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 the 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.
Are there tax cuts on the way?
Rishi Sunak recently addressed the Annual Dinner of the Confederation of British Industry (CBI). In his speech he indicated that there would be tax cuts for businesses in his Autumn Budget.
But his aim is to boost investment and only to cut your taxes if you play the game. He has said that in order to get the tax cuts, you will either have to ‘invest more, train more and innovate more’. So you will have to spend money to save tax./ It is not a tax strategy aimed at improving company cash flows in the short term. In that respect you are on your own.
He has a longer term strategy and plans to lay out a path to higher productivity, higher living standards, and a more prosperous and secure future. Given his apparent emphasis on companies, this does not appear to be an indication of support for unincorporated businesses. Which is the majority of you.
However, we will need to see what he actually does in the autumn.
In the Budget last year Sunak said he would increase the UK’s corporation tax from 19% to 25%, which aims to raise around £17bn annually. Small companies will continue to pay the lower 19% rate.
The Chancellor closed his speech by stating that the government’s ‘firm plan is to reduce and reform’ business taxes but that businesses needed to their bit too.
Some R & D Tax Credit Payments put on Pause.
HMRC is currently investigating irregularities in some claims for the this tax relief.
HMRC has indicated that the move may cause delays to its processing times for other R&D tax credit claims, in order to prevent abuse of the relief.
They have also said that if a claim that is incorrect, inflated, or fraudulent then a penalty could be issued.
In December, accountancy firm Azets issued a warning about rogue R&D advisers who were targeting small businesses and making inappropriate claims. I think we have all seen claims that did not seem to sit right but HMRC until now seem to have accepted them and given the relief.
A recent report from Azets has found that the monetary value of fraudulent R&D claims in 2021 was £303m, which was up from £271m in the previous year. The firm also stated that it expected HMRC to tighten its controls on the relief after the Chancellor announced reforms of the R&D tax credits in the Autumn Budget 2021 which are to come into effect in April 2023.
New VAT Penalty Regime
The new VAT penalty regime was due to be introduced for VAT return periods beginning on or after 1 April 2022, but the introduction has now been deferred until January 2023. This is to allow HMRC extra time to make the necessary changes to their systems.
The New Penalty Regime will apply for VAT periods starting on or after 1 January 2023. It will comprise a two-tier penalty regime.
- Late submission penalty:
HMRC will issue a single penalty point for a late submission of a VAT return and once the business has exceeded a points threshold for multiple missed returns a flat penalty of £200 will be imposed for each late return.
There will be a late submission penalty using a points-based system, depending on how often VAT returns are submitted and is designed to penalise those who frequently file late returns.
The thresholds are:
Points can be reset to zero by submitting all returns by the due date for a set period, which will mean: 24 months for annual filers, 12 months for quarterly filers and 6 months for monthly filers. However you must also have filed all outstanding returns to HMRC for the previous 24 months.
The will be separate points totals for each tax so Income Tax and VAT will each have tehri own separate totals.
- Late Payment Penalty
There will also be a a two-part penalty system for late payments. The penalty will be calculated on the amount of tax outstanding and how long the late payment is overdue.
- Initial Charge:
2% of the outstanding tax – if still unpaid 15 days after the due date.
4% of the outstanding tax – based on the tax still unpaid 30 days after the due date.
If a ‘time to pay’ is agreed, the penalty will stop accruing from the date the proposal is submitted by the taxpayer.
- Secondary daily charge:
4% per year on the outstanding amount starting from 31 days after its due date until the business pays the tax that is due.
HMRC will not be charging a first late payment penalty for the first year to 31 December 2023, if paid in full within 30 days of the payment due date.
9% Annual Inflation
The Consumer Prices Index (CPI) shows inflation reached 9%at the end of April 2022
This is the highest level seen in the last 40 years. The 2% increase from March (7%) to April (9%) is also the sharpest monthly increase since 1980.
The Office for National Statistics stated that the increase in the energy price cap in April was the main reason for the jump in the consumer prices index.
Higher fuel and food prices, have also pushed up the cost of living up, with inflation expected to continue to rise this year with the end of the reduced rate of VAT on hospitality also contributing.
It seem inevitable that businesses will have to increase prices to absorb rising costs although this may be difficult for businesses supplying non business customers.
however, any price rise is far less forgiving in the B2C sector, where retail and hospitality in particular will be first impacted.
‘Whilst it is of little comfort to SMEs and the public, much of the inflationary pressures are resulting from higher household energy prices and fuel costs rather than anything fundamentally unsound in the economy. It may be a case of holding our nerve until inflation peaks at around 10% or above before starting to fall next year.’
The Bank of England expects inflation to peak at over 10% later this year However, we will, have to wait and see what happens. Depending on the nature of the business you may well feel that your cost inflation exceeds the official general rate.
In the UK, inflation spiked from 9.2% in September 1973 to 12.9% in March 1974. Inflation peaked at 24.2% in 1975 and unemployment also climbed sharply.
Unwanted Attention! Who is to blame.
A question came up recently about who is responsible if staff in the hospitality sector suffer harassment either form customers or fellow staff, as the fun goes too far.
The Equality and Human Rights Commission (EHRC) has published a new action plan and checklist for employers, to help them stop sexual harassment in the workplace. The guidance highlights that employers can be held vicariously liable should incidents occur, if they don’t take reasonable steps to prevent it in the first place.
