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The ins and outs of pre-notification of R&D claims
The UK Government has long encouraged businesses to invest in Research & Development (R&D) projects, believing it to be at the forefront of economic growth.
R&D tax reliefs are, therefore, lucrative and aimed at both Small and Medium Sized Enterprises (SMEs) and larger organisations.
However, before organisations plan to claim R&D tax relief or expenditure credit, they must now notify HM Revenue & Customs (HMRC) of their plans to do so.
HMRC reforms to R&D pre-notification claims came about in April 2023 in an attempt to crack down on abuse of the R&D tax relief scheme.
Who should notify HMRC?
Companies who are planning to claim R&D tax relief must now notify HMRC if they:
- Are claiming for the first time.
- Have claimed for the previous tax year but did not submit that claim until after the last date of the claim notification period (the claim notification period ends six months after the end of the period of account)
- Have a claim that was made more than three years before the last date of the claim notification period
Notification deadlines
The deadline for submitting claim notification forms is six months after the end of the period of account that the claim relates to.
Any submission after this deadline will not be valid.
What information will you need to complete the claim notification form?
The claim notification form requires thorough checking before being submitted as any missing details could lead to claims being rejected outright.
All claim notification forms need the following details:
- The company’s Unique Taxpayer Reference (UTR)
- The name of the senior R&D contact who is responsible for the claim
- Contact details of any agent involved
- The accounting period start and end date for which you’re claiming the tax relief
- The period of account start and end date
- A summary of the high-level planned activities and evidence the project meets the standard definition of R&D
Once a claim notification form has been submitted online, an email will be sent which will contain a reference number that will need to be kept on record to discuss the claim notification form with HMRC.
Submitting the claim notification form allows organisations to continue with their claim, they will just need to put an ‘X’ in box 656 of the Company Tax Return to inform HMRC that the claim notification form has been submitted.
From 1 August 2023, an additional information form must be submitted to support all claims for R&D tax relief. This form will allow you to explain in detail about your project to evidence its R&D properties.
This additional information form needs to be submitted or else HMRC will not be able to process your claim.
For more information about the R&D relief changes and what to include on your notification forms, please contact us for expert advice.
Constantly asked for pay rises? Here is what you need to know about pay in the UK
As an employer, you will likely face the delicate situation of employees asking for pay rises.
With the cost-of-living crisis and rise in inflation, these requests will have become more frequent as people look to keep up with spiralling living costs.
Each month, the Office for National Statistics (ONS) surveys collect the salaries of 12.8 million workers to produce the median salary for the UK.
The latest data from the ONS indicates that the median average salary is estimated to be £31,772.
However, how much a person earns often depends on their age, skill and where they live.
When it comes to pay rise requests, employers need to tread a thin line between granting requests and retaining talented staff you cannot afford to lose, while keeping an eye on employment costs in what is still a tough financial climate.
Handling these situations correctly and professionally is crucial to keeping employee morale high and your business running smoothly.
Encourage open communication
Asking for a pay rise can be an awkward, uncomfortable experience for employees, so it is important to make employees feel comfortable discussing their salary expectations.
Encourage open and honest discussions about pay and make it a regular part of performance reviews.
This helps to prevent surprises and ensures that both parties have a clear understanding of the expectations.
Align pay with performance and evaluate requests objectively
Regularly evaluate your employees’ performances, acknowledge their accomplishments, and align their pay accordingly.
This approach encourages productivity and gives employees a clear understanding of how they can increase their earnings.
When requests for pay rises are made, objectively evaluate the requests based on performance and the last time the employee was given a pay rise. Try and avoid an instant response that may not be in line with objective thinking.
Consider the business’s financial position
While it is important to reward deserving employees, you must also consider your business’s financial situation.
Can your business afford the requested pay rise? If not, it’s important to communicate this openly to the employee while also discussing potential prospects.
It is better to delay a pay rise than to overstretch your finances and potentially jeopardise your business.
