Chiene + Tait announces private client team promotions

Accountancy firm Chiene + Tait (C+T) has announced promotions within its Edinburgh-based private client team. Partner Michelle Fallon has been named as the firm’s new Head of Private Client Tax, leading the 20-strong team, while her colleague Alan Dean has been promoted to the role of Director.

Michelle joined the firm in 2013 as Personal Tax Manager before being promoted to director level in 2017 and was then made a Partner in 2019.

Alan joined C+T in 2018 after working with accountants French Duncan and legal firm Turcan Connell.  He specialises in advising high-net worth individuals, trusts and businesses on a range of tax planning issues, including succession planning, business structure, residency and employer taxes.

C+T Managing Partner Carol Flockhart said: “Michelle’s move to become Head of Private Client Tax and Alan’s promotion to Director marks another important stride forward for our renowned private client team. They are both well-regarded and highly respected personal tax experts who have contributed towards the growth of the firm.”

Identifying qualifying R&D in the field of software development

This post is part of our Entrepreneurial team’s regular series of blogs.

The number of Research and Development (R&D) Tax Relief claims made in the computer science and information technology industries has rapidly increased in recent years. With that, HMRC have invested time and resources into educating their inspectors to identify qualifying and non-qualifying activities within software development claims. This is because, although the Business Energy and Industrial Strategy (BEIS) guidelines (that define the qualifying criteria for R&D tax relief) apply equally to all fields of science and technology, HMRC recognised that there had been difficulties in the past in applying them to some software projects and therefore determining whether they were eligible for relief.

As well as training their staff internally, HMRC published guidance for claimant companies to assist them when preparing claims, to accurately capture only qualifying activities and costs. A summary of the key points are as follows:

Advancing knowledge or capability in the entire field

The advance or appreciable improvement being sought needs to advance the knowledge or capability across the whole field of computer sciences and information technology, rather than the company’s own knowledge or capability. Whether the advance applies to the entire industry or only the company can sometimes be hard to ascertain in a fast-moving industry such as computer sciences. This should be considered by a competent professional working in the field and by reference to publicly available information.

Focus on the underlying technology

The technological advance being sought should focus on the underlying technology being developed i.e. the algorithms and methodology, rather than the commercial output of the software. This is because software can be developed to provide functionality that is novel, however the methodology applied to achieve this is routine, and therefore non-qualifying.

How to identify technological uncertainties

As with all other industries, the claimant company must also face technological uncertainties when seeking to achieve the advance. Technological uncertainties arise when how to achieve the aim it is not readily deductible by a competent professional or by applying existing methodology. Examples of technological uncertainties that HMRC provide include:

  • Developing new or improved data architectures that cannot be achieved with readily deducible solutions, e.g. pushing beyond the boundaries of existing readily available database engines.
  • Extending software frameworks beyond their original design, where knowledge how to extend these was not available or readily deducible at the time.
  • System uncertainty when working with multiple components, resulting from the complexity of the entire system, rather than how the individual components behave, i.e. components cannot be assembled into an established pattern.

Separate the R&D project from the commercial project

R&D projects must be carefully defined within the larger commercial project. Any activities that do not attempt to overcome technological uncertainties do not qualify for relief and fall out-with the project for tax relief purposes. Specific activities that HMRC state do not qualify for R&D tax relief include:

  • Planning activities associated with non-R&D elements of the project such as financial, marketing and legal aspects.
  • Development of routine aspects of the software, such as the user interface, rather than the underlying technology.
  • Testing only qualifies if the purpose of the testing work is to feed back into the development, not to validate that it works properly once the technological uncertainties have been resolved.
  • Deployment or release activities that transfer software to production systems generally happen after the uncertainty is resolved and, as such, do not qualify.
  • Maintenance activities or minor fault fixing where no technological uncertainties arise do not qualify.

HMRC are increasing resources in their R&D team and diverting and re-training staff from other areas to enable them to process and accurately analyse the eligibility of claims. Therefore, it is important that companies consider and adhere to the above guidance when making software development claims.

Here at C+T we have extensive experience in preparing R&D claims in the computer sciences sector and our report to support a claim is designed to give HMRC all of the information it requires to assess its eligibility and prevent an enquiry being opened to request more details.

Our team of experts are on hand to help you through the claim process, give you peace of mind that all relevant factors have been considered, and significantly reduce the risk of an enquiry. If you have any questions, get in touch and we can advise.

If you would like further advice regarding the availability of Research & Development Tax Relief relief, please get in touch with us.

Budget 2021: VAT Extension for Tourism & Hospitality Businesses

On 3 March 2021, the Chancellor announced the annual UK Budget for the coming year in an effort to kick start the economy following the restrictions imposed as a result of the Coronavirus pandemic. Amongst the package of financial support and assistance during 2021/22, the Chancellor confirmed further assistance for the tourism and hospitality sector which has arguably been the worst affected industry by the pandemic.

Temporary VAT rate extended

The UK government has confirmed that the temporary reduced rate of 5% VAT for the tourism and hospitality sector will be extended to until 30 September 2021.  To help businesses manage the transition back to the standard 20% rate, the Government has also announced that a 12.5% rate will apply for the subsequent six months from 1 October 2021 until 31 March 2022.  The 20% normal standard VAT rate will then be reinstated from 1 April 2022.

Summary of changes

The table below summarises the applicable VAT rate and timeline for the sectors:

PeriodVAT Rate
To 30 September 20215%
From 1 October 2021 to 31 March 202212.5%
From 1 April 202220%

To highlight the significance of this announcement, this will be the first time since 1979 that 4 distinctive VAT rates will be in operation in the UK.

Key Issues

With this extension of the reduced VAT rate we consider the following key issues:

  • How to operate and correctly identify the tax point in relation to supplies to determine the correct VAT rate to use.
  • If your business also provides goods or services that fall outside the scope of the reduced VAT rate above such as alcohol sales, how should this be accounted for and are you paying the correct amount of VAT?
  • If you are using an accounting packages (Xero, Quickbooks, SageL50 etc.) you may not have a defined tax rate for the interim 12.5% that will be used from 1 October 2021 to 31 March 2022.  A new tax rate may therefore need to be added to your software package.

Tax Points

Special provisions are available which provide an option to maximise the use of the limited 5% reduced rate period – allowing you to choose to apply the ‘basic’ or ‘actual’ tax point.  But with this flexibility it can cause complexities.  Actual tax points (invoicing for a service or receiving payment) normally override the basic tax point (service completion) but the special provisions allow a choice; tax payers have the opportunity to receive cash payments and account for VAT at the reduced rate for supplies that will be taking place after end of the 5% period (so after 30 September 2021).

Practical Example

Consider a scenario where a hotel business supplies hotel rooms at £100 per night, 50% of the payment is usually paid for at booking and 50% at the time of the stay.  A customer books on 1 March 2021 to stay at the hotel on 5 October 2021.  The issue created here is that up to 30 September 2021 the VAT rate will be 5%, but from 1 October 2021 the VAT rate will change to the interim rate of 12.5%.  Therefore at the time of the booking the VAT rate is 5% but at the point of stay it will be 12.5%.

The table below outlines the different VAT rates in the outlined scenarios:

Scenario Tax PointVAT Treatment
Customer pays 50% at time of booking (1 March 2021) and then 50% at time of stay (5 October 2021)

Payment date of 1 March 2021 will create a tax point, therefore VAT at 5%.

Second payment/actual stay will create another tax point, therefore at 12.5%

1st Payment: £50 (VAT 5% of £2.38)

2nd Payment: £50 + (VAT 12.5% of £5.55)

Total VAT = £7.93

What if full amount was paid at time of booking (March 2021)Date of payment – 1 March 2021, therefore 5% ratePayment: £100 (VAT 5% of £4.76)
What if full amount was paid at time of visit (October 2021)Date of payment  – October 2021Date of payment  – October 2021
Payment: £100 (VAT 12.5% of £11.11)

Unusually, and perhaps due to the nature of the legislation, there are no specific anti-forestalling measures (designed to stop people circumventing and abusing the rate change), in particular when the VAT rate increased to 12.5% from 1 October 2021 and then returns to 20% from 1 April 2022.

If you would like to discuss the impact of the reduced VAT rate on your business please contact our VAT team on 0131 558 5800 or email VAT@chiene.co.uk.

Self-Employed Income Support Scheme deadline looming

The 2019/20 tax return filing due date on 31 January 2021 is not the only deadline of which self-employed individuals need to be aware this month.

Eligible individuals have until 29 January 2021 to apply for the third taxable grant under the Self Employment Income Support Scheme (SEISS). The grant is worth up to 80% of 3 months’ worth of average profits and is capped at £7,500.

Those potentially eligible for the grant should already have been contacted by HMRC.

In order to claim, you must reasonably believe that you will suffer a significant reduction in trading profits due to reduced business activity, capacity, demand or inability to trade due to coronavirus during 1 November 2020 to 29 January 2021. You must keep evidence that shows how your business has been impacted by coronavirus resulting in less business activity than otherwise expected.

As for the first two grants, the mechanism for claiming is via gov.uk Claim a grant through the Self-Employment Income Support Scheme – GOV.UK (www.gov.uk)

If you have a question about SEISS, please contact Iain Paulin or download our free SEISS briefing.

Tax planning ahead of Spring 2021 Budget

As we approach the end of 2020 we can reflect on a tumultuous year as a result of the Covid-19 pandemic. As seen recently in the financial press, there are a number of speculative discussions about possible future tax increases. While tax increases are possible, it is also clear that the Government will need to take steps to encourage investment, to boost the economic recovery.

At this time, we can only speculate about possible tax changes in 2021 however, we do know that changes to taxation will be announced in the Spring Budget, which will take place on 3rd March 2021. Rather than leave the usual year-end tax planning until February next year, it would be prudent to bring forward this process. If you are anticipating a quieter than usual festive period, it could be the perfect time to turn your attention to financial matters.

The Chiene + Tait Tax Team has flagged some areas that may be of interest to you or your business including gifting of assets to members of your family, pension planning if the higher rate tax relief is removed from contributions or what to look out for if you are thinking of selling your business.

Our infographics below highlight further areas for consideration. If you would like to discuss selling your business, please contact Jonathan Griffiths, if you would like to discuss any tax aspects for your family, please contact Michelle Fallon or Moira McMillan. Alternatively, please email us at mail@chiene.co.uk, we would be delighted to discussion the options available to you, your family or your business.

Areas families to consider Spring 2021
Family areas to consider ahead of 2021 Budget
Business areas to consider 2021 Budget
Business areas to consider ahead of 2021 Budget

Brexit: EORI Numbers – not one but two!

If your business will be selling goods to consumers between the UK and EU from 1 January 2021, it will need to ensure it has the appropriate EORI numbers to avoid goods being held by customs in the UK or EU.

What is an EORI?

EORI stands for “Economic Operators Registration and Identification Number”

Businesses and people wishing to trade must use the EORI number as an identification number in all customs procedures when exchanging information with Customs administrations. An EORI number is formed of the ISO country code (EU member state) and a maximum of 15 digits. Generally speaking, in the UK, a VAT registered company’s EORI number will consist of the prefix ‘GB’ followed by the company VAT number and suffixed with ‘000.’ Despite being based on the traders VAT number, the EORI isn’t automatically generated. Businesses should therefore check if they have an EORI and if not apply to be activated.

Why is an EORI required?

From 1 January 2021 businesses will need an EORI number to move goods between the UK and the EU. When a business imports into the UK or EU, it will have to include its EORI number on declarations for customs to check. If you do not have one, you may have increased costs and delays.

I need more than one EORI?

Yes, prior to Brexit, UK EORI numbers were accepted by the EU and vice versa. This will however stop from 1 January 2021. Businesses will need an EU EORI number if it will be making customs declarations or getting a customs decision in the EU. Businesses will therefore need a UK EORI number to export or import goods. And an EU EORI for the opposite leg of the same goods movement.

How do I register for an EORI?

If your businesses does not currently have an EORI number don’t worry it really is quite a straightforward (and relatively quick!) process. It was announced that EORI numbers would be automatically issued to certain businesses so it would be worth checking first. If required, businesses will be required to complete a simple form with HMRC. HMRC will then email confirmation of the UK EORI.

Procedures for issuing EU EORI numbers differ across the remaining 27 Member States. The European Commission has indicated that all customs authorities across the Member States are accepting applications for authorisations and registration.

These EU EORI numbers will activate upon the UK leaving the EU. So UK businesses trading with the EU should (if they do not already have one) apply for a UK EORI number from HMRC, to ensure they can still move their goods into and out of the UK post-Brexit, and (whether or not they have a UK EORI number) apply for an EU EORI number from the Customs authorities in whichever EU state they deal with the most, to ensure they can still move their goods into and out of the EU.

Similarly, EU businesses intending to continue trading with the UK will need to apply for a UK EORI number post-Brexit. If you have a question about Brexit or an EORI number, please contact a member of our VAT team today.

Brexit: Digital Supplies & MOSS

The end of the Brexit transition period on 1 January 2021 will bring new changes that will impact any business that currently trades with the EU.

Digital Supplies & MOSS

Brexit will have a major impact on digital businesses both in the UK and outside, particularly when it comes to accounting for and reporting VAT. This will impact both UK businesses supplying digital services to EU consumers and non-UK businesses supplying digital services to UK consumers.

The Mini-One-Stop-Shop (MOSS) service was introduced back in 2015 when the EU amended the rules on how cross border digital supplies to consumers were to be taxed in the member state of consumption. The MOSS service allows businesses to submit one return including its supplies to all consumers in the different EU member states.

1. Digital businesses registered with UK VAT MOSS

As the UK will be a non-EU member state from 1 January 2021 digital businesses will not be able to use the UK’s VAT MOSS service to declare the VAT due on its sales to consumers located in the EU. The final return period for the UK’s VAT MOSS system will be the period ending 31 December 2020.

