The uncertainty continues

The Brexit issue continues to drag its heels and it now looks as if we will have a general election until matters are resolved.

Another crucial matter that will be delayed is the presentation of a Budget that will determine any changes to the tax code next year.

However, while the politicians attempt to resolve these issues, what can we do?

This is not a time to sit back and wait to see what happens. At the very least we recommend that you create a plan of action for your business. This planning should include all aspects of your business: sales, costs, investment in new plant and equipment and most importantly, the management of your working capital including cash flow.

If undertaken with care, this planning exercise will reveal trouble spots before they arise. In particular, it will flag up any cash flow low-spots and give you time to agree funding with your bank.

There are no downsides to this planning process, only wins.

Once you have your plan it is a simple matter to upload the data into your account’s software. This will enable you to compare actual monthly results with your plan and remedy any variations as they happen.

This build and creation of management accounts for thriving businesses is something we advocate. If this is a process you would like to take on for your business, please call. We can help you create your plan and advise you which accounts software to use.

Whatever the outcome of the Brexit situation, using your management accounts to increase your business fitness will place you in the front line when matters are resolved. You can hit the ground running.

Heads up for contractors

Contractors completing energy improvements on the homes of low-income families will need to be registered with a new government quality scheme – the Energy Company Obligation (ECO) – to give residents confidence that they will get a good service.

Work undertaken through ECO offers free energy-saving measures, including insulation and new boilers for low-income and vulnerable households.

The Energy Minister Kwasi Kwarteng recently confirmed that those completing this work will need to be registered through a new quality scheme, delivered by ‘TrustMark’. It will also protect all homeowners having energy efficiency improvement work done on their properties, when they choose to use a ‘TrustMark’ registered business.

Around 15% of households take an energy efficiency measure each year, with over one million installing additional or replacement loft insulation and over one million upgrading to double glazed windows. The energy efficiency industry is worth over £20 billion in Great Britain, employing nearly 150,000 and selling exports worth over £1 billion every year.

Emissions from buildings account for nearly a quarter of all carbon emissions, which the government is committed to reducing. Under this government, the UK became the first G7 economy to put into law a commitment that Britain will reach net zero greenhouse gas emission by 2050. Insulation in domestic premises can make a significant contribution to reaching our carbon targets and help reduce the cost of heating homes.

This new scheme will guarantee households the peace of mind that workers installing energy efficiency measures in their homes are trusted tradespeople.

All consumers who want energy efficiency and home improvement measures installed on their own homes will be able to search the ‘TrustMark’ website for trusted and certified tradespeople.

Contractors working in this energy efficiency sector should register with the ECO scheme asap.

Beefing-up UK exports

UK farmers looking for opportunities to export beef products to China will be encouraged by the recent relaxation of export criteria. A recent UK government press release titled “China opens doors to British Beef” explains what is being offered.

A summary of the press release is reproduced below:

The British beef industry is set to benefit from an estimated £230 million boost as the Chinese government today (18 October) finalised details of a historic UK-China agreement.

For the first time in over 20 years, UK farmers and beef producers will have full access to the Chinese market, marking the end of a ban imposed by China following the BSE outbreak in 1996.

Today’s announcement follows extensive inspections by the Chinese authorities – who have confirmed that British beef producers meet the necessary standards to export to their market – and marks the final step in securing access.

The Chinese authorities have cleared four beef sites for export in the first instance – with further sites under review – and the first exports are expected to be shipped in the next few months.

The China-UK beef agreement is the culmination of several years of engagement between UK and Chinese government officials. China’s ban was lifted in June last year when market access engagement for UK beef exports began.

It follows a number of inspections and inward missions hosted by the Agriculture and Horticulture Development Board (AHDB), in partnership with Quality Meat Scotland (QMS) and Hybu Cig Cymru (Meat Promotion Wales HCC) and other industry bodies, as well as government departments and agencies.

The announcement comes after China recently approved five British pork plants to export products to China, which will build on a market which is already worth £70 million per year.

China is currently the UK’s eighth largest export market for food and drink, with more than £610 million worth of products bought by Chinese consumers last year.

Win while you save

In a further attempt to incentivise savings our government has created a new saving vehicle called a PrizeSaver account. Here’s what the Treasury press release on the launch says:

Treasury launches pilot of new PrizeSaver account on International Credit Union Day.

  • Savers who put away as little as £1 with participating credit unions have chance to win up to £5,000 a month.
  • Account is part of work to raise awareness of credit unions and encourage greater saving for the future.

Savers could now win up to £5,000 a month with the launch of a new account with credit unions today (Thursday 17 October).

To mark International Credit Union Day, the Treasury has teamed up with 15 credit unions across Britain to launch the new PrizeSaver pilot account. The pilot will give people who open an account with participating credit unions the chance to win prizes every month and boost their savings.