Consider alternatives
If a pay rise is not feasible, consider other alternatives. This could include additional benefits such as more flexible working hours, opportunities for training and development, or an enhanced bonus scheme.
Sometimes, non-monetary rewards can be just as effective in demonstrating that you value your employees.
Communicate your decision clearly
Once you have made your decision, communicate it clearly and respectfully. If you approve the pay rise, be sure to highlight the employee’s achievements and contributions. If you decline, explain your reasons, and provide constructive feedback on what the employee can do to improve their chances of a pay rise in the future.
All pay rise requests should be dealt with fairly and consistently. Inconsistent treatment can lead to discontent within the workforce and possible breaches of UK employment laws.
Are you unsure about how to deal with a pay rise request, or have other remuneration questions? Contact us today.
Changes to free childcare, but higher earners will still miss out
In the Spring 2023 Budget, the Government laid out plans to shake up the current free childcare system – but many higher earners will be disappointed to find that the changes keep them excluded from the scheme.
The existing childcare rules mean that parents are eligible for up to 30 hours of free childcare if their children are aged three to four.
Eligibility also depends on if you are employed or self-employed, the number of hours you work, and your income.
If you or your partner have an expected adjusted net income of over £100,000 in the current tax year, you will not be eligible.
The changes, which will be staggered over the next couple of years, will see many families in the UK benefit from free childcare at an earlier age, however, the £100,000 annual income cap will remain.
Timeline of changes
- April 2024 – Working parents of two-year-olds will be able to access 15 hours of free childcare per week.
- September 2024 – Children from the age of nine months will be eligible for 15 hours per week of free childcare.
- September 2025 – Working parents of children under the age of five will be entitled to 30 hours of free childcare per week.
The changes will be welcomed by many adults in the UK who will be able to return to work at a much earlier date.
However, higher earners will not see this benefit due to the income restrictions, which have not changed.
If you’d like more advice on the current childcare rules or want more information on the upcoming changes, please contact us.
Trivial benefits in kind and the advantages they give to employers
It is important for employees to feel valued in the workplace. A lot of the time, it is the little things that employers can provide to their staff that have the most substantial impact.
One such ‘little thing’ is the concept of trivial benefits in kind. Trivial benefits are best described as small ‘token gifts’ that are given to staff by their employers.
Trivial benefits include such things as chocolates, wine, gift vouchers, tickets to the theatre, or a team outing for lunch or dinner.
These gifts meet the trivial benefit criteria as long as:
- The gift is worth £50 or less
- The gift is not cash
- It isn’t a reward for work or performance
- It isn’t in the terms of an employee’s contract
The main distinction of trivial benefits in kind is that they should not add value to an employee’s salary. They can also not be given in lieu of payment.
Advantages of trivial benefits in kind
As well as the boost to employee wellness and morale, trivial benefits in kind also provide tax advantages for employers.
Below are the benefits and reasons for employers to consider adding trivial benefits in kind to their working culture.
Improved employee morale and engagement
Regular trivial benefits serve as consistent reminders to employees that they are appreciated. These small gestures can significantly boost morale, leading to increased job satisfaction and productivity.
When employees feel valued, they are more likely to engage with their work actively and maintain a positive attitude towards their employers and the business in general.
Enhancing employer’s reputation
Providing trivial benefits can positively impact an organisation’s reputation, helping it to stand out as an employer that cares about its employees’ well-being.
This increased employer branding can be instrumental in attracting and retaining top talent in the competitive job market.
Tax benefits
From a purely financial perspective, trivial benefits in kind are exempt from tax, National Insurance, and reporting to HMRC. This tax efficiency makes trivial benefits a cost-effective way for employers to reward their staff.
However, if benefits are part of a salary sacrifice arrangement, then they won’t be exempt from tax and will need to be reported on a P11D form.
Employee wellness
Trivial benefits can also contribute to the overall wellness of employees. For instance, offering a yoga class or a fitness tracker can encourage employees to take care of their physical health. Similarly, gifting a book or sponsoring a hobby class can contribute to mental wellness.
