Business News

From 1 September, changes to the rules regarding the Trust Registration Service (TRS) mean that more trusts will need to be registered with HM Revenue & Customs.

The TRS was introduced five years ago to make the beneficial ownership of assets held in trust more transparent.

While many trusts have had to sign up for the service already, the remit of the service is expanding to include a greater number and type of trusts than ever before.

What changes are being made to the Trust Registration Service?

From September, the requirement to register with the TRS will apply not only to trusts with a tax liability but to all trusts.

This includes trusts set up many years ago, which may have been forgotten about or left dormant, but which remain extant.

This registration process has been open since 1 September 2021, but time is running out to complete it.

Will your trust need to register?

If you operate a trust the answer is likely to be yes. Under the changes, only a limited number of exemptions exist.

Some other less common types of express trusts that are set up for particular purposes are also excluded from registration unless they are liable for tax.

Be aware that this change to the rules means that for the first time some offshore trusts will also need to be registered.

How do I register for the Trust Registration Service?

To comply with the registration requirements, trustees will need to input details of the settlor, trustees and beneficiaries into an online portal.

At a minimum, trustees will need to confirm annually that there have been no changes and notify the TRS of any changes within 90 days.

Some trusts may have already completed a 41G form containing some of this information. However, HMRC has confirmed that this did not collect sufficient evidence to meet the requirements of the new rules.

Therefore, those trusts which registered separately with HMRC before using this form, must register and resubmit information via the TRS.

HMRC strongly recommends that trustees familiarise themselves with the TRS system and obtain the information required to register in advance of the deadline in September.

Need help with trust registration? Speak to our team at Clemence Hoar Cummings.

Link: Manage your trust’s details

When HM Revenue & Customs’ (HMRC’s) current guidance on the tax treatment of tips and troncs was first published back in 2014, tips and troncs were paid almost exclusively in cash or through card transactions.

Of course, in the eight years since, things have changed dramatically and payments are frequently made via app-based platforms, whether for delivery drivers or waiting staff.

Now, HMRC has updated its guidance to take account of these changes and clarify the tax position that applies to different arrangements.

Importantly, the new guidance does not change the tax status of payments made through app-based platforms. Instead, it offers further clarification of the position and its application in various circumstances.

The two key takeaways are:

• Tips and troncs passed from an app to an employer without an independent troncmaster are subject to National Insurance and PAYE, even if they are intended by the customer to be passed to a specific member of staff.
• Tips paid directly by third-party apps to employees are not subject to National Insurance and PAYE. The onus is on employees to notify HMRC of this income.

App-based tipping arrangements can be set up in many different ways, with seemingly small variations in how they’re operated having sometimes significant impacts on the tax positions of employers and employees alike.

It is crucial not to make assumptions about the tax status of any app-based set-up you are using as errors can lead to HMRC inquiries and potentially hefty penalties.

The rules around tipping can be complex, so get in touch if you have any queries.

There has been a surge in new company formations in the last few years, as entrepreneurs develop new and exciting business ideas and bring them to market.

On top of this, there are a growing number of workers with ‘side hustles’, who are quickly scaling up their operations to deal with demand from their customers and clients.

While many businesses may initially rely solely on the work of their founder, there comes a time when operations grow so much that they need to consider hiring their first employee.

Hiring your first employee will lighten the workload, but it also brings with it new tax and payroll requirements.

If you have previously been one of the 4.2 million businesses in the UK with no employees, other than yourself, and you are looking to bring in a new worker here are our top tips to get you started.

Inform HM Revenue & Customs

Before you can hire someone, you need to register as an employer with HMRC. Doing so will provide you with an employer PAYE reference number so you can manage your payroll.

This must be done within four weeks of your new employee’s first payday. The registration process is fairly quick, but receipt of your reference number can take up to five working days, so you must factor this in.

Set up effective payroll processes

You will need to manage your payroll online each month, report this information to HMRC and make the correct payments of tax and National Insurance, as well as paying into any benefit schemes or pensions offered to your employees.

As such you will need to implement processes and payroll software systems that allow you to do this.

You may already have existing systems in place that manage your personal payroll, but you should consider whether these are still sufficient when you hire your first employee.

Don’t forget, you may also need to deduct student loan repayments, pension contributions, Payroll Giving donations and child maintenance payments.

