Business News

The Government has announced its intention to close a tax loophole that could leave second homeowners facing higher bills.

Michael Gove, Secretary of State for Housing, Communities and Local Government, has confirmed that the Government will introduce new rules next year that will only allow second homeowners to register for business rates relief if they can prove they rent out their properties for at least 70 days per year.

Owners could face paying more than £1,000 a year under plans to close the loophole.

As the rules stand, second homeowners pay business rates, which are cheaper than council tax, if they make their property available for letting for 140 days in the coming year.

But once the change takes place in April next year, homeowners will have to prove they are let for at least 70 days a year or be forced to pay council tax instead.

The move comes following a surge in the number of holiday lets in England, with around 65,000 residential units currently registered, up from 50,960 in 2019.

The Department for Levelling Up, Housing and Communities (DLUHC) also says that there is currently ‘no requirement’ to produce evidence that a second home has actually been let out – not just left empty.

The DLUHC says the move would protect ‘genuine’ small holiday letting businesses and ensure second-home owners paid a ‘fair’ contribution towards public services.

Mr Gove’s plans come after a consultation launched in 2018 and threats last year by the Treasury to close the loophole.

According to reports, the number of holiday lets in England has been increasing year on year from 50,960 in 2019 to 65,000 now.

The Covid pandemic is said to have fuelled the trend, as London and other city dwellers sought to escape to the countryside.

Levelling Up Minister Chris Pincher replied: ‘We have committed to close the loophole in the business rate system.’

For help and advice on all aspects of property tax and support for your conveyancing clients, please get in touch with our expert team today.

All unincorporated businesses, including sole traders, the self-employed and trading partnerships, will be taxed on profits generated in the 12 months to 5 April (or 31 March) each year from 2024-25.

Here is what you need to know:

• The Government has proposed changes that will move the tax basis period for all unincorporated businesses
• This will affect sole traders, partnerships and LLP’s who do not have an accounting year-end at that date
• It may cause additional tax to be payable
• Extra tax due can be spread over up to five years or by using Time to Pay arrangements
• Overlap relief that has been accrued can also be used to offset a larger tax bill
• It will affect accounting periods from 6 April 2023, as there will be a transition period during 2023-2024 when all businesses will have their basis period moved to the end of the tax year.

These changes were meant to be brought in a year earlier but were delayed by the Government in September 2021 to give those businesses affected more time to prepare.

The current system

Currently, unincorporated businesses are taxed on profits arising in the accounting period ending in a given tax year.

By law, unincorporated businesses do not have to produce accounts. They are, therefore, free to choose any accounting date they like.

This means that a business’s profit or loss for a tax year is usually the profit or loss for the year up to the accounting date – this is known as the basis period.

Specific rules determine the basis period during the early years of trading. Where the accounting end date is not 5 April or 31 March, which is the equivalent of 5 April for the first three years of trade, the rules can create overlapping basis periods, which charge tax on profits twice and generate ‘overlap relief’, given when the business ceases.

As other forms of income such as dividends and income from property are taxed based on the tax year, the different rules for trading profits can confuse some taxpayers.

What is changing?

The proposed reforms will change the basis period for all unincorporated businesses to the end of the tax year, currently 5 April.

This will create the need for interim arrangements for businesses that do not currently have year-ends falling between 31 March and 5 April each year.

These businesses will potentially face a single, higher tax bill from their profits arising in the year-end falling in the 2023-24 tax year to 5 April 2024.

According to HMRC, businesses with a different accounting period end date to the end of the tax year:

• Will need to apportion profits/losses.
• May need to use provisional figures in their tax returns if the accounts and tax computations for later accounting periods in the tax year are not prepared before the tax return filing deadline (later amending their returns once figures are finalised).
• The statutory rule that deems 31 March to be the 5 April in the first three years of a trade would be extended to apply to all years including the transition period and potentially also to property businesses.

Reliefs, allowances and tax band thresholds will remain unchanged and will not be pro-rated. This could also move some taxpayers into higher tax bands, while also reducing their ability to benefit from various annual reliefs and allowances.