The action points and checklist can be implemented into your business in order to safeguard staff. However the measures need to be properly and effectively communicated with staff in order to ensure their effectiveness.
The checklist also encourages relevant changes to the working environment and working practices to reduce the opportunities for an employee to suffer sexual harassment.
By implementing these steps into their business, you should create a safer working environment for your staff, reducing the chances of sexual harassment happening and developing the right attitudes by and between your staff.
If you think this is an issue for you have a look at the EHRC checklist and consider implementing new procedures and staff training.
Take Away Owner Taken Away
Ying Ni, of Hull, was sentenced to two years and four months in prison at Hull Crown Court last week, after she admitted to nine offences of fraud or cheating the Public Revenue between 2015 and 2020. Ni was also given a five-year director ban on top of her sentence.
Ni’s husband, Fengsi He, who was a chef at the Moon River takeaway, appeared with her in court under similar charges, however the charges against him were dropped.
Ni started the Chinese takeaway in 2013 with her husband and initially ran the business legitimately for the first two years. The couple faced several food hygiene offences in 2014 but managed to address the issues and run a widely popular takeaway restaurant in the area. Ni’s husband also ran a separate takeaway in Hornsea, East Yorkshire.
Moon River was registered with takeaway ordering apps Just East and Hungry House in 2013. Ni reported to HMRC that the business’ turnover between 2013-18 sat at £341,483.
In December 2020, HMRC opened an enquiry which revealed that from Just Eat and Hungry House alone, Moon River had a turnover of £950,990 in the relevant period.
The investigation from HMRC found that Ni had repeatedly underreported her turnover and the taxable profits on the business, failed to register or submit any VAT returns for the years in question as well as evaded payments of VAT, income tax, and corporation tax.
For the years in question, £87,378 was evaded in income tax. For VAT, the investigation revealed that £68,349 worth of VAT was evaded for 2018-19 and £44,787 for 2019-20 as she again failed to provide accurate trading figures for turnover and profit.
Ni admitted to the crimes in court and accepted that she had acted ‘dishonestly’ and stated that she would pay back all the money that she owed to HMRC.
However, Judge Sophie McKone stated that the crime was done ‘out of sheer greed and not ignorance’.
We have seen HMRC open investigations after obtaining card turnover figures from the card companies and comparing them to the turnover declared on the VAT returns. If there is a difference it is only a matter of time till they catch up with you.
Energy Windfall Tax Proposals Fail
The vote, which was brought to parliament by Kier Starmer and the Labour party through an amendment to the Queen’s Speech, was voted down with 301 against, versus 244 in favour.
Not one Conservative MP voted for the motion.
Before the vote on Tuesday, Labour released calculations that forecast North Sea oil and gas profits for this financial year and estimated that the total profits for the year in the sector would be £19.5bn, up from £11.75bn the year before.
Labour said that a windfall tax would give the ability to support households and, based on the estimated extraordinary profits being realised, give them an extra £600 a year.
Zero Hours Contracts and Exclusivity Clauses
If you have a requirement for trained staff to work irregular hours you might be tempted to use a zero hours contract but include an exclusivity clause preventing them from working anywhere else, so that they are always available to work for you, whenever you need them, potentially at short notice.
It may be a nice idea, but you cannot do it.
This has been law since 2015, and means that it would not be enforceable, and any employees dismissed for failing to comply with the clause, or worker who suffers a detriment as a result, would be able to bring a claim against their employer.
At present, this ban only applies to zero hours contracts but in May 2022, the government confirmed its intention to extend this protection to include contracts which guarantee certain hours.
Company Insolvencies Double
Registered company insolvencies in April 2022 more than doubled the number registered in the same month in the previous year.
However, there has been a slight improvement between March and April 2022.
These trends are likely to be partly driven by government measures put in place to support businesses and individuals during the pandemic, including temporary restrictions on the use of statutory demands and certain winding-up petitions.
On 31 March 2022, all of the remaining temporary insolvency measures ended, including the return of winding up orders.
The figures reflect the continued toll that the economic turbulence is taking on the business community.
Any directors who are worried about their business should seek advice and preferably sooner rather than later. Having that conversation at an early point is likely to result in a far better outcome than if you wait and the problem festers.
The upward trend in corporate insolvencies may well continue as the cumulative effects of the problems brought about by pandemic start to take their toll.
£14m Penalties issued for living Wage Offences
HMRC issued 580 penalties worth £14m in 2020-21 for national living wage and national minimum wage offences but the total was down from the previous year which hit £18.5m.
HMRC stated that the majority of complaint-led cases in 2020-21 were received via HMRC’s online complaint form with 2,472 cases identified through this, as opposed to the ACAS helpline which identified 283 cases and ‘other’ sources with 16.
The report stated that the number of worker complaints initially dropped as the Coronavirus Job Retention Scheme (CJRS) meant that many low-paid workers were not working and not entitled to be paid the minimum wage. HMRC also stated that it was ‘likely compounded by workers being reluctant to complain due to concerns about losing their job’.
The budget for enforcement and compliance has nearly doubled since the introduction of the national living wage, increasing from £13.2m in 2015-16, to £27.5m in 2020-21.
HMRC stated that the increased budget provides more HMRC compliance officers to look into worker complaints, undertake enforcement activity and, increasingly, promote compliance.
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