A healthy employee, both physically and mentally, is likely to be more productive and less prone to taking sick leave.
The cost to the business is relatively small and is tax-exempt, so it is well worth considering if you haven’t already done so.
For more information on trivial benefits in kind, contact us today.
Late interest penalties hit 1.4 million taxpayers – and it could get worse
The 2020/21 tax year saw 1.4 million people charged interest on overdue tax payments – a 15 per cent increase on pre-pandemic figures.
The data was released after a Freedom of Information request by investment platform, AJ Bell, but this did not disclose how much money HM Revenue & Customs (HMRC) raised from these late payment penalties.
The increase came despite a drop in how much money many would have owed HMRC due to furlough during the pandemic and corporate dividend cuts.
Number of taxpayers facing penalties is predicted to increase
The overall amount of people paying late payment charges on missed tax deadlines is predicted to rise.
By the 2024/25 tax year, the number of people HMRC estimate to be paying dividend tax and Capital Gains Tax will increase to 2 million.
This increase means there is a far greater chance that hundreds of thousands more taxpayers could face late payment charges, based on the current proportion of those missing the deadlines.
Late payment interest rate increases
With more and more people having to pay penalties for overdue tax payments, it will not be of great comfort for many to learn that the interest rates on these charges have increased.
As of 31 May 2023, the interest rates on late tax payments rose from 6.75 per cent to 7 per cent.
It is important to note that HMRC will align future hikes to these interest rates with the base rate set by the Bank of England.
This base rate has rocketed in the past 12 months as the Government attempts to stem inflation, and it is predicted that it will continue to rise in the coming months.
This will in turn mean that late tax payment interest rates will increase. This should stand as a warning to UK taxpayers to ensure that their taxes are filed and paid on time.
If you’d like advice on how to submit your tax returns on time, please contact us.
Roadside charging – How to account for credit card payments
With a growing number of company car owners using electric vehicles, many are deciding or being permitted to use company credit cards to pay for roadside charging.
However, what are the implications of this for the employee and business alike?
While the answer is fairly technical, the short simple answer is there will be no taxable benefit on the employee and no National Insurance Contribution (NIC) charge.
This is because a credit card is a credit token, not a specific means or facility for providing the electricity to charge the vehicle, and it is, therefore, exempt under Section 269 of ITEPA (Income Tax (Earnings and Pension) Act) 2003.
At the moment, electricity is not a fuel for fuel benefit purposes either, this further prevents there being a benefit under ITEPA.
To make matters more complex, this should not be confused with the provision of electricity by an employer via a workplace charging point, which is also exempt from a Benefit in Kind charge under a different section of the same Act, which accounts for the facilitation of electric charging under the fuel benefit rules.
When it comes to the NIC, a liability for Class 1 contributions exists where the credit card is paying liabilities for the benefit of the earner.
However, this is counteracted by other legislation that ensures that no Class 1 NIC arises on business expenses or where “a strange pre-purchase performance is given by the employee whereby the employee informs the seller that they are purchasing the goods or services on behalf of their employer.”
Confusing and seemingly contradictory, this has been established in prior case law, which found that when informing the seller that the fuel is being acquired on behalf of the employer, implies a shift in the purchasing dynamic.
Instead of personally buying the fuel, the employee assumes the role of an agent for the employer.
By procuring the electricity on the company’s behalf, they are no longer utilising the corporate credit card to settle a personal responsibility. Rather, they are being supplied with fuel by their employer.
This area of tax and National Insurance legislation is constantly changing and so if you have any queries about the potential charges related to company cars or their “refuelling” it is best to seek professional advice. To find out how we can support you with this, please contact us.
Car vs Van – Tax treatment of electric vehicles
There have been several important tax decisions previously regarding the difference between vans and cars, but how do the different rules regarding electric vans affect their tax treatment?
Let’s use a hypothetical:
A Ltd has acquired a new electric company van that its director, Bob, uses to go to and from work, as well as during the regular workday.