Every month will see a top prize of £5,000 awarded to the winning saver, with a further 20 smaller prizes of £20 also awarded. Accounts are available now with the first wave of credit unions and the first prize-draws will take place in mid-December.

The pilot, announced at last year’s Budget, is designed to help improve people’s financial resilience by encouraging greater saving for the future, as well as raise awareness of credit unions and the services they offer.

Credit unions are a type of member-owned cooperative, controlled and run by members. Most either serve specific local areas or certain professions like the police. Credit unions redistribute their profits to members through interest or dividends, or by investing in new services to meet the needs of their members.

The account is partly inspired by the ‘Save to Win’ scheme in the US, which has helped credit union members save $200 million and has awarded $3.1 million in prizes nationwide.

The pilot will run until the end of March 2021 and will help inform understanding of the PrizeSaver model. The Treasury will work with participating credit unions to evaluate the success of the PrizeSaver accounts throughout the pilot, with an ambition to roll the account out more widely if successful.

Cars and taxing issues

We have listed below a number of issues that you will need to consider if directors or employees use a car for business purposes.

Essentially, if the car is owned by the business any private use of the vehicle will trigger a tax charge for the driver (car user) and a possible NIC bill for the employer.

Use of a car may be exempt from these possible charges in the following circumstances:

  • If the car is owned privately by the director or employee and any costs met by the employer relate to business journeys.
  • If the car is owned by the employer but no private use of the vehicle is allowed. Employers are required to notify employees that this is the case and check that these instructions are complied with.
  • If a car is adapted for an employee that is disabled. This use is only exempt if the private use is restricted to journeys between home and work and travel to work-related training events.
  • There is no fuel related tax charge if any personal fuel is paid for by the employee or if the employer pays, but the private element is reimbursed by the employee.
  • The use of pool cars is generally ignored. This assumes that there is no private use and that cars are kept at the business premises.

The way in which any taxable benefits are reportable to HMRC is complex. Partly, this depends on how the benefit is formalised. For example, is it a salary-sacrifice arrangement? Generally, any chargeable, private use of a company car is returned to HMRC each year on a form P11D. This will then determine the amount of tax payable by employees on the deemed benefit provided and also contribute to the amount of any NIC payable by the employer.

Paying tax if you are self-employed

If you are a sole trader or an individual member of a partnership you will likely be subject to income tax, and possibly National Insurance, on your earnings.

Unfortunately, tax being taxing, earnings for tax purposes may not be the same as the monthly drawings you take from your business.

For example, you may decide to take no “wages” from your business in order to build up cash reserves, but if your business is profitable you will still pay tax. Why is this?

HMRC will largely ignore any drawings you take from your business when considering how much tax and NIC you are liable to pay. Instead, they will look at your profit for the relevant trading period.

Accordingly, if you want to judge how much you will be paying to HMRC you will need to look at your business profit and loss account and not the amount of cash you have withdrawn to meet your private expenditure.

As with all matters relating to tax HMRC will not simply take your accounts profits as your income; they adjust your profits. Common adjustments include:

  • HMRC will add back any deduction you have made to depreciate your assets (plant, equipment, vehicles and other relevant assets) and replace this with a capital allowance claim. The amount of the claim allowed will depend on the amount and type of asset purchased.
  • Entertaining costs are generally disallowed.
  • Any costs you have claimed that have a personal use element: motor expenses for example; will be disallowed.

Your profits for tax purposes may also be increased if you have sold equipment.

As you will probably be paying any income tax or NIC from your business bank account it is sensible to prepare your accounts as soon as you can following your year end. In this way your adviser can calculate liabilities and you will have advance notice of the amounts payable. This will also give you time to accumulate funds to meet the tax and NIC payments when they fall due.

Disposing of a UK residential property?

UK readers who are anticipating the sale of a residential property on which a capital gains tax (CGT) charge may apply would be advised to consider the changes to the reporting and payment of this CGT charge from 6 April 2020.

The general rule will be that for relevant disposals on or after this date (6 April 2020) a return in respect of the disposal must be delivered to HMRC within a ‘payment window’ of 30 days following the completion of the disposal, and a payment on account made at the same time. The self-assessed calculation of the amount payable on account takes will take into consideration unused losses and the person’s annual exempt amount. The rate of tax for individuals is determined after making a reasonable estimate of the amount of taxable income for the year.

Gains on disposals reported on the new return can be ignored when determining whether to register for self-assessment. Enquiries into the return will be able to be made separately from any self-assessment return that may be due.

For disposals by UK residents, the new reporting and payment requirements will not apply where the gain on the disposal (or the total gain where more than one residential property disposal is made in the year of assessment) is not chargeable to CGT (for example where the gains are covered by private residence relief, unused losses or the annual exempt amount), arise from the disposal of a foreign residential property in a country covered by a CGT double taxation agreement, or arise to a person taxed on the remittance basis.

