the court.
The tip of the iceberg!
A report by the National Audit Office (NAO) has highlighted concerns that the youth unemployment policies in the Kickstart Scheme are either ‘insufficient’ or ‘flawed’.
The Kickstart scheme aims to provide high quality six-month work placements for 16 to 24-year-olds receiving Universal Credit. However, the NAO highlight poor monitoring and therefore ‘limited assurance’ that the scheme is having the intended benefits.
The NAO state that the private sector firms that received state subsidies to hire young people ‘might well have done so anyway’. The report also states that the government Department had not kept adequate checks on whether the jobs would have been created anyway and were of a ‘sufficient quality’.
In the summer of 2021, the government Department did acknowledge it was ‘unrealistic’ to achieve its initial aim of 250,000 young people starting a Kickstart job by 31st December 2021 and is now planning on the basis of up to 168,000 by the end of March 2022. They now estimates that it will only spend £1.26bn of the original £1.9bn budget.
£1.5bn lost to tax avoidance
HMRC reports that 28,000 individuals and 1,000 employers used tax avoidance schemes in 2019-20.
The dominant tax avoidance was disguised remuneration schemes i.e. making taxable money that has been earned, look like non-taxable money such as loans, grants, or credit facilities. However, HMRC estimated that it brought in £36.9bn of additional tax from tackling avoidance, evasion and other non-compliance over the last tax year.
HMRC states that there are around 20 to 30 organisations that are behind most of the tax avoidance schemes that are marketed to the UK public. Since last year’s report, several promoter organisations have left or significantly reduced their activity, but HMRC has seen new promoters enter the market.
HMRC also found that there were currently 60 to 80 non-compliant umbrella companies involved in the operation of disguised remuneration avoidance schemes.
In November 2020, HMRC and the Advertising Standards Authority (ASA) issued a joint enforcement notice which set out what promoters should and should not include in their internet advertising. As of October 2021, 11 websites have shut down, two were following referrals to the Advertising Standards Authority, and five had been amended to comply with the notice. A further eight websites were removed following other HMRC challenges.
HMRC seem to be making inroads.
HMRC takes the phone off the hook
HMRC is closing VAT and corporation tax phone lines on selected days in December to help them catch up with some of their backlog of VAT registrations and corporation tax refunds.
Other lines should not be affected.
HMRC will keep its eye on progress and towards the end of December, it will take a view on what it will do next. It is planning on being in a position to deliver a pre-pandemic performance across all of its core services by April 2022.
Since the Covid-19 support schemes ended in October it has been able to move more of its resources back to its core tax activities as well as adding further capacity through temporary recruitment.
Construction firm gets R&D relief
Quinn London Limited claimed SME R&D tax relief totalling between £800,000 to £1.2m in the accounting periods of May 2017 and 2018 which was refused by HMRC. On appeal they were however successful at the first Tier Tribunal.
Quinn is a construction company that operates across the UK through separate divisions each with a specific target market.
The company had 4 divisions, one dealing with listed buildings and museum, another that focused upon refurbishment projects, one that specialises in major new works and a fourth which specialises on major projects in the London area.
The company maintained that projects usually generate new technological knowledge or capability, which Quinn was then able to carry forward and exploit in future commercial work.
HMRC accepted that Quinn was an SME, that it had carried out R&D, and had expended sums on the R&D which it was entitled to deduct in computing its taxable profits for the relevant periods for corporation tax purposes.
However, HMRC denied R&D relief arguing that the R&D was carried out during the time where Quinn was providing services to its clients who therefor were paying for the R&D which was therefore subsidised.
Quinn maintained that the clients were merely paying the going market rate and so the price for the work could not be related back to the R&D content of each project.
The tribunal stated that ‘it would be wholly out of kilter with the overall SME scheme if an SME were to be denied enhanced R&D relief solely because, as is usual and to be expected of an entity carrying out a trade on a commercial basis, it seeks to recover some or all of the relevant costs of the R&D under it its commercial contracts with its clients entered into in the course of its ordinary trading activities’.
If you are in construction, could you be claiming R&D Tax reliefs.
Companies House – A Regulator?
A group of MPs are seeking tougher regulations to combat economic crime in the UK and as part of this to consider a complete reform of Companies House to make it a regulator and not just a register.
Dame Margaret Hodge, supported by Conservative MP Kevin Hollinrake, raised the issue in the Commons.
Hodge argued that the UK has a ‘very weak’ regulatory regime after decades of deregulation, that even where the UK has clear laws, the enforcement agencies are both ‘inadequately resourced’ and ‘risk averse’ in their policing of the UK’s system.
She argued that reforming Companies House would allow the UK to start ‘creating a tougher enforcement regime’ and ‘address the inadequacies’ in its regulations.
She also called for Companies House to create a system that identifies the beneficial owners of companies and a system that could limit the number of directorships held to something meaningful.
These reforms would mean that Companies House would actually be able to do ‘serious policing or regulating of who registers companies and have the ability to look into suspicious companies’.
We’ll have to wait ad see how this develops but we may be on a journey.
Election Tax Cuts
Is the Chancellor planning on cutting taxes before the next election?
According to a report in the Times he has already put the wheels in motion with various reviews being ordered.
The options being floated are a 1p cut in the basic rate of income tax by 2023-24 and a further 1p cut in 2024-25, a cut to the rate of VAT, scrapping the 45% high rate of income tax and raising the threshold at which inheritance tax (IHT) becomes payable.
Given the increase in tax take from freezing allowances, these are minor give aways but might look good to electors.
HMRCs “deal” with General Electric
HMRC has entered into a settlement agreement with General Electric. Reports seem to suggest that GE have effectively walked away from £1bn tax liability which included allegations of fraud.
The charity, TaxWatch, argues that given the allegations of fraud made by HMRC, the department should have initiated a criminal investigation under their criminal investigations policy. Instead, HMRC exonerated General Electric from any wrongdoing in its settlement without any investigation taking place under the criminal law. The case revolves around the financing of certain General Electric companies in Australia, which the company routed via the UK in order to gain a tax advantage.
When announcing the settlement, General Electric disclosed that HMRC had settled for no current tax payment and GE accepted a deferred tax liability of $112m (£84m).
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