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.

 

Microsoft IT Outage

The outage has affected companies worldwide including airlines, banks and software providers, and many. It was a global issue, with more than 1,000 flights being cancelled worldwide.

The issue was caused by problems with a cybersecurity update to Falcon Sensor software by Crowdstrike..

CrowdStrike have said that it was a defect found in a single content update for Windows hosts and was not a security incident or cyberattack. The issue was quickly identified, isolated and a fix deployed.

Numerous companies have been unable to access their payroll software due to the Microsoft outage. This could have had serious implications for businesses, particularly those who process payroll on a weekly basis. It could also have resulted in a backlog with regard to processing payrolls for the coming month end, delaying employees from receiving their monthly wage.

Social media has not been immune with Meta worst affected, although X escaped the affects.

Facebook, Instagram, and WhatsApp were all down for extended periods, leading to an significant economic as well as reputational damage caused by such disruptions.

So, it was a faulty security update that caused the issue. Usually, it is cybersecurity vendors that are selling protection.

While Crowdstrike eventually apologised, and deployed a fix, the solution was not quite as simple as it appeared and will take a huge amount of work to get computers back up and running. Crowdstrike’s faulty software update had triggered what technicians call the “blue screen of death” with computers crashing and most needing to be restarted manually in ‘Safe Mode’ so that the faulty update could be removed and then the fixed version installed which is likely to be an incredibly time-consuming process involving so many computer systems.

Crowdstrike’s shares plummeted by 20% in unofficial trading in the US, equal to a $16bn loss in value.

As flights start to resume, services return to normal and IT staff scramble to get everything back online, regulators will be asking how this could have happened.

With the cyber threat landscape becoming ever more complex, cyber insurance coverage is becoming ever harder to get. Not only are the premiums getting more expensive, but the conditions are becoming more onerous and the limits and exclusions are potentially more widespread.

Many organisations found themselves falling back on manual processes with doctors surgeries, many of which had stopped taking calls as they sought to push all requests online, having to pick up the phones again. At Heathrow airport security checks slowed considerably as barcodes on boarding passes could not be read and staff needed to check everything manually.

A major aspect of crisis management is having a backup plan and knowing what processes can be done manually in the event of an outage.

These incidents show how vulnerable all organisations are to supply chain threats and the impact on you if compromised by the actions of a trusted supplier (as happened with Crowdstrike) or if a critical supplier that you rely on is itself taken out, such as banks, ports and power companies.

 

PAYE Settlement Agreements

Many employers provide rewards to their employees, but any gift or benefit that is provided as part of their employment will incur a PAYE income tax and a national insurance (NI) liability.

Although it costs the employer more, you can choose to pick up the tab for the PAYE and NI, using a PSA, a PAYE Settlement Agreement.

PSAs allow employers to cover the tax and NI liability on behalf of their employee. They make one annual payment to cover all the liabilities on minor, irregular or impracticable expenses or benefits.

By adding rewards onto a PSA, employers, payroll teams or their agents don’t need to complete P11Ds. The employer will pay Class 1B NI as part of the PSA.

But what is meant by minor, irregular or impracticable?

Minor expenses or benefits have no monetary limits to define the valuation of ‘minor’. Examples would be:

• gifts for significant events, such as marriages, a new child, moving house
• telephone bills
• long-service awards which don’t meet the tax exemption.

Irregular expenses or benefits are those that, as the name implies, are paid at irregular intervals. This means they would be difficult for an employer to keep track of and report on. Some examples would be:

• using an employer’s holiday home
• relocation expenses (over the exemption at ITEPA 2003 Chapter 7).

Impracticable expenses and benefits are those that would truly be impractical to determine the value of the reward without a disproportionate amount of effort or record keeping. Some examples here would be:

• attendance to a corporate hospitality box
• shared meals or taxis.

Certain things cannot be included on a PSA, such as cash payments, bonuses, round sum allowances, beneficial loans and high-value benefits such as company cars.

An employer can apply directly to HM Revenue and Customs (HMRC) for a PSA or an agent can do so on their behalf.

