New Research & Development legislation on the horizon 

With the recent passing of the aptly named L-Day (Legislation Day) for the upcoming Finance Bill, the UK Government has now published its proposed changes to the Research and Development (R&D) Tax Reliefs system, with updates for both the SME and RDEC schemes in tow. These come into effect for accounting periods beginning on or after 01 April 2023. In this blog, we highlight the main changes to look out for.

Cloud and Data Costs

After years of calls for HMRC to modernise qualifying software expenditure, the draft legislation brings the welcome news that data licences and cloud computing services costs will be claimable from April 2023. There will be no restrictions on the types of data and cloud costs that qualify, as long as they are incurred in carrying out direct qualifying activities.

Qualifying R&D activities: do the maths

The Government has recognised that more and more R&D being undertaken is underpinned by mathematics. Previously, mathematics was not considered to qualify as R&D for tax purposes. To support this work, the definition of R&D is being expanded to include ‘pure mathematics’ as a qualifying activity.

Refocusing Relief: work must be done in the UK

To ensure any ‘spill over’ benefits of R&D (such as improved skills in the local workforce) are retained within the UK, restrictions are being placed on overseas expenditure in the hope this will encourage companies to carry out more R&D in the UK.

To do this, relief will only be given for a subcontractor payment when R&D activity has been undertaken in the UK. Where the company is registered is irrelevant, only where the work actually takes place. HMRC have said that they will look at contracts drawn up between the two parties to quantify this – something to note for any future engagements with R&D subcontractors. In addition, Externally Provided Workers will have to be paid via UK payroll for the costs to be eligible.

These measures will apply to both SME and RDEC schemes and will apply to accounting periods beginning on or after 01 April 2023.

There will be some exceptions when this restriction will not apply where the R&D cannot be carried out in the UK, for example regulatory requirements that mean clinical trials have to take place in certain jurisdictions, or geographical and environmental reasons, such as where deep ocean research is necessary. There are no exemptions for connected companies.

Tackling Abuse and Improving Compliance

In a bid to tackle abuse of the relief, several measures are set to be implemented. The first change is that all R&D claims will have to be made digitally and they must break down the costs across qualifying categories and provide a description of the R&D work undertaken. In addition, each claim made must be endorsed by a senior officer of the company and details of any agent (e.g. us) who has assisted the company with compiling the R&D claim must be provided.

The most prominent change being introduced to the R&D claim process is the requirement for companies to pre-notify HMRC of their intention to make a claim. This will be a digital notification that needs to be submitted to HMRC within 6 months of the end of the period to which the claim relates. Companies that have claimed in one of the proceeding three periods will not be required to pre-notify, so this will only affect first time claimants or those that haven’t claimed for a number of years.

The new pre-notification requirement may hamper companies that are beginning their R&D development and have not realised they are eligible to claim more than 6 months after their year-end. Greater awareness of the relief and an emphasis on advance planning are needed.

Key points

In summary the above changes should not be of any concern to those that are carrying out genuine R&D, but it’s still important to seek advice to ensure that the company does not inadvertently fall into any pitfalls.

The inclusion of the need to pre-notify HMRC does bring some potential bumps in the road to companies that have not yet begun R&D, or those that intend to make two-year claims. Companies need to be on the ball or risk losing the ability to claim for certain periods.

The exclusion of overseas subcontractor work and externally provided worker costs may also affect the quantum of several R&D Tax claims but this will be negated if activities are relocated to the UK, as the bill intends. It may also be possible to negate the impact of this with operational changes where it is possible to relocate activities or individuals to the UK. It is vital however to be proactive and ensure the correct tax planning and strategy is in place.

If you have any queries regarding the changes described above, please contact rdtax@chiene.co.uk and our dedicated team of R&D experts will be happy to help.

The taxing question of carbon credits

Carbon offsetting is a positive measure to safeguard the environment but taking up grassland and good stock hill farmland to offset carbon could be detrimental to our ability to be self-sustaining in food production.

This position is supported by Scottish Land & Estates in their Route #2050 Report which calls for Government policies that recognise the potential of an integrated land management approach on sustainable food, sequestering carbon and improving biodiversity, for the benefit of all in Scotland.

Amongst the suggestions are calls to set out a clear minimum standard for carbon audit tools, which will give farmers and land managers confidence in the carbon audit and soil sampling process, and for the biodiversity assessment tool to be brought forward. This will help landowners to understand their own carbon footprint, and in turn, help increase biodiversity, maximising Scotland’s natural capital.

Once the decision is made to create woodland and the landowner has gone through the complex process of registering, assessing and validating the project, Pending Issuance Units (PIUs) are issued and, after verification, commuted to Woodland Carbon Units (WCUs), representing the amount of carbon sequestrated. A PIU is a promise to deliver a Woodland Carbon Unit (WCU) and can provide the owner with a useful source of upfront funding. For the purchaser, a PIU can help to facilitate forward planning as part of the transition to ‘net zero’ emissions.

But with carbon credits now being traded, the question of taxation looms, and without specific guidance from HMRC, we can only apply general tax principles.

Income that arises from a commercial woodland occupied with a view to the realisation of profits, is exempt from a charge to income tax (or corporation tax). When amounts received are linked to a farming trade (or the commercial management of land), they will form part of the taxable trade profits. The sale of standing timber is exempt from a charge to capital gains tax.

It would clearly be beneficial for the woodland owner to have income from the sale of carbon credits falling within the tax exemption available to a commercial woodland. However, in the absence of specific tax treatment guidance from HMRC, there is a risk that a woodland owner could be subject to either income tax (at a rate of up to 46% in Scotland), or corporation tax (currently 19% and potentially rising to 25%) on proceeds received from the sale of WCUs or PIUs.

A single sale of a carbon credit would fall within the charge to capital gains tax.

A woodland owner who is registered for VAT is required to charge VAT on amounts received from the sale of timber from the woodland. Receipts from the sale of WCUs will also be subject to VAT at the standard rate, as a WCU is considered a supply of services. As for other forms of carbon credit transactions, such as the sale of PIUs, we recommend getting specialist VAT advice on the treatment of this income.

Inheritance tax reliefs may be available in the form of Agricultural Property Relief (APR), Business Property Relief (BPR), or Woodlands Relief. A woodland owner will want to make sure that inheritance tax reliefs are available. Professional advice should be sought where additional value is held in the form of carbon credits.

If you need any advice, or have any questions, please contact the Chiene + Tait Rural Team at mail@chiene.co.uk or call 01463 575400.

Making green zero VAT pay

With rising inflation and the ongoing cost-of-living crisis across the UK impacting households as well as businesses, a range of measures have come together creating an opportunity to alleviate cost pressures and also drive forward the use of green energy.

As part of its net zero objectives and legislative changes following the UK’s departure from the EU, the UK Government recently cut VAT from five percent to zero, on energy-saving infrastructure and materials. The zero rating, which will remain in effect until April 2027, applies to a range of items including solar panels, heat pumps and roof insulation as well as wind and water turbines for domestic properties and relevant residential buildings such as care homes.

This measure comes in the wake of COP26 where the UK was one of the 190 nations committing to moving away from fossil fuels and towards more green energy sources. It comes at a time where many households are struggling with rising energy costs and struggling to pay their bills. Meanwhile, the impact of inflation, Brexit and wider cost-of-living pressures are also impacting on many Scottish businesses.

The key question is whether hard-pressed consumers and businesses will actually invest in energy saving measures on the back of these becoming VAT-free, especially in a challenging economic environment where finances are being squeezed. There are, however, other support options to be considered that can help make it viable for both individuals and businesses to make the green energy transition and benefit from a current zero VAT rating.

For households there are interest-free loans of up to £17,500 available when installing home renewables through the Home Energy Scotland loan. This scheme includes up to 40% cashback for some eligible energy efficiency measures and 75% for certain renewable heating systems.

There is also support available for small businesses which are keen to transition to greener forms of energy despite facing a tough economic climate. Through the Energy Saving Trust SME loan scheme, small companies can access up to £100K to help them pay for energy and carbon-saving upgrades across their business. The initiative, which has so far provided Scottish businesses with over £26m in loans, also offers cashback grants of up to £20K to further support sustainability investment.

The SME loan is available to Scottish businesses that fall within the EU definition of small and medium-sized enterprise, as well as not-for-profit organisations, and charities. It can be used to finance the installation of energy efficient systems, equipment or building fabric, including heating, ventilation, and air conditioning upgrades. It also covers 75% of eligible costs up to a maximum of £10,000 on renewable heat technologies such as solar panels, wind turbines, biomass boilers and air source heat pumps, all of which are now zero-rated for VAT.

Along with the SME loan scheme, there are other forms of support to help businesses in making the green transition. In addition to sign-posting businesses towards other forms of funding, Business Energy Scotland also provides advice to help companies save energy, money and carbon.

While welcomed, the zero VAT rating on renewable energy measures will not in itself start a revolution. Alongside this combination of support measures, the post-COP26 focus on sustainability, and rising energy costs it does however help make it easier for businesses and consumers to invest in green energy.

National Insurance Primary Threshold increase: what it means for you

In the Spring Statement Rishi Sunak announced that from July 2022 the National Insurance Primary Threshold would increase from £9,880 to £12,570 per annum, to match the income tax personal allowance.

In this blog, I’ll explore National Insurance and impending increase.

A brief history of National Insurance

National Insurance was introduced by the National Insurance Act 1911, which provided health and unemployment insurance. In 1948 the Labour government expanded the National Insurance system, and it has been subject to changes throughout the years. Now National Insurance provides state pensions, certain allowances, and bereavement support payments.

There are a few thresholds within the NI system – here, I’m mainly concentrating on the Primary Threshold. The Primary Threshold is the amount an employee can earn before having National Insurance Contributions (NICs) deducted from their gross pay.

We should briefly consider the Lower Earnings Limit and its relationship to the Primary Threshold. Employees who earn between the LEL (£533/month) and the PT (£1048/month) do not pay NICs, but do receive the benefits of paying.

July’s increase and effect on employees

30 million working people are set to benefit from the PT increase: employees will be able to earn £1048/month (£242/week) before being subject to NICs. In terms of working hours, this is 25 hours per week at the National Living Wage (£9.50/hr).

For some working people, the increase gives them an extra 27% of gross income that is not subject to NICs. Even considering the health and social care levy uplift of 1.25%, about 70% of NIC payers will see a reduction in their NICs payable.  From July an average worker will pay £330 less in NICs over the course of the year.

July’s increase and payroll providers

National Insurance thresholds are typically increased at the start of a tax year. However, in this instance, July was the earliest date that this increase could be applied. This gave all payroll software developers and employers sufficient time to update their systems.

July’s increase and effect on directors

In my last blog post Directors National Insurance we explored director’s NICs and their calculations. (As a refresher, a director can be either cumulative or non-cumulative. A cumulative director earns an annual amount before paying NICs; a non-cumulative director is calculated the same way as an employee but has a cumulative calculation completed at the end of the tax year to ensure correct NIC deductions.)

As the Primary Threshold is being increased during the tax year, the annual PT for company directors needs to be pro-rated. Company directors can earn £11,908 per annum before paying NICs.

If a director stepped down before July 2022 and paid any NICs, a calculation should be performed to ensure that the PT used was £11,908 and not £9880.

Help and questions

If you have any questions related to National Insurance or the July increase, please get touch with our Payroll Department at payroll@chiene.co.uk.

Red light for certain uses of red diesel

At the beginning of April 2022, the UK Government implemented a number of tax measures aimed at tackling the Climate Crisis. These included further restrictions on the use of red diesel.

What is red diesel?

Red diesel is diesel that contains red dye (which is there to indicate that it is eligible for a tax rebate). The dye differentiates it from white diesel used by ordinary road vehicles – and allows HMRC to track how much fuel is used and whether it is being used illegally.

What’s changed?

On 1 April 2022, legislation was introduced to restrict the extent to which businesses can use red diesel and rebated  biofuels.

Now, only certain types of machinery and vehicles qualify to use red diesel and biofuels:

  • Vehicles designed to operate on a railway
  • Agricultural vehicles
  • Special vehicles (e.g. digging machines, mobile cranes, road rollers etc.)
  • Unlicensed vehicles, including SORN (Statutory Off-Road Notification)

And only when used for specific purposes:

  • Agriculture, horticulture, fish farming and forestry
  • Rail transport
  • Non-commercial heating and power
  • Community amateur sports clubs and golf courses
  • Sailing, boating and marine transport
  • Travelling fairs and circuses

Can I continue to use red diesel?

Only if you use red diesel for one of the permitted uses above – if so, there is no change and you can continue to use it as before.

What happens if my business isn’t allowed to use it?

There are a number of businesses – including those in construction and manufacturing – that are no longer entitled to use red diesel and rebated biofuels. This will significantly increase costs for those businesses, as they are now required to use white diesel and pay full fuel duty.

HMRC has confirmed their intention to do spot checks on fuel usage- so ineligible businesses should stop ordering these fuels. Any red diesel remaining in tanks after the April deadline should be flushed out or transferred to businesses permitted to use it. Records should be kept to show that white diesel has been used by relevant businesses since 1 April 2022.

Fuel suppliers are well-informed of these changes and may have notified businesses already.

Full details of the new rules and definitions of eligible vehicles can be found at: https://www.gov.uk/guidance/using-rebated-fuels-in-vehicles-and-machines-excise-notice-75-from-1-april-2022

New guidance on Making Tax Digital VAT penalties

HMRC implemented Making Tax Digital (MTD) for VAT three years ago and introduced a soft-landing period for businesses to become fully compliant with the requirements.