The weekly or monthly administration of your payroll can be time-consuming and is often complicated by regular changes to the rules surrounding pay, which is why many businesses choose to have their accountant manage it for them.

Create a basic workplace pension scheme

If any of the workers you hire are eligible for a workplace pension you will need to set up and manage a scheme for them.

You must automatically enrol your staff into a pension scheme and make contributions to their pensions if all of the following criteria apply:

• They are classed as a ‘worker’
• They are aged between 22 and the State Pension age
• They earn at least £10,000 per year
• They usually (‘ordinarily’) work in the UK.

You will also need to calculate and make an employer’s contribution of at least three per cent each month to the scheme and ensure that an overall minimum contribution of eight per cent is made.

The additional five per cent is usually made up of an employee contribution, but both you and an employee can offer to contribute more should you wish to.

Your employees can choose to opt out and leave the scheme, but you will still need to re-enrol them every three years.

Paying the National Minimum Wage

You are legally required to pay your employees at least the correct National Minimum Wage (NMW) or National Living Wage (NLW) for those aged 23 and above. Failing to do so could result in you being fined and publicly named and shamed.

The current NMW rates, as of April 2022, are as follows:

Be careful if you make deductions from pay, other than for tax, National Insurance or a small number of other exceptions, as these cannot normally reduce a worker’s pay below the National Minimum Wage – even if they agree to it.

Many employers have previously been caught out by this, as well as other important changes, such as a person’s birthday where it carries them into the next NMW band.

Protect your business

Although not directly related to tax or pay, businesses should take steps to protect their interests. This includes ensuring the new staff member has the correct legal status to work in the UK, producing clear, written employment contracts and policies, and taking out employer’s liability insurance in case of accident or injury at work.

Failing to take these steps could leave your business exposed to costly risks, including fines and potential compensation payments.

Seek help

These are only a few of the steps that you as a prospective or new employer may need to take and it is well worth seeking payroll and HR advice before hiring your first employee, both to protect yourself and to take away the administrative burden.

Looking to start a new business or expand your current one? Find out how we can help you by contacting us.

Link: Becoming an employer for the first time? What you need to know

HM Revenue & Customs (HMRC) has retained its online portal for claiming working from home tax relief for the 2022/23 tax year.

But, while the rules and value of the relief remain unchanged, unless there are any further lockdowns this year far few people are likely to be able to claim.

That is because only people instructed by their employers to work from home some or all the time can make a claim. The rules once again require that costs must have increased as a result of the arrangement.

With most hybrid workers free to work in the office if they wish, most people in this situation will not be eligible for the relief.

Relief worth £6 a week can be claimed through the online portal without needing to provide evidence of increased expenses. Taxpayers benefit according to the rate at which they pay income tax. A basic rate taxpayer will save 20 per cent of £6 a week (£1.20).

If you have been instructed to work from home and have incurred increased costs as result, you can check your eligibility and claim here.

If you need assistance with tax-efficient benefits and expenses for employees, speak to our payroll team today.

Throughout the pandemic and into the current recovery period, the Government has offered a number of loans to help businesses survive and invest for their future.

However, only the Recovery Loan Scheme remains open, and this is due to end on 30 June, with no replacement taking its place.

Despite the popularity and value of these loan schemes, there are concerns that, without them, small businesses will struggle to access the finance they need.

However, it is understood that the Treasury is now in talks with the banking sector about making Government-backed loans to SMEs permanent to help businesses grow.

According to an article in the Financial Times, the loans could mirror previous Covid financial support schemes, including the use of Government backing to give banks the confidence to loan to more businesses.

A source close to the ongoing talks told the Financial Times that the focus of any future funding would be on growth, rather than survival – as had been the case with the previous loan schemes.

Questions are now being asked about the level of support from the Treasury, whether personal guarantees would be needed, and what sort of companies should be eligible.

It is hoped that additional details about new loan schemes could be made public in the coming months, although concern remains about the abuse of COVID financial support measures after the Department for Business, Energy and Industrial Strategy revealed that £4.9 billion could be unrecoverable from the £47.4 billion Bounce Back Loan scheme.

Until then, the current Recovery Loan Scheme, which guarantees 80 per cent of a bank loan up to £10 million remains open until the end of June to support those in need.