In addition to the direct impact of the transitional arrangements, businesses with year ends that have not aligned with the tax year will have a much shorter time between when they generate profits and when the tax falls due, which could have cash flow implications.

What help is available?

Recognising the impact that this may have on taxpayers, HM Revenue & Customs (HMRC) is considering an election to allow businesses with higher profits, due to the change, to spread those additional profits equally over five years.

HMRC will also offer regular Time to Pay arrangements for those that need to spread the costs further.

Businesses will also be able to use all overlap relief accrued when they began trading during the transition year (2023-24). This would mean that businesses in this position will only have tax to pay on 12 months’ profits.

In the future, once these new rules are in place, new businesses will not generate overlap relief and there will be no special rules required for starting or ceasing trading or for a change in the accounting period end date.

For the many unincorporated businesses that already have year-ends aligning with the tax year (which includes those falling between 31 March and 5 April), nothing will change.

However, for those with year-ends that are not synchronised with the tax year, there are several considerations and careful tax planning may be necessary.

How we can help

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.

Link: Basis period reform

Under new rules set by the Government, the system of penalties for VAT and Income Tax Self-Assessment (ITSA) are changing.

The new system of fines is aimed at tackling non-compliance by taxpayers who repeatedly fail to meet their obligations to provide returns and other information requested by HMRC. Those who make occasional and infrequent mistakes will be less likely to be penalised.

It will see the current system of automatic financial penalties removed and a new points-based system implemented, which will require taxpayers to incur a certain number of points for missed obligations before a financial penalty is issued.

The changes were initially meant to apply to VAT customers for accounting periods beginning on or after 1 April 2022, before being introduced later to ITSA customers with business or property income over £10,000 per year, who are mandated for Making Tax Digital (MTD) for ITSA, from the tax year beginning 6 April 2024, and for all other ITSA customers from the tax year beginning 6 April 2025. However, now the new rules for VAT will be delayed until 1 January 2023.

What will be considered a late submission?

The new rules are part of the ongoing implementation of MTD, which requires taxpayers to submit tax information digitally each quarter using compliant software.

Late submission under the new rules will be a failure to provide either a quarterly MTD update or an annual return on time.

However, it will not apply to other occasional submissions to HMRC, which will continue to be covered by the current penalty regime for the relevant submission.

How do the new late submission penalties work?

Every time you miss a submission deadline you will receive a point, which HMRC will notify you of on each occasion.

After you receive a certain number of points an initial financial penalty of £200 will be charged. The threshold that must be reached for a penalty to be issued is determined by how often a taxpayer is required to make their submission.

However, not only will a penalty be charged for that failure but every subsequent failure to make a submission on time. This means that those who continually fail to meet their obligations could face big fines.

The penalty thresholds are as follows:

The points are only applied to each type of submission you need to make, as you will only have points totals for each obligation.

That means if you miss two deadlines for separate submissions in the same month, you will be penalised separately for each submission type.

It is only where you regularly miss consecutive deadlines for a single type of submission that you will begin to accrue points that lead to a fine.

In general, if a taxpayer makes two or more failures relating to the same submission obligation in the same month, they will only incur a single point for that month.

This is to prevent a taxpayer reaching the points threshold too rapidly to be able to improve their compliance. However, there are exceptions to this rule, which can be found here.

Are late submission penalty points retained over time?

The points that are issued only have a lifetime of two years, after which they expire to prevent historic failures combining with occasional recent failures resulting in a fine. This period begins the month after the month in which the failure occurred.

Points will not expire when a taxpayer is at the penalty threshold. This ensures they must achieve a period of compliance to reset their points.

After a taxpayer has reached the penalty threshold, all the points accrued within that points total will be reset to zero when the taxpayer has met both of the following conditions:

• A period of compliance; and
• The taxpayer has provided all submissions due within the preceding 24 months (It does not matter whether these submissions were initially late).

Both requirements must be met before points can be reset. The periods of compliance are:

If a taxpayer is at the penalty threshold and has achieved the period of compliance, but has not submitted outstanding submissions, they will remain at the penalty threshold and continue to be charged penalties for any further failures to make submissions on time.