From 1 January 2021, to continue to use VAT MOSS digital businesses will need to register for the VAT MOSS scheme in an EU member state, by the 10th day of the month following your first sale to an EU customer. For example, if a business makes its first sale on 12 January 2021, then it must register by 10 February 2021. Effectively businesses need to change their MOSS identification country.

If a business does not want to use VAT MOSS from 1 January 2021, it must register for VAT in each EU member state where it sells digital services to consumers. We therefore recommend any business with a UK VAT MOSS registration to consider and apply for a MOSS registration number in an EU member state, for example Ireland. This will then allow the business to report quarterly sales to the remaining EU member states under the non-Union MOSS scheme.

2. Digital businesses selling into the UK

Any digital business that sells digital services into the UK will also be unable to use their MOSS registration to report sales to UK consumers from 1 January 2021. In this case, these businesses will be required to apply for a regular UK VAT number to report any digital sales to UK customers. Please note, there is no threshold for this. All UK sales will be required to be immediately reported to HMRC from 1 January 2021. This will therefore apply to all EU based digital businesses making supplies to UK consumers

BusinessCurrent PositionFrom 1 January 2021
UK BasedRegistered for Union MOSS Scheme in UK
  • Will need register for MOSS in an EU member state under Non-Union scheme.
  • We would recommend Ireland.
  • Registration would need to be made by 10 February 2021 if sales made to EU consumers in January 2021.
EU Based (Not UK)Registered for Union MOSS
scheme in EU member state
  • If makes digital supplies to UK consumers, will need to register for UK VAT with effect from 1 January 2021.
Non-EU BusinessRegistered for Non-Union MOSS
Scheme in UK
  • Will need to register for MOSS in a different EU member state under Non-Union scheme.
  • We would recommend Ireland.
  • Registration would need to be made by 10 February 2021 if sales made to EU consumers in January 2021.
  • If makes digital supplies to UK consumers, will need to register for UK VAT with effect from 1 January 2021.

Post Brexit: New trade rules

With the end of the transition period nearing, businesses need to consider the new rules that will come into force from 1 January 2021 in relation to trade with EU countries.

From 1 January 2021, there will be changes in the way indirect taxes are accounted for when importing into the UK. New processes for administering imports and exports will be implemented and taxpayers may need to obtain additional information about their goods for crossing the UK border, and they may require the services of a customs agent.

Imports

From 1 January 2021, purchases of goods from EU suppliers will be regarded as imports. The process for importing goods from the EU will change. Businesses in the UK will need to complete the following actions to continue importing from EU countries from 1 January 2021:

a. How to declare goods – A customs declaration will need to be made when importing goods from the EU. These rules currently apply to importing goods from the rest of the world, including Switzerland, Norway, Iceland and Liechtenstein. This declaration can be made by the business or the business could engage someone else such as a courier, freight forwarder or customs agent to do it on its behalf.

b. EORI Number – An EORI number will be required to import goods from 1 January 2021.

c. Check the rate of tax and duty – Businesses will need to pay import VAT and Customs duty, if applicable, on all imports.

Import VAT

From 1 January 2021, UK VAT registered businesses will be able to account for import VAT on its VAT Return for goods imported from anywhere in the world. This means businesses will be able to declare and recover import VAT on the same VAT Return, rather than having to pay it upfront and recover it later which is a huge cash flow saving. Businesses do not need to be authorised to account for import VAT on its VAT Return and can automatically start using this procedure from 1 January 2021. This is the case if: + the goods imported are for a business use; + the business’ EORI number, which starts ‘GB’ is used on the customs declaration; and + the business’ VAT registration number is included on the customs declaration, where needed. Businesses will therefore be able to use this way of accounting for import VAT moving forward from 1 January 2021, which will assist with cashflow.

How to complete your VAT return

Due to postponed VAT accounting, there will be changes to the way VAT returns are completed. An online monthly statement will be available to download and keep for business records. It will show the total import VAT postponed for the previous month which businesses should include in the VAT Return. The boxes on the VAT Return will be as follows:

Box 1Include the VAT due in this period
on imports accounted for through
postponed VAT accounting
Box 4Include the VAT reclaimed in this period
on imports accounted for through
postponed VAT accounting
Box 7Include the total value of all imports of
goods included on the online monthly
statement, excluding any VAT

Customs Duty

The UK’s new Global Tariff will replace the EU’s Common External Tariff on 1 January 2021 at the end of the Transition Period. The new tariff is tailored to the needs of the UK economy supporting the economy by making it easier and cheaper for businesses to import goods from overseas. HMRC state that it is a simpler, easier to use and lower tariff regime than the EU’s Common External Tariff (EU CET). Therefore, after 1 January 2021, when any purchases of goods from outside the UK will be classified as imports, they will be liable to duty calculated based on the UK Global Tariff rate. Customs Duty is not recoverable so any applicable duty would be an additional cost to any UK business. To use the UK Global Tariff, you need either the commodity code or description of the product. The UK Global Tariff can be found using this link.

If you consider your business will be impacted by the updated rules for importing goods to the UK, please get in touch and the VAT team can ensure your business is fully equipped for the new rules from 1 January 2021.

Brexit – Are you Ready?

The UK left the European Union on 31 January 2020. A transitional period for Brexit is now in place which will last until at least the 31 December 2020 where existing EU VAT Regulations and Directives will continue to apply, including those relating to VAT and Customs.

Up until the onset of the COVID-19 crisis, the UK Government and the EU has been negotiating a trade deal during the transitional period and one of the things that will be determined will be the extent to which Customs tariffs will apply to goods moving between the UK and EU.

With COVID-19 affecting every country in the world including the UK and EU it remains to be seen whether the transition period will be extended. Alternatively, if no agreement is reached (“no deal”) Customs tariffs will apply to goods moving in and out of the UK and the UK will not benefit from any preferential tariffs applying to the EU for goods being exported to other countries.

We have outlined some of the main changes that can be expected, however this may be subject to change depending on developments in the next few months. In summary:

  • The UK will continue to have a VAT as VAT is the second-biggest tax revenue earner for the Government (after Income Tax)
  • The VAT rules relating to UK domestic transactions will continue to apply to businesses as they do now
  • VAT procedures will continue as they are now, however there will be some key changes, particularly in relation to trade with EU customers and suppliers.

Businesses buying goods from EU

In what is possibly the biggest potential impact to UK businesses, the current rules for imports from non-EU countries will also apply to imports from the EU. Import VAT is paid to HMRC when goods enter the country, which can lead to cashflow delays as the VAT cannot be recovered until the business submits its next VAT return. In a normal VAT return cycle this could lead to delays of up to 3 months to recover an import VAT depending on when the goods were imported. Imports also require additional paperwork which also adds to the cost of bringing goods into the country.

One area which has not been decided yet is whether Customs Duty or tariffs will apply to goods coming into the UK. A lot will depend on whether the UK Government and the EU reach a trade agreement before 31 December 2020. If a deal is reached it is likely that tariffs will not apply to the majority of goods coming into the UK from the EU, but formal Customs procedures will still need to be undertaken.

During 2019, the Government announced that in the event of a “no deal” it would introduce postponed accounting for import VAT on goods brought into the UK which meant that UK VAT-registered businesses importing goods to the UK would be able to account for import VAT on their VAT return, rather than paying import VAT on or soon after goods arriving at the UK border. This will apply to imports from both current EU and non-EU countries. If a deal is reached with the EU during 2020 this simplification measure will not apply (unless this is announced by the Government this year, which would be welcomed).

For businesses not familiar with importing, there are measures that can be adopted to alleviate some of these issues such as duty deferment accounts, customs warehousing and inward processing relief.

We would recommend any businesses not familiar with importing procedures to get advice on this as soon as possible to plan for the changes in 2021.

Sales of goods to EU businesses and consumers

VAT registered UK businesses will continue to be able to zero-rate sales of goods to EU businesses but will not be required to complete EC sales lists or EU Intrastat declarations. As is the position now, VAT will not be charged by UK businesses exporting goods to EU businesses after Brexit and evidence will need to be kept that the goods have left the UK to support the zero-rating of the supply. Most businesses already maintain this evidence as part of current processes, and the required evidence will be similar in nature to that currently required for exports to non-EU countries. Any changes will be communicated by HMRC in due course.

Current EU rules mean that EU member states will treat goods entering the EU from the UK in the same way as goods entering from other non-EU countries. Import VAT and (potentially) Customs Duties will be due when goods arrive into the EU. Individual EU member states may have different rules for import VAT from the UK and import VAT payments may be due at the border. UK businesses should check the relevant import VAT rules in the EU member states where they have customers.

For businesses selling goods to EU consumers, after 2021 distance selling arrangements will no longer apply so UK businesses will be able to zero-rate sales of goods to EU consumers as “exports”. EU rules mean that EU member states will treat goods entering the EU from the UK in the same way as goods entering from other non-EU countries, with associated import VAT and customs duties due when the goods arrive into the EU. Any businesses affected by this will have to be mindful that consumers in EU countries will have to bear these additional charges, so this may have to be communicated up front at the points of sale and on websites.

Businesses could also adopt customs measures where the duty and VAT can be paid up front, however this will require discussions with customs agents in advance and be clear at the point of sale on websites.

Businesses selling digital services to EU consumers

Businesses that sell digital services to consumers in the EU will be able to register for the non-EU MOSS scheme. There is currently an EU scheme so most providers will already be registered for this. The non-EU scheme is similar but will require UK businesses to register in one EU country. MOSS is an online service that allows EU businesses that sell digital services to consumers in other EU member states to report and pay VAT via a single return and payment in their home Member State. Non-EU businesses can also use the system by registering in an EU Member State.

We would urge affected businesses to prepare for this now. Alternatively, a business can register in each EU Member State where sales are made.

Other issues

There are of course other issues which will be impacted such as the EU VAT refund system which will not be available after 2021, although subject to the EU negotiations it should still be possible for UK businesses to make VAT claims where employees have incurred VAT on business trips to the EU. One other area affected will be tour operators who offer holiday packages in the EU. Currently the Tour Operator Margin Scheme (“TOMS”) is used to simplify the VAT calculation. HMRC has not provided a lot of information on what will happen, but tour operators should contact their advisers.

Recommendations

We would hope that by the Summer, businesses can start to get back to some form of normality and it would be useful to get clarity at that point from the Government on what we should expect after 31 December. If possible, we recommend that any business affected by these changes undertakes a review as soon as possible to prepare for the changes that Brexit will bring. Chiene + Tait has been working with its clients over the past 12 months to undertake these reviews and we are happy to discuss this with any affected businesses Our bespoke reviews look at the impact of the changes on relevant business income and expenditure streams and point to potential solutions which will alleviate any potential administration, cashflow or cost on the business. We also offer a helpline service to businesses to deal with ad-hoc Brexit-related enquiries.

Post Brexit: Trading in Goods

From 1 January 2021, there will be major changes once the Brexit transitional period ends.  New VAT procedures will apply to goods imported into the UK.  The new procedures differ according to whether the value of the goods arriving in the UK exceed £135. Find out more here about how trading in goods post Brexit may impact you.

Less than £135

Goods that arrive in the UK from 1 January 2021 that have a value of less than £135 will be subject to ‘sales VAT’ rather than ‘import VAT’ if they are being imported by an overseas seller.

How does this work?

The overseas supplier is required to register for VAT in the UK.  This supplier will then be required to charge UK VAT on all shipments into the UK which are less than £135 in value (final selling price charged to UK customer).

The supplier will be required to include a sales invoice with the shipment to ensure that all required Customs checks can be undertaken and evidence is held that VAT has been appropriately charged.   No Customs Duty will be liable as £135 is the threshold for Customs Duty relief however a Customs declaration is still required.

What if the customer is registered for VAT?

If the UK customer is registered for VAT, the overseas supplier is no longer required to charge 20% UK VAT on the shipment if it is less than £135.  Instead, if the customer provides a UK VAT number to the supplier, the customer in the UK will account for the VAT on its own VAT return by doing a reverse charge calculation.

More than £135

Goods that arrive in the UK from 1 January 2021 that have a value in excess of £135 will be subject import VAT and Customs Duty.

Import VAT in these cases should be accounted for by using postponed VAT accounting, which results in declaring and recovering import VAT on the same VAT return, rather than having to pay it upfront and recover it later, subject to normal VAT recovery rules.

Customs Duty may be applicable depending on the actual commodity code of the goods imported.  The new UK Global Tariff will be effective from 1 January 2021 and can be found using the following link: https://www.check-future-uk-trade-tariffs.service.gov.uk/tariff.

Post Brexit: Customs Special Procedures

After 1 January 2021 when the Brexit transition period ends, UK business should consider a number of Customs Special procedures and other import facilitation measures when goods come into the UK.

Not all of these reliefs are necessary and will depend on the type of business involved.

Businesses can use Customs Special Procedures to suspend, reduce or claim relief on the payment of customs duties and VAT under specified conditions. Special procedures include:

Customs Warehousing

  • Allows for goods not in free circulation to be stored without payment of customs duty, and where appropriate excise duty or import VAT, in a customs warehouse.

Inward Processing Relief (“IPR”)

  • Allows for the payment of customs duties, import VAT and excise duties to be suspended on imported goods whilst processing is taking place.

Outward Processing Relief (“OPR”)

  • Allows for the temporary export of goods for processing or repair, and to re-import the processed products whilst retaining domestic status or with partial relief from import duties.

Temporary Admission

  • Allows for businesses and individuals who are established outside of the UK to be authorised to import goods with total or partial relief from customs duties and other charges because of the specific use to which the goods will be put.

Authorised Use

  • Allows for reduced or nil rates of Customs duty on certain imported goods, provided they are put to a prescribed end use.

