P11Ds and the Pandemic

This past year has certainly been unprecedented to say the least.  I don’t think anyone could have predicted such a change to the way that we live and work.  I think it is safe to say that every business will have been impacted by the pandemic in some way, shape or form.

One of the overwhelming changes that we saw were employees being required to work from home.  This may mean that some businesses picked up the tab for home internet connections, home phone bills, personal mobile bills, even utility bills as employees are now using these resources predominantly for work purposes. Other companies may have withdrawn the private use of items such as commercial vehicles due to the lack of work.

What may not have been considered is whether any of the above could affect the taxable benefits in kind position for employees.

What is a taxable benefit in kind?

Benefits in kind are non cash benefits that are either provided to an employee or paid on the employees behalf.  They can be anything that is used personally by the employee but the company pays the bill for.  They are often referred to as ‘perks’ or ‘fringe benefits’.

As the benefits have a monetary value, they must be treated as taxable income.  Almost as though the company are paying for the benefit for the employee instead of giving the equivalent in salary where tax and national insurance would be payable. 

There are many benefits that are caught within the rules.  The most popular are shown below:

  • Company Car
  • Private Medical Insurance
  • Gym Memberships
  • Company assets being gifted to employees
  • Personal phone bills (not to be confused with company mobile phone contracts)
  • Professional subscriptions
  • Mileage payments over the HMRC allowed rates

There are some benefits that are exempt, however the rules are extremely complex so please do check with our tax team should you have any queries.  Examples of exempt benefits are:

  • Car parking charges where the location is close to work premises
  • Company mobile phones (so long as the contract is in the company name)
  • Uniforms, safety clothing and safety gear such as hard hats
  • Any training that is work related
  • Staff entertainment (subject to specific rules)

Reporting requirements

Benefits in kind need to be reported on a form P11D and submitted to HMRC by the 6th July 2021.  A form is needed for each employee that has a taxable benefit. The employee will then be contacted by HMRC to pay the tax on the benefit in kind.

The company also needs to submit a form P11D(b) which calculates all the taxable benefits and states the Class 1A National Insurance due on the total.  There is a 13.8% national insurance charge on taxable benefits.  The payment for which needs to be made by the 19th July 2021 (22nd July 2021 if using faster pay)

Contact

If you need any advice or assistance with either determining if an item would be classed as a benefit in kind or in the preparation of your forms P11D please do not hesitate to contact Nicola Wignall on 01772 821021 or nicola.wignall@mooreandsmalley.co.uk

HMRC’s investigations into the UK’s biggest businesses are taking an average of nearly four years – wasting valuable time and resources

Data from HMRC recently showed that its investigations into the tax affairs of the UK’s biggest businesses have been open for an average of 45 months, costing UK businesses valuable time, money and resources.

The data shows HMRC is increasingly struggling to clear a huge backlog of tax disputes – the average length of open investigations last year was 43 months. With many enquiries into businesses closing fairly quickly, after just a few weeks or months, this data highlights that some cases are being kept open for far longer than the four year average.

The longer the investigation, the higher the cost of obtaining professional advice will be. With investigations now taking so long, it is understandable that insurance cover for tax investigations is becoming increasingly popular amongst businesses.

Having investigations open for such a long period also means businesses are wasting substantial amounts of senior time. Unusually long investigations can also cause considerable levels of stress and worry to those who own or manage the business being investigated.

A primary reason for the delays is that HMRC is taking longer than ever to decide whether to settle or close open investigations. As HMRC investigative officers often have to consult a wide range of internal departments before a decision is made, in many cases this slows down the final choice by HMRC to settle, litigate or close the investigation.

New data also shows that HMRC only closed 1,986 investigations into big businesses last year, a 21% drop compared to the 2,528 cases that were closed the year before. This suggests that HMRC’s problem of keeping investigations open for years on end could get even worse.

Investigations closed by HMRC in the past year had been open for an average of 17 months. In most cases that were closed, either the business in question or HMRC quickly accepted that they had made an obvious error and decided the best course of action would be to settle the case.