It is now a legal requirement for all VAT-registered businesses to keep certain records digitally and file VAT returns using compatible software.

HMRC has now published a new compliance checks factsheet (CC/FS69) that provides guidance on the penalties that apply to MTD VAT. This includes penalties for filing incorrectly (without MTD software), failing to keep digital records, and not using digital links to transfer data.

We have outlined these penalties below.

Filling incorrectly

All VAT-registered businesses should now file VAT returns using functional compatible software. If returns are filed without using functional compatible software, HMRC may charge a penalty of up to £400 per incorrectly-filed return.

Filing method penalties are part of Regulation 25A of VAT regulations (SI 1995/2518) and can be applied to businesses that fail to sign up to MTD and continue to file their VAT returns without the use of MTD-compliant compatible functional software.

Functional compatible software is software that will:

  • Record and store digital financial records
  • Provide the VAT return information to HMRC through a digital link
  • Receive information from HMRC.

The penalty applies per VAT return filed in an incorrect way and is scaled according to the annual VAT exclusive turnover of the business.

Annual turnover Penalty
£22,800,001 and above £400
£5,600,001 to £22,800,000 £300
£100,001 to £5,600,00 £200
£100,000 and under £100

It seems that HMRC will only begin charging the above penalties once all VAT records have been transferred from its old VAT database to the new MTD database later this year.

Digital records and links

Businesses must keep some records digitally within the functional compatible software and all transfers of data between programs, apps or products must be done using digital links which plays a large part of MTD. The newly published factsheet suggests that HMRC may charge a penalty of between £5-15 every day for which records are not kept digitally. The penalty for failing to keep digital records will increase with each offence as follows:

  • £5 for first breach
  • £10 for second breach
  • £15 for third and more breaches

HMRC considers the failing of keeping digital records and the maintaining of digital links to be two separate breaches and, as such, if a taxpayer fails to do both of these then a penalty of £10 per day will be raised.

It also seems that HMRC is still planning to introduce changes to its overall VAT penalty regime from January 2023. The penalties introduced above will specifically relate to MTD compliance.

If you have any concerns on your MTD filing position, digital records or digital links or more information on the above penalties, please contact our VAT team at VAT@chiene.co.uk.

Chiene + Tait Entrepreneurial Tax Team Highly Commended at EISA Awards 2022

The Chiene + Tait Entrepreneurial Tax Team has once again been ‘Highly Commended’ at the EIS Association Awards, which were held last night in the House of Lords.

The only firm in Scotland to achieve this recognition, the prestigious awards recognise excellence in the field of EIS and SEIS across the UK. Neil Norman, Entrepreneurial Tax Partner and Senior Tax Partner comments, “The Chiene + Tait entrepreneurial team has enjoyed huge success at the awards over the last few years, and their repeated recognition is testament to their ongoing hard work, dedication and delivery for our clients.”

If you would like to know more about how our award-winning team can help you, contact us today.

How to Fix Mistakes in Your Tax Return and Claim a Refund

Everybody makes mistakes — it’s what you do afterwards that counts.

So, what can you do when a mistake leads to an overpayment of tax in a given tax year? Maybe you have not claimed tax relief on pension contributions made, or perhaps you forgot to offset an allowable expense in relation to your rental or self-employment business. Whatever the mistake may be, how do you go about fixing it? The answer all depends on which tax year the error relates to.

Submitting an Amended Tax Return

If you need to correct a mistake on your Self-Assessment Tax Return, an amendment can be made, providing it’s still within the relevant time limit. The deadline for an amendment is the first anniversary of the tax return submission deadline – 31 January following the end of the tax year. As an example, for the 2020/21 tax year an amended return can be submitted to HMRC up until 31 January 2023.

Submitting an Overpayment Relief Claim

But what can you do if the tax return amendment window has passed?

Where an error has been made resulting in tax relief not being claimed and the amended tax return submission deadline has passed, you may still be in time to submit what is called an Overpayment Relief Claim.

An Overpayment Relief Claim is made by writing a letter to HMRC to advise them of a past error that has been made. You need to note the tax year(s) the claim is in relation to and state the refund that you believe you are due.

You do not need to have submitted tax returns year-on-year to make a successful Overpayment Relief Claim. For example, if a higher-rate taxpayer has made pension contributions over the last four years, but not claimed the higher-rate tax relief, regardless of whether they have submitted returns previously, an Overpayment Relief Claim would be possible.

However, as with amending your Self-Assessment Tax Return, there are deadlines for submitting an Overpayment Relief Claim. For a given tax year, a claim must be made within four years of the end of the tax year in question. For example, for the 2018/19 tax year, the latest you can submit a claim is 5 April 2023.

Summary

At the time of this blog, if you have made a mistake on a Self-Assessment Tax Return submitted for the 2018/19 tax year or later, and believe that you are due a refund, you are still in time to make a claim for it, and an Overpayment Relief Claim can be submitted. In contrast, for the 2020/21 tax year, a refund can be claimed by an amendment to your tax return for that year.

If you need of any assistance with either amending a tax return you have previously submitted or preparing an Overpayment Relief Claim, please contact us at: mail@chiene.co.uk.

How to Claim Tax Relief on Self-employed Trading Losses

When tax adjusted trading losses arise, the default method is to carry forward these losses and offset them against future trading profits of the same trade. However, it is possible to make a claim to offset any losses against total taxable income in the year the losses arise and/or the previous tax year.

A claim to relieve losses against other income may result in a repayment of tax. This will be of benefit to business owners who have seen a fall in their income as a result of Coronavirus. The losses available to offset in each tax year will be restricted to the greater of:

  • £50,000; or
  • 25% of total taxable income in the relevant tax year.

(There is an exception to this rule for non-active partners whose losses are restricted to £25,000.)

In the same way that losses are offset to reduce income tax liabilities, losses will also be offset against any other trading profits in the tax year, to reduce the liability to Class 4 National Insurance Contributions (NICs).

Any unused losses will follow the default method. These losses will be carried forward for both income tax and Class 4 NIC purposes and offset against future trading profits of the same trade.

Special Rules

For losses arising in the first four tax years of trade

In addition to rules we’ve highlighted, there are special rules that are available where losses arise in the first four tax years of trading. Where the accounting period does not end on either 31 March or 5 April, there are special opening year rules that need to be considered in determining the level of trading losses, which are assessable in each tax year.

Unlike the rules mentioned above, it is possible to offset losses arising in each of these first four tax years against total taxable income in the previous three years. Any losses will be offset against the earliest year. The same restrictions apply as mentioned above.

For losses arising in 2020/21 and 2021/22

For businesses that previously made a profit, but then made a loss in either the 2020/21 or 2021/22 tax years, the loss can be carried back and set against profits from the same trade in the previous three tax years – applying to the latest years first.

There is no cap on the amount of loss that can be carried back for one year. However, this is subject to a cap:

  • for a loss for 2020-21, £2,000,000 for 2018-19 and 2017-18; and
  • for a loss for 2021-22, £2,000,000 for 2019-20 and 2018-19.

If your business has made any losses and you would like to discuss how to claim tax relief on these, please get in touch with our team at: mail@chiene.co.uk.

How are LLP Partners sometimes taxed twice on their profits?

You may be aware of a new reform to the way in which partnership profits are taxed. Currently, partnership profits are typically taxed in line with the accounting period. However, the Government has revised this method so that profits are now to align with the tax year. This update has been covered by Personal Tax Partner, Lisa Travers, in a blog that you can find here. As Lisa mentioned, the one-year transitional period was expected to apply in 2022/23, but this has now been postponed to the 2023/24 tax year. In this blog, I will cover the guidance as it currently stands.

Limited Liability Partnerships (LLPs) are able to draw their accounts up to any date in the year.  The simplest route for most LLPs is to align with the end of the tax year and adopt a 31 March (5 April) year-end. The accounting year-end date will not only impact the accounting for the LLP, it will also affect the partners’ liabilities too. It’s important to leave enough time for partners and their advisers to assess any personal tax obligations.

So how is partnership income taxed? Let’s take a look at how a partner will be taxed in the opening years of joining a partnership.

When do I pay tax on my partnership income?

This will depend on the year-end date of the partnership. Individuals will be taxed on their allocation of partnership income in the tax year in which the accounting period ends.

For example: ‘Partnership A’ has an accounting period ending on 30 June 2021. As 30 June 2021 falls into the 2021/22 tax year (6 April 2021 – 5 April 2022), the relevant partner’s share of profits from 1 July 2020 to 30 June 2021 will be taxable in the 2020/21 tax year.

However, there are some exceptions to this. They are:

  • When a new partner has entered an existing partnership; and
  • When there is a change of accounting date or when a partner exits a partnership.

For this example, Partner ‘Y’ will be joining ‘Partnership A’ (above). Partner Y joins the partnership on 1 October 2019.

YEAR 1 – 2019/20

In the year of commencement, Partner Y will be taxed on their profits from the date of commencement to the following 5 April. In this example, Partner Y will be taxed on their share of profits from 1 October 2019 to 5 April 2020. This is the case, regardless of how short or long the period to 5 April may be.

YEAR 2 – 2020/21

In the second tax year, Partner Y will be taxed on their profits for a 12-month period. The 12-month period begins from the date they entered the partnership. Therefore, the partner will be taxed on their profits from 1 October 2019 to 30 September 2020.

YEAR 3 – 2021/22

By the third tax year, Partner Y will be taxed in line with the accounting period (i.e. their full share of profits allocated by ‘Partnership A’ for the year from 1 July 2020 to 30 June 2021).

Why is tax paid twice on the same profits?

‘Overlap profits’ arise when the accounting date does not align with the tax year. You may have noticed from the example that Partner Y has paid tax twice on their profits, on two separate occasions. Overlap profits have arisen in the following periods:

–        01/10/19 to 05/04/20, and

–        01/07/20 to 30/09/20.

 

Once these profits have been pro-rated for the overlap period, they are carried forward and offset against future profits when:

1.      ‘Partnership A’ changes its accounting date; or

2.      Partner Y exits the partnership.

Summary

Although you may pay tax on the same profits twice, relief is available for the overlap at a later date. Be aware that this is just one example of how a partner is taxed upon entering an LLP. Different dates may result in different outcomes. So, if you’re looking for any advice in this area, please get in touch with the Chiene + Tait Personal Tax Team at: mail@chiene.co.uk.

The Myth of ‘Emergency Tax’

The term ’emergency tax’ may sound a bit scary, but in simple terms, it just means the tax code HMRC will operate against your employment or pension income until they have the information they need to calculate the correct code.

In reality, the tax code issued by HMRC against your income is little more than a best guess by them to deduct income tax at source, as close to the actual liability for the year.

What Does Emergency Tax Mean?

There are two ways HMRC can operate a tax code against income. Either on:

  • A cumulative basis – your tax is calculated on your overall year-to-date earnings. The tax due on each payment is determined after taking into account any tax you’ve already paid this year and how much of your accumulated tax-free personal allowance has been used; or
  • An emergency basis – also known as a week one/month one basis. You’ll pay tax on all your income above the basic personal allowance. For the 2022/23 tax year, this is £12,570.

It is easy to tell if your income is being taxed on a cumulative basis or an emergency basis; if it is emergency, your code will either have an X, M1 or W1 suffix.

When Does Emergency Tax Apply?

The most common scenario for emergency tax is when you begin:

  • New employment;
  • Accessing a pension; or
  • Start to receive employment benefits.

Of course, if you begin to receive employment benefits, HMRC may opt not to apply an emergency code – instead, they might calculate the tax they predict you’ll be due and include this as a deduction in your tax code!

Before Real Time Information came into effect (where employers had to send pay details to HMRC on or before the time they paid their employees on a real basis), HMRC needed a P45 from your previous employer before your new tax code could be calculated.

What Can I Do About This?

If you have started new employment, the chances are, HMRC will receive the correct details and issue the correct tax code fairly quickly. Any tax overpaid will be refunded through your monthly/weekly salary. And of course, you may be able to speed things up by contacting HMRC and advising them of the position.

On the other hand, if you have received a ‘one-off’ payment in the year, for example a withdrawal from a Self-Invested Personal Pension (SIPP), you will need to wait until the end of the tax year to make any claim for any overpaid tax.

If you already have a tax adviser, please note that they will not automatically receive a copy of the notice of coding. If you would like codes checked by your adviser, you will need to forward onto them a copy. If you have a query about this blog, feel free to contact our team at: mail@chiene.co.uk.

Leading VAT specialist joins C+T Inverness Team

Chiene + Tait (C+T) has announced the appointment of Grant Mackay, a leading VAT specialist with more than 25 years’ experience, to its Inverness team.

With experience across a number of core sectors including agriculture, landed estates, charities, public sector and owner managed businesses, Grant joins from ‘Big Four’ firm EY where he spent over two decades advising clients throughout the Highlands & Islands, Scotland, and other parts of the UK. Earlier in his career he served as a VAT Inspector for HM Customs & Excise and he also worked with an independent VAT consultancy advising NHS clients.

Grant returns to frontline accountancy practice after completing a recent sabbatical where he worked with leading environmental charity Changeworks, as the Centre Manager for the Highlands & Islands. In that role he led the team in its successful delivery of the Home Energy Scotland contract with the Energy Saving Trust.

Iain Masterton, C+T’s Head of VAT, said: “Grant’s appointment is significant for the firm’s VAT Team and our Inverness operation. He brings a wealth of diverse business experience and has developed in depth knowledge from working across many of our core client sectors. He will add further strength and dynamism to our growing team.