There will be time limits after which a point cannot be levied. The time limits for levying a point depend on the taxpayer’s submission frequency and start from the day on which the failure occurred, as follows:

The time limit for HMRC to assess a financial penalty will be two years after the failure which gave rise to the penalty.

Can I appeal the issuing of a penalty point?

You can challenge a point or penalty issued by HMRC through its internal review process or via an appeal to the First Tier Tax Tribunal.

To appeal the issuing of points or a penalty you will need to be able to prove you had a reasonable excuse for missing a filing deadline, this could include bereavement or illness.

The appeal process will be the same as the appeal process against an assessment of tax for the relevant tax on which the penalty is based.

Here to help

Although this guidance covers the basics of these upcoming changes there are additional rules that may affect how penalty points are issued against you or your business.

If you are concerned about these changes or would like advice on remaining compliant with MTD for VAT and ITSA, please speak to our team today.

Link: Penalties for late submission

Small and medium-sized enterprises (SMEs) are the lifeblood of the country, accounting for 99.9 per cent of all businesses across the UK.

At the start of 2021, there were estimated to be 5.6 million UK private sector businesses.

But they acknowledge, according to a survey, that their operations would struggle to function efficiently without the assistance of accountants, particularly as COVID-19 has swept across the country.

Strategic guidance vital to SMEs

The survey has confirmed the importance of accountants to SMEs, rating the profession as the go-to business service as firms struggle with problems over the pandemic, Brexit and other areas like moving across to Making Tax Digital (MTD).

This is where the expertise of accountancy firms in the latest cloud accounting technology eases the burden on their clients.

The survey, commissioned by accountancy software supplier Sage, shows 91 per cent of SME owners rating accountants as an important part of their business operation, while 49 per cent are happy to approach them for strategic business guidance.

When asked what services they would go to when first starting a business, more than a third (34 per cent) said accountants would be the first port of call.

The survey also found:

• Over a quarter (28 per cent) said Covid-19 had driven them to seek out the help of an accountant
• A fifth (18 per cent) named Brexit as the driving factor. In fact, during the pandemic, over half increased their reliance on accountants
• Sage also found that two-fifths (39 per cent) of SMEs name Making Tax Digital as the number one reason they sought accountancy services.

Named by small and mid-sized businesses as ‘critical’, the new study discovered a huge 91 per cent of SMEs use the services of an accountant, with half (49 per cent) using their services at least weekly.

Paul Struthers, MD, UK and Ireland, Sage, said: “Accountants play a critical role in accelerating this success and our research shows they are vital to the UK’s economic recovery.

“Our research shows accountants have an open door to become a de-facto strategic partner for their clients – this is an opportunity they must embrace.”

It is great to see that so many SMEs value the advice and services our profession offers. To find out how your business can benefit from our advice speak to us.

Link: SMEs name accountants as ‘number one’ service, report finds

The 2023-24 tax year may seem a long way off, but it is important that companies are prepared for changes to the system a little more than year down the line.

The main rate of Corporation Tax (CT) will rise to 25 per cent for the financial year commencing on 1 April 2023, but it is slightly more complicated than the headline figure and the rate will vary depending on company profits.

How will companies be affected?

For companies recording profits of £50,000 or less, the ‘lower profits limit’, the current CT rate of 19 per cent will still apply, but those firms with profits between £50,000 and £250,000, the so-called ‘upper profits limit’, will pay the main CT rate of 25 per cent.

However, they will receive what is known as marginal relief to cut their tax bill which increases the rate incrementally, as profits rise, until the upper limit of 25 per cent is reached for firms with profits of £250,000 or more.

The lower and upper profit limits are reduced proportionately where the accounting period is less than 12 months. They are also reduced where a company has one or more associated firms.

Broadly, a company is associated with another company at a particular time if, at that time or at any other time within the preceding 12 months:

• One company has control of the other
• Both companies are under the control of the same person or group of persons.

Effectively, the full amount of CT at the rate of 25 per cent is calculated before marginal relief is deducted. The marginal relief calculations are based on offsetting ‘augmented profits’ against the total taxable profits.

According to HMRC, ‘augmented profits’ are the company’s total taxable profits plus exempt distributions from non-group companies.

