Tax Diary July/August 2022

1 July 2022 – Due date for corporation tax due for the year ended 30 September 2021.

6 July 2022 – Complete and submit forms P11D return of benefits and expenses and P11D(b) return of Class 1A NICs.

19 July 2022 – Pay Class 1A NICs (by the 22 July 2022 if paid electronically).

19 July 2022 – PAYE and NIC deductions due for month ended 5 July 2022. (If you pay your tax electronically the due date is 22 July 2022).

19 July 2022 – Filing deadline for the CIS300 monthly return for the month ended 5 July 2022.

19 July 2022 – CIS tax deducted for the month ended 5 July 2022 is payable by today.

1 August 2022 – Due date for corporation tax due for the year ended 31 October 2021.

19 August 2022 – PAYE and NIC deductions due for month ended 5 August 2022. (If you pay your tax electronically the due date is 22 August 2022)

19 August 2022 – Filing deadline for the CIS300 monthly return for the month ended 5 August 2022.

19 August 2022 – CIS tax deducted for the month ended 5 August 2022 is payable by today.

Tax gap running at 5%

HMRC published a report last month that acknowledges it was only able to recover 95% of the taxes assessed for 2020-21.

In monetary terms, the tax gap for the 2020-21 tax year is £32 billion. At 5.1%, there has been no change in the percentage tax gap compared to the previous year, although the monetary value has fallen by £2 billion from £34 billion in the 2019 to 2020 tax year.

The total tax due to be paid fell from £672 billion in 2019-20 to £635 billion in 2020-21 due to the economic impact of COVID-19.

The estimate for the 2020-21 tax gap is the best assessment based on the evidence available at this time. There is some uncertainty for the tax gap estimates for the first year of the pandemic and estimates could be subject to revisions in future years.

HMRC has published tax gap estimates since the 2005-06 tax year. There has been a long-term reduction in the overall tax gap from 7.5% in 2005-06, to 5.1% in the 2020-21 tax year. The reduction is a result of the government’s action to help taxpayers get their tax right first time, whilst bearing down on the small minority who are deliberately non-compliant.

How does this affect the tax we pay?

Any taxes that are unpaid will create a shortfall in revenue that will add upward pressure to the taxes we pay – to make up the difference.

Current fiscal policy is wedded to the notion that taxes fund public expenditure in which case any tax gap will leave the Treasury short of funds to meet its expenditure commitments.

Unless the expenditure side of the equation can be reduced, by departments agreeing to a drop in funding, this shortfall – the tax gap – will have to be covered by short-term borrowing. Longer term, the shortfall may encourage the Treasury to seek increases in taxation.

Although 5% may not seem to be a significant percentage it amounts to £32bn. This is equivalent to double the amount of tax assessed on capital gains in a full tax year.

Business owners would be reluctant to accept that 5% of their hard-won sales were written off as bad debts each year and we can assume that HMRC will take steps to recover as much of tax assessed as is possible.

It will be interesting to see how effective HMRC will be in the coming year as inflation and a reduction in economic activity start to impact our ability to pay taxes due.

New protection for tenants

The government has announced their intention to radically overhaul the rights of tenants. The changes announced include:

For tenants

  • Helping the most vulnerable by outlawing blanket bans on renting to families with children or those in receipt of benefits.
  • For the first time, ending the use of arbitrary rent review clauses, restricting tribunals from hiking up rent and enabling tenants to be repaid rent for non-decent homes. This will make sure tenants can take their landlord to court to seek repayment of rent if their homes are of unacceptable standard.
  • Making it easier for tenants to have much-loved pets in their homes by giving all tenants the right to request a pet in their house, which the landlord must consider and cannot unreasonably refuse.
  • All tenants to be moved onto a single system of periodic tenancies, meaning they can leave inferior quality housing without remaining liable for the rent or move more easily when their circumstances change. A tenancy will only end if a tenant ends it or a landlord has a valid reason, defined in law.
  • Doubling notice periods for rent increases and giving tenants stronger powers to challenge them if they are unjustified.
  • Giving councils stronger powers to tackle the worst offenders, backed by enforcement pilots, and increasing fines for serious offences.