In the past these procedures required a Customs Comprehensive Guarantee.  Businesses will be able to apply to be fully authorised to operate special procedures without the need to provide a Customs Comprehensive Guarantee unless one is specifically required as a condition of authorisation by HMRC, for example because a trade presents a payment risk.

Other import facilitations

Temporary Storage facilities that are not part of an existing inventory-linked community will be able to temporarily operate without an inventory linked system in place until 1 July 2021. They will still be required to have control over their facility and keep effective records.

Authorised parcel operators will be able to submit a bulked customs declaration for non-controlled goods with a value not exceeding £135.

Duty Deferment Accounts (DDAs) will be required for traders making delayed declarations (non-controlled goods) because delaying a customs declaration also means deferring the duty payable. A DDA belonging to either the trader or their agent must be in place at the point of submitting the supplementary declaration (which can be deferred up to six months from point of import). Traders importing controlled goods will need access to a DDA at point of import if they are using simplified declaration procedures. HMRC are introducing new rules that will allow most businesses to use duty deferment without needing to obtain a Customs Comprehensive Guarantee.

Businesses with Authorised Economic Operator (C) status will automatically be able to use duty deferment without providing a guarantee. Other compliant and solvent businesses will be able to defer customs duty, import VAT and/or excise duty up to £10,000 per month without needing to provide a guarantee. They will be able to obtain approval to defer amounts above this monthly limit if they have sufficient financial resources for the amount they’re seeking to defer. Duty deferment limits agreed with HMRC will not need to cover amounts included in delayed supplementary declarations. A new application process for duty deferment accounts has been available from early November 2020. Businesses who don’t meet these criteria will still be able to set up a DDA if they provide a guarantee.

Authorised Economic Operator (AEO) Status

Traders can apply for AEO status for moving goods between the UK and the EU. AEO status is an internationally recognised quality mark that shows a business’s role in the international supply chain is secure and has customs control procedures that meet UK and EU standards.

From 1 January 2021 to 30 June 2021, goods with pre-lodged temporary storage declarations may be imported via GB border locations without existing customs control systems and transported to a temporary storage facility (TSF) in GB provided they meet specific requirements. More information on the requirements for TSF operators and Community Systems Providers wishing to offer this service is available here. For GB border locations with existing customs control systems, movements in temporary storage will continue to be permitted under current requirements.

The ability to delay customs declarations in the period 1 January 2021 to 30 June 2021 only applies to non-controlled goods which have been in free circulation in the EU immediately prior to import. All rejected exports that haven’t entered free circulation in the EU cannot meet this condition and therefore must submit a customs declarations on their return to the UK.

Returned / Rejected Goods

From January 2021, businesses that export goods from GB to another country, (including the EU), may need to have those exported goods returned to the UK, or may have their goods rejected upon import to the EU.

In order to return such goods to GB, there are differing requirements depending on:

  • Whether the goods have been in free circulation in the UK prior to being exported,
  • Whether the goods were in free circulation in the EU prior to being returned,
  • Whether the goods have been rejected upon import to the EU,
  • And/or whether the goods are subject to additional requirements before they can be imported to GB, for example those goods featured in 1.2 additional requirements

Returned goods – Customs requirements

Customs import duty and VAT

Traders returning goods will be able to claim Returned Goods Relief (RGR) from customs import duty for goods that are exported from the UK and re-imported within three years of export, subject to certain conditions similar to those set out in existing guidance here. VAT relief will also apply, providing that any VAT due has previously been paid in the UK, and the importer/exporter is the same person. VAT relief will also be available from the 1 January 2021 for goods that are in free circulation in the UK on the 31 December 2020, providing that EU VAT has been paid. Such goods will be treated as domestic goods for customs purposes.

Businesses would normally apply for RGR in the same way as they do currently which means filling out a full Customs Declaration. In order to identify the goods as returning, the RGR Procedure Code should be used. This declaration should also reference the export declaration, and where the export declaration is not available, HMRC will consider alternative evidence which proves the goods were previously within the UK.

Delayed declarations and returned goods

During the period 1 January 2021 to 30 June 2021, traders have the ability to delay customs declarations if they are returning non-controlled goods that have been in free circulation in the EU immediately prior to their return. For those goods, traders can use delayed declarations procedures as detailed in delayed declarations and claim Returned Goods Relief from customs import duty (and VAT relief, if applicable) by completing their Entry in Declarants Records and subsequently submitting the supplementary declaration.

Controlled goods and goods rejected upon import into the EU Controlled goods (as listed in Annex C) and any rejected exports that have not entered free circulation in the EU cannot use delayed declarations

The trader must submit a full Customs Declaration on returning these goods to the UK. They will also need to meet any additional requirements as detailed below.

Returned / Rejected goods – Additional requirements

Some commodities are subject to additional regulatory requirements, such as those listed in additional requirements, and/or those goods that are included on the controlled goods list as detailed in Annex C. To return these goods to GB, a full customs declaration will be required on their return, and the relevant additional requirements will need to be met.

If you have a query about Brexit, please contact our team today at VAT@chiene.co.uk or visit our dedicated Brexit page for more information on how we can help you.

Raising standards in the tax advice market – how do you choose a tax adviser?

This post is part of our Entrepreneurial team’s regular series of blogs.

Tax advisers, their reputation and the risks to clients of making the wrong choice in selecting one, are under the spotlight like never before.

HMRC have published a summary of responses to the call for evidence and next steps, in relation to the recent consultation on raising standards in the tax advice market (the full outcome can be found here).

An independent review into the tax advice market in 2019 highlighted varying levels of standards and cases where taxpayers received advice that left them open to substantial tax bills. While the majority of tax advisers are technically competent and adhere to high professional standards, it was found that some advisers were displaying incompetence and others were actively bending or breaking the rules.

This prompted HMRC to open a consultation into improving the standards of advisers across this field. Their aim was to help taxpayers make informed decisions when seeking tax advice, to assure them that the advice they receive is competent, professional and trustworthy.

The consultation highlighted indicators of tax advisers with high standards that taxpayers should consider, when selecting a tax adviser. These included:

  • Holding accountancy qualification(s)
  • Having relevant experience
  • Complying with the PCRT (Professional Conduct in Relation to Taxation), including ethical practice
  • Not taking shortcuts
  • Acting transparently
  • Seeking to educate clients
  • Undertaking due diligence on clients
  • Recognising their own expertise and whether they are appropriately placed to offer advice
  • Having professional indemnity insurance
  • Being a member of a professional body
  • Being registered for anti-money laundering supervision

C+T meets all of the above points and consistently provides high quality standards to all of our clients, whether that be for compliance engagements or providing more complex tax advice. We have specialists across many aspects of tax who can help in areas such as, but not limited to, Capital Allowances (CAs), creative industries tax reliefs, R&D tax relief, (S)EIS, share schemes and VAT.

As we are accountants, we understand the bigger picture in relation to how these areas of tax interact with compliance requirements and can help companies utilise any available tax reliefs in the most efficient manner, and in a way that fits with their long-term strategy.

For more information on how the Chiene + Tait team can help you, contact us today at mail@chiene.co.uk or call 0131 558 5800.

Extra support offered to businesses in local lockdown areas

The UK Government has announced extra support to businesses based in all UK areas with local lockdowns that must close to combat a rise in coronavirus infection cases. Businesses will be offered two-thirds of workers’ wages in the form of a grant from 1 November for six months, with a review in January. With the Coronavirus Job Retention Scheme due to close at the end of October, the new scheme effectively replaces this with some key differences.

The new plan is for the Government to support eligible businesses by paying two thirds of each employees’ salary, up to a maximum of £2,100 a month. This is a higher rate than is currently offered via the furlough scheme. The Chancellor has confirmed that business will only be eligible to claim the grant while they are subject to restrictions and employees must be off work for a minimum of seven consecutive days.

Further details will be announced in due course.

Job Retention Scheme Bonus Details Announced

Further information about the Job Retention Scheme Bonus was released this month by HMRC. Please find below key points related to the Bonus and where to source further information.

What is the Job Retention Scheme Bonus?

The bonus is a £1,000 one-off taxable payment to the employer, for each eligible employee that was furloughed and subsequently kept continuously employed until 31 January 2021.

Who can claim the bonus?

Employers will still be able to claim under the scheme even if they are also receiving support from the recently announced Job Support Scheme (the replacement to the Coronavirus Job Retention Scheme), which launches on 1 November.

The bonus is available to any employer that has furloughed employees and made an eligible claim for them through the CJRS but is not payable to any employer who repaid a CJRS grant.

The new guidance outlines arrangements for employees who have been transferred from another employer, and those who are not employees but classified as office holders or agency workers.

There is a minimum income threshold the employer must pay the employee – a total of at least £1,560 (gross) throughout the tax months 6 November to 5 December 2020; 6 December 2020 to 5 January 2021; and 6 January to 5 February 2021.

What steps must employers take to claim the bonus?

Before employers can claim the bonus, they will to need to have reported all payments made to employees between 6 November 2020 and 5 February 2021 to HMRC through full payment submissions via real time information (RTI).

Businesses must include payments they receive under the scheme as income when calculating their taxable profits for income tax and corporation tax purposes but can deduct employment costs as normal.

Individuals with employees that are not employed as part of a business (such as nannies or other domestic staff) will not have to pay tax on grants received under the scheme.

Is there a minimum wage threshold?

To be eligible for the bonus, employers must make sure that their employees have been paid at least the minimum income threshold of £1,560 (gross), or a minimum of £520 per month throughout November, December and January.

When can employers claim the bonus?

You cannot claim the bonus until 15 February 2021 and employers will have until 31 March 2021 to make a claim after which the scheme will close. No further claims will be accepted after this date.

This guidance will be updated by HMRC at the end of January 2021 with details on how to access the online claim service at https://www.gov.uk/guidance/check-if-you-can-claim-the-job-retention-bonus-from-15-february-2021

C+T nominated for Best EIS/ SEIS Tax Adviser award

We are delighted to announce that Chiene + Tait has been nominated for the Best EIS/SEIS Tax Adviser award at the EISA Awards 2020, the annual celebration of the #EIS, #VCT and tax efficient investment industry and community.

This will be the fifth year the firm is nominated, having been ‘Highly Commended’ for the last four years, the only firm in Scotland to have ever achieved this Tickets for the Awards ceremony can be found here: https://bit.ly/2EXu4eg

EISA Awards Nomination 2020

How to Find Financial Expertise for Your Charity

Most people on charity boards would agree that it is useful to have someone with financial expertise also on the board, so that they can deal with the ‘finance stuff’. However, charities often struggle to recruit people with any financial know-how and charities can survive without this skill set, so does it really matter? In short, yes –  but let me explain why.

It saves money

Charities operate in a highly regulated environment, with very complex tax and accounting rules; having someone on the board who can help you navigate these will help avoid any accidental non-compliance, or unforeseen tax charges, which can save a lot of money.

Individuals with financial expertise will also be well placed to assist with the development of strategic aims of the charity, especially in relation to resources, as well as ensuring the effectiveness and robustness of the charity’s internal policies and procedures. Smaller charities in particular would benefit from this expertise as, often, they are too small to support a discrete finance function within the organisation.

In these smaller organisations the day-to-day bookkeeping is often be undertaken by an office administrator with little to no finance knowledge or training. In these circumstances, it would be especially important to plug this knowledge gap through financial expertise on the board. Ultimately the board is responsible for the charity’s finances, and it will always benefit the charity if there is someone on the board who will be able to identify potential financial risks, and ways of mitigating these risks.

Add financial expertise to your board

So, how do you find financial expertise for your charity board? A good place to start is to increase the financial literacy of the current board. Now, I don’t mean the board needs to start taking accountancy exams and become financial experts, but there are lots of excellent training sessions run throughout the year run by professional organisations: and most of these training sessions are free.

I would encourage all board members to learn more about finance matters generally. Not only will it increase the financial expertise of the board, but it will also ensure that board members are more able (and confident) to understand, scrutinise and question the charity financials, which makes for better governance and better decision making.

How to find an expert

If you want someone who is professionally qualified on your board, there are a number of options. You can ask your contacts and see if they know anyone. Professional accountancy bodies such as ICAS will have web pages dedicated for their members to find volunteering opportunities with charities, and it may be worthwhile contacting these organisations to get your job advert posted. And don’t forget your own accountants or independent examiners. They will be able to provide advice on charity matters, and they will also be able to use their networks to recommend someone outside your usual channels.

Current Position of the Scottish Investment Market

In this new blog post, Neil Norman Entrepreneurial Tax Partner at Chiene + Tait gives an overview of the current position of the Scottish investment market and the impact Covid-19 has had on investments.

Trends and changes

Covid-19 has triggered major changes in the Scottish investment market. We have seen many companies seeking funding, but fewer new investments made. Rather, the observed trend has been for investors to first seek to ensure that their existing portfolio companies continue to be supported. There is also a second trend – many of the investments made into existing investee companies are being tranched. For example, a company seeking £2m follow-on investment, may need to accept that it can receive £750k now and the balance in, perhaps, 6-12 months. This strategy, whilst sometimes frustrating for the recipient, appears sensible as investors seek to mitigate their exposure to the risk of a loss in an uncertain, macro-economic market. Whether the lack of certainty or ‘runway’ will adversely affect the fortunes of the investees remains to be seen, but those companies I have spoken to in this situation seem accepting of the investor’s logic and not overly concerned.

Valuations

In the early days of lock-down, we noted a significant shift in valuations being offered by some investors. However, anecdotally expressed concerns that this was the start of an era of opportunism appear to have been unfounded. Rather, so long as the investees are able to carry on relatively unabated with their plans to develop their intellectual property, their investors have been supportive with valuations that typically mirror those seen in the pre-Covid world. This is testament to the strength of the Scottish investment market and the integrity of those operating within it.