Grant Mackay said: “I am excited to be working with the successful and ambitious C+T VAT team and joining the firm’s expanding Inverness operation. C+T has established a strong reputation across the Highlands since opening its Inverness office and I look forward to contributing to its further growth by supporting its clients on a range of VAT-related matters and wider business issues.”

How the upcoming income tax cut will affect charities claiming Gift Aid

At his recent Spring Statement on 23 March 2022, Chancellor Rishi Sunak revealed plans for the basic rate of income tax to be reduced from 20% to 19%, starting from April 2024. Aside from the obvious effect on individuals, a further impact which may not be immediately clear, is that on charities.

Currently, charities and Community Amateur Sports Clubs (CASCs) can claim an extra 25p from HMRC, for every £1 of qualifying donation income that they receive. This is done by treating the donation made by an individual as having been made after deduction of basic rate tax. As long as the taxpayer has paid sufficient tax and makes a valid declaration, the charity is then able to claim back the 20% tax from HMRC, effectively grossing up the donation.

As one component of the Gift Aid calculation involves the income basic tax rate, this begs the question: will reducing the basic rate of income tax also reduce the amount that charities may claim back from HMRC?

The answer to the question is found in the full Spring Statement document published on the Government’s website, which states: “A three-year transition period for Gift Aid relief will apply, to maintain the income tax basic rate relief at 20% until April 2027”.

Whilst no further details have been made available at this stage, this means that charities will not immediately feel the effect of the rate change, but it is intended that by April 2027 the rates will again be synchronised. To illustrate, a £100 Gift Aid donation today would result in the charity receiving £125. After April 2027 we can expect the same £100 donation to amount to a £123.46 receipt.

The reduction may seem small on paper and a long way off, but charities that rely heavily on donations may feel the impact on their books nonetheless. It will be important for such charities to factor the rate change into their forecasts and start planning sooner rather than later.

A few things you may wish to consider are:

  • Are you already maximising donations as much as possible? For example, do you use the Gift Aid Small Donations Scheme for donations that do not include a corresponding Gift Aid declaration? You can find further information and tips on this in this related article.
  • Have you already considered any other reliefs applicable to your organisation? This may be tax reliefs, such as the Creative Industry Tax Reliefs available to certain charities operating within the creative sector.
  • Could you benefit from some additional guidance or other support? The charity may be able to somewhat diversify its income streams by making investments, however you will need to be aware of any governance implications. There are also certain tax conditions that investments need to meet in order to be qualifying. If this is not followed the charity may lose some of its tax exemptions.

If you have any queries about this article, or would like some additional advice and support, please get in contact with our charity team at charities@chiene.co.uk.

Post Tax Year-End Spring Clean

The dawn of the tax year is often seen as a good time to get under the financial bonnet to give your tax affairs a service and make sure that the 2022/23 tax year runs smoothly. We have summarised below some of the key areas that you may wish to consider:

  • Inheritance Tax (IHT) – If you are considering a cash gift to your family or friends this year, or in the future, each individual has a £3,000 annual IHT exemption available to utilise. Gifts of more than £3,000 could be made if there is an unused part of your 2021/22 IHT exemption.  This will be lost if unused by 5 April 2023. With the start of the tax year looming, it may be a good time to take stock of your financial position. You may have surplus income and be in a position to start a pattern of regular gifting.  This would allow you to take advantage of the ‘normal expenditure out of income’ exemption.
  • Capital Gains Tax (CGT) – The annual exemption for 2022/23 is £12,300 and capital gains of up to £12,300 can be realised without triggering a CGT liability.
  • Pension Annual Allowance – Contributions to your personal pension plan attract income tax relief. The new tax year brings a new annual allowance for you to utilise. The maximum contribution that may be made for 2022/2023 is £40,000. You may be able to make additional contributions if you have not used your allowances for the previous three tax years. Contributions must be made prior to the end of the tax year, if tax relief is to be claimed. Please note that tapering applies to higher earners, which may affect your annual allowance. If your income is over £240,000, your annual allowance for the year will be reduced. For every £2 your income exceeds £240,000 your annual allowance is reduced by £1 to a minimum of £4,000.
  • Maximise your Investment Allowances – The new tax year brings with it a fresh set of allowances for you to utilise. We have summarised in the table below the investment allowances for various tax-efficient investments. These annual exemptions are ‘use it or lose it’ exemptions. Therefore, if they are not utilised, any unused allowance cannot be carried forward to use in the new tax year.
Investment Annual Allowance (£)
ISA £20,000
Junior ISA £9,000

Lifetime ISA

Please note that your £4,000 limit counts towards £20,000 annual ISA limit

£4,000
EIS £1,000,000
Seed EIS £100,000
VCT £200,000

Whilst such investments may help to reduce your overall tax liabilities, you should be aware that the value of your investments may go down as well as up and you may not get back the full amount invested. You should seek appropriate professional advice before making such investments.

  • Forward planning – With the end of the 2021/22 tax year, whilst things are still fresh and current, start to pull together your paperwork for your tax return.  If you can provide your tax adviser with your paperwork nice and early, and well in advance of the 31 January filing deadline, this will allow them to make a start on your 2021/22 tax return. This helps to plan for your upcoming tax liabilities (where applicable). It also enables your tax adviser to review your July tax payment and reduce the payment if your income was down for the year (if applicable).

If you have a query about how to make the most of the opportunities arising for the new tax year, or would like to discuss any parts of this blog, please don’t hesitate to get in touch with myself or a member of the Chiene + Tait Personal Tax Team.

VAT Recovery on Share Sales

The VAT recovery position of professional fees in relation to raising funds, including share sales, for business reorganisations has been subject to challenge by HMRC and resulted in a number of prominent EU and UK VAT cases over the last 30 years.

There are various ways by which a business can raise funds, from providing business loans to selling off assets including shares or subsidiary companies. The complex nature of these activities will require the involvement of specialist professionals such as lawyers and accountants. Depending on the size of the deal or the amount of fundraising to be undertaken, the potential VAT cost associated with these activities could be significant. This makes the VAT recovery position of these costs even more important.

Historic Position

There have been numerous cases challenging the VAT recovery position of costs associated with the sale of shares in order to allow the business to create taxable supplies in the future. The case law surrounding the input VAT recovery can be dated as far back as 1995 in the BLP Group case which also involved the disposal of shares in a subsidiary in order to create funds to allow the business to continue to trade (i.e. make taxable supplies).

Under UK VAT law the sale or transfer of, or trading in, existing securities is considered to be an exempt supply for VAT purposes and is covered under the finance exemption. As such, HMRC’s historic approach was to deny VAT recovery on professional costs associated with these fundraising activities,  this is considered to be directly related to the making of an exempt supply of shares.

Hotel La Tour Limited First Tier Tribunal Case

The recent First-tier Tribunal (FTT) case involved Hotel La Tour Ltd (HLT) which was the parent company of Hotel La Tour Birmingham Ltd (HLTB). The two entities formed a VAT group with HLTB being the representative member. HLT provided management services to HLTB, and it also owned the rights to the brand “Hotel La Tour” along with other IP.

In 2015, HLT decided to develop a new hotel in Milton Keynes at a cost of £34m and sought to raise funds for this venture by selling shares in HLTB and also borrow the balance amount from the bank. Throughout the process it was made clear that the proceeds made by the share sale were to finance the Milton Keynes hotel.

VAT was claimed on professional costs by HLT in relation to the share sale. However, HMRC denied this VAT claim as it was seen as the input VAT was in relation to the making of an exempt supply, in the form of the share sale.

As per HMRC’s argument above, the main issue for the FTT in this case was to determine if the VAT on the professional fees was directly linked to HLT’s exempt supply of selling the shares, or was it in fact related to the future taxable supplies of operating the new hotel down the line.

The decision of the FTT held that due to more recent case law (Frank A Smart & Son Ltd v HMRC [2019] UKSC 39), a different approach should be taken to fundraising costs, and that a more objective assessment of the intended use of the funds should be taken. In this scenario, this assessment found that the source of the funds should not impact the VAT recovery and that there was a difference between the “initial fundraising transaction” (the sale of shares itself) and the “downstream transactions” (the activities the funds raised were to be used for – i.e. the acquisition of a new hotel). Please note that this does not apply where the costs of the professional services are cost components of the initial share price, as this still relates to an exempt supply.

In the case of HLT, the FTT found that the professional costs were not directly related to the composing of the share price, but instead should be classified as overheads and therefore recoverable based on the level of taxable activities of HLT going forward.

Impact/Benefits

It is essential to note that, as this case is from the FTT, the findings and decision of this case cannot be relied upon for future decision making unless the facts are identical to the scenario outlined above. It is not clear yet if HMRC will appeal the outcome of this case or issue a business brief to update its guidance on this issue.

If your business is planning to raise funds or is looking to reorganise and share sales are involved, it is vital that the VAT recovery on professional fees is determined at as early a stage as possible.

C+T will advise on the VAT recovery position as well as providing proactive planning advice in order to mitigate any potential VAT losses.

We also assist businesses defending their position if HMRC has raised assessments in the past in relation to VAT disallowed on share sales. It is possible to go back 4 years and revisit your VAT position so potentially historic VAT could be recovered.

If you would like to discuss further, please get in touch with myself or a member of our VAT team at 0131 558 5800.

HMRC Clarify VAT Guidance on Property Sector Termination Payments

HMRC have published a Business Brief (2/22) which confirms their revised VAT policy on early termination payments and compensation payments. This revised guidance has also provided some welcome clarity over the treatment of certain payments that are not only made in the property sector, but also any businesses that receive payments where contractual changes can arise.

The Brief replaces Revenue & Customs Brief (12/20) which had originally brought many early termination fees and compensation payments within the scope of VAT.

Businesses must adopt the revised treatment from 1 April 2022. Where the revised guidance results in the need to recognise a supply, this must be followed by businesses even if they have had a specific ruling from HMRC saying that such fees are outside the scope of VAT. Any business that adopted the treatment outlined in the guidance published in 2020 and accounted for VAT on transactions, which under the revised guidance are outside the scope of VAT, may correct this in the normal way (commonly by making an adjustment in the businesses’ next VAT return).

What does the revised guidance confirm?

The revised guidance confirms that if there is a direct link between what is done and the payment received, and there is reciprocity between the supplier and the customer (i.e. the supplier agrees to provide a service which the customer benefits from), then the payment is considered a supply for VAT purposes. This will be the case even if the payment is described as compensation or damages.

Liquidated damages

HMRC will treat payments by customers arising out of early contract termination as further consideration for the contracted supply, where the payments are linked to that supply. This will apply in cases where the original contract allows for such a termination, as well as when a separate agreement is reached. This approach is consistent with the decisions two Court of Justice of the EU cases which had prompted HMRC to change their policy in 2020.

The revised guidance also addresses liquidated damages paid by suppliers and will be relevant to construction contracts. It provides that where a supplier breaches the terms of a contract and the price itself is reduced, then the supplier must adjust the VAT they have accounted for to reflect the reduced price if the adjustment is made retrospectively. The revised guidance confirms that if the customer is asked to pay less it is likely that the price has been reduced to reflect the lower value of what was actually provided.

The revised guidance also provides that if the price is not adjusted, but the supplier agrees to pay liquidated damages to compensate the customer for the actual loss suffered as a result of the breach, the payment will be outside the scope of VAT. The guidance confirms that this would be where the breach may result in substantive costs to the customer for which they seek recompense and where such payment may bear little relation to what was provided. Where this is the case, the payment will not be sufficiently linked to the supply to be treated as reduced consideration for VAT purposes.

Therefore, in the context of construction contracts, it will be important in practice to be clear as to the contract terms through which any breach by a contractor is dealt with and whether it is through the operation of a payless notice which may contractually operate as a reduction in price (in which case the contractor will adjust the VAT accordingly) or a payment of agreed damages (which should be outside the scope of VAT).

Break fees

The revised guidance highlights that where a lease, or other agreement, ends as a result of an action by the customer that causes the supplier to terminate the lease, then, if the supplier charges a fee to cover the costs of making the supply, or an additional fee broadly equivalent to what would have been charged under the contract had it run as was intended, then the payment is a further consideration for the supply. Where a break clause is exercised to terminate a lease, there will now be a supply for VAT purposes, which will be exempt (unless the option to tax has been exercised by the party receiving the payment) regardless of whether the break fee amount is provided for in the lease.

Dilapidations payments

Following HMRCs 2020 announcement there was some concern that dilapidations may also be brought within the scope of VAT. Thankfully, following engagement with industry on this point, the revised guidance confirms that although dilapidation payments can vary in the way they are provided for, HMRC will generally continue to treat these as outside the scope of VAT (representing a claim for damages by the landlord against the tenant’s “want of repair” rather than consideration for a supply for VAT purposes). However, HMRC highlight that it may “depart from that view if in individual cases we found evidence of value shifting from rent to dilapidation payment to avoid accounting for VAT”.

What does this mean for affected businesses?

After more than a year of waiting for confirmation of the date when HMRC would apply its revised guidance, the new brief is welcome and provides much needed certainty for businesses operating in the real estate and construction sectors. It is also encouraging that HMRC have listened to views from industry bodies and the revised guidance addresses the concerns coming out of the 2020 guidance. Property landlords will breathe a sigh of relief that, generally speaking, the current VAT treatment of dilapidation payments as set out in VAT Notice 742 Land and Property will still continue.