However, Bob also has the van in the evening and at the weekend for his private use. For Benefit in Kind (BiK) purposes, the company classes the vehicle as an electric van.
Unlike company cars, the BiK charge for an electric van is nil. Therefore, employees with electric company vans can, where permitted to do so by their employer, use their company van for unrestricted private use without any associated tax charge.
Unfortunately, HMRC disagrees with this judgement and argues that the van, is in fact, an electric car and not a “goods vehicle”, as defined by Section 115 ITEPA (Income Tax (Earnings and Pension) Act) 2003.
This states:
(1) In this Chapter— “car” means a mechanically propelled road vehicle which is not:
(a) a goods vehicle,
(b) a motorcycle,
(c) an invalid carriage, or
(d) a vehicle of a type not commonly used as a private vehicle and unsuitable to be so used;
“van” means a mechanically propelled road vehicle which:
(a) is a goods vehicle, and
(b) has a design weight not exceeding 3,500 kilograms, and which is not a motorcycle.
(2) For the purposes of subsection (1)…
“goods vehicle” means a vehicle of a construction primarily suited for the conveyance of goods or burden of any description;
In reaching such a decision, HMRC would need to prove that the van in question had multiple purposes, beyond just the transport of goods.
Many modern vans have been designed and are advertised as multipurpose vehicles, and there are a number on the market that have crew cabs or “kombi” roles, that allow for passengers as well as goods.
This confusing situation has been tested many times, not least in the case of Payne, C Garbett, Coca-Cola European Partners GB Ltd v HMRC at the Court of Appeal on 20 July 2020.
In this case, HMRC was able to prove that the VW Transporter T5 Kombi and Vauxhall Vivaro vehicles provided by Coca-Cola to employees were not vans, and instead served the purpose of being a car.
Examples and cases such as this can make it difficult for companies to find the most tax-efficient fleet of vehicles and can make the choice of vans and cars more complicated.
If you are looking to purchase new vehicles for your business, it is important to seek expert advice. Contact us to find out more.
Income Tax basis – What is changing?
From the tax year 2024/25 onwards, any unincorporated businesses, including sole traders, self-employed persons, and trading partnerships, will be subject to taxation on the profits they generate within the 12-month period ending on either 5 April or 31 March.
Here are the important changes to take note of:
- The Government will be modifying the tax basis period for unincorporated businesses.
- This will impact sole traders, partnerships, and LLPs that do not have an accounting year-end on the specified date.
- The changes may lead to an increase in tax liability.
- Any additional tax payments can be spread out over five years or through Time to Pay arrangements.
- Accrued overlap relief can be utilised to offset a larger tax bill.
- These changes will be applicable to accounting periods commencing on or after April 6th, 2023, with a transition period in 2023-2024 when all businesses will have their basis period shifted to the end of the tax year.
Current system
Currently, unincorporated businesses, such as self-employed sole traders, are subject to taxation on profits earned within their accounting period that concludes in a particular tax year.
The law does not mandate unincorporated businesses to create accounts or set a specific date for doing so, thereby enabling them to select any accounting date of their choice.
As a result, a business’s profit or loss for a tax year typically aligns with the profit or loss up until their accounting date, commonly referred to as the basis period. During the initial trading years, certain regulations dictate the basis period.
In cases where the accounting end date does not fall on 5 April or 31 March – which are equivalent to April 5th for the first three years of trading – the rules can produce overlapping basis periods that impose tax on profits twice, resulting in the creation of “overlap relief” when the business ceases.
The differing rules for trading profits in comparison to other types of income, such as dividends and property income, which are taxed based on the tax year, may cause confusion for certain taxpayers.
The changes
The proposed reforms will modify the basis period for all unincorporated businesses by shifting it to the end of the tax year, currently designated as 5 April.
This change will necessitate interim arrangements for businesses without year-ends falling between 31 March and 5 April every year.
Such businesses may face a single, larger tax bill for their profits arising from the year-end falling on 5 April, 2024, during the 2023/24 tax year, as they will be required to pay taxes on 23 months of profits within that one year!