These include dividends, distribution of assets or amounts treated as a distribution on the transfer of assets or liabilities or the repayment of share capital.

The calculations are quite complex so we can help you with assessing just how much CT you will have to pay to HMRC. To find out how the changes to CT will affect your business, please contact us.

Link: Corporation Tax Charge

Whether it is down to the spread of the Coronavirus or just a general trend to a more cashless society, card payments have boomed in the last couple of years.

While restrictions were in place, hardly anyone accepted cash and it is a trend that looks like it will continue with more and more payments being made through card readers.

According to figures from UK Finance, a trade association for the UK banking and financial services sector, in 2020 over half of all payments in the UK were made using cards.

While overall card payments in 2020 declined during the lockdown, their share of payments increased with over half (52 per cent) of all payments being made by cards in 2020.

This was due to many retailers encouraging card and contactless use, along with many people opting to shop online while physical stores were shut.

So, businesses must be properly prepared with the right equipment to process these transactions.

Security is vital both for customers and businesses and there is a whole range of different debit and credit card machines to choose from. There are three types, a desktop or countertop reader, a portable card reader and a mobile device.

What are the benefits of each device?

Countertop machines are fixed points in your store or restaurant and offer good connectivity.

The portable device is linked to Wi-Fi and is ideal for places like restaurants or pubs, where staff can take payments at the table.

Mobile card readers are battery-powered devices that use a GPRS signal but can link to Wi-Fi to take payments while on the move at places like outdoor markets or hospitality events.

If businesses are choosing card payment facilities, there are several platforms on the market to consider, including:

• TakePayments
• Tyl (by Natwest)
• Paymentsense
• Shopify WisePad Reader 3
• SumUp Air
• Zettle Reader 2
• Square Reader
• MyPOS Go
• Dojo Go
• Barclaycard Anywhere

What do they cost?

The costs include the device and the cost of payment processing fees. Mobile readers cost between £15 and £30, while desktop or countertop card machines cost between £150 and £200.

You can either buy the device outright or rent the device for a monthly cost. This changes from provider to provider.

What fees will the business have to pay?

Transaction fees are taken by your card payment provider as a percentage of every payment made through your card machine. They are typically between 1.5 per cent and 2 per cent of the value of the transaction.

So, if the customer buys an item costing £50 and your transaction fee is 1.75 per cent, you will be charged around 87p by your provider.

Card payment providers will also advertise a ‘card not present’ (CNP) transaction when neither the cardholder nor their card are present for the transaction – for instance, an online or phone payment, or a recurring payment.

CNP fees are usually around 2.5 per cent. They are higher for the simple reason that there is a greater risk of fraud during these kinds of payments.

If you are interested in implementing new payments systems into your business, including cloud-connected card payments we can help. Our innovative team at Clemence Hoar Cummings can find the best solution for you so get in touch.

Taxpayers who are unable to pay their Self-Assessment (SA) bill can use the option of paying by instalments with a Time to Pay arrangement with HM Revenue & Customs (HMRC).

If you cannot pay a Self-Assessment tax bill you can make your own Time to Pay arrangement using your Government Gateway account, if you:

• Have filed your latest tax return
• Owe less than £30,000
• Are within 60 days of the payment deadline
• Plan to pay your debt off within the next 12 months or less.

The limit for a self-serve time to pay arrangement, which was increased during the pandemic, remains at £30,000 tax due.

Myrtle Lloyd, HMRC’s Director General for Customer Services, said: “We understand some customers might be worried about paying their SA bill this year, and we want to support them.”

What you will need to make a Time to Pay arrangement

• The relevant reference number for the tax you cannot pay, such as your unique tax reference number
• Your VAT registration number if you are a business
• Your bank account details
• Details of any previous payments you have missed

HMRC will ask you:

• How much you can repay each month
• If you can pay in full
• If there are other taxes you need to pay
• How much money you earn
• What you usually spend (including bills and entertainment) each month
• What savings or investments you have.

If you have savings or assets, HMRC will expect you to use these to reduce your debt as much as possible.

If you have received independent debt advice, for example from Citizens Advice, you may have a ‘Standard Financial Statement’. HMRC will accept this as evidence of what you earn and spend each month.