If you have any questions about this new guidance and what implications it may have for your business please contact myself or a member of our VAT team at vat@chiene.co.uk or call us on 0131 558 5800.

It’s National Apprenticeship Week!

Apprenticeships provide invaluable support, experience and skillsets for young individuals, assisting them on their career journey. With a wealth of funding support and incentives, the Government has made apprenticeship programmes an attractive option for employers. In this blog, we consider the incentives for employing an apprentice and how to make sure they are paid the correct wage.

Adopt an Apprentice

In Scotland, if you recruit a Modern or Graduate Apprentice previously made redundant you could receive up to £5,000 to help cover wage and recruitment costs.

Kickstart Scheme

Creating new jobs for 16 – 24-year-olds on Universal Credit at risk of long-term unemployment, the kickstart scheme will cover:

  • 100% of the employees’ wage (at the rate of National Minimum wage or National Living Wage) for 25 hours per week for a total of 6 months.
  • Cover associated Employers National Insurance costs.
  • Cover automatic enrolment pension contributions at the minimum rate.

In addition to this, employers received £1,500 funding support for each employee that can be used for training and employability support.

Although this scheme is no longer open for applications, where employers were successful in their application, they can spread the apprentices’ start dates up until 31st March 2022.

Incentive payments for hiring a new apprentice

Employers in England have until 15 May 2022 to apply to the Government for a £3,000 payment when taking on new apprentices. The £3,000 payment can be used to cover costs related to the apprentice for example salary, uniform or travel expenses.

To be eligible, an apprentice must have commenced employment between 01 October 2021 and 31 January 2022 and have started their apprenticeship between 01 October 2021 and 31 March 2022.

The apprentice must complete 90 days of their apprenticeship for the first payment instalment and 365 for the second payment instalment.

Employers will get a further £1,000 when taking on an apprentice who is aged between 16 – 18 years old or under 25 and has an education, health and care plan or has been in the care of their local authority.

Apprenticeship minimum wage

The minimum wage for apprentices aged 16 – 18 or aged 19+ and in their first year increases from £4.30 to £4.81 per hour from 01 April 2022, which will align with the same minimum wage rate as those employees aged under 18 years old. It’s important that businesses increase apprentices’ wages in line with the new minimum wage from April.

Employer National Insurance Costs for Apprentices

To ensure you pay National Insurance at the correct rate for an apprentice use the correct National Insurance category letter:

H – Apprentices under the age of 25 on an approved apprenticeship standard or framework
G – If an apprentice is a foreign-going mariner and is under 25

When the statutory apprenticeship stops, or an apprentice turns 25 a business will need to use a new category letter. Additionally, employers are liable to Secondary Class 1 National Insurance Contributions on earnings above the Apprentice Upper Secondary Threshold (£50,270 p/a) at a rate of 13.8%.

If you have a query about hiring an apprentice or the correct earning rate, contact me today or get in touch with our Payroll Department at payroll@chiene.co.uk.

VAT: Gift Vouchers in the hospitality sector – impact of rate change

Gift vouchers are sold to allow the holder to redeem them at a later date for goods or services. The VAT treatment of a voucher varies upon the type of voucher that has been issued.

SPVs and MPVs

There are two types of voucher for VAT purposes:

1.      Single Purpose Voucher (“SPV”)

A single purpose voucher is one where, at the time of issue, the liability to VAT of the goods or services to which it relates, and the place where they will be supplied are known.

2.      Multi-Purpose Voucher (“MPV”)

A multi-purpose voucher is any voucher that is not a single purpose voucher. MPVs can be redeemed for any goods or services which might have different rates of VAT applied to them, the appropriate VAT rate is therefore not known at their time of issue.

VAT Treatment

The difference in terms of their VAT treatment is that the VAT is payable:

  • On an SPV at the time it is issued, as the VAT rate is known at the point of sale; and
  • On an MPV when the voucher has been redeemed, at which point the VAT rate is confirmed depending on the goods or services being purchased.

Temporary reduced rate and impact of change back to 20%

This is particularly relevant for restaurant/hotel vouchers due to the temporary VAT cut.

At present, vouchers issued by restaurants/hotels will likely qualify as MPVs as the VAT liability of the supplies to which the voucher will be used are unknown – this could be used for 12.5% food and/or 20% alcohol. Therefore, during the temporary VAT cut period (up to 31 March 2021), restaurant and applicable hotel vouchers (where certain redeemable supplies are subject to 20% i.e. alcohol) should be treated as multi-purpose vouchers. VAT therefore should be accounted for at the point of redemption – when the relevant VAT rates and values are known.

However, when the VAT rate reverts to 20% with effect from 1 April 2022, gift vouchers will likely become SPVs – at the point of sale, the VAT liability of the supplies will be known as the full supply will be liable to the standard rate of VAT of 20%.

Consideration will need to be made by any businesses which issue gift vouchers and care will need to be taken if SPVs and MPVs have been issued to determine whether VAT needs to be accounted for at point of redemption.

For example, a restaurant may have issued a gift voucher in September 2021 (MPV) and April 2022 (SPV) which are both redeemed in May 2022. The voucher issued in September would need to have VAT charged when redeemed as MPV, however the April 2022 issued voucher would have had VAT charged at time of issue.

For any further guidance on the VAT treatment of vouchers, please contact our VAT Department via vat@chiene.co.uk.

Entrepreneurs Relief to BADR – different name, same rules?

In the spring of April 2020, Entrepreneurs’ Relief (ER) morphed into Business Asset Disposal Relief (BADR) giving those that qualify an opportunity to pay 10% Capital Gains Tax (CGT) on certain capital gains, as opposed to the standard rate of 20%. This applies on the sale of a business or qualifying shares, up to a lifetime limit of £1 million.

ER was originally intended to encourage innovators to set up in business, but the scheme had come under fire as being too generous. The relief was renamed BADR in conjunction with measures that reduced the lifetime limit of £10 million to £1 million. At its current level, the relief can now save up to £100,000 of CGT per person.

What are the details?

BADR can apply on the sale of the following:

  • A sole trade business.
  • An interest in a trading partnership or LLP.
  • Company shares where:
    • The company is a trading company.
    • You hold a 5% interest (or the shares arise from EMI options).
    • You are an employee or director.

The conditions must be met throughout a 24-month period to sale, or cessation of trade if earlier. It is important to note that letting property is not regarded as being a trade.

The sale of assets used by a company or partnership but owned personally (e.g. business premises) can also qualify, provided the sale is associated to withdrawing from the partnership/company. Relief is also restricted where there is non-business use, or the business pays rent.

It is important to carefully consider the rules – in particular where there are different classes of shares, or there are investment aspects to the company. For family companies, the ownership structure of shareholdings can also be vital in maximising relief.

What if a business can’t be sold?

Some company owners find there is no one to sell or pass their business onto when the time comes to retire or move onto something new. In this case, the directors may place the company into a formal liquidation procedure known as a Members’ Voluntary Liquidation (MVL). BADR can apply to the receipts from liquidation, provided the above conditions are met and the payment is made within 3 years of the cessation of trade. It is also important to note that a targeted anti-avoidance rule (TAAR) can take effect to tax liquidation receipts as income – this needs careful consideration on any liquidation.

BADR can be claimed on the sale of assets used by a sole trade or partnership after the business has come to an end, again provided the sale occurs within 3 years of cessation.

How is a claim made?

Following a disposal, a claim for BADR is usually made on your tax return for the tax year in which the sale occurs. The claim has to be made by the first anniversary of 31 January following the end of the tax year. For example, for a sale that takes place in the year to 5 April 2022, a claim for BADR on the disposal must be made by 31 January 2024.

If you would like more information about BADR, contact myself or a member of our Personal Tax team today at mail@chiene.co.uk.

Tax of the future – Metaverse and how it may shape tax legislation

The recent and much publicised rebrand by Facebook to Meta could be viewed, perhaps cynically, as an attempt to distance itself from the deluge of bad PR that the company has experienced in the past few years. But, more importantly, what the rebrand tells us is where one of the most influential tech organizations is headed in the medium to long term, and what it views as the next technological, social, and commercial revolution. Whatever you may think of Meta and Mark Zuckerberg, a change such as this should make us sit up and take notice.

The Metaverse and the advent of Web 3.0 are going to change much of online life as we know it. Broadly speaking, the Metaverse can be defined as a virtual reality, where individuals and organisations will be able to interact, transact and carry out all sorts of activities in the virtual sphere. The ongoing development of virtual reality and augmented reality technologies will feed into this and lead to a gradual merging of physical reality with the Metaverse. Coming alongside the Metaverse as one of the major developments in 2022 is Web 3.0. This is the term given to describe the new generation of the internet, manifested by decentralisation of control, data storage on the blockchain, and power returning to the individual.

Add to this the breakthrough year of NFTs (non-fungible tokens) in 2021, and it becomes clear that these new technologies are bringing about a vast amount of change. As with any major changes to the way we live our lives and conduct business, the tax system itself is likely to see some big changes in order to keep pace and bring any new types of business or transactions within the scope to tax.

The BEPS Pillar II rules* agreed by the G20 at the end of 2021 are certainly one step to catch up, with the new rules ensuring the technology giants make at least minimum rate tax payments in each jurisdiction they are active in. And the US is leading the way in legislating for greater access to data on cryptocurrency holdings to enable wider tax collection.

But what are some of the other hypotheticals that the tax authorities may have to consider as this new technology comes to prominence?

  • Virtual real estate: How will the rent or sale of virtual real estate be taxed? How will the tax system adjust to deal with ownership authenticated by the blockchain?
  • Sale of personal data: One prediction of Web 3.0 is that it will bring about personal ownership of our online data. How will the sale of personal data be taxed? What will be the accounting and tax implications for a company purchasing personal data?
  • VAT on virtual transactions: How will transactions in the Metaverse or through the Metaverse be treated for VAT purposes? How will be the place of supply be defined for a service sold by an avatar within the Metaverse?
  • Jurisdiction: How does a virtual Metaverse fit within legislation built around physical jurisdictions? Will there be a ‘UK Metaverse’ for tax residency purposes or will the Metaverse itself constitute an ‘overseas’ jurisdiction?
  • Virtual income: Where an individual provides services within the Metaverse under contract, how will payments to that individual be taxed? What about payments made in credits or crypto-tokens that are never withdrawn out of the Metaverse?

These are just a few of the potential tax predicaments that are on their way. The technologies discussed are so removed from anything that has gone before; there will most definitely be use cases or developments that we cannot foresee at the present time, and which will present further issues for the tax authorities to grapple with.

For ourselves as tax advisors, the Metaverse, Web 3.0, NFTs and the like will no doubt present many interesting and complex changes for us to keep up with and advise on. But as with any technology shift of this magnitude, there will be opportunities also to develop our offering to you as clients and perhaps even change how we conduct business. Though no plans are in the offing, the future may even see Chiene + Tait opening an office in the Metaverse, allowing clients to drop in for advice or meetings.

If you are providing services within these spheres, we would be interested to hear from you and support you with any accounting services or tax advice that you require. And if you are developing technology for the Metaverse or with Web 3.0 applications, then it is likely you are undertaking qualifying Research & Development (R&D) activities and again we would be delighted to speak with you and assist you with claiming R&D Tax Credits.

 

* On 1 July 2021, in an historic agreement, 130 countries approved a statement providing a framework for reform of the international tax rules. These countries are members of the OECD/G20 Inclusive Framework on BEPS (“IF”), comprising 139 countries. The statement sets forth the key terms for an agreement of a two-pillar approach to reforms and calls for a comprehensive agreement by the October 2021 G20 Finance Ministers and Central Bank Governors meeting, with changes coming into effect in 2023. Pillar One of the agreement is a significant departure from the standard international tax rules of the last 100 years, which largely require a physical presence in a country before that country has a right to tax. Pillar Two secures an unprecedented agreement on a global minimum level of taxation which has the effect of stipulating a floor for tax competition amongst jurisdictions.

Update: Changes to VAT penalty regime deferred to January 2023

In a previous article we outlined that the VAT default surcharge regime was due to be replaced by a new regime involving late submission and payment penalties along with interest charges from 1 April 2022.

Update

The Government has recently announced plans to delay the introduction of this new regime for penalties for late submission and payment of VAT returns.  The planned reforms of the VAT penalty and interest regimes have been deferred by 9 months and will come into force from 1 January 2023 to allow HMRC more time to make the necessary systems changes.

The existing default surcharge rules will continue to apply in the meantime.

HMRC is committed to becoming one of the most digitally advanced tax authorities in the world, therefore the delay is to allow sufficient time for necessary IT changes to be made to HMRC’s systems.

The plan is to bring the VAT penalty system in line with existing penalties which apply to direct tax returns.

For more information on the above please see our previous article here, or for VAT advice tailored to you, please contact our VAT team at VAT@chiene.co.uk.

New COVID sick pay scheme to help employers facing staff absences

A new Statutory Sick Pay Rebate Scheme (SSPRS) has been launched by the UK Government to help small- to medium-sized employers that are experiencing increased staff absences due to coronavirus.

The original scheme began in March 2020 and ceased in September 2021; a business could claim for this period up until 31 December 2021. The new scheme began on 21 December 2021 and is a complete reset of the original scheme: if a business claimed for an employee’s Statutory Sick Pay (SSP) under the original scheme, it can still make a claim relating to that employee under the new scheme. There is currently no scheduled end date for SSPRS, instead, the scheme is under constant review.

It is important for employers to note that the rebate only applies where the sickness absence is due to coronavirus.