Businesses with accounting period end dates that differ from the end of the tax year will need to apportion profits/losses and may require the use of provisional figures in their tax returns if they have not prepared accounts and tax computations for subsequent accounting periods before the tax return filing deadline.
HM Revenue & Customs (HMRC) has extended the statutory rule that considers 31 March equivalent to 5 April for the first three years of trading to all years, including the transition period, and potentially also to property businesses.
Reliefs, allowances, and tax band thresholds will remain unaltered and will not be pro-rated, which could lead to certain taxpayers moving into higher tax bands while reducing their ability to benefit from various annual reliefs and allowances, potentially resulting in the loss of child benefits. Paying pension contributions in 2023/24 could reduce these problems.
Businesses with year-ends that do not align with the tax year will have a shorter period between generating profits and when taxes become due, which may have cash flow implications.
To address the potential impact on taxpayers, HMRC is examining the possibility of an election allowing businesses with higher profits resulting from the change to distribute those additional profits equally over a five-year period.
Moreover, HMRC will regularly offer Time to Pay arrangements to those requiring more extended payment schedules.
Businesses can also use all accrued overlap relief when they began trading during the transition year (2023/24).
This implies that such businesses will only have a tax liability on 12 months’ profits. However, the overlap relief dates back to the first year of trading, during which the business is likely to have been less profitable.
In the future, when these new regulations come into effect, new businesses will not generate overlap relief, and no specific regulations will be necessary for starting, ceasing, or changing the accounting period end date.
Non-trading income remains unaffected by these changes, as it is assessed on a tax-year basis. For the numerous unincorporated businesses with year-ends synchronised with the tax year, including those between 31 March and 5 April, nothing will change.
However, for those with year-ends not aligned with the tax year, careful tax planning may be necessary, considering several factors.
How we can help
Businesses should be prepared for these changes to be implemented in future and have suitable plans in place that reduce the impact of this substantial amendment to the tax rules.
These changes, when implemented, are likely to have a significant impact on unincorporated businesses, leading to substantial tax bills and costs without careful planning.
Worried you may be affected by these reforms? Find out how we can assist you.
Businesses must get to grips with a Government crackdown on fraud committed by employees
A new ‘failure to prevent fraud’ offence is being introduced by the Government to encourage businesses to do more to deter offending, which will ultimately protect themselves, consumers, and other businesses.
The new legislation, which is likely to come into force by the end of 2024, will make it easier to prosecute a large organisation if an employee commits fraud for the organisation’s benefit.
Larger organisations in the firing line
The new legislation, being introduced in the Economic Crime and Corporate Transparency Bill, will target a wide range of large businesses across all sectors, including not-for-profit organisations such as charities and incorporated public bodies.
A large organisation is defined (using the standard Companies Act 2006 definition) as organisations meeting two out of three following criteria:
- More than 250 employees
- More than £36 million turnover
- More than £18 million in total assets
Potential penalties
A business could face legal action under the new legislation if, for example, employees were selling products to a customer under false pretences, or falsified accounts to mislead investors.
The business in these scenarios could receive an unlimited fine if it is found to not have reasonable fraud prevention procedures in place.
These severe penalties are seen to encourage businesses to clamp down on fraudulent activities within their organisation.
SMEs still bound by fraud legislation
The above thresholds mean that small and medium-based enterprises (SMEs) will be exempt from the new offence, but they will remain accountable under the existing legal framework. These thresholds can be amended in the future through secondary legislation if necessary.
Small and medium enterprises are often the businesses that fall foul of fraud committed by larger organisations so they may benefit from the greater protection that the new legislation will bring.
What you need to do
If your business falls below the thresholds mentioned above, then while it is important to keep an eye on the existing legal framework, your organisation should not be impacted all that much.
If your business is in this scope, then it is of vital importance to ensure you have the necessary fraud prevention measures in place.
Need help with fraud prevention or advice on the new legislation? Contact us today.