Due to the huge amounts of tax that HMRC believed it is has missed out on over the last few years, it is likely to continue running long investigations in the hope that some will eventually result in additional tax revenue being secured.

The extraordinarily high levels of public spending during the Covid-19 crisis are also likely to mean that HMRC will be increasing its efforts to bring in any additional revenue. It is therefore arguably now more important than ever that businesses have the right insurance cover in place.

Get in touch

Tax investigations can be very stressful and costly for those involved. PfP are specialists in this area and you can protect yourself against the cost of most tax investigations by subscribing to our Tax Investigation Service. To find out more contact our tax investigation team.

Extension to the temporary reduced VAT rate for the Hospitality Sector

Background

On 8 July 2020, the government announced a temporary 5% reduced rate of VAT for certain supplies relating to hospitality, hotel and holiday accommodation and admission to certain attractions. The reduced rate originally was in place between 15 July 2020 and 12 January 2021 and was extended to 31 March 2021.

In the Budget 2021, the Chancellor announced that the 5% reduced rate will be extended again until 30 September 2021 and further that from 1 October 2021 until 31 March 2022, the temporary reduced rate of 5% VAT will change to the new reduced rate of VAT of 12.5%.

The normal standard rate of 20% will therefore return on 1 April 2022.

This is a welcome announcement and will provide a VAT saving for the next 12 months.

The new rate

If you calculate the amount of VAT due to HMRC from cash received,  from 1 October 2021, there will be a new VAT fraction. To calculate 12.5% VAT when using cash receipts, you should use 1/9. For example, if a customer books a holiday on 1 November 2021 and pays £126, the output tax due to HMRC is £126 x 1/9 = £14.

DateVAT RateVAT Fraction
15 July 2020 to 30 September 20215%1//21
1 October 2021 to 31 March 202212.5%1/9
1 April 2022 onwards20%1/6

Flat Rate Scheme

Those of you who use the flat rate scheme, the current temporary rate will also change on 1 October 2021. The changes to the flat rate scheme percentages for affected sectors are:

IndustryBefore 15 July 202015 July 2020 to 30 September 20211 October 2021 to 31 March 2022
Catering services, including restaurants and takeaways12.5%4.5%8.5%
Hotel or accommodation  1.5%0%5.5%
Pubs  6.5%1%4%

Deposits

If deposits are received in advance of a supply, output tax will be calculated on the VAT rate in place at the time the deposit is received.

For example, on 1 June 2021 a customer books a hotel room for 1 April 2022 and pays a deposit of £100 at the time of booking. The output tax due to HMRC on the VAT return for this period is £4.76 (£100 x 1/21).

On 1 October 2021, the customer pays a further deposit of £100. The output tax due to HMRC on the VAT return for this period is £11.10 (£100 x 1/9).

Contact

If you would like further information about this topic, please contact Jonathan Main, Indirect Tax Partner on 01772 821 021 or email jonathan.main@mooreandsmalley.co.uk

HMRC crackdown on furlough fraud

HMRC made over 18,000 requests to view phone records and web histories in investigations last year

New data shows HMRC made 18,263 requests last year to access communications data, such as phone records and web browsing histories, as part of its investigations into taxpayers.

This represents a 59% increase on the number of requests for communications data made by HMRC in 2010, showing that communications data is regularly being used by HMRC as key evidence in establishing whether tax evasion or avoidance has taken place.

HMRC can request to view data held by telecommunications operators and providers. This could include the time, duration and location of any phone call made. HMRC can also request to view the number dialled.

Additionally, HMRC can ask internet providers to provide data on which websites an individual has looked at. Requests for this information are made to the Office for Communications Data Authorisations.

Furlough fraud

Furlough fraud is likely to lead to more requests for communications data by HMRC. Over 21,000 employees have already made use of HMRC’s hotline for furlough fraud, which was specifically set up for employees to blow the whistle on employers cheating the furlough scheme.