Support for Entrepreneurs

Support for entrepreneurs in Scotland remains amongst the best in the world; we have the most mature and one the most advanced early-stage investment markets. Since Archangels commenced investing in the early 1990s, there are now over 20 active angel syndicates and many funds operating here. Then, add in the support offered by LINC Scotland to the investor groups (including our EIS Helpdesk), the availability of match funding from the Scottish Investment Bank, the Covid-support measures introduced by the Scottish Government which are widely accepted as being better than the UK Government’s offerings, and the plethora of investment opportunities, many of which have come from world-leading research institutions, and it is clear that Scotland remains an extraordinary location for investment activity.

Author – Neil Norman, Entrepreneurial Tax Partner, Chiene + Tait

Welcome to our Research & Development week!

This week we will focus on the work of our Research & Development Tax team, highlighting the work they do for clients; sharing hints, tips and advice on how to utilise R&D Tax relief; and hearing directly from clients themselves on how they have found working with us.

One of the most generous corporation tax reliefs currently available, R&D Tax relief is designed to encourage innovation and increase spending on R&D activities. You can claim back money that you spend on research and development to offset against current or future tax bills.

The team are tax experts first and foremost, and combine inside-out knowledge of R&D with a deep understanding of the wider corporate tax position. Dealing with over a hundred claims a year, we understand HMRC’s language and can advise on the impact a relief claim will have on your tax position, compliance and strategy.

If you are thinking of making a claim for R&D Tax Relief, or not sure if you would qualify, contact David and our team of experts today.

Key questions to ask a research and development tax adviser

David Philp, Head of Research & Development Tax Relief at Chiene + Tait, provides a step by step guide for businesses to use when approaching an Research & Development Tax adviser about whether a project qualifies for the relief.

Whilst there are a number of good, tax-focused, R&D advisers operating within the UK, there are also a number of ‘experts’ who resort to cold-calling, and wrongly advise that a company can quickly and easily qualify for relief.

HMRC can take their time opening enquiries into a company’s tax affairs and any erroneous R&D claim will be required to be repaid plus penalties/interest and can be a red mark in any due diligence process, should the company be sold in future.

With HMRC actively taking steps to combat fraudulent tax claims and the UK entered into a recession, access to cash is essential and therefore it is more important now than ever to pick the right R&D tax adviser to help with a claim.

Here are a couple of questions I would ask if I were a company looking to find the right supplier:

Are they accountable to a relevant professional body such as ICAS or CIOT?

There is currently no regulatory body for R&D tax specialists. There is, however, the recent Professional Conduct in Relation to Taxation (PCRT) guidance specifically created for R&D tax advice.

Any reputable R&D tax adviser worth their salt will already be a member of one of the PCRT bodies and adhere to the 5 fundamental principles:

  1. Integrity
  2. Objectivity
  3. Professional competence
  4. Confidentiality and
  5. Professional behaviour

By choosing and advisor that is accountable to a relevant professional body, it will give you the assurance that the work completed is up to the minimum quality standard you should expect from an advisor.

Is the person preparing the claim a tax adviser?

An R&D claim is a tax incentive first and foremost. It forms part of a company’s tax return and is subject to tax legislation. It is important to find an adviser that understands HMRC language and the impact that a relief claim will have on the company’s overall tax position, compliance and strategy.  This allows the adviser to identify eligible projects and costs under the scope of the legislation, maximising the available relief whilst minimising the risk of an enquiry.

What experience do they have of making a claim?

The tax legislation is constantly changing, particularly R&D tax with a number of consultations currently ongoing. Make sure that you pick an adviser that has lives and breathes in the legislation. An adviser dealing with a lower volume of claims may not be as knowledgeable in this specialist area where it helps to work day-in, day-out.

Do they charge extra to deal with an enquiry?

Enquiries are HMRCs way of asking for further information before making their decision. They can, however, take significant time and effort to resolve. The costs associated to an enquiry can therefore spiral.

 

Hopefully this has given you some good pointers to keep in mind. If you are unsure about whether you can make a claim for R&D, feel free to contact David and his team at Chiene + Tait at rdtax@chiene.co.uk or call 0131 558 5800.

Research & Development Tax Relief: ways to maximise your claim

Our team of full-time Research & Development (R&D) Tax Relief specialists has highlighted the key areas where there are opportunities to maximise your R&D claim that can be commonly missed:

 

Grant funding

Companies often incorrectly believe that receiving grant funding means that they are not eligible to claim R&D tax relief. This is not the case; the receipt of a grant can, however, impact upon the level of relief a company is entitled to claim.

Depending on the type of grant received it can cause some or all of the qualifying project expenditure to be ineligible under the R&D SME scheme, potentially for the entire life of the project. A specialist R&D advisor will be able to apply the detailed legislation to each of your projects to ensure you claim the maximum amount of relief you are entitled to.

An experienced advisor will also be able to help you to proactively maximise your R&D claim in relation to grant funding. If you are considering applying for a grant, our team can guide you on how to structure your application to ensure that it does not adversely impact upon your R&D claim.

Customer contracts

There is also a misconception that when a company has been approached by a customer to undertake R&D that these activities are not eligible for relief. In fact, depending on the factors specific to each engagement you may still be eligible for relief. Our specialist R&D team can review customer contracts to determine if a claim is eligible and we can also proactively review contracts to ensure any new projects are eligible.

Investments

A claimant company is required to include the accounting data of other entities if they are considered to be ‘linked’ or ‘partner’ enterprises. Aggregating this data can cause a company to breach the SME thresholds for R&D purposes, making the company ineligible for relief at the preferred rate.

This is something that should be considered when carrying out an investment round. Our R&D team can advise whether a proposed investment will breach any of these limits.

Dividends

It is common for directors to take dividends, rather than putting themselves on the payroll, to avoid paying money through the PAYE scheme that could otherwise be invested back into the business. However, dividends are not a qualifying cost for R&D tax relief purposes and, as such, cannot be included in a claim.

As employees’ and directors’ gross salaries are a qualifying cost, it may be worth considering adding any directors to the payroll and paying them below the personal allowance and national insurance thresholds, so no PAYE or NIC are payable, and pay any further remuneration as dividends.

Staff versus Freelancers

In the early stages, many companies will outsource work to specialists or utilise subcontractors and agency workers. For SME claims, costs spent on engaging with subcontractors and agency workers will be restricted to 65%. Furthermore, if you are claiming under the RDEC scheme, there are multiple restrictions on third party costs – as well as a payable PAYE/NIC cap. This means you may not be able to claim any of the costs incurred.

Third party costs

Subcontractor and externally provided worker costs, in most cases, require a statutory restriction of 65% to be applied. However, if a third party is considered to be ‘connected’ to the claimant company or if an election to be treated as connected is made, relief for 100% of the costs can claimed.

Here at Chiene + Tait, our R&D specialists have years of experience preparing and submitting successful claims for hundreds of companies, across both R&D schemes (RDEC and SME), in multiple industries.

If you are considering claiming relief and would like to hear how we can help you, please email us at RDtax@chiene.co.uk.

 

Research & Development tax relief: common mistakes we see on claims already submitted to HMRC

Here at Chiene + Tait, our team of full-time Research & Development (R&D) Tax specialists work with many different sized companies across various industries. Whilst the majority of our work is first time submissions, we also review and amend previously submitted claims. Time and again we see companies over and underclaiming their eligible relief due to the complexities of the legislation. Eilidh Hobbs, Entrepreneurial Supervisor, highlights key points to be aware of:

Grant funding

Receiving grants can impact upon the level of relief a company is entitled to claim, causing some or all of the qualifying project expenditure to be ineligible under the SME scheme, potentially for the entire life of the project.

Because many companies rely on grant funding during the start-up phase, they often describe their entire business model, including the R&D project, in their grant application in attempt to secure the funding. The grant application is used to determine which of the company’s activities are subsidised, so if the entire business model is described, the R&D project could be impacted by the grant. Therefore, it is important to keep this in mind when applying for grants and weigh up the potential benefit of an R&D claim vs the grant amount.

Contracts with customers

In some instances, if you have been approached by a customer to undertake work, R&D resulting from this still may be eligible for relief. Two of the main factors that need to be considered are whether the company retains the right to benefit from the IP generated and whether the company bears the economic risk. Any subsidised costs are ineligible under the SME scheme, but a claim can be made under the RDEC scheme.

Third party costs

Costs incurred on engaging subcontractors or externally provided workers are eligible categories of expenditure. The treatment of subcontractor costs is different under the RDEC and SME schemes.

Under the SME scheme, payments made to any type of party qualify, but a statutory restriction of 65% must be applied to these costs, unless they are a connected party or an election to be treated as an elected party has been made.

Under the RDEC scheme only costs incurred in engaging an individual, partnership or qualifying body can be claimed. These costs only sometimes need to be restricted to 65% and this depends on certain factors specific to the project.

Externally provided workers are only eligible for relief where a payment is made to a staff provider supplying an individual to the claimant company, therefore payments made to a self-employed individual do not qualify. Furthermore, if the externally provided worker is a director or employee of the claimant company these costs are not eligible. These costs should also be restricted to 65% if the parties are not connected.

Non-qualifying costs

We often see costs incorrectly included in claims that are not eligible for relief, such as those incurred on capital items, materials that go on to be sold in the ordinary course of business and rental costs.

Here at Chiene + Tait, our R&D specialists have years of experience preparing and submitting successful claims for hundreds of companies, across both schemes, in multiple industries.

If you are considering claiming relief and would like to hear how we can help you, please email us at RDtax@chiene.co.uk.

 

How can R&D tax relief help cashflow during the recession?

In this blog, Eilidh Hobbs in our Research & Development Tax Relief team highlights how the relief can provide a lifeline for qualifying businesses during the current recession.

Most, if not all, businesses have been affected in some way by Covid-19. Some have been lucky enough to see a surge in demand due to the nature of their business, but unfortunately many have been negatively impacted. This meant that management have had to move their focus away from long-term strategy, to managing day-to-day cashflow.

HMRC have introduced a number of temporary schemes and incentives specifically to support companies through the unprecedented pandemic. However, there are other permanent schemes that can also help businesses through these trying times, such as R&D tax relief.

Many companies are carrying out qualifying R&D activities but have not considered claiming tax relief in the mistaken belief that they don’t fit the conventional image portrayed of a pure R&D company.

HMRC’s definition of R&D applies to all industries and as long as your business seeks to achieve an advance in a field or science or technology, and in doing so is required to overcome scientific or technological uncertainties, you will qualify for the relief. The definition is wider than you would think. Chiene + Tait’s dedicated R&D specialists are happy to discuss any projects your business has undertaken to assess whether you may be eligible to claim the relief.

A claim can result in a generous cash tax credit, or a reduction to tax liabilities and you have two years from the company’s financial year end to make a claim – so you can benefit from activities and R&D investment in prior periods; up to three years prior. The benefit may also be with you quicker than you would expect as HMRC are currently aiming to process SME claims within 28 working days.

If you have a query about Research & Development Tax Relief, or wonder if your company can apply, contact Eilidh today on 0131 558 5800 or email eilidh.hobbs@chiene.co.uk.

Research & Development Tax Relief: common misconceptions

There are several big misconceptions surrounding Research & Development Tax Relief – we come across them on a near-daily basis. Despite it being one of the most generous corporation tax breaks available, many people rule themselves out without looking into it in greater detail. But if you do look into it, you might be surprised at what qualifies for R&D Tax Relief.

Dave Philp, Head of R&D Tax at Chiene + Tait, looks at the misconceptions you might have heard.

“We haven’t created anything new so we aren’t eligible”

This simply isn’t true: you don’t need to be breaking new scientific ground to qualify. R&D tax relief covers any project that seeks an advance in science or technology. As well as creating an innovative, state-of-the-art product, this can also mean simply improving upon existing processes. If you have:

  • Been working on something that has never before been attempted;
  • Tried to improve their existing products through technological change; or
  • Looked to find a more efficient way to work,

then you will likely have scope for an R&D claim.

“We have received grant funding so can’t make a claim”

Not correct. However, receipt of a grant does throw a spanner into the works. You can still make a claim, albeit the grant may limit the total tax credit/deduction that you will get back. The legislation around grants and how they interact with R&D tax relief is extremely complex, so I always recommend speaking to a specialist to ensure that you maximise your claim.

“But we don’t focus purely on R&D”

R&D tax relief is available to companies that attempt to overcome technological or scientific uncertainties through the use of untried and untested techniques. It doesn’t matter if that is the company’s sole purpose, if there is innovation as part of the process, there will likely be a claim. That means that companies from a range of different sectors can qualify for relief.  In the past 12 months, Chiene + Tait has worked with (but not limited to) companies in the following sectors:

  • Software
  • Electricity and Gas
  • Manufacturing
  • Financial & Insurance
  • Life science
  • Construction

 “It’s not worth the time to make an R&D tax relief claim”

Companies can receive a tax credit up to 33% of the total eligible expenditure incurred. So, if you spent £100k on eligible staff costs, you could receive up to £33k tax credit, cash in hand

Granted, the rules and application process is complex and can seem daunting, but you can remove that hurdle by using a good adviser.

If you’d like a discussion about whether you can claim R&D tax relief, or if you have any questions about it, get in touch with me at david.philp@chiene.co.uk.

Caution: COVID-19 loans could affect Research & Development Tax claim

The Coronavirus Business Interruption Loan Scheme (CBILS) and the Bounce Back Loan (BBL) are two of the most common COVID-19 reliefs provided by the Government, facilitating in over £50bn in loans that have helped thousands of businesses with their cashflow during the pandemic. These have proven to be a vital lifeline to many, but there are complexities with how they interact with R&D Tax Relief, the ‘go-to’ cash relief for innovative companies since 2002.