The amount you will be asked to pay each month is based on the money you have left after you pay any rent, food or utility bills and fixed outgoings, like subscriptions.

You will usually be asked to pay around half of what you have left over each month towards the tax you owe.

If taxpayers owe more than £30,000, or need longer to pay, they should phone the self-assessment payment helpline on 0300 200 3822 to make an arrangement.

If you need assistance with paying tax or have other queries about your tax affairs, please speak to our tax team today.

Link: If you cannot pay your tax bill on time

Well according to a recent Employment Appeals Tribunal (EAT), yes, they should.

In this latest case, a taxi driver in Watford was employed by a firm, which dictated that as part of his conditions of employment he was required to provide a vehicle and uniform, both of which were rented from a company associated with his employer.

Rental costs

In the case of Augustine v Data Cars Ltd, Mr Augustine was employed as a taxi driver by Data Cars.

But at the end of his employment, he brought a variety of claims to the employment tribunal, including that he had not been paid the NMW.

When making remuneration calculations, there are certain allowances and expenses which are deductible.

Mr Augustine argued the cost of the car rental and the purchase of the uniform should be deducted from his total remuneration.

Successful appeal

The initial employment tribunal disagreed, concluding the payments did not need to be considered for the purposes of calculating NMW, on the basis that both payments were optional and not a condition of employment.

Mr Augustine successfully appealed, with both payments found to be deductions for the purposes of calculating his NMW.

The EAT allowed the claimant’s appeal and pointed out that the correct test was whether the expenditure was incurred “in connection with” the employment and that both the rental payments and uniform costs satisfied that test.

This case highlights the complexities involved with calculating pay for NMW purposes and the potential pitfalls of getting your calculations wrong.

Careful calculations

Employers risk a penalty and being ‘named and shamed’ publicly by HMRC if they fall foul of the NMW regulations, even if the mistakes may have been made quite innocently.

Many employers are caught out because of their uniform policies. NMW regulation 12 and 13 provide that any deductions made by an employer for the cost of uniform provided or for the cost of uniform to be purchased (whether from the employer directly, a third party generally or by the worker directly) does not reduce worker pay below the minimum wage in the relevant pay period.

The same principle also applies to tools which workers are required to provide or that they are provided with for the purposes of their work.

It does not matter that the uniform or tool can also be used for the worker’s benefit. What matters is that wearing the item or having the tool is a requirement of their employment. Any additional uniforms or tools bought by the worker are not counted for NMW purposes.

A common issue, as in this case, is that many employers do not appreciate that unbranded items of clothing, which were required to be worn at work such as white t-shirt, black trousers or flat black shoes, are also considered to be ‘uniform’ by HMRC when assessing whether NMW had been complied with.

This kind of area can be a minefield for employers, but basically, when calculating hourly pay you must divide total pay by the number of hours worked.

Remember, the National Living Wage increases to £9.50 from £8.91, while the National Minimum Wage for 21- and 22-year-olds rises to £9.18 from £8.36 from next April.

The rules around the provision of vehicles and uniforms and the impact on pay can be very complex. Our team at Clemence Hoar Cummings are here to help, so give us a call.

Link: Mr W Augustine v Data Cars Ltd: EA-2020-000383-AT(previously UKEAT/0254/20/AT)

Self-Assessment taxpayers have been warned to be on their guard against fraudsters trying to steal their information.

Over the last year, HM Revenue & Customs (HMRC) received nearly 900,000 reports from the public about suspicious HMRC contact, which included phone calls, texts or emails.

More than 100,000 of these were phone scams, while over 620,000 reports from the public were about bogus tax rebates.

HMRC is issuing reminder emails and SMS texts to Self-Assessment taxpayers about the 31 January deadline and is warning people to not be taken in by malicious emails, phone calls or texts, thinking that these are genuine HMRC communications referring to their tax return.

Some of the most common techniques fraudsters use include phoning taxpayers offering a fake tax refund.

They are also pretending to be HMRC by texting or emailing a link that will take customers to a false web page, with a similar appearance to the HMRC official page, where their bank details and money will be stolen.