HMRC’s own internal estimates also show that up to £3.5bn may have been fraudulently claimed through the furlough programme. The body is likely to want to investigate as many cases of furlough fraud as possible, with communications data potentially crucial evidence for HMRC.

HMRC will likely look to view phone records of employers suspected of committing furlough fraud. By viewing these, HMRC will be able to establish whether employers have been making calls to employees when they were supposedly on furlough. If multiple calls have been made during working hours, this could indicate that an employee was actually working and any furlough scheme claims made were fraudulent.

What data does HMRC collect?

Communications data is only able to provide the ‘who’, ‘where’, ‘what’ and ‘how’ of a communication and does not provide the context of what was actually said or written. In order to obtain this information, HMRC has to use more invasive surveillance technology, such as wiretaps to listen into phone calls made by an individual.

HMRC can also film an individual’s house or track their car if they believe a case of serious tax evasion has occurred!

Get in touch

HMRC is likely to be under pressure to increase its yield from compliance activities in the coming year to make up for the huge outlay of public spending during the coronavirus crisis. Clients need to therefore be extra cautious and diligent in ensuring their tax affairs are line with HMRC’s requirements.

Tax investigations can be very stressful and costly for those involved. PfP are specialists in this area and you can protect yourself against the cost of most tax investigations by subscribing to our Tax Investigation Service. To find out more contact our tax investigation team.

Changes from 1 July 2021 to sales to EU customers

E-commerce – “just when you thought it was safe to go back in the water…”

I know we are all still getting to grips with the trade, import taxes and VAT changes introduced for sales of goods from the UK to EU customers, following the end of the Transition Period on 31 December 2020.

There is more just over the horizon with fundamental changes from 1 July 2021 to the collection of VAT on the sale of both goods and services to EU customers.

Sticking with the Jaws theme, “you’re gonna need a bigger boat”.

Although this blog does provide a brief overview of the rules being introduced later this year, we strongly suggest you join us for our webinar on 11th May, which will explain these rules in more detail and provide illustrations of how they might apply to your business. Visit our events page for details.

Overview

Three schemes will be in place from 1 July to deal with B2C supplies of goods and services to EU customers. Two of the schemes are enlarged versions of existing schemes. The third scheme deals specifically with distance sales of goods from stock held outside the EU. In each case, the scheme is designed to facilitate the collection of VAT by one EU member state, which is then passed on to the member state in which the supply is deemed to take place.

The overarching principle for both goods and services is to collect VAT by reference to the place where the customer belongs or where the transport of goods ends. If you register for VAT using one of these schemes, you will complete one return for all EU sales, rather than being required to register for VAT in all member states in which your customers are based. This one stop shop (OSS) return will allow you to declare sales across all 27 EU member states.

  • The “Union Scheme” covers intra-EU supplies of goods and services for businesses with their place of business or a fixed establishment within the EU. The Union Scheme will also allow a UK business to hold stock within the EU (for example the Netherlands) and pay VAT for all EU sales to the Dutch tax authorities.
  • The “non-Union Scheme” covers supplies of services to EU customers by businesses with no establishment within the EU.
  • The “Import Scheme” covers the distance sale of goods below €150 fulfilled from stock held outside the EU.

Online Marketplaces

If you sell to EU customers using an online marketplace such as Amazon or eBay, you may be working with them to understand how best to provide stock to hold in warehouses in the EU. From 1 July, the marketplace or “deemed supplier” will account for VAT on your behalf if they facilitate the sale on their platform.

If you sell on both your own website and through a third party in this way, you are likely to have an obligation to account for EU VAT alongside the VAT being paid on your behalf by the online marketplace.

What should I do?

At present, you may be working through the implications of incoterms and whether to sell goods delivered duty paid (DDP), delivered at place (DAP) or in some cases ex-works (EXW). If you are selling DDP, you may also be grappling with the potential requirement for multiple VAT registrations across the EU.