The easiest way is to apply online using a Government Gateway user ID, but you can also apply by post. Details of both options can be found on gov.uk.

You can apply for a PSA at any point before 6 July following the end of the tax year in which you wish the rewards provided to employees to be covered by the PSA.

Once you have applied for a PSA and it’s been approved, you don’t need to renew the PSA each year if the items you wish to cover haven’t changed.

You must pay any owed tax and NI to HMRC by 22 October (19 October if not paying by electronic transfer) after the tax year the PSA applies to.

 

DWP Hiring 6000 Case Reviewers

With fraud and overpayments reached an estimated £9.7bn in 2023-24.

Total spending on benefits rose to £266.1bn in 2023/24. It attracts organised gangs, such as the group of Bulgarians that were jailed for stealing £54m through fraudulent benefit claims last month. There are also tens of thousands of individuals apparently taking advantage of the system to profit from the negligence of the DWP.

The majority of the fraud was from universal credit,

The DWP has indicted that the number of people willing to commit ‘small scale fraud’ will increase by a further 5% annually if it is not curbed.

This includes not declaring additional income when paid in cash and not notifying the DWP of an additional person living in the home.

Counter fraud and compliance saved £1.21bn, while targeting specific cases saved £90m, and earnings and pension verification saved the DWP a further £60m.

There is already a large team of reviewing agents, which will increase further shortly as the DWP will begin to work with external providers.

In 2025 the DWP’s intends to employ 5,930 reviewing agents, increasing the 2,000 employed as of September 2023, which is ahead of its July 2024 target.

This influx of reviewing agents should ensure fraudulent and incorrect claims being processed faster, leading to a reduction in fraud levels.

Additionally, from 2022-2025 DWP is investing £70m in advanced analytics in a bid to crack down on fraud and error.

The use of this technology does not replace human judgment or deny a payment to a claimant. Caseworkers always look at all available information to make a decision.

Another deterrent against fraud began in September 2023 when the DWP and HMRC which will see the departments working closely with each other. This should create a collaborative environment for the sharing of data on National Insurance (NI) records and NI credits.

 

Scottish Government £2.6m Fund for Start-Ups

The Scottish government has launched a pilot programme, focusing initially on the south of Scotland, which will fund specialist enterprise coaches to provide tailored advice and guidance to help individuals – particularly women and other under-represented groups – kick-start their business ideas.

Grants of up to £1,000 will be available to give practical help to turning business concepts into a reality.

Deputy first minister Kate Forbes said: ‘Economic growth is one of the key priorities of the Scottish government. Scotland has all the ingredients to be one of Europe’s fastest-growing start-up economies: an economy that is strong, successful and dynamic.

 

Accountants – Music While You Work

Over half of accountants say they feel stressed at work and playing music could relieve some tension.

Research published recently found that 27% of accountancy firms in the UK are working in silence.

Other firms that do have music in the office found a reduction in stress levels a significant number of staff, improving the general mood in the workplace, and anecdotally increasing productivity.

A distinction that does not seem to have been drawn is between allowing employees to listen to music on personal devices on the one hand and having music broadcast in the office. We prefer the former and discourage broadcast music.

While music might ease the pressure for accountants, long working hours was another problem with over half (56%) of accountants working eight hours or more with 14% pinned to their desk nine hours a day.

Accountancy is generally seen as an inherently high-pressure profession with accountants facing intense workloads, tight deadlines and demanding clients. Effective stress management is highly personal, and what works for one person won’t necessarily work for another. sometimes the most effective measures to manage stress are often the simplest, with music being one of them.

 

National insurance Cuts

The tax take continues to soar. National insurance rates may have been slashed but even this hasn’t stopped the upward momentum – receipts for income tax, capital gains tax and national insurance are up £1.9bn so far this tax year. Inheritance tax receipts are also on the way up.

This is largely down to frozen tax thresholds. These sound less scary than tax rises but, over time, they are hugely effective at pulling more people into paying more tax. With these threshold freezes in place until 2028 the tax take will continue to rise.

From April to June 2024 PAYE income tax and national insurance contributions (NICs) pulled in £195.1bn, a huge £4.7bn more than the same period in 2023.