What businesses can claim?

Employers can claim if they:

  • Have fewer than 250 employees from 30 November 2021
  • Are a UK-based employer
  • Had a PAYE scheme in place at 30 November 2021, and
  • They have already paid their employees COVID related SSP

How much can be claimed?

From mid-January 2022, an employer can claim up to 2 weeks’ worth of statutory sick pay per employee (including waiting days), maximum £192.70 per employee.

If you have any questions regarding the SSPRS please contact a member of the payroll team at payroll@chiene.co.uk.

HMRC gives extra time for self-assessment taxpayers to submit and pay their tax

Although the official deadline to file and pay any self-assessment tax liabilities is still 31 January 2022, due to the ongoing impact of the covid-19 pandemic, HMRC have extended an olive branch and has announced it will waive the initial 2020/2021 self-assessment tax return late filing and late payment penalties.

HMRC have said that they recognise the pressure faced this year by taxpayers and also their agents in meeting the 31 January deadline, therefore the waivers give more time to file a return online and pay the tax due without penalty.

However, it should be noted that interest will still be payable on the amount due from 1 February, as usual, so it is still better to pay by 31 January if possible.

Specifically, the penalty waivers mean that:

  • Anyone who cannot file their return by the 31 January deadline will not receive a late filing penalty if they file online by 28 February, and
  • Anyone who cannot pay their self-assessment tax by the 31 January deadline will not receive a late payment penalty if they pay their tax in full, or set up a Time to Pay arrangement, by 1 April.

If you have a query about your self-assessment tax return, or need help submitting your return online, contact the Chiene + Tait Tax Team at mail@chiene.co.uk.

More trusts now required to register on the Trust Registration Service

HMRC first introduced the Trust Registration Service (TRS) in 2017 to improve transparency around the beneficial ownership of assets held in trusts. Recent legislation means that more trusts now fall under the scope of the rules, with a deadline of 1 September 2022 to register.

The rules require trustees to provide details of the trust, including information relating to the settlor, trustees, and beneficiaries.  This must be kept up-to-date by way of online updates to the trust register.

So which trusts are impacted and how?

The changes will impact trusts that do not have a tax liability and, therefore, were not previously required to register. Unless covered by certain exclusions, all UK trusts must now register with HMRC. Certain offshore trusts must also register.

It’s also important to note that the TRS is not a one-off exercise: it is an annual commitment at the very least. The minimum annual commitment is a positive confirmation that there are no changes to the trust details on the register.

Should there be any changes – a change in trustee for instance – then this must generally be reflected on the register within 90 days. Trustees (or their agents) must ensure that the timely updates are made to the register.

How can Chiene + Tait assist?

We currently deal with the submissions for a large number of trusts, on behalf of the trustees, following the first wave of TRS registration requirements. We offer a similar service to trusts affected by the new rules and can take care of both initial registration and your ongoing compliance.

If you are a trustee and would like to speak to a member of staff about the requirements for your trust or to simply discuss the trust’s position, please contact our team at mail@chiene.co.uk or call 0131 558 5800.

Scottish Budget 2021 Update

Scotland’s Finance Secretary Kate Forbes delivered her Scottish Budget yesterday at Holyrood. The key announcements from a personal tax perspective are as follows.

Income Tax

  • Scottish income tax rates in 2022-23 will remain unchanged;
  • The starter and basic rate bands will increase in line with inflation; and
  • The higher and top rates of tax will remain frozen at their current levels.

See below for details of the income tax rates and thresholds for Scottish residents on your earned income such as employment income, pensions, rental income or self-employment income. Please note that dividend income and savings income is subject to the UK rates and thresholds. See link for details of the current UK rates and thresholds – Income Tax rates and Personal Allowances – GOV.UK (www.gov.uk).

Thresholds Band Name Rate
Over £12,570* – £14,732 Starter Rate 19%
Over £14,732 – £25,688 Scottish Basic Rate 20%
Over £25,688 – £43,662 Intermediate Rate 21%
Over £43,662 – £150,000** Higher Rate 41%
Over £150,000** Top Rate 46%

* assumes individuals are in receipt of the Standard UK Personal Allowance.

** those earning more than £100,000 will see their Personal Allowance reduced by £1 for every £2 earned over £100,000.

The Land and Buildings Transaction Tax (LBTT) rates for both residential and non-residential rates and bands will remain unchanged at their current levels. The Scottish government will launch a call for evidence on changing the rules regarding the application of the Additional Dwelling Supplement for those acquiring a second residential property. So watch this space! See below for the current LBTT rates and thresholds. Further details can be found here – Taxes: Land and Buildings Transaction Tax.

Residential Rates and Thresholds

Purchase Price LBTT Rate
Up to £145,000 0%
£145,001 to £250,000 2%
£250,001 to £325,000 5%
£325,001 to £750,000 10%
Over £750,000 12%

A relief for first-time buyers is available, which increases the residential nil rate band of LBTT to £175,000.

The LBTT Additional Dwelling Supplement (ADS) which came into force on 1 April 2016 is charged at 4% of the relevant consideration (usually the purchase price) for an additional dwelling where this is £40,000 or more.

Non-Residential Rates and Thresholds

Purchase Price LBTT Rate
Up to £150,000 0%
£150,001 to £250,000 1%
Over £250,000 5%

End of Council Tax Freeze

Last year’s freeze on council tax rises will not continue. For 2022-23, councils will have complete flexibility to set the rate of Council Tax.

 

If you have a personal tax query and would like to speak with our team, please contact us today at mail@chiene.co.uk or call 0131 558 5800.

Data and cloud computing costs to qualify for R&D tax relief

The most recent consultation into Research and Development (R&D) tax incentives, concluded earlier this year, resulted in the Chancellor announcing several changes that will have effect from 1 April 2023 (a Christmas present many have had on their list for a while!).

One of the major updates to the Research and Development Expenditure Credit (RDEC) and Small and Medium Enterprises (SME) relief schemes centres on the modernisation of what is classed as qualifying expenditure, which is great news for many undertaking R&D projects.

Data and cloud computing costs were consistently raised as an area ripe for change throughout previous HMRC consultations, as these costs were previously not classified as qualifying expenditure. Any funds spent on these activities over the course of an R&D project could not be claimed through either scheme.

In many cutting-edge R&D projects it is absolutely vital to have large datasets and analytical methods to analyse said data (I doubt even Santa will be going through his list by eye now). Furthermore, cloud computing has continued its rise to prominence even faster than expected due to increased remote working following Covid-19.

Below are the key areas of change.

Dataset licence payments

Datasets can be as important to R&D as the classic raw material, so it’s refreshing to see that detailed guidance has already been provided in determining what specific dataset costs will be qualifying.

  • Expenditure on datasets via licenses which are used directly for R&D in a qualifying R&D project will qualify for relief. Where an access agreement covers multiple datasets, of which some are used for non-R&D purposes, the claimant will be required to apportion the costs.
  • However, companies will not be able to claim relief on the cost of datasets that can be either resold or have a lasting value to the business beyond the scope of the project. Specifically, costs relating to a licence agreement which grants the following will not qualify:
    • Any rights of resale over the data.
    • The claimant the right to publish, share or otherwise communicate the raw data within the dataset to a third party.
    • Any ongoing rights of use, beyond the expected term of the R&D project being undertaken by the claimant.

Staffing costs for the creation of datasets

Where companies need to conduct their own fieldwork to develop a dataset, they are already able to claim relief for the relevant staffing costs, as long as the data is not collected for sale or other commercial purposes and directly contributes to the advance in science or technology being sought by the project. Some examples of these qualifying costs can include collecting, cleansing, and analysing data. The government intends to publish fresh guidance to make this position clearer.

Cloud computing costs

Another area to be classed as qualifying expenditure from April 2023 will be cloud computing services and packages used directly for R&D. One point to note regarding the inclusion of these costs as qualifying expenditure is that the government intends to apply the current principle that applies to general overheads such as rental costs. HMRC will therefore likely intend to exclude similar costs incurred as part of a cloud computing package. Draft legislation for this is due to be published in Summer 2022.

If you need assistance with your R&D relief claim please don’t hesitate to talk to our specialist team for advice – contact us at mail@chiene.co.uk.

New VAT Penalty Regime

The Government is revamping the way in which it raises penalties for late submission and late payments to make them fairer and more consistent across different taxes. These changes will initially apply to VAT. This new penalty regime for VAT defaults will come into effect for taxpayers from 1 April 2022.

Late submission

The new late submission regime will affect those taxpayers who fail to meet their obligations to submit VAT returns on time or provide other information requested by HMRC on time. At present, if a taxpayer fails to submit their periodical VAT return by the required deadline, they will be placed into what is known as a ‘surcharge liability period’. This means that if the taxpayer fails to make a submission by a required deadline within the next 12 months, a financial penalty will be levied against them. No penalty is currently levied on the first default, but after the second offence penalties are charged based on a set percentage of unpaid VAT to HMRC. The new regime will see the introduction of a points-based system where taxpayers will not receive an automatic financial penalty until they have acquired the necessary number of points. The points issued will be proportionate and the aim is to penalise the small minority of taxpayers who persistently miss submission obligations rather than those who make occasional mistakes.

Taxpayers will receive a point each time a submission deadline is missed with HMRC. A notification of each point acquired will be sent out to the taxpayer by HMRC. Once the taxpayer has received a certain number of points, a financial penalty of £200 will be charged to the taxpayer. The points threshold is determined by how often the taxpayer makes submissions to HMRC. For example:

Submission Frequency Penalty Threshold
Annual 2 Points
Quarterly 4 Points
Monthly 5 Points

Each taxpayer will have separate points totals for each submission obligation they have. For example, if a taxpayer is required to make a self-assessment submission as well as periodical VAT returns, there will be separate points totals for each of these taxes. In order to prevent taxpayers suffering from historic failures combining with recent failures to cause additional penalties, the points acquired will have a lifetime of two years, after which they will expire unless the taxpayer is at a penalty threshold. If the taxpayer is at a penalty threshold, the points acquired can only be reset to zero where the following conditions are met:

  • A period of compliance is obtained (all submission obligations are met within period of compliance). The periods of compliance are as follows:
Submission Frequency Period of Compliance
Annual 24 Months
Quarterly 12 Months
Monthly 6 Months
  • Taxpayer has submitted all required submission that were due in preceding 24 months.

Late payments

Legislation will align the late payment penalty regimes across the main taxes (VAT, ITSA etc.). Current late payment sanctions will be replaced. Currently there is no standalone late payment penalty for VAT returns, instead the Default surcharge method is used which combines a sanction for late submission and late payment penalty, which is different from the penalties in place for other taxes such as ITSA. The new late payment penalty will consist of 2 separate charges. The first charge will become payable 30 days after the payment due date and will be based on a set percentage of the balance outstanding. The amount of that charge will depend on payments made or time to pay arrangements that are agreed during those first 30 days.

First Charge
Days after payment due date Action by taxpayer Penalty
0 to 15 Payments made or taxpayer proposes a time to pay that is eventually agreed No penalty is payable
16 to 30 Payments made or taxpayer proposes a time to pay that is eventually agreed The penalty will be calculated at half the full percentage rate (2%)
Day 31 No payment made, no time to pay agreed 2% of what was due at day 15, plus 2% of what was due at day 30

Second charge

A second charge will also become payable from day 31 and will accrue on a daily basis, based on amounts outstanding. As with the first charge, the taxpayer can agree a time to pay with HMRC.

Notice of penalty

Both the first charge and second charge will be notified to the taxpayer and any amounts shown as payable on the notice will be required to be paid, or appealed, within 30 days of the date of that notice. In common with other tax penalties, a taxpayer will not incur a late payment penalty if they had a reasonable excuse for not making the payment on time and will have a right to appeal against late payment penalties. Interest harmonisation Legislation will align the interest rules for VAT to make sure they follow similar rules to those for ITSA. Provisions similar to the current rules will be enacted to apply to VAT accounting periods starting after 1 April 2022. The measure will make sure that in VAT, where a payment is made after the due date, late payment interest will be payable from the date that payment became due until the date it is received by HMRC. Late payment interest will also apply to VAT returns, VAT amendments and assessments and VAT payments on account.

Additionally, repayment interest will be payable in VAT either from the last day the payment was due to be received or the day it was received, whichever is later, until the date the repayment to the taxpayer is authorised or offset. Where a VAT repayment return has been received HMRC will not pay interest where:

  • There are any outstanding returns for other prescribed accounting periods.
  • Security has been requested and not provided.

How can C+T assist you?

In light of the new penalty regimes coming into force, we consider that before 1 April 2022 would be a good time to confirm if your business has any areas of concern with regards to its VAT compliance as to avoid being affected by the above penalty changes. Here at C+T we have a specialist VAT team that can undertake a HMRC style review of your current VAT compliance systems and sense check of your VAT returns to ensure there are no areas of concern and ensure late submission and other penalties are avoided. In addition, if there are any concerns on completion of compliance we can assist with this on your behalf. Contact our team today at vat@chiene.co.uk for more advice or information.

Changes to VAT repayments of UK VAT for overseas traders

Non-established taxpayers (NETP) are organisations that are registered for VAT in the UK (because they are making taxable supplies in the UK), but which don’t have a business address in the UK. VAT repayments to NETPs have been an ongoing issue for some time.

Current approach and problems

Under the current process, where a repayment is due to a NETP, HMRC’s system automatically issues a payable order. However, non-UK businesses have experienced difficulties in banking payable orders issued by HMRC. Brexit and the impact of Covid-19 have made it extremely challenging to open a UK business bank account, and some EU banks are refusing to accept a UK cheque. This has made it challenging for NETPs to receive repayments from VAT refunds from HMRC.