If companies are not careful with their funding applications, these can adversely impact future R&D tax claims. With the opportunity to apply for CBILS and BBL funding ending soon, it could lead to a rush in claims. But you should take care.

State Aid

Both CBILS and BBL are notified State Aids, meaning that being in receipt of either loan could impact an SME R&D Tax Relief claim, particularly if the loan relates specifically to R&D expenditure rather than being used more generally to support the Company as the funds are intended. EU regulations require that a single project cannot receive more than one form of notified State Aid. If it is determined that a project has been funded via either CBILS or BBL, this would mean that the project would be ineligible under the SME scheme.

Avoiding the trap

The loans are not designed to trap companies, but it is important to ensure there is no confusion. When applying for a loan, check the terms to ensure the funds can be used for non-eligible expenditure such as marketing costs or rent. Keep records of where costs have been allocated so that there’s an audit trail that shows the R&D project expenditure is ring-fenced from the loan. Finally, and most importantly, when providing details as to what the loan will be used for, the activities relating to the R&D project shouldn’t be mentioned. The loans are designed to support the day-to-day running of a business rather than specific R&D projects.

The effect of the loan on a R&D claim will depend on the facts of the case. However, providing specific details of the R&D project in the loan application will only confuse matters as to whether the project has been subsidised or not. If you have a query about how loans impact a claim for Research & Development Tax Relief contact us today.

COVID-19 Jobs Support Scheme Announced

The Chancellor has announced the launch of a new COVID-19 Job Support Scheme, following the end of the UK furlough scheme in October.

The new Scheme will run for six months starting in November 2020, following the end of the current furlough scheme. Those who used the furlough scheme will be able to claim the job retention bonus and also support from the Job Support Scheme.

Jobs Support Scheme

Under the Job Support Scheme, the UK Government will subsidise the pay of employees who are working fewer than normal hours due to lower demand. For a business to claim for a workers’ wages, the employee must work at least a third of their normal working hours and be paid as normal for these hours by their employer. For the hours employees can’t work, the government and the employer will each cover one third of the lost pay.

  • Employee works 33% of their hours
  • Of the 67% of hours left:
  • UK Government will pay 22% of the employees’ wages
  • Employer will pay 22% of employees’ wages
  • = Employee receives no less than 77% of their wages

The grant will be capped at £697.92 per month, and all small and medium sized businesses will be eligible for the scheme; larger business will be eligible if their turnover has fallen during the crisis.

It will be open to employers across the UK even if they have not previously used the furlough scheme and it will run for six months starting in November through to the end of April 2021.

More details will be released in due course.

Support for the self-employed

The Chancellor will also extend the Self-Employed Income Support Scheme on similar terms to the Jobs Support Scheme. A grant will be available to those eligible for the Self Employment Income Support Scheme Grant that will cover three months’ worth of profits for the period from November to the end of January 2021. It will cover 20% of average monthly profits up to a total of £1,875. A further grant will be available to the self-employed to cover February 2021 to the end of April 2021.

If you have a query about any areas of business related support during the current pandemic, please contact our team at covid@chiene.co.uk, or visit our directory of support and guidance.

Chancellor Rishi Sunak offers more Coronavirus support

Chancellor Rishi Sunak today announced a series of new measures in his Winter Economy Plan, aimed at supporting employees and employers in the continuing fight against the impact of Coronavirus. A summary of the areas he highlighted are below.

Business loans

Bounce Back Loans will be extended from six years to 10, cutting monthly repayments by nearly half. Coronavirus Business Interruption Loan Scheme lenders will also be able to extend the length of loans from the current maximum of six years to 10 years. The Chancellor is also extending the deadline for the Government’s coronavirus loan schemes to the end of November.

Businesses that are struggling can choose to make interest-only payments for six months and those “in real trouble” can apply to suspend repayments altogether and take a repayment holiday for six months without seeing their credit rating fall as a result.

Tax and VAT

The 15% emergency VAT cut for the tourism and hospitality industries will be extended from January 2021 to 31 March 2021.

Additionally, business that deferred their VAT bills will be able to pay back their taxes in 11 smaller interest-free instalments to help with cashflow management.

Finally, self-assessment taxpayers with up to £30,000 of income tax and capital gains tax liabilities due will be able to use HMRC’s Time to Pay facility to secure a plan to pay over an additional 12 months. This means that self-assessment liabilities originally due in July 2020 and deferred until January 2021 will not need to be fully settled until January 2022.

Further information regarding the Job Support Scheme will be uploaded on our website shortly. If you have a query about these changes and how they may affect you, contact our team today at covid@chiene.co.uk.

How organisations can build resilience

In this blog as part of the Future Of… series, David Shadwell Accounts and Business Support Partner outlines how organisations can build resilience during tough times.

Businesses that are agile, flexible and opportunistic can thrive in a world of uncertainty. A truly resilient organisation has an ability to turn a crisis into a source of strategic opportunity.

Given we are now in a new normal, there are likely to be some key areas of opportunity critical for future success, digital, transformation, organisation, resilience and sustainability. Businesses must act faster than ever, creating cultural shifts required to enable truly digital organisations.

Leaders have to make high stake decisions fast to ensure the resilience of their operations as shifts in the market have happened and the importance of good, accessible data has never been higher. If we think about a resilient business as one that has, and is able to get, a good awareness of the current situation, understands its core vulnerabilities and has the capacity to adapt in a complex and dynamic environment, then it’s easy to see why good, accessible data is so important.

Even where a business model cannot change significantly, and therefore the business cannot pivot to any great extent, a digital business model can often provide a great customer experience earlier. The ability to gather large amounts of customer data then provides a platform to learn more about what customers really want, so you can continue to improve the experience. A great digital experience creates significant customer loyalty, which is hard to break, putting up barriers for any competition arriving later to the party.

Effective management of risk is the key to an organisation realising this full potential, creating competitive advantage and protecting shareholder value. The change management around this hinges on exciting the organisation about the change and empowering them to do things differently. If you would like to speak with David Shadwell please contact him today on david.shadwell@chiene.co.uk or call 0131 558 5800.

 

Photo by Ivan Bertolazzi from Pexels

 

Chiene + Tait’s Future Of… series launched

Chiene + Tait has launched a new LinkedIn group aimed at providing a discussion forum to support Scottish businesses in a post-pandemic world. The Future Of… group will bring together experts from across the Scottish and UK business community and will focus on key economic challenges being faced, and how these could be overcome by working collaboratively.

In launching the group, Chiene + Tait Chair, Lena Wilson CBE will deliver a series of Future Of… videos with high-profile speakers. The first video features a discussion with Professor Graeme Roy, Head of Economics at University of Strathclyde and Director of the Fraser of Allander Institute that covers core factors that will impact the speed of economic recovery in Scotland. Further discussions with Professor Roy will appear on the Future Of… LinkedIn group over the coming weeks, with future speakers in the pipeline discussing the future of entrepreneurship, the environment and climate, and Scottish businesses.

The initial session, available from today, features Professor Graeme Roy, Head of Economics and Director of the Fraser of Allander Institute, discussing core factors that will impact the speed of economic recovery in Scotland.

Further sessions will include a post-Covid analysis of entrepreneurship, the environment and climate, and Scottish businesses. The videos will analyse the potential opportunities to emerge after a period of economic stagnation, focusing on finance, business models, leadership and outsourcing.

Commenting on the launch of the Future Of… series, C+T Managing Partner Carol Flockhart said: “The impact of Covid-19 is profound and will be felt for years to come. While this is inevitably creating huge challenges for many businesses and impacting heavily on a number of industry sectors, a crisis of this scale also presents longer term opportunities.

“The Future Of… series is focused on the economic landscape beyond the pandemic, considering where future opportunities may lie and how Scottish businesses can align themselves to ensure they are able to rebuild and benefit from these. We are delighted to have input from some of the UK’s leading business figures whose insights we are pleased to share across the business community.”

Get involved and join the discussions here.

Second round of Self-Employment Income Support Scheme now open

Self-employed people whose trade has been hit by Coronavirus can now apply for a second, and final, Self-Employment Income Support Scheme (SEISS) grant of up to £6,750 from the government.

The online claims service on GOV.UK opened on 17 August and the deadline for claiming the second grant is 19 October. The claims window is open for a four-day period but anyone who thinks they may be eligible and hasn’t been contacted by HMRC has until October to make a claim. To be eligible for the Self-Employment Income Support Scheme, more than half of a claimant’s income needs to come from self-employment.

The scheme is open to those with a trading profit of less than £50,000 in 2018-19, or an average trading profit of less than £50,000 from 2016-17, 2017-18 and 2018-19. Under the first payment earlier this year, self-employed workers who qualified had been in line for a grant of 80% of their average profits, up to £2,500 a month for three months.

This was paid in one instalment, of up to £7,500 and applications for this first round of grants closed on 13 July. As of today (Monday 17th August), those eligible can claim the second, slightly less generous, grant covering 70% of the applicant’s average monthly trading profits. The grant will be made in a single payment, covering three months and capped at £2,190 a month, or £6,570 in total.

Applicants will need to confirm their business has been affected by the virus on or after 14 July, but they would not need to have taken the first grant to be eligible for the second.

If you think you are eligible and haven’t been contacted by HMRC, you can go onto the HMRC’s website, which will tell you if you are eligible, and when you can make a claim.

HM Revenue and Customs (HMRC) has recently admitted thousands were paid too much from the first tranche of the scheme, but it will not be demanding repayment. Approximately 15,000 payments – less than 0.6% of the total – were miscalculated.

If you have any queries about SEISS, please contact Iain Paulin at iain.paulin@chiene.co.uk or call 0131 558 5800.

Chiene + Tait launch Just for Jess Challenge

In the summer of 2019 our beloved colleague Jessica Welsby tragically passed away whilst on secondment in Australia. In her memory, at the end of August, Jess’ family will undertake the Just for Jess Challenge and cycle from her home in St Helens to Edinburgh, a total of 230 miles in aid of SADS UK. Additionally, our AGN partner firm, Ashfords in Australia plan to complete their own 230 mile challenge.

We at Chiene + Tait are proud to support the Welsby family and set a target of 230 miles that our colleagues will aim to reach on their own throughout the month of August, or join a relay, all whilst aiming to reach a fundraising target of £2,300 that will be donated to the charity the Welsby family have nominated – SADS UK.

We would be grateful for any support towards helping us reach our fundraising target and look forward to supporting the Welsby family with our own Just for Jess Challenge.

COVID-19 Redundancy Pay Level Protected

The UK Government has confirmed that in the event of redundancy, workers’ wages will be protected regardless of being on furlough.

In response to a minority of firms taking advantage of the current COVID-19 pandemic to pay a lower rate of redundancy, any furloughed workers that lose their jobs will now be eligible for redundancy pay based on normal wages, rather than the furlough rate. The UK’s 95 million furloughed workers are currently only being paid 80% of their normal wage, raising the anomaly in redundancy pay level.

Workers with more than 2-years continuous service that are made redundant are usually entitled to a statutory redundancy payment that is based on their length of service, age and pay up to a maximum statutory level. Additionally, the new law will also apply to statutory notice pay, which is where employees must be given a notice period before their employment ends. Notice periods can vary from one week to up to 12 weeks’ notice, depending on length of service. Another change will ensure basic awards for unfair dismissal cases will be based on full pay, rather than furlough-level wages.

It is estimated that 150,000 people have so far been made redundant during the crisis, but there are estimates that this figure could climb much higher, especially when the Government’s furlough scheme ends in October. Indeed, the National Institute of Economic and Social Research think tank warned that the ending of the furlough scheme could lead to 1.2 million people being unemployed by Christmas.

In a recently announced step by the UK Government to encourage employers to retain staff, further details about the Job Retention Bonus Scheme have been publicised. The plan will see businesses receive a one-off payment of £1,000 for every previously furloughed employee that earn at least £520 a month on average, if they are still employed at the end of January 2021.

To claim the bonus, employers will need to have relevant up-to-date payroll RTI records for the period to the end of January, and for an employee to be eligible employees must have been paid at lease £520 a month on average between 1 November 2020 and 31 January 2021. Details guidance on the process of how to claim the bonus will be issued in September 2020.

Finishing university and returning to C+T: all from my bedroom

In this blog, Entrepreneurial Tax Trainee Sarah Gibbens talks through the last months of finishing university and starting her new job at Chiene + Tait – all through lock down.

 

Many remember their final year of university fondly; sharing the last few months with your university friends before you end up miles apart, the post-exam celebrations, and travelling the world before you start work with the prospect of being a real adult. Sadly, for me, and all other 2020 graduates, this was not the case. I didn’t realise that my last, physical day at university was in fact my last. Coronavirus was certainly around at that time, but the world was yet to descend into full lock down. And so, as we broke up for Easter break I assured my friends that I would be back in town come a week or two, and made plans for our return. We didn’t realise quite how much the world was about to change.

It was almost like a dystopian dream when the PM appeared on our television screens to announce lock down, I’m sure many of you felt the same. Universities subsequently began to scramble to get us all online so that we could finish our degrees. Thankfully, the end of my degree wasn’t as stressful as it was for others. Unlike most other people, I’m still not sick of my dissertation topic (the benefits of being a modern history student mean that you get to choose topics such as the Kennedy brothers’ involvement in the plots to assassinate Castro) and my final economics exam was replaced by an essay that was shockingly also very interesting.

However, the end to my degree was still anticlimactic. Clicking submit on ‘Turn-it-in’ doesn’t quite have the same satisfaction levels as handing in a bound copy of your dissertation or leaving the exam hall for the last time and finding your friends waiting to soak you with water, as is university tradition at St. Andrews. For the months I had before starting at Chiene + Tait, I had this strange feeling that I hadn’t actually finished at university.