Already more than £3 billion has been lent by British banks under this scheme, according to a senior industry executive speaking in the same Financial Times article.

Do you need access to finance? We have helped lots of businesses access funding and can help you, please get in touch.

Link: Treasury small business loans could be permanent

HM Revenue & Customs (HMRC) is issuing fresh warnings to employers to ensure their payment reference numbers are correct so that payments are recognised.

Each payment reference number relates to a specific employer and covers a particular accounting period.

HMRC uses these reference numbers to allocate payments and to help process taxes related to PAYE payments as quickly as possible.

The tax authority has said that the use of the incorrect PAYE reference number could result in it issuing penalties and charges even if an employer has paid on time.

To complicate matters further, online banking services may also default to a previous payment reference, creating additional confusion, so employers must check this is right every time a payment is made to HMRC.

How to check if the payment reference number is correct?

Businesses need to make sure that they use the correct Accounts Office reference, which can be found on:

• The letter HMRC sent when they first registered as an employer
• The front of their payment booklet
• The letter from HMRC that replaced the booklet
• Their Business Tax Account if they’ve already added Employer PAYE enrolment to it.

Where an employer is not paying for the current period, they need to add four additional characters to the end of the reference number that indicates the year and the month or quarter the payment is for.

Each tax period has a different payment reference number, so it’s important to make separate payments for each period.

Ensuring you use the correct reference can be complicated. HMRC wants to make sure that employers get this right and avoid penalties, which is why it is encouraging businesses to use its ‘Pay now’ tool on GOV.UK to find the right reference number to use each time.

If this is a further admin burden you don’t need when you are trying to run a business, get in touch with us today to find out how we can take payroll headaches off your plate.

Link: Support from HMRC

Many businesses are still trying to get to grips with the new and changing EU-UK trade rules more than two years on from Brexit.

However, a growing number of UK companies are trying an alternative approach – setting up in the EU.

Prior to Brexit, this suggestion was touted by a number of different businesses as a means of getting around the complex trade rules and requirements.

Now new data from the government agency, Invest in Holland, shows that more than 90 investors have built or rented distribution space to British firms since 2017 – half of this activity took place in the last year alone.

The benefits of creating an EU hub

While trade relations between the EU and UK have, in most cases, improved to some degree since the initial impact of Brexit there are still challenges that persist, which can be complex and costly.

Setting up a distribution hub or  subsidiary business in the EU could help UK businesses to enjoy:

Freer trade – If a company can declare that they are an EU company it can enjoy the benefits of EU membership, including free trade. Any goods or services that they move between member states will be tariff-free and frictionless. However, if they transfer goods and services between the UK and the EU, they will still be subject to the changes associated with Brexit.

Less bureaucracy – Providing goods or services from the EU to other EU member states means that businesses face less red tape, which can help to speed up sales and delivery processes.

Local knowledge – Although the EU and UK remain aligned in many ways still, having a hub within the EU can provide access to EU workers who have a better knowledge of local markets and trading requirements.

Lower costs – Although setting up a base or hub in the EU may initially seem costly, it may prove to be more cost-effective as it eliminates some of the cost of transport and the complications brought on by the new trade arrangements.

Greater growth – Creating a new base in an EU country might also help a business to expand into new markets quicker than before and be a driver for growth overseas.

How to set up a company in the EU

Most companies who plan to expand their business with an EU hub or subsidiary do so as a European company or SE (Societas Europea).

This is a public limited liability company that allows your business to operate under a single European brand name across multiple member states while following a single set of rules.

To set up an SE company, you should:

• Locate your registered office and your head office in the same EU country.
• Have a subscribed capital of at least €120,000.
• Have a presence in at least two EU countries.

In some cases, certain EU member states have additional requirements for an SE company, so it is important that you check this beforehand.

If you don’t meet the eligibility criteria or do not think this approach is right for you, you could choose to set up individual companies in different member states.

As the establishment of an overseas company or subsidiary could have an impact on the finances and tax position of your UK company it is important to seek advice from an experienced accountant beforehand.

To find out how we can help you establish new hubs overseas or advise you on other approaches to improve trade with the EU, please contact us.

HM Revenue & Customs (HMRC) is to launch a new mandatory P87 form from 7 May to create a consistent standard for the P87s it receives.