These schemes have the potential to simplify your EU profile for sales of goods, as you may only need one VAT registration in one EU member state. It may help to consider how these schemes would work at a practical level, as part of the need to rethink the basis on which you sell to your EU customers

Sales of goods

  • The Union Scheme will work for you if you are prepared to hold stock in the EU. Your business will register and file its OSS VAT return in that country and pay VAT using sales information for each member state.
  • The non-Union Scheme is not relevant to sales of goods.
  • The Import Scheme will allow you to choose any EU member state to register for the import one stop shop (IOSS) scheme. This is only relevant for B2C sales below €150. The IOSS scheme also requires you to appoint an intermediary to act on your behalf if you have no establishment in the EU.

Supplies of services

  • The Union Scheme will work for you if you have a fixed establishment within the EU. You will register for OSS in that country and pay VAT by reference to sales across the EU.
  • The non-Union OSS will work for you if you do not have a fixed establishment in the EU. You can choose to register in any EU member state and account for VAT through the OSS VAT return in that country.
  • The IOSS scheme is not relevant to supplies of services.

A final note on compliance

The OSS and IOSS schemes have very little flexibility to backdate the point at which you join and start paying VAT. If one of these schemes can make life simpler, it pays to plan ahead to avoid multiple VAT exposures in the EU before joining one of the schemes.

Contact us

If you require any advice regarding the above please get in touch with our indirect tax partner, Jonathan Main on 01772 821 021 or email jonathan.main@mooreandsmalley.co.uk. Alternatively you can contact Steve Forster, Carolyn O’Shea or your normal contact at MHA Moore and Smalley.

Further information related to trading post-Brexit can be found in our dedicated post-Brexit hub.

Customs Training

3 months post Brexit – is your business coping with being exposed to customs processes and UK and overseas VAT as a result of the UK’s departure from the European Union?

If there are still problems to be solved then upskilling your team will enable those challenges to be met.

MHA has developed a successful, in-depth and practical training course for businesses who are impacted by the customs changes resulting from Brexit.

Our training is designed to educate and support employees whose roles are directly impacted by Brexit.

On the 1st January 2021 the UK exited the Transition Period and departed the European Union in terms of the transitional membership of the Single Market and Customs Union. As a result, UK businesses who trade with the EU will be required:

  • to submit import and export declarations to HMRC
  • to comply with the terms of the Trade and Cooperation Agreement between the UK and EU, particularly in relation to the rules of origin
  • to ensure their goods are correctly classified
  • To assist businesses in ensuring they can implement these changes, H.M. Revenue & Customs (HMRC) have announced an SME Brexit Support Fund of £20m.

Businesses have until the 31 August to submit claims but we know that this funding will not last long so we recommend that urgent action is taken to ensure your company does not miss out. Applying for the grant funding means your company can have all the benefits our training provides without the cost impact on the business.

Our training meets all the requirements of the HMRC Training Grant and has been developed by an experienced ex-HMRC Customs Officer. We provided training and support throughout the last funding cycle and are listed with PwC and HMRC as a provider.

The training covers all the aspects of importing and exporting that your business will need to deal with such as:

  • How Brexit will impact on your business – what are the legal requirements and easements provided by the UK?
  • How to classify your goods
  • How to value your imports for Customs purposes
  • Customs Duties – What are they and how are they calculated?
  • Rules of origin – what are they and how are they used?
  • Export Licensing – How to confirm if goods require a licence
  • Import declaration process and how to minimise errors
  • Shipping terms
  • Roles and responsibilities of the importer, exporter, and freight forwarder
  • Duty reliefs such as Customs Warehousing, Inward Processing and Temporary Admission
  • HMRC Customs Audits

If you would like to discuss any of the content above please get in touch with our indirect tax partner Jonathan Main on jonathan.main@mooreandsmalley.co.uk

This article originally appeared on MacIntyre Hudson, please click here to view it.

Pensions: Changes to Lifetime Allowance

Changes in the 2021 Budget

In April 2016 the Lifetime Allowance (LTA) reduced from £1.25 million down to £1 million and had since received increases in line with inflation, with the allowance standing at £1,073,100 from 6 April 2020. This limit has now been frozen in the March 2021 Budget at £1,073,100 for the tax years up to and including 2025/26.

