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.

New VAT penalties postponed

The new penalty system that was due to come into effect from 1 April 2022 has been postponed by nine months until January 2023.

It appears that HMRC’s IT systems will not be ready in time.

Under the new regime, you will get a single penalty point for a late submission of a VAT return. Once the business has exceeded a points threshold for multiple missed returns, a flat penalty of £200 will be imposed for each late return.

Points will have a lifetime of two years after which they will expire.

The system will also be applied to returns required under MTD for income tax.

37% of Bounce Back Loans may be fraudulent

A Public Accounts Committee (PAC) meeting on Monday followed up on the Bounce Back Loans Scheme report which was published by the National Audit Office (NAO) at the beginning of December.

The oral evidence session, chaired by Dame Meg Hillier MP featured representatives from the Department for Business, Energy & Industrial Strategy (BEIS), the British Business Bank (BBB), the Financial Conduct Authority (FCA), and the Treasury.

The meeting opened with Sarah Munby, permanent secretary for BEIS who told the committee that it would take the UK years to be able to officially answer the question of whether the scheme was ‘truly value for money’ as it was still early days in recounting and analysing the exact losses due to fraud.

The NAO currently estimates that £4.9bn has been lost to fraudulent activities and a further £17bn will most likely never be repaid. This is equivalent to an estimated 37% of loans being open to fraud.

The Department for Work and Pensions (DWP) have recently estimated that £4bn was lost in rapid Universal Credit (UC) claims, and HMRC estimated that £5.2bn was lost to fraud through the furlough and self-employment schemes.

Succession Planning

The pandemic has impacted every business and as well as the financial consequences, family companies may find themselves having to rethink their succession plans. In some cases, this might be because the next generation, having experienced the effects of Covid, decide that they don’t want to continue in business, or at least not in that business. But it could be that the obvious family successor opts out leaving it open to their siblings.

As with all family successions, advice that might mitigate tax, may not fit with preserving the business. It may pull in the wrong direction.

Suppose that the next child in line has just married. We might suggest that their shareholding is split with the new spouse to mitigate tax. But what could this mean if they divorce? How can they ensure the family retains control?

We have had these discussions on numerous occasions. Consideration should be given as to whether any shares should be put in the spouse’s name at all as the tax benefits could be vastly outweighed by the complexity and legal costs on a future divorce .and the ramifications of all the emotional hostility that can be part of divorce, plus the potential loss of control to whatever degree with potential damage to the business. An angry spouse facing a marriage breakdown, who has some status in the business could create financial and reputational damage by contacting customers and suppliers.

One answer here is to look at the possibility of including pre-emption rights in a shareholders’ agreement in order to stop shares leaving the family. This could be a good time to speak to a lawyer.

The succession may result in changes for the staff and with some or all voting with their feet hindering future plans. You could end up with a highly disgruntled employee who will ‘have a go’, but where there is little or no grounds. And so it goes on. Successions, in the context of a family business, can be fraught and complex. The tax is simple.

It generally requires a multi-disciplinary approach between accountant, lawyer and HR adviser.

Businesses Raising Prices

Three out of five companies expect to increase their prices in the next three months due to the continuing supply chain disruption, soaring inflation, and rising energy costs

The 58% of businesses that reported the price increase in the British Chambers of Commerce’s (BCC) Quarterly Economic Survey (QES) is the highest proportion on record.

A British Chambers of Commerce survey, which features responses from 5,500 businesses suggests that 60% of companies expect to increase their prices in the next three months.

It reported that two-thirds, 66%, cited inflation as their main concern, which is also at a record high, while one in four, 27%, were worried about rising interest rates.

The percentage expecting an increase rose dramatically to 77% for production and manufacturing firms, 74% for retailers and wholesalers, 72% for construction firms, and 69% for transport and distribution firms.

How did you hear about R&D Reliefs?

Recent research for HMRC offers some great insights into how and why companies choose to claim R&D tax relief. The study highlights where companies get their information from, and who they trust to give them this information.

Most of the companies had been initially informed that they might have a claim by their accountant or tax adviser, based on the accountant’s knowledge of the company’s activities and finances.