Coming back to C+T was something I had been looking forward to ever since receiving my job offer, after my internship last summer. Everyone in the team had been so friendly and the work in Entrepreneurial Tax had been incredibly interesting. The knowledge that I already got on well with the team, and enjoyed the work made my last year at university somewhat more relaxing, as I didn’t face the pressure my peers were under, not just to find a job but to find one that I liked as well.

As the world pandemic developed and the weeks turned into months, my start date for C+T began to quickly approach but lock down remained firmly in place. This made me somewhat apprehensive about starting. Many of my friends had their jobs postponed until next year, but thankfully C+T emailed to let me know that I’d be starting from home remotely. This again left me with many questions, however, as I had no idea what it would be like to start a new job from my bedroom.

However, beginning my new job at the firm has helped to make it feel like my life is moving forward once again. Although it has only been a few days, the remote start to my work has been an easy and enjoyable process.  Everyone at C+T has been extremely helpful and welcoming, and I already feel part of the team. I’ll admit it is odd working from home, especially when my flatmates aren’t in full-time work, meaning that I seem to be living in a  different time zone to them when it comes to our waking hours, but having my morning commute reduced to from one side of the room to the other is definitely something that I could get used to!

As I continue my career at C+T, I’m looking forward to developing my knowledge of Entrepreneurial Tax and working towards my tax qualifications. As much as I am so far enjoying working from home, I am also excited for when the world starts to return to some semblance of normality and I can meet my colleagues properly, rather than through a grainy camera screen. It’s uncertain when that will be possible, however, so for the moment we’ll have to wait until we can see each other in HD once again.

Sarah Gibbens, Chiene + Tait Entrepreneurial Tax Trainee

 

My advice for anyone taking a remote tax exam

In this blog, C+T’s Fraser McCallum shares his experience of taking a remote tax exam to help him achieve his tax qualification, and what advice he would give others who are planning to take an exam remotely.

I was due to sit my final two exams on the ATT/CTA Tax Pathway at the start of May 2020 and, once passed, I would be a fully exam-qualified Chartered Tax Adviser. However, at the end of March the Coronavirus lock down came into effect, and The Chartered Institute of Taxation (CIOT) cancelled the majority of paper exams. Thankfully, one of my exams was only postponed and would be sat by ‘remote invigilation’ at the beginning of July.

Initially I was sceptical about taking an exam remotely, but keen to take advantage of writing my exam answer on my own computer. The exam in question was a case study with a big emphasis on structure and presentation. My theory was that the ability to re-organise and perfect a word document via a machine was surely a huge bonus, compared to writing it all out on paper.

Throughout the whole process, both the CIOT and my exam training provider were extremely helpful and provided masses of guidance, including a mock exam setup that allowed you to practice with the software with extensive FAQs.

As the exam neared I started to appreciate the various issues of remote invigilation. During the exam invigilators would watch and listen to all of the students via their webcams, so laptops and internet connections needed to be up to the task. Luckily my ‘system readiness check’ was a success and I was able to borrow a good webcam from the Chiene + Tait IT team. There were other interesting requirements too, all laid out in great detail in the CIOT’s FAQs:

  • I had to be sitting at a desk,
  • I had to have a mirror on hand and
  • My work environment had to tick a number of boxes, or I wouldn’t be allowed to go ahead.

The night before the exam an email from the CIOT outlining that some exams had already taken place, and third-party invigilation provider had experienced a few issues. They were only minor but gave me a sense everything was not going as well as expected.

On exam day, I had a start time slot and was paired up with an invigilator for the meticulous pre-exam checks. Among other things, I had to pan around the room with my webcam (including under my chair) and hold up all of my tax legislation books (I have 8!), front and back, and give them a shake!

I started my exam, and all was running smoothly. Then with 1 hour, 38 minutes to go a big error message popped up, and a few minutes later the exam software kicked me out! This was exactly what I had had nightmares about. Then ensued a half hour of sheer panic.

I attempted to find a help contact number, failed, loaded up the software again, waited several minutes for someone to acknowledge me and then had to go through all of the pre-exam checks again! Luckily, my session was recovered, and the timer had frozen, but I had been thrown completely off my train of thought and did the second half in fear of being kicked out again. Apparently, the more your connection fails, the less likely you will be allowed to continue – not the best environment to sit any exam.

In the end, I finished it and, hopefully, all was well. However, the overwhelming stress on the day came almost entirely from technology and not from the exam itself. One of my colleagues took several hours to even get access to her exam in the first place. It was not an ideal experience but unfortunately, it’s difficult to envisage any other way such important exams can be sat remotely. The CIOT have been very understanding of all issues; there will be big changes made before the next remote sittings in November.

My advice to anyone planning to sit the exams remotely in the future is:

  • Practice, practice, practice with the mock exam software provided, especially writing out a calculation or tax computation. You want to be as comfortable as possible with it on the day;
  • Do your exam somewhere your internet connection is rock solid, as the slightest interruption can kick you out of the software;
  • Talk to someone who has sat a remote exam. I would have loved to have had a chat with a co-worker who’d been through the experience before me;
  • Thoroughly read all of the guidance and FAQs, and drill into your head exactly what to do if you have a problem on the day. Remember, you can’t have any emergency notes on your desk!

Fraser McCallum is a Senior in the Chiene + Tait Corporate Tax team.

What businesses should focus on ahead of Brexit

The UK Government is pressing ahead with its post-Brexit planning, with the release of a Border Operating Model following engagement with businesses. The 206 page document is designed to give guidance to industries on how border issues will work after the transition period ends on 31 December and the actions that traders, hauliers, ports and carriers need to take.

On December 31st 2020 the transition period with the EU will end, and the UK will operate a full, external customs border with the EU and the rest of the world. This means that controls will be placed on the movement of goods between Great Britain (GB) and the EU for the first time.

The Government has broken this down into 3 phases up until 1 July 2021 to assist businesses in planning and preparation.

The key messages which we urge businesses to focus on as 31 December approaches are as follows:

  • Get a customs intermediary. Intermediaries can help traders find the information needed to complete formalities and submit the required declarations, for example customs information to HMRC systems. This simplifies the declaration processes for traders. If you decide not to use an intermediary, you will need to make declarations yourself.
  • Apply for a duty deferment account. Traders who import goods regularly, may benefit from having a duty deferment account. This enables customs charges including customs duty, excise duty, and import VAT to be paid once a month through Direct Debit instead of being paid on individual consignments.
  • Prepare to pay or account for VAT on imported goods.
  • Ensure you have International Driving Permits if you have vehicles travelling outside the UK.
  • Apply for a GB Economic Operator Registration and Identification (EORI) number. This is required for all businesses moving goods into or out of the UK.

The link to the document is contained here – https://www.gov.uk/government/publications/the-border-operating-model?utm_source=43c65c94-3755-427b-a052-15742071d45e&utm_medium=email&utm_campaign=govuk-notifications&utm_content=immediate

We will continue to produce guidance to assist businesses with Brexit planning and are available for consultations on what action needs to be taken by businesses. Find out more about our VAT and Brexit Review service here.

For further information and advice please contact Iain Masterton in our VAT team.

VAT Rate Cut

The Chancellor Rishi Sunak has announced a temporary 5% VAT rate which will come into effect from 15 July to 12 January 2021. The main areas which will be affected are:

  • Sales of Food and non-alcoholic drink in restaurants, pubs, bars, cafes and similar premises;
  • Hot takeaway food and non-alcoholic beverages;
  • Sleeping accommodation in hotels, B&B and similar accommodation including holiday accommodation, pitch fees for caravans and tents and associated facilities; and
  • Admissions to tourist attractions such as theatres, concerts, amusement parks etc.

The changes are not limited and will impact on any businesses or organisation that provide food or drink, accommodation, or are considered a tourist attraction. For more details visit our VAT page here. Or download our free VAT Rate Cut Factsheet here.

If you have a query about the VAT rate change, contact our team today at vat@chiene.co.uk.

Summer Statement 2020: Main Points

Chancellor Rishi Sunak today outlined a series of measures aimed at restarting the economy after the recent impact of the COVID-19 pandemic. Key points delivered in his speech were:

  • Stamp Duty holiday – a temporary holiday on stamp duty, on the first £500,000 of all property sales in England and Northern Ireland, effective immediately.
  • The launch of a new “Kickstart Scheme” to create more jobs for young people – a six-month work placement for people on Universal Credit between 16 – 24 who are at risk of long-term unemployment.
  • The launch of a “Job Retention Bonus” – the Government will pay employers a £1,000 bonus for every staff member kept on for three months once the furlough scheme ends in October.
  • VAT cut from 20% to 5% – on food, accommodation and attractions starting 15th July until 12th January 2021. Watch out for more details on the VAT cut from our specialist team shortly.
  • A new ‘Eat out to help out’ discount – will give people 50% off meals in participating restaurants on Monday-Wednesday throughout August, up to £10 per person.

Other announcements made before Chancellor Sunak’s speech in the Commons include:

  • Grants to help homeowners and landlords in England as part of a green investment package – will receive vouchers of up to £5,000 for energy-saving home improvements.
  • Organisations working in the arts and culture sector across the UK are to receive £1.57bn in grants.
  • A pledge to provide 30,000 new traineeships for young people in England, giving businesses £1,000 for each new work experience place they offer.

Details about the VAT rate cut can be found here.

 

 

Jackie Fraser blog – how Scotland’s tourism sector can reopen after lock down

Tourism is one of Scotland’s most important and fast growing sectors contributing over £11bn to the nation’s annual GDP. Last year it employed around 218,000 people accounting for more than eight per cent of total Scottish employment. In 2018 total overnight tourism trips in Scotland reached 15.5 million, a rise of three per cent from the previous year. At a time when stay at home holidays are increasing, partly due to pandemic-related foreign travel restrictions, it’s worth noting that UK residents already account for 12 million of those trips.

After the traumatic impact of the Covid-19 lockdown, the sector is now eagerly awaiting the opportunity to reopen for business on 15 July. While social distancing measures will put a limit on the scale of reopening, those who run tourism businesses are hoping it will enable them to generate at least some revenue, which could make the difference between survival and closure.

Many tourism businesses in Scotland and across the UK have seen a raft of support and assistance offered to them as a result of the effects of the pandemic. As 15 July approaches, they must now consider how their cash flow has been impacted, and is likely to be further affected by recent financial highs and lows.

They will need to determine whether they have suitable short-term cash reserves to pay employees and suppliers after the financial drain incurred since March, or whether borrowing is required. If this is the case, businesses must then decide if they are comfortable with the level of debt burden incurred and the impact this will have going forward.

The UK Government VAT deferral scheme, which enabled businesses to postpone three months of VAT payments to 30 June, has provided some help with cash flow. Those businesses which grasped this opportunity by cancelling their VAT direct debit for that period will now need to reinstate this or could risk running into VAT arrears going forward.

The industry is also set to benefit if the strong rumours of a reduction in VAT come to fruition. While not yet confirmed, there have been reports the Chancellor is considering reducing the standard rate from 20 to 17.5 or possibly 15 per cent later this summer which would be a welcome development in improving cash flow for businesses within the sector.

Tourism businesses provide a lot of jobs and many will need to consider employment issues in advance of the 15 July reopening. This includes determining when existing employees should be taken off furlough, or when new people need to be hired. Another important issue for tourism businesses is how they will ensure they are able to safeguard their employees’ health and follow new government health and safety guidelines.

The tourism sector also provides a living for a significant number of self-employed people, some of whom will not be able to return to work in mid-July. There is, however, support in place for these workers as the UK Government recently announced the extension of the Self-Employment Income Support Scheme (SEISS). Qualifying individuals can continue to apply for the first SEISS grant until 13 July and claim a taxable grant worth 80 per cent of their average monthly trading profits. This is paid out in a single instalment covering three month’s profits capped at £7,500 in total. Applications for a second grant will open in August, with qualifying individuals able to claim a further grant worth 70 per cent of their average monthly trading profits capped at £6,570 in total.

These government schemes have been essential in supporting the businesses and people driving the economic success of Scottish tourism. While this will be a hugely challenging year for many, the 15 July reopening of the sector is hugely welcomed and anticipated. It is essential that businesses are suitably prepared to make the most of this year’s limited trading window so they can survive the financial blow of the pandemic and build for the future.

Running an accountancy practice through the COVID-19, and beyond

Chiene + Tait’s new Accounts and Business Support Partner, Dave Shadwell, was delighted to recently take part in an online discussion led by MyWorkPapers, with leaders from other accountancy practices. The event focused on experiences of running a practice through the COVID-19 crisis and how, in the future, firms may work differently. Here, Dave talks us through the main areas covered during the discussion.

COVID-19 has forced many accountancy practices to change or re-think technology requirements, but at Chiene + Tait, being a ‘digital first’ business is one of three key pillars of our strategy. There’s no doubt that the pandemic has reinforced the importance of this, but it hasn’t changed our direction. Indeed, I feel strongly that the lock down has given us an opportunity to make some significant changes in the business, addressing issues such as climate change and increased flexible working models. I envisage that we will see a hybrid model, when our office officially reopens, to ensure our people can achieve the best work/ life balance that suits them.

One of the things that the lock down has clearly shown, is that our team doesn’t need to be in a building all together to serve our clients. Although our people have told us that some of them miss the social aspect of the office, others are revelling in managing their time more effectively. Overall, we are determined to pick the model that works best for all, and collaborate to deliver this as a team. Fundamentally, we are our people. That’s why we continue to recognise and place huge value on the fact that our staff have an active growth mindset, curiosity and a willingness to learn new tools and techniques

Another key learning is the recognition that accountants aren’t bean counters, clients view our role as essential to their success – we help them understand and make sense of risk, uncertainty and opportunity to decide the best way forward to meet their ambitions.