 

For landlords

  • A new Private Renters’ Ombudsman will be created to enable disputes between private renters and landlords to be settled quickly, at low cost, and without going to court.
  • Ensuring responsible landlords can gain possession of their properties efficiently from anti-social tenants and can sell their properties when they need to.
  • Introducing a new property portal that will provide a single front door to help landlords to understand, and comply with, their responsibilities as well as giving councils and tenants the information they need to tackle rogue operators.

According to government sources these reforms will help to ease the cost-of-living pressures renters are facing, saving families from unnecessarily moving from one privately rented home to another and thereby saving hundreds of pounds in moving costs.

Not so trivial benefits

The trivial benefits exemption allows you to provide benefits to employees without your employee suffering a tax charge on the benefit. Likewise, there is no Class 1A National Insurance for you, the employer, to pay.

To count as ‘trivial’ for the purposes of the exemption, the benefit must meet all of the following conditions:

  • the cost of providing the benefit is £50 or less.
  • the benefit is not cash or a cash voucher.
  • your employee is not contractually entitled to the benefit.
  • the benefit is not provided in recognition of particular services.

Unless your company is a close company (generally a small company) and trivial benefits are provided to a director or other office holder, there is no limit on the number of trivial benefits that you can give to a particular employee in the tax year.

However, the cumulative provision of trivial benefits to directors or other office holders of close companies is capped at £300 for each tax year.

If you provide the benefit to a number of your employees and it is impracticable to work out the actual cost of each individual benefit provided to each individual employee, you can work out the average cost instead. As long as this does not exceed £50 the cost condition will be met.

What is goodwill?

In a business context, goodwill could be defined as the amount that a buyer would be prepared to pay for your business over and above the valuation of the business net assets.

Very often, it is the relationships that you have built with your customer base that is the most valuable asset. Buyers will be keen to acquire these relationships and will place greater reliance on this “asset” than any equipment or other on-balance sheet item you may be selling.

How is goodwill valued

There is no fixed formula for valuing goodwill. Its value is finalised by negotiation between buyers and sellers.

There are formulaic methods for including goodwill based on the ability of the buyer to recover their investment, from the business purchased, over a fixed term, say three to five years. Unsurprisingly, buyers of higher risk businesses will want a faster pay-back.

Annual valuations

Although your valuation of your business may be higher or lower than the amount a buyer is prepared to pay there is value on using a consistent process to produce an annual valuation. In this way you can monitor the growth of your business and work at developing those characteristics that will secure a higher price when you come to sell, for example, building an independent management team.

Loss of personal allowance

If your taxable income exceeds £100,000 you will suffer a reduction in your personal tax allowance.

For every £2 that your income exceeds £100,000, £1 will be knocked off your allowance. The reduction is progressive and means that once your income exceeds £125,140 your personal allowance of £12,570 will be reduced to zero.

As Income Taxpayers with income in the range, £100,000 to £125,140, are paying tax at 40%, the gradual loss of the personal tax allowance means that the effective rate of tax in this range is 60% not 40%.

Accordingly, if you are affected by this process, tax planning to reduce your income below the £100,000 threshold would be cost effective.

This may involve consideration of pension top-ups, deferring income, sacrificing salary for additional holidays, or other planning options that may be available to you.

Please call so we can help you consider your options.

Coping with inflation

Finance Secretary Kate Forbes, of the Scottish government, made a number of suggestions to help households and businesses who are struggling to cope with inflation.

 

With inflation reaching a 40-year high of 9 per cent, and forecast to rise higher, Ms Forbes has written to the Chancellor of the Exchequer urging the UK Government to use the £30 billion fiscal headroom it has available to help those struggling in the face of rising bills.

 

Her suggestions are reproduced below.

 

"I am proposing four principles that should guide a response from the UK Government:

"Firstly, ensure that the fiscal support package is targeted at the households and businesses that most need support. The package should aim to offset the disproportionate burden of the cost-of-living crisis on the least well-off, and I would urge you to consider as a starting point of any package:

  • An emergency cost of living cash payment to all UK households with below median income, tapered to provide more support to those at the lower end of the income distribution. I would suggest this be up to £1,000 to those on the lowest incomes, to be delivered directly as cash support at periods across the fiscal year. Providing money directly, without a link to specific bills, would provide households with the means to manage the cost-of-living crisis however it is affecting them the most, whether it is on food, transport or energy bills, and offset the impact of the cost-of-living crisis for those on the lowest incomes. The Resolution Foundation has also called for a policy intervention of a similar design.
  • Permanently uprate all social security benefits as if they had been increased by 10% in April to match the current level of inflation, as proposed by the Centre for Social Justice. In April, we increased our eight Scottish social security benefits by 6%, reflecting the higher inflation expected at that time.
  • A further £25 uplift to Universal Credit, and for this to be extended to legacy benefits.
  • Increase the National Living Wage rate of £9.50 to the Real Living Wage rate of £9.90 for all over eighteen.
  • A temporary suspension of VAT on household energy bills, which we estimate would save the average household around £100 a year at current prices.
  • Extend the £350 energy rebate scheme to small and medium enterprises and remove the requirement to repay to the £200 energy bill reduction component.
  • Remove standing charges for anyone with a pre-payment meter. The energy price increases will be felt more severely for consumers using prepayment meters who are often subject to higher prices for energy than through other means such as direct debit, and as standing charges must still be paid even if there is no credit on the meter, and top ups can be swallowed up before energy can be bought. Removing standing charges would reduce the risk of self-disconnection if they cannot afford their energy costs.

 

"Collectively, we estimate this package can be comfortably implemented within the £30 billion fiscal headroom available to you, even before allowing for any additional revenue from a windfall tax.”

It will be interesting to see if the Treasury respond to these ideas or any others aimed at reducing the current cost of living crisis.

Concerns about Repayment Agents

New measures to stop rip-off agents taking advantage of people by pocketing their tax repayments have been proposed by HMRC.

To achieve this, HMRC have launched a 12-week consultation Raising standards in tax advice: Protecting customers claiming tax repayments to consider ways to better protect taxpayers from Repayment Agents who make routine tax claims on people’s behalf but can take up to half, or even more, of the payment.

Taxpayers can use Repayment Agents to make claims for repayments of tax, and many are happy with the service they receive. On the other hand, many taxpayers have complained that the scale of the charges are unclear or even hidden, while questions have been raised about how some agents secure agreements from customers.

What protection will HMRC propose?

HMRC’s consultation proposes many ways to better protect the public from unscrupulous practices and ensure they receive the money they are entitled to, while also asking various questions to better understand the problem.

This includes seeking views on:

  • restricting the use of assignments, where contracts legally transfer the right to a repayment from a taxpayer to an agent.
  • introducing measures designed to ensure taxpayers see material information about a repayment agent’s service before entering into a contractual agreement.
  • requiring repayment agents to register with HMRC.

What has prompted this action by HMRC?

HMRC is aware of a number of specific concerns with the industry including excessive amounts of commission charged for routine tax repayments that can be claimed online by taxpayers for free.

There is also convincing evidence that many taxpayers do not understand the terms they are signing up to and feel misled, some even believing they are dealing with HMRC directly rather than a third party.

Other concerns include the submission of high volume or speculative claims where no repayment is due, resulting in delays to genuine claims, as well as the use of assignments which means the repayment goes to the Repayment Agent instead of the taxpayer.

The consultation is now open and will run until 14 September 2022.

HMRC is reminding taxpayers that they remain responsible for their own tax. If they do appoint an agent, they should take care to ensure they are aware of fees and the terms and conditions of service, and not to share their HMRC login details with them. HMRC has published standards for agents and will act against agents who breach them.

Questions to ask when choosing an agent:

  • is the agent a member of a professional body that regulates their conduct and standards?
  • will the claim be made in accordance with HMRC’s view of the law, or is HMRC is likely to challenge the validity of the claim if they look into it?
  • if the agent will deduct their fee from my tax repayment and HMRC later looks into my claim and asks for the repayment back, how will I recover the agent’s fee from them in order to fund the tax bill?
  • does the agent have insurance to cover them if something goes wrong, and are they registered for Anti Money Laundering supervision?

Nothing to declare

Downsizing business operations is a perfectly acceptable response to economic pressures, and this may lead to an absence of activity for a period of time. This would have been the likely experience of businesses subject to recent lockdown restrictions.