For non-residents, the reporting requirement is expanded from 6 April 2019 to include all companies. However, an exception from making a payment on account for those that make self-assessment returns will cease for disposals on or after 6 April 2020 in line with the introduction of payment on account for UK residents.

This is a radical change and will require taxpayers and their advisers to gather data, calculate and report the relevant gains within the 30 day reporting window.

Readers who are contemplating the sale of a residential property that may trigger a CGT charge might be advised to complete the sale before 6 April 2020. Sales before this date will be reported on your self-assessment tax return for 2019-20. The filing deadline for this return is 31 January 2021.

An update for hauliers

If you are involved in the transport of goods to and from the EU HMRC have posted useful guidance on what you will need to do to accommodate a no-deal Brexit on 31st of this month.

The guidance can be downloaded as a PDF from https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/836920/transporting-goods-between-the-uk-and-eu-in-a-no-deal-brexit-guidance-for-hauliers.pdf

Transitional arrangements are in place regarding licenses and permits.

The EU has agreed that for a transitional period UK hauliers will be able to continue using their current licences to do journeys to and from the EU. This currently applies until 31 December 2019 and is likely to be extended to 31 July 2020.

Hauliers holding a Community Licence will be able to continue using these after a no-deal Brexit for the transitional period. Hauliers applying for or renewing a Community Licence after a no-deal Brexit will instead receive a ‘UK Licence for the Community’, which will give the same rights.

A copy of the Community Licence (or the new ‘UK Licence for the Community’) has to be carried on board all vehicles when working in the EU.

The Community Licence (or the new ‘UK Licence for the Community’) will not be valid for international road haulage journeys made by UK hauliers through the EU to countries outside the EU and EEA – these will require ECMT permits.

Some ‘cross-trade’ (movements between two EU countries) and ‘cabotage’ (movements within an EU country) will be permitted in the transitional period. Until 31 December 2019 at least up to 2 loaded cabotage or cross-trade journeys will be possible per week.

As there is still no “certain” outcome for Brexit, please note that the above comments only apply to a no-deal scenario. If you need help sorting the wood from the trees, please call.

 

About face by HMRC

Last month we reported the changes that CIS, VAT registered contractors and sub-contractors were about to face with the introduction of the “reverse charge” process from 1 October 2019.

Shortly after our newsletter was published, HMRC conceded that it was aware that the industry was struggling to adapt to the new rules and, as Brexit is also looming large this month, HMRC has agreed to defer the change until 1 October 2020.

This is a triumph for the construction industry lobby groups who have pushed hard to have this VAT change delayed.

Just in case you missed our alert on this topic last month the nuts and bolts of the reverse charge process for VAT registered businesses who are subject to HMRC’s Construction Industry Scheme, are:

From the 1 October 2020, you may need to change the way you account for VAT on supplies between sub-contractors and their contractor customers.

At present, sub-contractors registered for VAT are required to charge VAT on their supplies of building services to contractors. From 1 October 2020, this approach is changing.

From this date, sub-contractors will not add VAT to their supplies to most building customers, instead, contractors will be obliged to pay the deemed output VAT on behalf of their registered sub-contractor suppliers.

This does not mean that contractors, in most cases, are paying their sub-contractors’ VAT as an additional cost.

When contractors pay their sub-contractors’ VAT to HMRC, they can claim back an equivalent amount as VAT input tax; subject to the usual VAT rules. Accordingly, the two amounts off-set each other.

The change is described as the Domestic Reverse Charge for the construction industry. It has been introduced as an increasing number of sub-contractors have been registering for VAT, collecting the VAT from their customers, and then disappearing without paying the VAT collected to HMRC.

Affected contractors now have a year to make the appropriate changes.

If by chance you have already made changes to your account’s software and invoicing processes, you will need to reverse the process and moth-ball the changes for twelve months.

Enjoy a tax-free Christmas bash

Follow the outline below to ensure that the cost of your annual staff party will not create tax issues for you or your staff.

  1. The event must be open to all employees at a specific location.
  2. An annual Christmas party, or other annual event offered to staff, generally is not taxable on those attending, provided that the average cost per head of the functions does not exceed £150 p.a. (including VAT). The guests of staff attending are included in the head count when computing the cost per head attending.
  3. All costs must be considered, including the costs of transport to and from the event, accommodation provided, and VAT. The total cost of the event is divided by the number attending to find the average cost. If the limit is exceeded then individual members of staff will be taxable on their average cost, plus the cost for any guests they were permitted to bring.
  4. VAT input tax can be recovered on staff entertaining expenditure. If the guests of staff are also invited to the event, the input tax should be apportioned, as the VAT applicable to non-staff is not recoverable. However, if non-staff attendees pay a reasonable contribution to the event, all the VAT can be reclaimed and of course output tax should be accounted for on the amount of the contribution.