There are, of course, other ‘positives’ for our business – forcing a change of mindset around the smarter use of technology to enhance what we do for clients, adopting an approach of welcoming change and challenging ourselves to constantly look for new and better ways to support our clients. At C+T, we want our team to benefit as much as possible from how we innovate and support our clients. This enhances our credibility when advising clients on how to adapt their businesses to change and technology. Indeed, our virtual CFO service has seen a huge surge in demand, to provide the higher-level, strategic, financial and commercial advice required to help clients deal with risks and opportunities. Cloud technology has made this offering far easier.

Over the next six months, the challenge will be to navigate ourselves, and our clients, through the huge economic uncertainty that will only reveal itself as we start to see the real economic landscape. We know times are going to be hard, but it’s still a massive unknown – I personally believe the UK’s future prosperity will depend on how well we can all adapt to technology. My advice to any practice, or other type of business, is to push forward with using cloud-based technology. You will wait indefinitely if you wait for perfection, or to be 100% ready – the sooner you jump, the sooner you will reap the benefits. By building in a 20% learning curve, you will build solid change management and structures to the implementation, resulting in an opportunity to gain the most from innovation and adapting to future change.

Gift Aid Emergency Relief Package for Charities

Whilst HM Revenue & Customs (HMRC) have provided a vast amount of support to individuals and organisations throughout the COVID-19 pandemic, a coalition of organisations in the charity sector are highlighting that more can, and should, be done to support the third sector. During the pandemic, many organisations in the third sector have been stepping up to provide vital support to the communities they serve, all while seeing a huge drop off in their income.

The coalition has put together a Gift Aid Emergency Relief Package proposal, which aims to increase relief charities can claim via the Gift Aid and Gift Aid Small Donations (GASDS) Schemes. This is a proposal only at this stage and has not been agreed with HMRC. If the proposal is agreed with HMRC, it is the intention for it to take effect from 6 April 2020 for 2 years.

The proposal aims to:

  • Increase the effective tax rate used in Gift Aid relief calculations, from 20% to 25%. So, for a Gift Aid donation of £100, charities could reclaim £33.33 of Gift Aid;
  • Remove the matching rule in the GASDS, so the amount that can be reclaimed through GASDS is no longer linked to the amount reclaimed through Gift Aid;
  • To increase the GASDS limit from £8K to £10K; and
  • To increase the GASDS effective tax relief to 25%, as proposed for the Gift Aid scheme.

To find out more about the proposal please see https://nmn.org.uk/2020/06/24/gift-aid-emergency-relief-package/

 

COVID-19 VAT Payment – Deferral

We provided an update previously that the UK Government was allowing VAT registered businesses to defer the payment of VAT due from March 21 to 30 June, due to COVID-19.  This covered VAT returns with a period end of 31 March, 30 April and 31 May.

The Government has not extended this further so any business that has taken advantage of the deferral will need to reinstate their direct debit with HMRC well in advance of their next return being due or pay their VAT to HMRC manually.  Those paying manually must make the payment by close of business on the 7th of July (for VAT returns to the period ending 31 May).

For businesses who have deferred VAT payments, this will need to be paid to HMRC by 31 March 2021 so this will have to be factored into cashflow planning.  If any business is concerned about their ability to pay this or subsequent VAT debts it should contact HMRC to arrange a time to pay arrangement.  Please feel free to contact our VAT team if you have any queries about the COVID-19 VAT Deferral at VAT@chiene.co.uk

Farmers and consumers need post-Brexit protection

The UK Agriculture Bill had its second reading in the House of Lords last week, with growing concerns raised about the lack of amendments to protect UK farmers and producers from lower quality imports in post-Brexit Britain.

The Bill will replace the EU subsidy system where an average of £2.88 billion was paid out annually to British farmers under the Common Agricultural Policy. While much of this new legislation will be relevant only to England, key measures including those on food security and fair dealing in the supply chain will apply here in Scotland.

The new Bill matters to everyone as it will shape the future of farming and food production across the UK and determine the quality standards available to consumers.

The volume of home-produced food consumed in the UK has fallen significantly in recent years, from 67 per cent in 1988 to around 53 per cent, increasing our reliance on imports. While such imports have been governed by high EU food standards, the Agriculture Bill currently contains no provision to safeguard future food safety, environmental, or animal welfare standards once the UK leaves the single market.

Opposition politicians and campaign groups such as Sustain, say this omission could force down the quality of food that is allowed to be sold in the UK as new trade deals are made with other countries, including the US, which do not share the same standards. Nearly 1 million people have signed a petition supported by the  NFUS which calls on the Westminster Government to amend the Bill to ensure imported foods will meet the same standards as those produced in the UK.

We are all aware of the much-publicised concerns about American chlorine-washed chicken and hormone-fed beef, but these could prove to be just the tip of the iceberg if a suitable food standards structure is not put into place for the UK following Brexit.

At a time when UK farmers are feeling the impact of Covid-19 and facing the growing prospect of a No Deal Brexit, the Scottish and UK Governments need to step up to support the industry and ensure consumers are protected.

Innovative measures to help farmers and food producers could include incentives to encourage shorter food chains, which would also support a green recovery. This will promote a higher level of buying and sourcing from local producers. With the Covid-19 pandemic exposing significant vulnerabilities to food supply chains, this will also help protect the high provenance level of Scotland’s food and drink offering.

Meanwhile the Scottish Government could review procurement regulation for public sector food contracts for schools and hospitals. This could allow a wide range of smaller suppliers, who lack the resources of some of their bigger competitors, to secure a foothold or greater share of this market while also ensuring high food quality standards.

Any gap in standards between UK produced foods and imports provides an additional opportunity for governments to support farmers by continued funding of a high profile ‘Buy Local’ campaign  highlighting  the high quality of home-grown produce. The NFUS proposed country of origin labelling programme, particularly within the catering and food processing industries, would also be a positive measure to reassure consumers.

The Agriculture Bill now goes to committee stage for more detailed examination and further discussion. Let’s hope suitable amendments will be taken on board that will improve the resilience of the UK’s food system and prioritise consumer safety.

Further delay in implementation of Construction Services Domestic Reverse Charge

HMRC has issued a short brief, which outlines that the introduction of the domestic reverse charge for construction services will be delayed a further 5 months until 1 March 2021, due to the impact of the Coronavirus pandemic on the construction sector.

The domestic reverse charge for building and construction services was originally planned to come into force on 1 October 2019, but this was initially delayed for a year in response to industry concerns that some businesses were not ready to implement the changes required.

This further extension has been implemented to help businesses overcome the effects that the Coronavirus pandemic has had and provide additional time to prepare for the introduction of the reverse charge

HMRC have also confirmed that there will also be an amendment to the original legislation, which was laid in April 2019, to make it a requirement that for businesses to be excluded from the reverse charge because they are end users or intermediary suppliers, they must inform their sub-contractors in writing that they are end users or intermediary suppliers.  This is designed to make sure both parties are clear whether the supply is excluded from the reverse charge.  It reflects recommended advice published in HMRC guidance and brings certainty for sub-contractors as to the correct treatment for their supplies.  If followed, it will remove a concern that HMRC may seek to challenge the reverse charge treatment where a business that qualified as an end user or intermediary supplier had not given any notification of their status.

In the intervening period, HMRC will continue to focus additional resource on identifying and tackling existing perpetrators of the fraud.  It will also work closely with the sector to raise awareness and provide additional guidance and support to make sure all businesses will be ready for the new implementation date.

If you have a query about the domestic reverse charge, please contact our VAT team today at vat@chiene.co.uk.

How COVID-19 reliefs impact Research & Development Tax claims – update

HMRC have sent us further details clarifying their stance on certain COVID-19 reliefs.

The Bounce Back Loans (BBL) Scheme

HMRC has confirmed that this has been notified as a state aid, following similar notification of the Coronavirus Business Interruption Loan Scheme (CBILS). Being in receipt of the BBL or CBILS could impact a potential R&D tax claim, particularly if it relates specifically to R&D expenditure rather than being used more generally to support the Company as they are intended. An area to watch out for when drafting loan applications.

The Future Fund

The Future Fund provides up to £500m in convertible loans to high-growth innovative businesses and is not a state aid. The convertible loans are commercial, meaning they are not caught by s1138, allowing a full claim can be made under the SME scheme if eligible.

Temporary Framework grants/loans

A significant number of small loans and grants have been provided recently through the Temporary Framework. These are deemed to be notified and will impact an R&D claim the same way as if a General Bock Exemption grant had been received in relation to a project. These are normally much smaller in size but can have a significant impact to a potential claim. It’s important to consider how these interlink with your R&D projects fully to avoid falling into any traps.

Deferred Liabilities

HMRC have confirmed that the VAT deferral scheme, which has been introduced in response to COVID-19 will not impact payable SME tax credits. The scheme defers the VAT payment due date to the end of the tax year, therefore, deferred VAT payments in this period are not overdue and HMRC has confirmed that R&D claim payments will not be offset. For RDEC payments, the legislation requires HMRC to offset the RDEC payment against other HMRC liabilities. This includes any PAYE/NIC or VAT payment which was overdue and HMRC does not have the power to provide a temporary relaxation of this rule.

If you have a query about accessing COVID-19 grants and support, please contact our team today at covid@chiene.co.uk.

How COVID-19 reliefs impact Research & Development Tax claims

The Chiene + Tait team has been inundated with queries regarding the various new COVID-19 reliefs that are available for businesses. Whilst cash has always been ‘king’ for businesses, there has never been a more important time to have sufficient reserves.

Research & Development (R&D) Tax Relief has been the ‘go-to’ cash relief for innovative companies since 2002. There are complexities as to how R&D Tax is interlinked with the new COVID-19 reliefs, which should be considered before diving into making claims for the various reliefs available. Below are a few frequently asked questions we have received from clients in relation to the reliefs:

Should I claim under the Coronavirus Business Interruption Loan Scheme (CBILS)?

Yes, but watch out for traps. EU regulations require that no project, as opposed to no company, can receive more than one notified State Aid. As the SME R&D Tax scheme and the CBILS have both been notified as State Aids, there could be an issue regarding allocation of costs, particularly if the CBILS relates specifically to R&D expenditure, rather than being used more generally to support the company as it is intended. It is vital to watch out for this when drafting CBILS applications. If it is not an option split out the costs, all isn’t lost. An R&D claim would still be able to be made under the RDEC scheme, albeit at a lower level of relief.

Should I use a COVID-specific grant to fund my R&D project?

Since the start of the pandemic, we have seen a significant increase in the number of grants available for R&D projects. In some instances, these grants are deemed to be notified State Aid, meaning that the full R&D project would be ineligible under the SME scheme. A claim can, thereafter, only be made under the less-beneficial RDEC scheme. It is worth noting that, once a project is ineligible for the SME scheme, that’s it. The project would continue to be ineligible for the entire length of the project. It’s therefore important not to just think about the cash benefit this year, but also years 2 and 3.

Where a grant isn’t notified, it will likely be de minimis. Receiving de-minimis aid will still impact your R&D claim but not to the same extent as if you received notified State Aid. All costs subsidised would be ineligible under the SME scheme, however, an SME claim can still be made for the costs not covered by the grant. This essentially means that 2 claims can be made, one under the SME scheme for the non-subsidised costs, while a RDEC claim can be made for the subsidised costs.

It’s not always obvious how a grant should be treated, and it is an area where the devil is very much in the detail. Make sure that you seek advice so that you don’t accidently limit the cash relief available.

What happens if I furlough staff?

When an employee is furloughed, they will not be carrying out any work; therefore, they will not be directly and actively engaged in R&D activities. This will likely impact next year’s claim rather than any immediate claim for obvious reasons, however, it is something to consider. This will not affect your ability to claim eligible projects, once the employee has returned, the R&D project can re-start.

During the pandemic, it is vital that you claim for all relief that you are eligible for. If you have a query about what your business can claim contact our team today at covid@chiene.co.uk.

COVID-19 – Charity financial management and reporting considerations

The economic effect of COVID-19 has, of course, been far reaching for the charity sector, whether due to dramatic falls in donations and trading activities, uncertainty over current or future funding, reduction in investment values and returns, not to mention increased demand for many services.

The significance of this does require trustees and management to focus clearly and quickly on their finances, in order to understand the charity’s position with respect to sustainability and going concern.

Useful guidance on dealing with this in the current circumstances is included in information provided by the Office of the Scottish Charity Register (OSCR) here  and also in more detail by the Charity Commission here.

It is also crucial that the impact of COVID-19 is set out within your Trustees Annual Report, and elsewhere in your statutory financial statements this year. Laura Anderson of OSCR has explained some of the issues in a blog post that can be viewed here.

Guidance for trustees and preparers of charity accounts has also been published by the SORP making body. The guidance here looks at the implications for the trustees’ annual report and going concern issues that need to be considered when preparing SORP compliant accounts.

Also referred to by the SORP making body here is guidance from the Financial Reporting Council on how directors should assess the going concern of their company.

External scrutiny impacts?

How charities report on the impact of COVID-19 on their operations, finances, and ultimately their sustainability will be a focus of work being undertaken by your auditor and independent examiner this year.

Specific guidance has been produced jointly by the Charity Commission for England and Wales, the Office of the Scottish Charity Regulator, and The Charity Commission for Northern Ireland for independent examiners here. This covers practical aspects of undertaking work with reduced access to individuals and accounting records, as well as considerations of the higher risks of use of funds, financial controls, and going concern amongst others.

For auditors, other specific guidance has been released by the Financial Reporting Council which deal with matters such as materiality, new clients, audit opinions, evidence gathering, and going concern.

In the case of both audits and independent examinations, more thorough scrutiny will be likely in many cases so it is important to plan for this as part of your year end processes.

If you have a query about financial management or going concerns at your charity, contact Euan today at covid@chiene.co.uk.

COVID-19 – Resources available to the charity sector

Just a reminder that there are a number of different resources that have arisen associated with COVID 19, to assist the voluntary sector. Generally, these comprise grants, loans, and in some cases tax reliefs.