 

Unfortunately, our obligation to file returns to HMRC does not end if there are no transactions to report on these returns. Three areas where this may occur – and there may be more – are:

  1. Filing VAT returns
  2. Filing payroll returns
  3. Filing CIS returns

 

This may seem to be over the top, and slightly ridiculous, but our obligation is twofold, to declare any liability and secondly, to file a return to advise HMRC of the amount due, or not due.

The fact that there may be no liability to report to does not relieve us of our responsibility to file a nil return.

 

Penalties will apply

The reason for flagging this issue is that if we fail to make the required nil return penalties will apply.

 

For example, a contractor that is registered under the CIS regulations – to report and pay over any deductions from sub-contractor payments – will be required to submit a monthly return. If a month is skipped because no payments to subbies was made, then HMRC will automatically send a £100 late filing penalty.

 

HMRC see things differently

HMRC has legislated that the obligation to file a return is, of itself, a requirement that needs to be taken seriously, notwithstanding that there may be no liability to report, and failure to file nil returns will trigger late filing penalties.

Looking at this matter from HMRC’s point of view, you know that there is no liability but the only evidence that HMRC has is that you have failed to file (and possibly are avoiding payment of liabilities).

 

Nothing to declare

In which case, where it is determined that you make monthly, quarterly or annual returns to HMRC, make sure that nil returns are submitted by the due dates. As far as reporting to HMRC is concerned there is no such thing as nothing to declare.

Proposed new deal for private renters

The fairer private rented sector white paper published 16 June 2022, will ensure millions of families benefit from living in decent, well looked-after homes as part of the biggest shake up of the private rented sector in 30 years.

The white paper marks a generational shift that will redress the balance between landlords and 4.4 million private rented tenants. It provides new support for cost-of-living pressures with protections for the most vulnerable, and new measures to tackle arbitrary and unfair rent increases.

The majority of tenants enjoy safe and secure rentals, but for the 21% of private renter and households who currently live in unfit homes, this ‘New Deal’ will extend the Decent Homes Standard to the private sector for the first time, levelling up opportunities. This means homes must be free from serious health and safety hazards, and landlords must keep homes in a good state of repair, so renters have clean, appropriate and useable facilities.

So-called ‘no fault’ section 21 evictions – that allow landlords to terminate tenancies without giving any reason – will be outlawed. More than a fifth of private renters who moved in 2019 and 2020 did not end their tenancy by choice, including 8% who were asked to leave by their landlord.

Other measures published include:

  • Helping the most vulnerable by outlawing blanket bans on renting to families with children or those in receipt of benefits.
  • For the first time, ending the use of arbitrary rent review clauses, restricting tribunals from hiking up rent and enabling tenants to be repaid rent for non-decent homes. This will make sure tenants can take their landlord to court to seek repayment of rent if their homes are of unacceptable standard.
  • Making it easier for tenants to have much-loved pets in their homes by giving all tenants the right to request a pet in their house, which the landlord must consider and cannot unreasonably refuse.
  • All tenants to be moved onto a single system of periodic tenancies, meaning they can leave poor quality housing without remaining liable for the rent or move more easily when their circumstances change. A tenancy will only end if a tenant ends or a landlord has a valid reason, defined in law.
  • Doubling notice periods for rent increases and giving tenants stronger powers to challenge them if they are unjustified. Giving councils stronger powers to tackle the worst offenders, backed by enforcement pilots, and increasing fines for serious offences.

In addition, the estimated 2.3 million private landlords will have greater clarity and support through the following measures:

  • A new Private Renters’ Ombudsman will be created to enable disputes between private renters and landlords to be settled quickly, at low cost, and without going to court.
  • Ensuring responsible landlords can gain possession of their properties efficiently from anti-social tenants and can sell their properties when they need to.
  • Introducing a new property portal that will provide a single front door to help landlords to understand, and comply with, their responsibilities as well as giving councils and tenants the information they need to tackle rogue operators.

While the majority of private rented homes are of good quality, offering safe, comfortable accommodation for families, the conditions of more than half a million properties – or 12% of households – pose an imminent risk to tenants’ health and safety, meaning around 1.6 million people are living in dangerously low-quality homes, driving up costs for our health service.

The sector offers the most expensive, least secure, and lowest quality housing to millions of renters, including 1.3 million households with children and 382,000 households over 65.

According to government sources, rents are rising at their fastest level for five years, damaging life chances and holding back some of the most deprived parts of the country.