Fraudsters are also known to threaten victims with arrest or imprisonment if a bogus tax bill is not paid immediately.

What to look out for

It could be a scam if calls, emails and text messages, are:

• Unexpected
• Offering a refund, tax rebate or grant
• Asking for personal information like bank details
• Threatening in their nature
• Telling you to transfer money.

More than four million genuine emails and SMS are being issued to Self-Assessment taxpayers pointing them to guidance and support.

The communication will prompt them to think about how they intend to pay their tax bill and to seek support if they are unable to pay in full by the deadline at the end of January. Taxpayers should consult their accountant for advice on this.

Always be on your guard

Myrtle Lloyd, HMRC’s Director General for Customer Services, said: “Never let yourself be rushed. If someone contacts you saying they’re from HMRC, wanting you to urgently transfer money or give personal information, be on your guard.

“HMRC will also never ring up threatening arrest. Only criminals do that.

“Scams come in many forms. Some threaten immediate arrest for tax evasion, others offer a tax rebate. Contacts like these should set alarm bells ringing, so if you are in any doubt whether the email, phone call or text is genuine, you can check the ‘HMRC scams’ advice on GOV.UK and find out how to report them to us.”

People can report suspicious phone calls using a form on GOV.UK; customers can also forward suspicious emails claiming to be from HMRC to phishing@hmrc.gov.uk and texts to 60599.

HMRC has a dedicated team working on cyber and phone crimes using state of the art technology to counter misleading and malicious communication.

Anyone who is in doubt about whether a website is genuine should visit GOV.UK for more information about Self-Assessment and use the free signposted tax return forms.

If you are concerned about the validity of a communication you receive from HMRC or any other agency, make sure you speak to us.

Link: HMRC warns customers about Self-Assessment tricksters

For busy small businesses, a PAYE Settlement Agreement (PSA) offers a simpler alternative to pay your employees.

It allows you to make one annual payment to cover all the tax and National Insurance due on minor, irregular or impracticable expenses or benefits for your workforce.

According to HM Revenue & Customs (HMRC), if you get a PSA for these items, you will not need to:

• Put them through your payroll to work out tax and National Insurance
• Include them in your end-of-year P11D forms
• Pay Class 1A National Insurance on them at the end of the tax year (you pay Class 1B National Insurance as part of your PSA instead).

Why go for a PSA?

The scheme may allow you to cut back on paperwork and administration if you are forever totting up minor taxable expenses, such as employee entertainment, birthday presents, or incentive awards.

You will no longer have to put these expenses through your employee’s payroll, pay Class 1A NICs on them (you’ll pay Class 1B NICs through your PSA), or include these expenses in forms P9D and P11D.

The expenses categories of the settlement agreement include:

Minor expenses

These could be birthday presents, health club memberships, expenses deemed to be personal yet incidental, or even a present, flowers, or a voucher should an employee fall ill.

Irregular expenses

These could include:

• Relocation expenses over £8,000 (these are tax-free below £8,000)
• The cost of attending overseas conferences
• Use of a company holiday flat.

Impracticable expenses or benefits

These are expenses are things that are difficult to place a value on, or divide up between individual employees, but could include:

• Staff entertainment that is not exempt from tax or National Insurance Contributions
• Shared cars
• Personal care expenses, for example, hairdressing.

How to apply

You will need to contact HMRC, with a description of expenses you believe are covered.

Once they’ve agreed on what can be included, they’ll send you two draft copies of form P626. Sign and return both copies. HMRC will authorise your request and send back a form – this is your PSA.

You’ll need to report anything that cannot be included separately using form P11D. You do not need to send a P11D if you’re paying employees’ expenses and benefits through your payroll.

Use form PSA1 to help you calculate the overall amount you’ll need to pay, otherwise, HMRC will calculate the amount and you will be charged more if this happens.

Send to HMRC as soon as possible after the end of the tax year. They’ll get in touch with you before 19 October following the tax year that the PSA covers to confirm the total tax and National Insurance you need to pay.

You’ll need to give an agent a signed letter of authority to make a PSA on your behalf if they do not have the authorisation to do so.

If you are struggling to manage your payroll or would like to know more about PSAs, please speak to our payroll team.