Grant funding

As access to grants is changing on a regular basis, the best sources of information are representative bodies, membership bodies, and regulators.

For example, the Scottish Council for Voluntary Organisations (SCVO) has an excellent hub here.

Other funding resources are available to specialist sectors such as Heritage organisations here.

As part of the application process for some of these resources, it can be necessary to provide financial information. If you are having difficulty in accessing or extracting the right financial information from your organisation’s records, or need assistance in analysing or presenting it please contact our specialist COVID team at covid@chiene.co.uk.

Trading entities and certain third sector organisations may be eligible for rates related grants and reliefs – more detail can be found here.

We have also been assisting many of the clients that we already provide payroll services to with operating the Coronavirus Job Retention or “furlough” scheme, and for help with this, please contact our payroll team today at covid@chiene.co.uk, even if you are not a current payroll client.

Loans

For loan financing, our Corporate Finance team is able to provide assistance with the Coronavirus Business Interruption Loan Scheme (CBILS) and Bounce Back Loans, which charities can be eligible for. Further details are available on the C+T website here.

Loans are also available to the voluntary sector via the Scottish Government’s Third Sector Resilience Fund.

Tax reliefs

Our VAT team has been advising our charity clients on matters such as deferral of VAT payments due, deferral of planned MTD changes, zero rating of PPE, and the recent acceleration of the zero rating of electronic publications. The newest edition of the Chiene + Tait VAT Matters Newsletter outlines a number of these areas. Visit our publications page here.

There has been some good news in respect of Gift Aid. Catriona Finnie in the Chiene + Tait tax team provides more details here.

COVID-19 – Ways charities can use tax to ease cash flow

Whilst the UK Government announced a package of support for the third sector to assist it through the current crisis, many in the sector have still been left disappointed by the support offered. However, charities can look to established tax benefits to help ease their cash flows and assist them through the current crisis.

1. Consider reclaiming Gift Aid on cancelled events

Charities have seen numerous events cancelled due to Coronavirus (COVID-19) and many have seen their supporters donate money instead of taking a refund for these cancelled events. HM Revenue & Customs (HMRC) has clarified that in these situations, your charity may claim Gift Aid on the donation, provided the usual Gift Aid conditions are met; in particular:

  • The donor does not receive a benefit as a result of their donation;
  • The donor agrees that the cost of their event ticket becomes their donation;
  • The donor completes a Gift Aid declaration form; and
  • The charity keeps an audit trail including the donor’s confirmation that the cost of the event tickets becomes their donation.

Any event which has been postponed, instead of being cancelled, will not be eligible to exploit these relaxations in the Gift Aid rules.

2. Reclaim Gift Aid under the Retail Gift Aid as normal, but ensure all administration is up to date on returning to the office

HMRC has clarified that charities that operate the Retail Gift Aid Scheme can continue to make Gift Aid reclaims, even if they have not yet sent oral confirmation letters. Those charities should send their oral confirmation letters at a later date and adjust any future Gift Aid reclaims if any consent is withdrawn by donors.

Similarly, where charities are temporarily unable to access their mail, they can continue to reclaim Gift Aid where they have no knowledge of returned notifications. These charities should ensure that, when offices are open and mail is being opened, that appropriate action is taken with regards to their returned notifications.

3. Consider reclaiming Gift Aid on Membership Subscriptions

HMRC are aware that some charities are temporarily suspending collections of membership subscriptions during the current crisis. Despite this, members continue to make voluntary contributions to support their charity or Community Amateur Sports Club. Any voluntary donations made by members, or any voluntary donations made over and above their membership subscription, may be eligible for Gift Aid provided the usual Gift Aid rules apply.

4. Make use of Gift Aid Small Donations Scheme (GASDS)

A significant minority of charities, such as churches, will receive regular small donations of less than £30 from donors. These charities may not be receiving these regular small donations and HMRC have now clarified that, where a donor has been ‘saving up’ their usual donation and makes a single large donation of more than £30 once the current crisis is over, then this will still apply for the GASDS. This is provided that the charity is happy that this would have been separate ‘small donations’

5. Consider Whether Gift Aid Payments from Trading Subsidiaries are appropriate

Many charities that operate trading subsidiaries receive Gift Aid donations equal to the subsidiary’s taxable profits. This tax efficient mechanism allows charities to undertake non-charitable trading in a way that protects their own charitable status, and allows the trading subsidiary to reduce its taxable profits to £nil, ensuring a £nil corporation tax liability across both entities.

In recent years legal advice was obtained to confirm that Gift Aid donations from a trading subsidiary are a distribution, and trading subsidiaries need to ensure they have sufficient distributable reserves before making a Gift Aid donation. Many trading subsidiaries will now find that they do not have sufficient distributable reserves to Gift Aid taxable profits to their charity payment, but it is worthwhile bearing in mind:

  • Any interim Gift Aid payments made to the charity during the year will continue to be tax deductible for the trading subsidiary, provided the subsidiary can demonstrate that it had sufficient distributable reserves to make the donation at the time the donation was made;
  • If your subsidiary is planning to continue to make Gift Aid donations during the current crisis, the directors of the subsidiary should ensure that accounts are drawn up to evidence that there are sufficient distributable reserves to make the donation;
  • Remember the subsidiary has 9 months after its accounting year end to make a Gift Aid donation to its charity parent. If your subsidiary does not currently have distributable reserves to make a Gift Aid payment, it will be worthwhile checking the reserves position further down the line;
  • Even if your subsidiary cannot make its usual Gift Aid donation and must make a corporation tax payment, the company can agree a payment plan with HMRC if it is unable to pay its corporation tax liability in full within 9 months of its accounting year end;
  • Check if your subsidiary has a deed of covenant with the charity legally requiring a Gift Aid distribution. If this is the case, the covenant should stipulate that this is provided that there is sufficient distributable reserves. If there is a deed of covenant in place and sufficient distributable reserves, your subsidiary may be legally required to make a Gift Aid payment to its charity parent.

And remember, any donation paid by a trading subsidiary to its charity parent must be physically paid in order for the subsidiary to receive a tax deduction. Many trading subsidiaries themselves may also be strapped for cash, so consider whether it is worthwhile incurring a corporation tax liability in the subsidiary rather than making the usual Gift Aid donation. This may be a better use of the subsidiaries resources, and leave valuable cash reserves in your subsidiary.

6. Consider the tax treatment of income from the furlough scheme to avoid any unexpected tax liabilities

Many charities will have staff on furlough and be receiving 80% of furloughed staff wages from the UK Government. In these cases, the charity is receiving these wage costs as income, but is this income exempt in the hands of the charity? Provided that furloughed staff undertake work that is in furtherance of the charities’ primary objectives, all of this income will be exempt. Where this is not the case, and staff perhaps work on non-charitable activities which the charity claims exemption under the small trade exemption, this income may be taxable.

If you have a question about charity and tax, please contact Catriona Finnie today at charities@chiene.co.uk

COVID-19 Extension to option to tax deadline for land and buildings

HMRC has announced temporary changes to the time limit and rules for notifying an option to tax (OTT) land and buildings during the COVID-19 outbreak.

Under the normal time limits, there is a requirement to notify HMRC of a decision to opt to tax land and buildings within 30 days by either:

a) Printing and sending HMRC the OTT notification, signed by an authorised person within the business; or

b) Emailing a scanned copy of the signed notification.

Due to social distancing in response to the coronavirus outbreak, HMRC have noted that it may be challenging to follow the above rules. HMRC have therefore temporarily changed the rules to help businesses, and agents during this challenging time, which we have outlined below.

1. Changes to the time limit

HMRC has temporarily extended the time limit to notify HMRC to 90 days from the date the decision to opt was made.  This applies to decisions made between 15 February and 31 May 2020. All notifications can be sent to optiontotaxnationalunit@hmrc.gov.uk.

2. If you are notifying an option as a business

The OTT notification can be submitted to HMRC with an electronic signature, but HMRC need evidence that the signature is from a person authorised to make the option on behalf of the business. Examples of supplementary evidence include emailing the notification:

  • With an email from the authorised signatory to the sender within the business, giving authority to use the electronic signature;
  • From the authorised signatory with their sign off in the email and the form; or
  • With an email chain, or a scan of correspondence showing the authority given by an authorised signatory.

3. If you are notifying an option as an agent

In cases where an agent is notifying HMRC of a client’s decision to opt, the notification can be emailed with an electronic signature, however you also need to send HMRC proof that:

  • The signature is from a person authorised to make the option on behalf of the business; and
  • Authority has been granted to you by the business to use the electronic signature.

Examples include emailing the notification:

  • With a current email, or email chain from an authorised signatory of the client’s business, giving you authority to use this signature and send it to HMRC on their behalf;
  • With a scan of the correspondence showing authority is granted by an authorised signatory to use their electronic signature on the form, and to also send this form to HMRC on their behalf.

Consideration should be given to the points outlined above to ensure that any OTT notifications sent to HMRC are processed in a timely manner.

If you have any queries in relation to this, please do not hesitate to contact our VAT Director, Iain Masterton (iain.masterton@chiene.co.uk).

New COVID-19 advice video – fraud risk

In his second video, David Shadwell, Accounts and Business Support Partner, looks at fraud risk for businesses – the conditions that increase the likelihood of fraud being committed and the practical steps to take to minimise your risk.

A transcript of the video can be found below. If you have a question about cyber crime contact our COVID team today at covid@chiene.co.uk.

COVID-19 Fraud Risk Video

Fraud risk for businesses

Welcome, I’m Dave Shadwell and this second episode looks at how there is a heightened risk of fraud at the moment, the reasons for that. As ever, we’ll cover some simple things you can do to reduce the risk of fraud in your business.

Firstly, why is there a heightened risk of fraud at this time?

Well, you might have heard of the fraud triangle which suggests there are three conditions that significantly increase the likelihood of fraud being committed. Pressure, or motivation. Opportunity, and rationalisation, which is when the fraudster is able to rationalise the situation as being acceptable.

Back to the first, pressure or motivation. Clearly, the current ongoing lockdown restrictions are placing a significant amount more financial pressure on lots of people. This financial pressure also might not be on them directly, but perhaps a family member or someone close to them in their community.

In terms of opportunity, most businesses have experienced a significant amount of disruption to how they operate. In particular, having to deviate from their usual controls and processes. This creates opportunity for individuals to exploit.

Some of the specific circumstances around the lockdown also provide reasons for people to rationalise committing fraud. “I’ll pay it back when this is all over” “I need to do this for my family” “these are exceptional circumstances”, that sort of thing.

Let’s consider what practical steps you might be able to take to minimise your risk. How could you prevent fraud or misconduct from occurring in the first place, how will you detect it when it does occur and what might be an appropriate way to respond.

In terms of prevention, going through a simple fraud risk assessment process will help to focus on any controls or processes that might be new, radically different to normal, or possibly even now absent.

Now you know what your specific risk areas are, this might reveal certain areas of concern that you want to have a closer look at. There are a number of analytics tools you can use to help visualise the data from within your business. This is about identifying outliers and anomalies which warrant a closer look. Software such as Tableau or Power BI are some of the best available and you could also consider outsourcing this to a data analytics expert.

One of the most important aspects of managing the risk of fraud is setting the right “tone at the top” on the importance of ethics and integrity, reinforcing a culture where everyone feels an obligation to raise their hands and report improper conduct, with appropriate, well understood channels to do so.

Lastly, it’s never been more important to keep close to employees, keep them updated with how the business is navigating through these challenging times and show them compassion. This will help to keep employee engagement up and give you better visibility to those who may be at greatest risk.

I’m Dave Shadwell, Partner at Chiene + Tait, thanks for watching.

New COVID-19 advice video – cyber crime

David Shadwell, Accounts and Business Support Partner, has recorded a series of videos looking at aspects that UK businesses should keep in mind as we navigate out of the COVID-19 lockdown. The first video looks at cyber crime and how businesses can take simple steps to protect themselves.

A transcript of the video can be found below. If you have a question about cyber crime contact our COVID team today at covid@chiene.co.uk.

COVID-19 Cyber Crime Video

Steps to protect against cyber crime

This episode looks at how a growing number of cyber criminals are exploiting the COVID-19 pandemic for their own gain.

A growth in cyber crime is nothing new but some data suggests that there has been an up to 6 fold increase in cyber threats over the past 4 to 6 weeks.

They prey on the fact that everyone is anxious, fearful and lots are working from home.

There are examples of scams that include emails containing malware, which appears to have come from a genuine source, others which claim to offer thermometers and face masks to fight the pandemic.

Cyber criminals are also scanning for vulnerabilities in software and remote working tools as more people work from home.

Everyone is looking for information about the outbreak, and when and how the lockdown restrictions might be lifted. Criminals are sending phishing emails and sms messages using the virus to trick people into revealing sensitive information, or downloading malicious software.

This is only going to get worse, and comes at a time when no business can afford an incident. The good news is there are some simple things you can do to reduce your risk of falling prey to cyber crime. This is about covering the basics and making yourself a harder target. Criminals often use publicly available information about you to make their phishing messages more convincing. This is often obtained from either your website or social media accounts, so check your privacy settings. Also, think about what you post and who can see it.

Many businesses have significantly more people working from home than usual, and good password management is critical. Make sure everyone is using strong passwords. There are lots of great online password management tools like Lastpass or Keypass, which means you don’t have to remember long, complex passwords. Using good quality, cloud-based software rather than a desktop version is another way of reducing your risk. Similarly, make sure you’ve got up to date anti virus software installed, and all the updates for your other software have also been installed. If you do have sensitive data on your device, make sure it’s protected through proper encryption.

Lastly, never action a payment request received solely over email and backup your data.

Dave Shadwell

Chiene + Tait