However, a small but significant proportion of respondents first heard about the schemes through contact with specialist agents. These contacts tended to be through cold-calls, emails or LinkedIn contacts. These organisations are specifically cashing in on a narrow tax relief, and the fees are often based on a percentage of the claim realised. This is initially appealing because “no win, no fee” but ultimately can prove to be very expensive.

It appears that HMRC is the last place claimants find out information about R&D tax relief. Participants in the research said that they only accessed the online information HMRC provides after they had heard about the R&D scheme from other sources. However, once a company was aware of the R&D tax relief scheme, it found HMRC’s help better and more reliable than that from specialist advisers.

SME relief for R&D

A project will include R&D which seeks to:

(a) extend overall knowledge or capability in a field of science or technology; or

(b) create a process, material, device, product or service which incorporates or represents an increase in overall knowledge or capability in a field of science or technology; or

(c) make an appreciable improvement to an existing process, material, device, product or service through scientific or technological changes; or

(d) use science or technology to duplicate the effect of an existing process, material, device, product or service in a new or appreciably improved way (e.g. a product which has exactly the same performance characteristics as existing models, but is built in a fundamentally different manner)

If a particular advance in science or technology has already been made or attempted but details are not readily available (for example, if it is a trade secret), work to achieve such an advance can still be an advance in science or technology.

However, the routine analysis, copying or adaptation of an existing product, process, service or material, will not be an advance in science or technology.

Smaller companies incurring qualifying Research and Development (R&D) expenditure will be able to claim the actual costs plus an additional 130% on top, giving a total deduction from profits of  230% of the R&D costs.

What to look out for in 2022

National minimum / living wage

From April  2022 the  rates will be:

• 23+ year olds = £9.50
• 21-22 year olds = £9.18
• 18-20 year olds = £6.83
• 16-17 year-olds = £4.81
• Apprentices = £4.81.

Similarly, from 3 April 2022, statutory maternity, paternity, adoption, shared parental, and parental bereavement pay will increase as will Statutory sick pay.

The lower earnings limit for eligibility for these payments is also increasing from £120 to £123 per week, for the first time in two years.

Covid

Encouraging staff to become fully vaccinated, and having boosters, is a move well worth taking. Keeping track of everyone’s vaccination status is recommended for the same reasons.

Family friendly rights

More family friendly legislation seems to be on the way with an Employment Bill expected to be passed in 2022. This includes the introduction of statutory neonatal leave and pay for parents of babies requiring neonatal care, and the extension of the redundancy protection period for employees on maternity leave to up to six months after they return to work.

The government has confirmed the introduction of carer’s leave as a new statutory right. This will entitle employees with caring responsibilities to take up to one week of unpaid leave per year from day one.

Third party harassment

Changes to harassment laws are expected in 2022, including an extension to the time period employees have for raising tribunal claims and enhanced protection against harassment from third parties, such as clients, customers and members of the public. Your client should be prepared to undertake training and update their policies accordingly.

New Electric Cars – PCP v HP

A PCP would normally be regarded either as a finance lease or an operating lease for accounting purposes, and a tax deduction secured on the payments in the year. However it is possible for some finance leases to be treated like HP where there is an optional balloon payment at the end and that payment is less than the vehicles forecast value at that time..

Under a Hire Purchase agreement, the cost of the vehicle is capital. A new/unused electric vehicle would qualify to 100% first year allowances providing faster tax relief for the cost compared to leasing.  :

Therefore, a qualifying Hire Purchase contract is treated for tax purposes closer to an outright purchase of the asset, giving the availability of capital allowances and on a new or unused zero C02 emissions car this would include 100% first year allowances.

Temporary changes to the absence reporting rules

Usually, employees can only self-certify their absence for the first 7 days of sickness, after which a fit note from their doctor is needed. On 17 December 2021, however, the government updated its guidance on sickness absence reporting. As a temporary measure, employees who go off sick on or after 10 December 2021, up to and including 26 January 2022, do not need to provide proof of sickness until they have been off for 28 days or more.

Self-certification forms for absence can and should be asked for and accepted for the first 28 days, after which employers can expect a fit note as normal. The change does not negate employers’ responsibility to conduct regular welfare meetings; all other aspects of the absence management process should remain as usual.

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