As a result, HMRC has received many complaints from overseas VAT traders about issues with banking payable orders in their countries.

HMRC’s change in approach

To try to solve the issue, HMRC has recently created a ‘Gform’ for NETPs to provide their bank account details in order to receive an electronic CHAPS (Clearing House Automated Payment System) repayment instead. When the new process is set up, electronic repayments will be made directly into the taxpayer’s bank account.

The required ‘Gform’ can be accessed and completed via the taxpayer’s Government Gateway account with their Government Gateway ID.

Once the customer has completed the form, HMRC’s Corporate Treasury staff will set a lock on the taxpayer’s customer record to prevent the payable order being automatically issued, which will generate a CHAPS repayment instead.

Help and support

If you would like assistance with ensuring your bank details are set up correctly with the UK tax authorities in order to receive repayments, please get in touch with our VAT team at VAT@chiene.co.uk.

VAT on Green and Energy Saving Products

Spiralling gas prices and an increase in the energy price cap have added hundreds of pounds to household energy bills, hence more people are considering investing in green efficiency products in their homes. But what VAT reliefs are available for householders?

Reduced rate on energy saving materials

The UK is leading the way in fighting climate change by supporting households to make the transition to net zero more affordable. Those who buy or install energy efficiency products in their homes or other buildings could qualify for a reduced rate of 5% VAT for the installation of certain energy saving materials (ESMs), rather than the standard rate of 20%.

The reduced rate of 5% applies to the installation of specific energy-saving materials. Unfortunately, wind and water turbines were removed from the list of qualifying items following the revised legislation which took effect from 1 October 2019, however insulation materials, solar panels, ground and air source heat pumps, and micro heat and power units remain qualifying if the conditions outlined below are met.

Reduced rate on installation services

Installation services on their own are subject to the 5% reduced rate. In certain cases, the installation services and the energy-saving materials can fully benefit from the reduced rate where either a new 60% threshold is not exceeded, or one of the following social policy conditions is satisfied:

  • The customer is over 60 or in receipt of certain benefits.
  • The customer is in a registered housing association; or
  • The building or part of a building is used for a ‘relevant residential’ purpose such as a care home.

Where the social policy conditions are not met, it is necessary to apply the 60% test to a supply of installing energy-saving materials to determine the correct VAT rate. If the value of the energy saving materials exceeds 60% of the total value of the full supply (installation and materials), then only the labour cost element will qualify for the reduced rate (with the supply of the materials being standard rated). In practice, the 60% threshold is expected to affect mainly combined installations of solar panels and batteries.

Future reductions?

These rules were introduced following CJEU’s judgement of how the UK applied the reduced rating rules. Now that the UK has left the EU, it has not yet been determined whether the relief will be revised and reformed again, particularly given the current ambitions on tackling climate change.

If you are considering undertaking a project to purchase or install any energy saving materials, please do not hesitate to get in touch with our VAT team at VAT@chiene.co.uk to determine the VAT position and how to plan the project to reduce any VAT charges.

Trivial Pursuits

Providing employees with small, irregular benefits such as drinks at the pub, flowers on their birthday, or gift vouchers at Christmas is common practice. Whilst these benefits are seen as a token of generosity by employers, it is important for employers to know what is taxable and what is not.

An exemption does exist; the ‘Trivial Benefit’ exemption, which applies to small, ad-hoc benefits provided to employees. The conditions that must be met in order for the exemption to apply are as follows:

  • The value does not exceed £50 (incl VAT);
  • It is not in the form of cash or a cash voucher (i.e. a cheque or payable order);
  • It isn’t a reward for work or performance;
  • It isn’t expected under the terms of an employment contract.

The ‘reward for work or performance’ condition is often a problem area as small gifts, such as vouchers, are commonly provided as a ‘thank you’ in recognition of work carried out. Any gifts should be ad-hoc and not for recognition of a job well done, therefore it is best practice to record the benefit and reason or motive behind it.

Similarly, if a voucher is provided as part of a new employee welcome package it would need to be a ‘welcome to the firm’ for the exemption to apply, rather than as an incentive to attract staff.

Care must also be taken for ‘trivial’ benefits provided regularly. HM Revenue & Customs often take the view that benefits which are provided regularly to staff may be considered as ‘expected under the terms of an employment contract’, or essentially part of the employee’s remuneration package. Therefore, the ‘Trivial Benefit’ exemption would not apply. The term ‘regular’ is not defined by HMRC but a trip to the pub once every few months could be considered ‘trivial’, yet a trip once a week may not. So again, care would need to be taken when providing employees with smaller perks.

Reporting Benefits

If a benefit does not meet the above conditions, then the whole value would be taxable on the employee. Benefits can be reported via end of year P11D forms, but this requires the employee to pay the income tax on the value of the benefit, with the employer paying the National Insurance (“NI”).

It is more common for small, irregular benefits to be reported on a PAYE Settlement Agreement (“PSA”) whereby the employer meets both the income tax and NI charges. Utilising a PSA can be costly as the income tax due is calculated by grossing up the benefit by the employee’s marginal tax rate. The tax and NI liability can be as much as the cost of the benefit itself.

For more information on reporting of benefits please see our recent blog article: Employment benefits: reporting window is just around the corner or contact myself or David Smith at mail@chiene.co.uk.

 

Careful reform needed with R&D tax reliefs

R&D and innovation was a key feature in Rishi Sunak’s Autumn Budget. The Chancellor underlined his aim to raise direct and indirect public support for R&D to 1.1% of GDP in 2024-25, well above the OECD average of 0.7%.

The Government hopes to bounce back from the financial impact of the pandemic by focusing on invention, discovery and creation with a clear and concise innovation strategy. The modernisation of the R&D tax relief regime – an extremely generous support to encourage companies to innovate – is an integral part of the Chancellor’s plan as to how this can be achieved.

In last week’s Autumn Budget, Mr Sunak announced reform of the R&D tax relief regime to ensure it is suitable in supporting modern research methods. Qualifying expenditure has been expanded to include cloud computing and data costs, which is coming into place from April 2023. Further reform is expected in the coming months to accurately define and target the relief to better support cutting-edge research methods.

UK Definition of Research & Development

The UK definition of R&D was last set out in 2004 and needs updating. There’s a particular opportunity to identify better ways to address R&D practices and fields, which have changed significantly since then. While the current definition is purposely broad, it’s a positive step that the Government is considering updating it as greater clarity could further widen the types of research covered by relief.

The Chancellor appears focused on leveraging more innovation from off the back of taxpayer-funded R&D activities. While UK companies claimed tax relief on £47.5bn of R&D expenditure in 2019, the Office of National Statistics estimates that businesses only carried out £25.9bn of privately-financed R&D. These estimates are not directly comparable due to differences in how they measure R&D expenditure, but the gap is partly explained by companies being able to claim for activity taking place overseas.

Anti-avoidance

We’ve already seen the reintroduction of the PAYE and NIC cap on SME payable credits, a move aimed at preventing fraud within structures set up to claim a tax credit despite there being no evidence of UK-based innovation activity or job creation. We could see further anti-avoidance measures like these rolled out, or the Government may opt to re-write the legislation to fully restrict overseas R&D expenditure. I believe this would be a mistake.

While focusing on UK-based innovation is highly commendable, this type of activity is rarely defined by borders. We live in a global economy where R&D collaboration with other parties outside the UK is sensible, making overseas expenditure incurred to help push technological or scientific boundaries beneficial to our economy. If the core benefits accrued from overseas collaborations – improved skills, greater know-how, understanding, etc – remain or return to the UK, it makes sense to provide relief for UK companies that are engaged in such activities.

Any new legislation should therefore ensure we don’t lose the benefits of globally collaborative innovation activities. Targeted measures, such as reviewing the PAY/NIC Cap, should be considered instead and focus on those who look to strip out the relief without paying back to the UK.

Other areas of focus

Along with reform of R&D legislation, the Government will also set out plans to tackle abuse and improve compliance in the coming months. This has been an ongoing issue and there have been growing concerns over the past few years that the system does not provide adequate controls for the allocation of tax credits.

HMRC aims to process claims within 28 days, however, due to their sheer number, it is an uphill battle to consider every case in detail.  It’s also been taking steps to combat fraudulent claims with the recruitment of an additional 100 R&D tax inspectors, underlining its intentions to ensure UK taxpayers are funding only genuine claims.

The forthcoming changes to R&D tax relief measures are welcome but they must be carefully thought through to ensure they reflect the global economy so they don’t infringe on innovation of UK companies. Just as innovators are pushing the boundaries of technological and scientific advancements, the tax legislation must adapt so that it continues to play a key role in promoting UK investment by reducing the cost of innovation. This will only be possible if the relief remains up-to-date, competitive and well-targeted.

If you have a query about Research & Development Tax Relief contact David Philp, C+T’s Head of R&D.

Autumn Budget 2021: Eligibility of data and cloud computing costs for R&D tax relief

The Autumn budget brought a number of changes to the R&D tax relief legislation. One of these was a rare change to what costs are eligible for the relief.

Over the years, R&D legislation has become more outdated, failing to keep up with the ever-changing technological landscape, particularly when it comes to software development companies. HMRC has continued to update their guidance but there comes a point where guidance is not enough and changes to statute are required. As cloud technologies have advanced, the current legislation has not kept up with rate of innovation in the R&D process. As such, certain costs have been deemed ineligible even when vital to the technological advancement.

Autumn Budget 2021 Changes

In this Budget, the Chancellor announced that changes will finally be coming to the eligibility of data and cloud computing costs for R&D Tax Relief. This news comes following a consultation period where the government took feedback from a number stakeholders. The responses to this consultation period overwhelmingly supported amending the legislation to allow for data and cloud computing costs to be claimed for R&D Tax Relief.

Additionally, many other global jurisdictions that operate a similar R&D Tax Relief scheme already allow for data and cloud computing costs. The UK Government has accepted that data and cloud computing are key components of modern R&D and is keen for the UK to remain a competitive location for cutting edge research.

Application and Impact

Due to be statutory in April 2023, it is expected that these changes will help drive reinvestment by the eligible companies, helping to grow the economy and advance technology. These changes will see companies being able to claim for costs that have never previously been eligible; for some companies these costs could be substantial.

With all legislative changes, it is expected that this announcement will be followed by a raft of complex requirements and rules that must be followed in order for the costs to be eligible. As such, it is as important that a tax advisor is engaged to help you identify any potentially qualifying R&D costs.

Contact our team today at mail@chiene.co.uk to discuss how this change in legislation may impact your future R&D Tax Relief claim.

Budget 2021: Key Announcements

In a Budget full of announcements (although a few major ones were highlighted before the big day, such as the new Health and Social Care levy and the increase in National Minimum Wage/ National Living Wage) we review the key points here.

New announcements with immediate effect

  • 30-day reporting and payment deadline for CGT on UK residential property extended to 60 days for transactions that complete on/after 27 October 2021 (the deadline is similarly extended where non-residents dispose of other UK land and buildings)
  • High Income Child Benefit Charge is to be brought within the discovery assessment regime; this will apply retrospectively
  • Cross-border group relief for corporation tax to be abolished w.e.f. 27 October 2021
  • Increases to various ‘cultural’ tax reliefs (e.g. for theatres and orchestras) from 27 October 2021

New announcements taking effect later

  • 100% Annual Investment Allowance for qualifying plant and machinery – limit to remain at £1 million until 31 March 2023
  • Residential Property Developer Tax to be introduced from 1 April 2022: 4% of profits above £25m that are derived from UK residential property development
  • Car fuel benefit multiplier for 2022/23 is £25,300
  • Van benefit charge for 2022/23 is £3,600 and the van fuel benefit charge is £688
  • National Insurance Contribution (NIC) thresholds for 2022/23 increase by 3.1%, except the Upper Earnings Limit for Class 1 and Upper Profits Threshold for Class 4, which are both frozen
  • R&D tax relief to be reformed from 2022/23, but no details yet confirmed
  • ISA investment limit unchanged for 2022/23 at £20,000 (£9,000 for Junior ISA)
  • Annual Tax on Enveloped Dwellings (ATED) rates rise by 3.1% from April 2022
  • Reform of basis period rules for unincorporated business and LLPs is to proceed (2023/24 will be the transitional year)
  • Temporary reliefs for Business Rates for small businesses in 2022/23, with longer term reform of the system and reliefs for expenditure to be introduced in April 2023
  • Reform of Air Passenger Duty from April 2023: decreases for domestic flights and increases for ‘ultra-long haul’
  • Consultation for fundamental reform of alcohol duties, including incentives for pubs by reducing the duty on draught alcoholic drinks

Confirmation of matters previously announced

  • National Insurance Contributions (NIC) and dividend tax rates to rise by 1.25% from April 2023 to help fund health and social care (NIC rates will return to current rates for 2023/24, when the separate Health and Social Care Levy is introduced)
  • Structures and Buildings Allowance – changes to Allowance Statement requirements
  • ‘Notification of uncertain tax treatments’ will be introduced for large businesses from 1 April 2022, requiring HMRC to be told if they take a tax position in their returns for VAT, corporation tax or income tax (including PAYE) that is uncertain
  • New late submission and payment penalty regimes to be introduced for VAT (for APs beginning on or after 1 April 2022), MTD ITSA from April 2024 and other ITSA taxpayers from 6 April 2025
  • Changes to the ‘Scheme Pays’ reporting deadline from 6 April 2022, where a taxpayer wishes their pension scheme to meet an Annual Allowance tax charge above £2,000
  • Making Tax Digital for Income Tax Self Assessment (MTD ITSA) to be introduced from 2024/25, with an extra year’s delay for general partnerships.
  • Minimum pensions age to access private pensions increases from 55 to 57 from 6 April 2028

C+T Entrepreneurial Tax Team wins prestigious Enterprise Investment Scheme Award

The Chiene + Tait Entrepreneurial Tax Team was named as winner of the UK’s Best EIS/SEIS Tax Adviser at this year’s EISA (Enterprise Investment Scheme Association) Awards. The firm came out top in a category with an impressive standard of submissions which the awards judges described as demonstrating ‘extensive and committed support for their clients, as well as support for entrepreneurism and diversity in the industry.’