What is a P87 form?

Workers and their agents can use a P87 form to claim tax relief on work expenses. The form can only be used to claim tax rebates for an employee, not if you are self-employed as this is done via the Self-Assessment system.

Taxpayers need to submit a separate P87 for each job they are claiming a tax refund for.

What is changing?

At the moment claims for income tax relief on employment expenses can be made using:

• a self-assessment tax return
• online service available to taxpayers (but not agents)
• print, complete and post the P87 form available on GOV.UK
• by phone (subject to limits) if a claim has been made for a previous tax year
• substitute claim form or letter. Substitute claim forms are widely used by high volume repayment agents.

From 7 May 2022 claims for income tax relief on employment expenses can only be made on the standard P87 form, which can be found on GOV.UK.

HMRC will reject claims that are made on substitute claim forms, but the other options above will remain available.

Although this measure is due to be introduced later this year, the new P87 form is now live here.

If you require any assistance with your employee’s expenses or require help completing a P87 form, please speak to us.

Links: HMRC to mandate the format of claims for employment expenses

Several important changes are happening to research and development (R&D) tax reliefs in April 2023, which could affect what income qualifies for R&D tax relief that businesses need to account for in their plans.

These new measures are still being considered by Parliament, but details of the upcoming amendments to the R&D tax relief system have now been published.

Overseas outsourced R&D

Under the new rules, the costs of overseas workers will not qualify for UK R&D relief, where costs are incurred after April 2023.

The Government has indicated that it does not want to introduce a rule that discriminates against businesses that cannot practically carry out research in the UK.

The Government will, therefore, legislate so that expenditure on overseas R&D activities can still qualify where there are:

• Material factors such as geography, environment, population or other conditions that are not present in the UK and are required for the research – for example, deep-ocean research
• Regulatory or other legal requirements that activities must take place outside of the UK – for example, clinical trials

The Government also needs to consider the international structures and connections of businesses carrying out R&D.

If a blanket ban was imposed, UK groups with overseas subsidiaries conducting work on a UK project may not be able to make a claim, despite the innovation still benefiting the main UK parent company.

Cloud computing and data 

Businesses have been unable to claim for the costs of cloud computing and data use. This has hampered some of the UK’s most innovative tech companies by excluding them from the tax benefits of the R&D credit scheme.

Under the Bill, businesses will be able to include the costs of purchasing data for R&D projects or using cloud computing services.

However, HM Revenue & Customs (HMRC) is still expected to provide clarity on the issues of usage and residual values in its upcoming guidance.

Amongst the other issues to consider is identifying cloud costs that relate to an R&D project. Many businesses use the same cloud services throughout their operations, so apportioning specific costs to R&D may be challenging.

Other qualifying costs for cloud computing costs may also be an issue, as it has been revealed that the costs of ‘data storage’ will not be allowed. Again, further clarity on what these rules cover should be provided in HMRC’s guidance later this year.

Anti-abuse action

There has been growing concern that the R&D tax relief system is open to abuse and so the new measures will include compliance procedures to deter speculative or fraudulent claims. This will include:

• An entirely digital claims system
• Additional details to be submitted with all claims
• Requirements for a named senior officer of the company to endorse each claim
• Companies made to notify HMRC, in advance, of their intentions to submit a claim
• Details of any agent who has advised the company on compiling the claim.

HMRC will also be given new powers and enforcement action to tackle R&D tax advisers. It is thought that alongside these measures, HMRC will invest further resources into conducting additional risk profiling and scrutiny of R&D tax relief claims.

Additional reforms 

During his Spring Statement, the Chancellor alluded to the fact that he planned to introduce further changes to the R&D tax relief system in future to improve access to the support that it offers.

Within the Statement’s accompanying documents, the Treasury says that the steps it hopes to take could support an additional £5 billion of R&D funding by 2024.

One of these steps has already been revealed with the expansion and clarification of qualifying expenditure to include pure mathematics services.

Further details about reforms to the R&D tax credit system are expected later in the year, nearer to the Autumn Budget.

The Government has said that, Where required, legislation will be published in draft before being included in a future Finance Bill to come into effect in April 2023.

If you need assistance claiming R&D tax credits or you have concerns about these upcoming changes, please speak with our tax team at Clemence Hoar Cummings.