Implications

Inflation remains low at under 1%, so the implications if you are retiring in the next financial year are relatively small as the limit would not have increased by much anyway.  The cumulative effect if you are retiring nearer the end of the frozen period, however, are more significant.  Even if inflation were 1% in the intervening years, the limit would have risen to £1,127,839, meaning £54,739 more capital value of pension would be covered.  The freezing of the limit, even at 1%, would therefore mean an extra £13,685 of tax due.  At 2% inflation, the extra tax would be nearly £28,000.

What should I do?

Individual Protection 2016 (IP2016) is still available for those with pension savings in excess of £1 million at 6 April 2016 and can protect the pot up to £1.25 million.  Individuals should arrange for a review of their pension savings with their financial advisor to consider if they could be in danger of exceeding the lifetime allowance of £1,073,100.  The exposure to the limit is calculated as 20 times the pension plus any lump sum.  Broadly this means that a member of the 1995 section of the pension scheme retiring on a pension of more than £46,656 may pay an LTA tax charge. Commuting of pension to take more lump sum can also reduce the capital value for LTA purposes and therefore reduce the exposure.

No deadline date has currently been set for an application for IP2016, as long as it is done before benefits are drawn, so it is worth checking your pension statements and speaking to us for assistance in applying if you meet the criteria.

Contact us

If you require any advice regarding the above please get in touch with Lisa Pennington, Healthcare Services Director, or alternatively contact us here.

2019/20 Annual Allowance Scheme Pays Compensation Scheme

What is it?

It is a move to encourage NHS clinicians not to reduce their commitment to work, which many had done to try and avoid an Annual Allowance (AA) pension tax charge.  For the one-off year of 2019/20 only, where you have asked the scheme to pay a pension tax charge for you, the NHS will fully recompense you so that no financial loss is suffered.

How does it work?

The compensation scheme can only be used if you have asked the scheme to pay a tax charge for you.  It cannot be used if you paid the tax through your self-assessment return.  When you have completed a scheme pays election for 2019/20, your pension in retirement will be reduced in the normal way to recover the tax paid on your behalf.  The NHS, however, will pay you a corresponding separate salary in retirement, subject to PAYE deductions of tax and national insurance where necessary, to completely offset the reduction in pension.

How do I apply?

The application can be downloaded by clicking link below.  No figures are needed on it, just your personal details and a signature and date.

What do I do with it?

The form needs countersigning by your NHS employer.  For the separate categories, the process is as follows:

Employed clinicians: After you have signed and dated the form, it should be passed to the director of your employer’s Human Resources department to complete, stamp, sign and date their part.  After passing back to you, it should be submitted to NHS Pension at this address:

NHS Pensions, PO Box 2269, Bolton, BL6 9JS

GPs (including partners, salaried GPs and locums):  Your signed form needs to be submitted to PCSE via the online portal through the ‘GP Pensions’ and then ‘Individual Protection’ drop-down boxes.

Dentists: Will complete the form via their Compass portal.

What date does it need to be submitted?

The ‘normal’ deadline date is by 31 March 2022, but it is strongly recommended that the submission is at the same time, or slightly after, the scheme pays election is made.  The deadline for 2019/20 scheme pays elections is 31 July 2021, so ideally that is the latest date you should be looking at.

There is an earlier date required for those GPs who have retired or will do by 31 March 2021.  The scheme pays election for all clinicians who have done this will have been required before the AW8 application for the pension was submitted.  Very recently, however, PCSE have imposed a very restrictive date for GPs only in this category of 21 March 2021.  That seems wholly unrealistic under the circumstances.  Representations to NHS Pensions have been made and it is understood that a soft approach will be taken with this date.

Contact us

If you require any advice regarding the above please get in touch with Dave Walker, Healthcare Services Senior Tax Manager or alternatively contact us here.