Neil Norman, the Head of C+T’s Entrepreneurial Tax Team, said: “The EISA award is deserved recognition for the exceptional work of the team in what has been a phenomenal year. We’re now seeing a number of new and existing entrepreneur-led companies ramping up for growth as we emerge from the pandemic and see the economy beginning to flourish.

“It’s great to welcome our new colleagues as we continue to build our team and extend the range of support to our growing client base across the UK and other parts of the global business community.”

The Entrepreneurial Tax Team has taken on five new recruits to help service major growth over the last quarter. The new colleagues include Senior Associates, Olivia Reilly and Romana Mohammed; and Associates Amber Young and Jak Henderson who bolster the size of the team, led by C+T Partner Neil Norman, to 14 people.

During 2021, the team has taken on 40 new clients based in six countries and operating across a range of sectors including technology, life sciences and food & drink. Most of these are seeking advice on Enterprise Investment Scheme (EIS)-qualifying investment or grant share options for employees based in the UK.  The team also supports aspirational start-up businesses and entrepreneur-led companies on Seed Enterprise Investment Schemes (SEIS), R&D tax relief and company disposals.

HMRC’s Family Investment Company Unit Closed

It was announced last week that HMRC has closed down its dedicated Family Investment Company (‘FIC’) Unit after finding no evidence of any link between the use of FICs and non-compliant behaviour. The FIC Unit was established by HMRC in 2019 to explore the tax avoidance risks associated with FICs, which have become increasingly popular as a wealth and succession planning tool in the last decade. FICs can often be used to meet objectives which are more traditionally associated with trusts, however, they are not subject to the same tax regime as trusts.

HMRC has never specifically stated which taxes they considered were at risk of avoidance, and whilst it was always difficult to see any means by which HMRC could have targeted FICs on a universal scale under current rules, the closing of the dedicated unit will come as a relief to many. That being said, it is notable that HMRC would not be drawn on whether any changes to tax policy are being considered which might make FICs less attractive as a succession vehicle in the future. In the meantime, FICs will continue to be subject to existing tax rules including existing general and targeted anti-avoidance provisions. Anyone considering establishing a FIC should therefore seek specialist tax and legal advice to ensure such planning meets their desired objectives whilst avoiding any unpleasant surprises.

If you have any queries about a Family Investment Company please feel free to contact Lisa Travers or Michelle Fallon or call 0131 558 5800.

Reform of tax ‘Basis Period’ announced by HMRC

The Government has this week announced a consultation concerning a potential reform of the basis on which trading profits arising to the self-employed (including members of partnerships) are subject to income tax. Should the proposed changes go ahead they will impact the self-employed who carry on a trade for UK tax purposes and do not draw up annual accounts to 31 March or 5 April.

In very broad terms, to align the taxation of trading profits with other types of income arising to individuals, the Government has proposed that existing ‘basis period’ rules, whereby income tax on trading profits for a tax year is determined based on profits arising in the accounting period ending in the tax year, will be replaced by a simplified system which would require the self-employed to apportion trading profits to tax years.

Whilst the proposals should certainly remove much of the complexities associated with the taxation of trading profits for many self-employed individuals (particularly in the early years of trade), to align with the introduction of Making Tax Digital (MTD) for income tax, the Government has proposed that these changes will take effect from 2023/24 with a one year transitional period in 2022/23. This leaves very little time for businesses to prepare for the practical implications of the changes which, due to the transitional provisions which will apply in 2022/23, could include cash flow challenges arising from the possibility that a higher income tax liability will arise for that tax year than might otherwise have been the case.

Notwithstanding that the objective of the proposals is the simplification and modernisation of a somewhat outdated set of rules, implementation of the changes over such a short period of time could represent an added burden for the self-employed post-Covid and arguably another unwelcome level of disruption as the whole country looks towards a future after the global pandemic. The consultation closes on 31 August; we will provide further information when available.

C+T team on hand to help recipients of the Early Stage Growth Challenge Fund

One requirement of receiving funding under the Early Stage Growth Challenge Fund is that – throughout the duration of the loan or whilst Scottish Enterprise (‘SE’) holds shares in your company – you must provide an annual report which sets out how the funding has been spent.

The report must be prepared by an independent firm of accountants and submitted within 30 days following each anniversary of the date of payment of the funding. your Funding Award. We will prepare the report in the required format and send to SE.

Chiene + Tait can produce these annual reports, which demonstrate that your funds have been spent in line with your application. Working together with you, we will undertake an independent inspection of the relevant accounts records in accordance with the terms of your Funding Award. We will prepare the report in the required format and send to SE.

For more details on how we can help your business download our flyer or contact us today at mail@chiene.co.uk.

 

Lisa Travers appointed as new Personal Tax Partner

Accountancy firm Chiene + Tait (C+T) has appointed a new Partner within its expanding Personal Tax team. Lisa Travers joins from RSM’s Glasgow office where she worked within its private client practice.  Prior that that she spent the first nine years of her career at KPMG before moving to Deloitte, where she was an Associate Director.

Lisa brings a wealth of experience to her new role as an experienced adviser on income and capital tax planning for high net worth individuals, entrepreneurs and private equity fund executives. Working alongside Michelle Fallon, C+T’s Head of Private Client Tax, Lisa will focus on further growing the firm’s private client business throughout Scotland.

Commenting on her new role, Lisa said: “I’m really thrilled to join the highly regarded Personal Tax team at Chiene + Tait. The entire firm’s growth over the past decade is so impressive. It’s incredibly exciting for me to now be part of this success and help further develop its private client practice.

Michelle Fallon, C+T’s Head of Private Client Tax, said: “Lisa is an experienced and talented personal tax specialist who has built a formidable reputation in her successive roles with so much to offer as we continue to grow our practice. We are very pleased to welcome her to the firm and I look forward to working closely with her and leveraging her wealth of expertise to benefit our clients.”

VAT changes for UK businesses selling to EU consumers from 1 July

As of 1 July 2021, new EU VAT rules for business to consumer (B2C) sales will be introduced. These new rules will affect UK suppliers selling goods to EU consumers online.

Why are new rules being introduced?

The new rules are being introduced to facilitate with EU cross-border trade, to ensure a fair competition for EU suppliers and to ensure that VAT is charged based on where the customer is located. The changes are also designed to combat VAT fraud.

What’s new?

The major changes from 1 July 2021 include:

  1. Withdrawal of distance selling rules and new single return for ecommerce sales;
  2. Removing import VAT exemption and new VAT scheme for imported goods – IOSS; and
  3. Online market places responsible for EU VAT.

1. Withdrawal of distance selling rules & new single return for ecommerce sales

Firstly, the existing ‘Distance Selling Thresholds’ for EU sales will be withdrawn from 1 July 2021.

Instead, cross-border sellers will have to charge the VAT rate of the customer’s country of residence at point of sale. This is to be accompanied by the roll-out of a single One Stop Shop (OSS) EU Return. This new OSS return will avoid the requirement to register for VAT in each applicable EU country. This is an extension of the MOSS which is currently used for accounting for VAT for digital supplies. Local businesses will be registered in their home country, and non-EU businesses can choose any member state to act as their VAT identification country. All pan-EU sales will then be included in a single OSS return.

The Union scheme which applies to EU businesses will extend to include the supplies of all types of B2C services, intra-EU online sales of goods and specific domestic supplies sold through digital marketplaces.

2. Removing import VAT exemption and new VAT scheme for imported goods – IOSS

This VAT change also affects imported goods into the EU so will have an impact on businesses who wish to sell goods to EU consumers that are based outside the EU, including the UK.

The EU is introducing a new imports scheme called Import OSS (IOSS) for goods worth less than €150. Non-EU businesses will have the option to register for this scheme in a member state of the EU.

In addition, from 1 July 2021, the VAT exemption for goods imported into the EU in small consignment of a value of up to €22 will be withdrawn. This is intended to level the playing field for EU businesses that are always charged VAT.

The options for non-EU UK sellers are therefore:

a) Use the new IOSS scheme

If using the IOSS, businesses will be required to register for the scheme in one EU country, and charge and collect VAT at the point of sale on products below €150 when selling to EU customers.  The applicable VAT rate will be the customer’s local rate. Each month, the business must then declare and remit the total applicable EU VAT through an IOSS return. These sales will then benefit from a VAT exemption upon importation, allowing a fast release at Customs. Businesses will also have to consider their pricing structure as rates of VAT vary in the EU from 17% to 27%.

b) Alternative to IOSS

Where the Import OSS is not used, a second simplification mechanism will be available for sales to EU consumers worth less than €150. Import VAT will be collected from customers by the customs declarant (e.g. postal operator, courier firm, customs agents) which will pay it to the customs authorities via a monthly payment. This means that the customer will have to pay a fee to accept their package.

3. Online marketplaces responsible for EU VAT

After July 2021, online marketplaces will become responsible for charging and collecting VAT on deemed supplier transactions. For imports not exceeding €150, instead of import VAT the marketplace will charge the customer VAT at the point of sale and declare it instead of the seller. Both EU and non-EU sellers will benefit from reduced VAT obligations and may be able to deregister in some EU states.

How can we help?

At Chiene + Tait we are in a unique position to help you navigate these changes and help you to understand how the above changes will impact you and your business on a day-to-day practical level.

If you are concerned about expanding your business into EU markets, or how your current business with the EU might be affected, we can assist you by undertaking a review into your business and recommending to you the best course of action. Whether it be sales to EU consumers and businesses, importing goods from the UK, exporting goods to the EU and further afield, Customs Duties & Tariffs, we will help you find the ideal solution for you and your business.

Chiene + Tait is also part of a worldwide association of firms, including members in the EU, with whom we can communicate on your behalf or put you in touch with directly so that you can understand from professionals across the EU how the rule changes will affect you from start to finish.

Grant Funding Available

The UK government has confirmed that that there will be grant funding available of up to £2,000 for SMEs to receive advice and training on how changes brought about because of Brexit can affect your business. We can guide you through the grant funding process to ensure you get the best value and piece of mind.

We would recommend that any business that wishes to sell goods to EU consumers acts now to be in a position to be ready for these changes.

Contact our VAT and Indirect Taxes team at vat@chiene.co.uk, or 0131 558 5800 for help, advice or to arrange a review.

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.”

VAT refund opportunity for partially exempt organisations affected by COVID-19

HMRC has provided some additional flexibility that partially exempt organisations may well wish to take advantage of for their VAT accounting. This is because COVID-19 restrictions over the last 12 months may have had an adverse impact on partially exempt organisations.

HMRC has released a Business Brief which might offer assistance to partially exempt organisations impacted by COVID-19. In short, businesses/organisations that have not been able to operate as normal due to COVID-19, and have experienced lower than normal partially exemption recovery rates, can apply to HMRC for a retrospective special method using previous year % to receive a VAT refund from HMRC and a better result.

Normally, PESMs are often difficult to get approved but HMRC has set up a new unit with an accelerated process and will look more favourably on businesses that can demonstrate they have been affected over the past year. These will be temporary alterations to business’ partial exemption methods with proposals based on representative income streams from the previous tax year to get a fair and reasonable recovery rate.

Whilst there is not an automatic approval scheme in place, we would hope that HMRC will process these applications with little fuss.

There will also be an impact on organisations within a capital goods scheme (CGS) adjustment period. The same accelerated process will also be available to businesses who use the CGS to calculate input tax recoverable on capital items they use for taxable and exempt purposes.

We have been asked by some charity clients whether this also covers organisations that have Business/Non Business Methods (“BNB”), as the Brief does not mention this. This may be because BNB methods are not heavily regulated in the legislation. We would recommend that charities that have had a reduction in their taxable commercial activities due to COVID-19 get in touch as there may be an opportunity to address this with HMRC.

If you think your business or organisation may be able to benefit from this development please contact our VAT team.

HMRC announces new Brexit Support Fund for SMEs involved in imports or exports

HMRC has recently announced an SME Brexit Support Fund which can provide funds of up to £2,000 to assist with professional advice and/or training for the business.

To qualify for this grant the business must:

  • Have up to 500 employees
  • Have no more than £100 million in annual turnover
  • Be established in the UK
  • Have been established in the UK for at least 12 months, or hold a valid AEO status
  • Be involved in imports and/or exports between UK and the EU or Northern Ireland.

The potential VAT and Customs issues surrounding Brexit, particularly following the trade agreement announced in December 2020, is having an impact on many businesses and it is not too late to seek advice to get to grips with this.

If you would be interested in learning more about the grant funding available to you, and having a review undertaken of the potential VAT & Customs implications on your businesses, we would be happy to provide you with a quote for this work and discuss this further with you.

Please contact our VAT Department for more information.

