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.

 

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.

Budget 2021: VAT Extension for Tourism & Hospitality Businesses

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

Temporary VAT rate extended

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

Summary of changes

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

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

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

Key Issues

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

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

Tax Points

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

Practical Example

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

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

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

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

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

1st Payment: £50 (VAT 5% of £2.38)

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

Total VAT = £7.93

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

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

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

Auditing remotely: how we delivered audits during lockdown

In this post, Stuart Beattie looks at auditing remotely. But, while this post is specific to audits, we have used similar tools and processes for all of our client work done remotely this year.

October heralds the end of the busiest time for the audit department. Looking back on a busy season that has been quite unusual, I am happy to note that the vast majority of our audits have continued.

Despite not being able to work onsite with our clients we have still been able to access all the required information, data and evidence that we normally require as part of the audit process. This is down to effective planning and communication with our clients.

The keys to success

Generally, there are three key points to auditing remotely:

  • The normal planning and audit completion meetings take place through video calls
  • All our staff have the hardware and software to carry out audit at a distance – they all have laptops, and all have access to our secure portal for sharing files
  • We communicate regularly, and proactively: we get in touch with finance teams regarding forthcoming audit bookings to put plans in place for how the work can be delivered, and we continue to liaise with clients through the audit process via phone or video conferencing.

Useful tools

Before lockdown started at the end of March, we were already using software that allowed our audit files to be accessed remotely and securely, plus we had a variety of ways for clients to get in touch and send us information. So, when we were no longer permitted to work onsite (or indeed from our offices), we had the core tools in place to ensure we could continue to deliver an excellent service.

Our secure client portal allowed clients to send through back-ups of their accounting system, Excel documents and various other material that we required. We also use screen-sharing facilities and video calls to assist with fieldwork.

All of our clients worked extremely hard to provide the relevant information and we would like to thank them for this.

New challenges and new support

Being in contact with each of our clients to discuss their systems, their access to documents and more importantly, how else can we assist them during the lockdown was very important at a time of new challenges. The pandemic and lockdown shone a new light on the concept of ‘going concern’ – that is, is the organisation in shape to survive? Some organisations thrived in lockdown; others faced a cessation to their activities like never before, and we were able to support by testing the underlying strengths of our clients.

Additionally, some of our clients were not sure initially how to access COVID funding or the furlough scheme. We were able to put them in touch with our payroll and corporate finance departments who assisted them with the preparations of forecasts or in their applications for assistance.

New perspectives

It has also been fantastic to speak to our clients remotely through video calls and see the variety of backgrounds and homeworking set ups that have been adopted during the lockdown. Gone are the meetings in an office – this has been a chance for our clients to see a slightly different side to us. The auditor is a human and one who is dealing with all the same lockdown issues. I hope also that my clients have enjoyed seeing my own home working space and can forgive the interruptions by young children and dogs!

At present we are likely to be working remotely for at least the reminder of the calendar year and therefore we would like to continue to let both our current and new clients know that we are here and are ready.

Contacting us

You can email or call your audit manager and partner in the usual way. Our switchboard will continue as normal.

You can also contact us by email at mail@chiene.co.uk

Receiving updates

We will keep our website updated with relevant sector news and continue to email out updates (unless you have opted not to receive these).

You can also follow us on LinkedIn (here) and Twitter (here), where we post our updates.

Extra support offered to businesses in local lockdown areas

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

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

Further details will be announced in due course.

Current Position of the Scottish Investment Market

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

Trends and changes

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

Valuations

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

Support for Entrepreneurs

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

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

COVID-19 Jobs Support Scheme Announced

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

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

Jobs Support Scheme

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

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

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

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

More details will be released in due course.

Support for the self-employed

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

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

Chancellor Rishi Sunak offers more Coronavirus support

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

Business loans

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

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

Tax and VAT

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

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

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

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

How organisations can build resilience

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

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

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

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

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

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

 

Photo by Ivan Bertolazzi from Pexels

 

COVID-19 Redundancy Pay Level Protected

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

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

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

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

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

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

VAT Rate Cut

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

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

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

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

Gift Aid Emergency Relief Package for Charities

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

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

The proposal aims to:

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

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

 

COVID-19 VAT Payment – Deferral

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

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

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

How COVID-19 reliefs impact Research & Development Tax claims

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

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

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

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

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

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

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

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

What happens if I furlough staff?

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

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

COVID-19 – Charity financial management and reporting considerations

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

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

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

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

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

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

External scrutiny impacts?

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

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

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

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

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

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

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

1. Consider reclaiming Gift Aid on cancelled events

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

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

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

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

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

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

3. Consider reclaiming Gift Aid on Membership Subscriptions

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

b) Emailing a scanned copy of the signed notification.

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

1. Changes to the time limit

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

2. If you are notifying an option as a business

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

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

3. If you are notifying an option as an agent

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

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

Examples include emailing the notification:

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

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

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

New COVID-19 advice video – fraud risk

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

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

COVID-19 Fraud Risk Video

Fraud risk for businesses

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

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

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

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

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

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

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

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

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

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

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

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

New COVID-19 advice video – cyber crime

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

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

COVID-19 Cyber Crime Video

Steps to protect against cyber crime

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

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

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

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

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

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

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

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

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

Dave Shadwell

Chiene + Tait