A hike in corporation tax to 25% has contributed to soaring business tax receipts, up £1.7bn to a quarterly total of £20.5bn.

Income tax receipts from April to June 2024 increased by over £4bn with the reduction in NICs being more than offset by the effect of freezing reliefs and tax bands generally pulling more people into paying higher rates.

 

HMRC: Workplace Nurseries

HMRC is encouraging employers to check that they meet the ‘partnership requirements’ for the workplace nursery tax exemption.

There is a tax exemption for what is commonly referred to as a ‘workplace nursery’. Broadly, this is a benefit where the employer provides for the care of the employee’s child. There is no charge to income tax where certain conditions are met. It is common for the benefit to be provided to employees through a salary sacrifice arrangement.

The conditions include that the care is provided at premises which are available to the employer only or are shared in such a way that the ‘partnership requirements’ are met. A key partnership requirement is that the employer is wholly or partly responsible for financing and managing the provision of the care.

It is possible for employers to enter into partnership with a commercial nursery to provide the childcare. However, HMRC has identified a small number of workplace nursery scheme operators where the nature of the services provided may mean that the partnership requirements would not be met.

HMRC has published guidance which it hopes will clarify the partnership requirements.

The employer must accept ‘material financial responsibility’. This is more than paying for places at a commercial nursery and making contributions to fixed costs. It means accepting the financial risk associated with running a nursery, including being jointly responsible for losses.

HMRC is also ware that some workplace nursery scheme operators advertised their services as having been approved by HMRC. HMRC says that it ‘will never give approval for a business to advertise that a scheme is tax compliant’.

 

Forecasting the Next Budget

In February 2024, the Labour Party indicated that, once elected, it would hold a single budget each year in the final two weeks of November. This year it will be 30 October.

They also said that its significant fiscal events would be subject to an independent Office of Budget Responsibility (OBR) forecast.

Main manifesto commitments

• Charging VAT on private school fees.
• Increasing the rate of stamp duty land tax (SDLT) on purchases of residential property in England and Northern Ireland by non-UK residents by one percentage point.
• Closing ‘loopholes’ in the windfall tax on oil and gas companies.
• Publishing a roadmap for business taxation within the first six months of taking office to ‘allow businesses to plan investments with confidence’.

The new government ruled out making changes in a number of areas over the life of the next parliament. These include:

• not increasing rates of NIC, income tax or VAT;
• capping the rate of corporation tax at 25%; and
• retaining key capital allowances, including full expensing and the annual investment allowance.

In the February 2024 document Labour’s business partnership for growth, the party committed to maintaining the current structure of R&D tax credits and the patent box. It pledged to crack down on fraudulent and incorrect claims for R&D tax relief, and to evaluate the impact of the regime on a sector-by-sector basis, starting with the life sciences industry.

The new government’s manifesto costings include plans to invest an additional £855m per year to increase tax receipts by approximately £6bn.

The new government’s plans include:

• recruiting more HMRC staff to work on compliance and focusing that additional resource on specific areas of tax risk;
• ring-fencing some of the additional funding to use on strategically important criminal cases to act as a deterrent.
• improving the services HMRC provides to taxpayers, agents and families in receipt of the benefits and credits that HMRC administers. This includes investing in digitisation.
• taking forward the consultation on regulating the tax advice market; and
• making changes to the legislation to tackle non-compliance. One option under consideration is to require a wider range of tax schemes to be reported to HMRC under the disclosure of tax avoidance schemes rules.

Labour’s manifesto promised to “abolish non-dom status once and for all, replacing it with a modern scheme for people genuinely in the country for a short period”. It also said that it would end the use of offshore trusts to avoid inheritance tax.

Another key announcement from the Budget in March 2024 was the abolition of special tax rules for furnished holiday lets from April 2025. Draft legislation has not yet been published.

In its manifesto, Labour also pledged to reform the business rates system to “level the playing field between the high street and online giants, better incentivise investment, tackle empty properties and support entrepreneurship. Need to see the impact in Scotland.

 

Questions?

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 alan.long@thelongpartnership.co.uk.