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:

Period VAT Rate
To 30 September 2021 5%
From 1 October 2021 to 31 March 2022 12.5%
From 1 April 2022 20%

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 Point VAT 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% rate Payment: £100 (VAT 5% of £4.76)
What if full amount was paid at time of visit (October 2021) Date of payment  – October 2021 Date 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.

Corporation tax: Budget 2021 updates

The Chancellor said that this would be a Budget that “meets the moment” and, as most commentators predicted, it included corporation tax rises designed to start bringing down the debt the Government has incurred during the pandemic.

However, it was not all bad news for companies as some tax giveaways were also announced.

Corporation tax loss extension

Currently, companies can only carry back losses against profits arising in the previous year subject to certain restrictions in some cases. This first give-away applies to trade losses only arising in accounting periods ending between 1 April 2020 and 31 March 2021. These trade losses can be carried back three years, and will benefit those trading companies, that previously had healthy taxable profits but struggled with heavy losses during the pandemic.

Losses will be carried back to the latest accounting periods first, so for companies with a 31 May 2020 year end, losses are first carried back to 31 May 2019 and then any surplus trade losses can be carried back to the years ended 31 May 2018, and then 31 May 2017.

As you would expect, there are some restrictions:

  • There will be unlimited carry back to the preceding year. There will be a cap of £2 million on the total losses that can be carried back to the earlier periods. This cap applies to each accounting period within the extended carry back period.
  • There will be a requirement for groups that have companies with losses exceeding a de minimis of £200,000 trading losses to apportion the £2 million cap between companies.
  • Any repayment claims exceeding £200,000 will need to be made through an amended corporation tax return.

Tax Planning:

If your company has trade losses for this period, and has previously had taxable profits, consider whether you can increase the amount of tax you are repaid by utilising this relaxation to the loss carry back rules.

Capital allowance super deductions

This second give-away will benefit companies that plan to purchase certain types assets between 1 April 2021 and 31 March 2023.

Currently companies that incur capital expenditure may be able to obtain a tax deduction for these costs through the capital allowance scheme. The super deductions scheme adds a new first year allowance on certain types of new plant and machinery. The amount of the super deduction will be either 130% or 50% of the cost of the new asset, depending on the type of asset purchased. The 130% rate will apply to main pool additions, while the 50% to special rate pool additions.

Exclusions will apply to claims for super deductions, including:

  • Those already existing for increased allowances, including permanently discontinuing business activities, cars or plant or machinery used for leasing.
  • Expenditure on used and second-hand assets.
  • Expenditure on contracts entered into prior to Budget Day, 3 March 2021.

These super deductions can be claimed through your corporation tax return and will be available to reduce your taxable profits for the year in which they are claimed, and therefore will reduce the amount you need to pay to HMRC (see the corporation tax rates section for more information on why this might be great news!) Alternatively, they can be used to increase tax losses, which can be carried back to the previous accounting period (resulting in a tax repayment) or carried forward and utilised against future profits.

Tax Planning:

There will be additional rules concerning acquisitions on hire purchase contracts, disposals, accounting periods straddling 31 March 2023, among others. The Chiene + Tait capital allowance specialists are on hand to guide you through the process of claiming these new super deductions, as well as discussing your expenditure with you to ensure all claims are maximised.

Corporation tax rate rise

From 1 April 2023, companies with profits over £250,000, as well as ‘close investment holding companies’, will see their corporation tax rate rise from the current rate of 19% to 25%. There will also be the re-introduction of marginal relief for corporation tax, which will see the corporation tax rate of companies with profits between £50,000 and £250,000 rise to a hybrid rate between 25% and 19%. The tax rate will depend on these companies’ circumstances and HM Revenue & Customs have yet to announce full details on how these rates will be calculated.

The ‘profit thresholds’ for each corporation tax rate will be adjusted for shorter accounting periods, as well as for the number of associated companies. Whilst we do not yet have full details, these two caveats are likely to see the corporation tax rates rise hit a wider range of companies.

Tax Planning:

Companies paying their corporation tax liabilities in instalments will need to consider these rate changes early. The rules will be complex, and likely even more so for groups of companies.

Speak to our tax experts who are on hand to answer any questions you may have on the new corporation tax rates. We can help ensure that your company is claiming all tax reliefs it is eligible for, as well as advising on tax planning opportunities arising from your future plans.

The Budget: key points from today’s Budget speech

Much of the content of today’s Budget was trailed in advance, so there were few surprises. Indeed, the shift in news consumption (not to mention the demands of the pandemic) may mean that we say goodbye to the traditional big announcements on one day in favour of smaller piecemeal policies.

We also need to consider the impact of the ‘Tax Day’ due on 23 March. This is expected to see the publication of tax consultations which would traditionally have been published alongside the Budget. It remains to be seen how much of government tax strategy and policy will be laid down then, and how the Tax Day and Budget Day interplay.

We’ve summarised key points from today’s Budget speech below – but, as ever, the devil is in the detail so do contact us for clarification, or if you have any questions.

Corporation tax rates

  • Corporation tax to rise from 19% to 25% in April 2023
  • Rate to be kept at 19% for about 1.5 million smaller companies with profits of less than £50,000
  • Companies with profits between £50,000 and £250,000 will be subject to tapered rates

Personal tax rates

  • Personal income tax allowance frozen at £12,570 from April 2021 until 2026
  • Higher rate income tax threshold frozen from 2021 until 2026
  • No changes to inheritance tax nil rate band, lifetime pension allowance or capital gains tax annual exemptions until 2026
  • No mention of any increases to capital gains tax rates or inheritance tax reliefs despite much discussion on these prior to the Budget

VAT and duty

  • No changes to the main VAT rate
  • The VAT rate reduction to 5% for the hospitality industry has been extended until 30 September; thereafter, an interim rate of 12.5% will apply until April 2022
  • No change to the VAT registration threshold of £85,000 until April 2024
  • Planned increased to alcohol and fuel duties cancelled

EIS and R&D tax

  • The EIS system will be reviewed this year to enhance the benefit it brings
  • A consultation on R&D tax relief to ensure its is up-to-date and competitive

Tax reliefs in investment

  • A new ‘super-deduction’ form of capital allowances which will allow incorporated businesses to deduct 130% of expenditure that would normally qualify for main writing down allowances

Loss relief

  • Enhanced loss reliefs for businesses, both incorporated and unincorporated, to allow carry back of losses against earlier years’ profits

Brexit

  • Eight freeports to be established in England

COVID funding

  • Multiple initiatives relating to COVID in the Budget, from an extension of the furlough scheme to new grants for non-essential businesses
  • Sector-specific funding packages announced for the arts and sports
  • Business rates in England will continue their holiday until June, with a 75% discount thereafter
  • Access to grants for self-employed people is to be widened

HMRC announces grant support for SMEs requiring VAT & customs assistance

HMRC has announced that it has set up an SME Brexit Support Fund which can fund up to £2,000 to help with training or professional advice, if your business has up to 500 employees and no more than £100 million annual turnover.

The grant can be used for training on:

  • How to complete customs declarations
  • how to manage customs processes and use customs software and systems
  • specific import and export related aspects including VAT, excise and rules of origin

It can be used to help you get professional advice so businesses can meet customs, excise, import VAT or safety and security declaration requirements.

In order to qualify the business must:

  • be established in the UK
  • have been established in the UK for at least 12 months before submitting the application, or currently hold Authorised Economic Operator status
  • not have previously failed to meet its tax or customs obligations
  • have no more than 500 employees
  • have no more than £100 million turnover
  • import or export goods between Great Britain and the EU, or move goods between Great Britain and Northern Ireland

The business must also either:

  • complete (or intend to complete) import or export declarations internally for its own goods
  • use someone else to complete import or export declarations but requires additional capability internally to effectively import or export (such as advice on rules of origin or advice on dealing with a supply chain)

If you are interested in obtaining VAT and Customs advice in relation to Brexit and qualify based on the above conditions, please contact VAT Director Iain Masterton via email or 0131 558 5800.

New HMRC VAT Deferral Scheme – Update

If your business deferred VAT payments for the February, March or April 2020 VAT returns, HMRC has issued updated guidance in relation to the repayment of these outstanding amounts.

If the business has outstanding VAT to pay, the business can either:

  • Pay the deferred VAT in full, on or before 31 March 2021; or
  • Join the VAT deferral new payment scheme.

The opt-in process for the VAT deferral new payment scheme will be open from 23 February to 21 June 2021 (inclusive).

If your business is on the VAT Annual Accounting Scheme or the VAT Payment on Account Scheme, the business will be invited to join the new payment scheme later in March 2021.

The new deferral scheme allows businesses to:

  • Pay any applicable deferred VAT in equal instalments, interest free; and
  • Choose the number of instalments, from 2 to 11 (depending on when it joins).

To use the online service, the business must:

  • Join the scheme itself. Agents cannot sign up on the business’ behalf;
  • Still have deferred VAT to pay;
  • Be up to date with its VAT returns;
  • Join by 21 June 2021;
  • Pay the first instalment when it joins;
  • Pay its instalments by Direct Debit (if you want to use the scheme but cannot pay by Direct Debit, there’s an alternative entry route).

If your business joins the scheme, it can still have a Time to Pay arrangement for other HMRC debts and outstanding tax.

Instalment options available to you

The month the business decides to join the scheme will determine the maximum number of instalments that are available. If you join the scheme in March, you’ll be able to pay your deferred VAT in up to 11 instalments.

The table below sets out the monthly joining deadlines (to allow for Direct Debit processing) and the corresponding number of maximum instalments (including the first payment):

If you join by: Number of instalments available:
18 March 2021 11
21 April 2021 10
19 May 2021 9
21 June 2021 8

Before joining, the business must:

  • Create its own Government Gateway account (if it does not already have one)
  • Submit any outstanding VAT returns from the last 4 years – otherwise the business will not be able to join the scheme
  • Correct errors on any VAT returns as soon as possible
  • Make sure you know how much the business owes, including the amount you originally deferred and how much you may have already paid (if any).

Interest & Penalties

You may be charged interest or a penalty if you do not:

  • Pay the deferred VAT in full by 31 March 2021.
  • Opt into the new payment scheme by 21 June 2021.
  • Agree extra help to pay with HMRC by 30 June 2021.

Paying your fees by direct debit

Direct debit is one of the easiest, quickest and most secure payment methods available, and all transactions are covered by the Direct Debit Guarantee. If you would like to reduce your admin time and settle your fees by direct debit, please complete, sign and return a Direct Debit mandate.

You can submit the signed form by email to accounts@chiene.co.uk or by post to Accounts, 61 Dublin Street, Edinburgh EH3 6NL. If using email, please put ‘Direct Debit’ in the subject line. Please advise if you have a preference for the collection date (mid/end of month).

Once the completed form has been returned to us, we will advise you when the direct debit instruction has been set up and confirm the date of the first collection.

If you sign up to pay fees this way you will continue to receive fee invoices but payment for monthly fees will be on or just after the 15th or the 28th of each month. For other invoices the payment date will be at least 10 working days from the date of the invoice.

For more information, please contact accounts@chiene.co.uk

New Trade Agreement reached between the EU and UK: VAT and imports

A new “Trade and Cooperation Agreement” was reached in principle between the UK and EU on 24 December 2020. The deal will cover the future UK-EU relationship, with the two parties aiming to implement it in time for the end of the Brexit transition period on 31 December.

What impact does this have on the previously foreseen changes from a VAT perspective?

The UK will still leave the EU Single Market and Customs Union on 1 January 2021. This will end the free movement of persons, goods, services and capital with the EU. From a VAT perspective the intracommunity rules for supplies of goods and services will no longer apply and all previously foreseen changes will still apply.

The free movement of goods will end, and customs checks and controls will apply to all UK exports entering the EU and vice versa. A key feature of the agreement includes a free trade agreement ensuring no tariffs or quotas on trade in goods between the UK and EU. It provides for zero tariffs and zero quotas on all goods that comply with the appropriate rules of origin.

The UK and EU have agreed a rules of origin Chapter which contains modern and appropriate rules of origin ensuring that only ‘originating’ goods are able to benefit from free trade agreement. This means that goods must not only be produced in the EU but also consist in majority of raw materials that originate in the EU or the UK to benefit from zero tariffs and quotas. For goods imported into the UK/EU on which duties have been paid, the onward sale to the EU/UK may trigger customs duties again, as these imported goods do not meet the rules of origin.

It is important to remember that regardless of the trade deal, the UK will still be a non-EU member and therefore additional import/export paperwork will still be required to move goods between the UK and EU. It is therefore important to be aware of the new rules that will apply from 1 January 2021. Also, it is important to note that there are proposed new EU rules for online B2C trade which are planned to come into force from 1 July 2021 which will change the VAT rules significantly.

Tour Operator Margin Scheme (TOMS) VAT update

We understand that HMRC has confirmed that once the Brexit transition period ends on 1 January 2021, the VAT charged on package tours and holidays through the Tour Operator Margin Scheme (TOMS) on travel outside of the UK will be zero rated.

The announcement comes after discussions between ABTA and HMRC and removes a crucial area of uncertainty for many travel businesses.

Through TOMS, UK tour operators only account for VAT on their profit margin (ie the difference between the amount they receive from customers and the amount they pay suppliers).

It has been agreed by HMRC on the assumption of a possible no deal with the EU on TOMS. In the event of a no deal Brexit scenario, a new UK TOMS scheme will be introduced which will require payment of TOMS VAT only on UK holidays but not on package holidays outside the UK.