Returning NHS workers targeted by tax avoidance promoters

Many thousands of former NHS workers have returned to frontline services to assist in the fight against the Coronavirus pandemic.  HMRC very quickly issued a note advising that these returning workers were being targeted by unscrupulous promoters of tax avoidance schemes.  These schemes are typically offered through umbrella companies and boast the attractive outcome of being able to take home around 85% of your gross pay after all deductions.

The payments from such companies will frequently fall into two categories.  The first will be a relatively small salary, with the appropriate payslip and proper deductions of PAYE at source.  The second payment will be higher and described as something other than salary, often being referred to as a loan, but also perhaps as an annuity, shares or some other credit facility.  HMRC consider this second payment as disguised remuneration and will raise an enquiry to challenge such methods of payment.  They have frequently won these challenges, and so returning NHS workers need to be very careful what they sign themselves up for as they may end up liable for large amounts of underpaid tax.  If they don’t know fully what they’ve signed themselves up for, they should seek professional advice.

Below is a copy of the relevant HMRC note concerning this:

https://www.gov.uk/guidance/tax-avoidance-promoters-targeting-returning-nhs-workers-spotlight-54


David Walker

Healthcare Services Senior Tax Manager

david.walker@mooreandsmalley.co.uk

01253 404404

Towards the new normal – Brexit and beyond

The UK government has been clear that whatever the outcome of the Brexit trade talks they will not extend the transition period beyond 31 December 2020.

German officials have been reported as saying that EU leaders may intervene in the autumn if no progress has been made, to try and strike a compromise deal.

A clear focus on import taxes and international trade issues is key in preparing for the tariffs and trade requirements with the EU from 1 January 2021.

The final round of Brexit trade talks is taking place and political deadlock means that a nodeal is becoming more likely. The deadlock centres on the UK being required to sign up to EU rules in exchange for tariff free access.

On 12 June, the UK government announced that there would be no extension to the transition period beyond 31 December 2020.

If you have any questions in regards to the above content, please contact Jonathan Main.

Moving to the new ‘normal’ Working from home & downsizing

As we move out of lockdown, where we have perhaps embraced new ways of working and some wholesale remote working from home, employers may be thinking about adopting working from home (WFH) as a ‘new normal’.

However, the costs and expenses relating to WFH can create issues and the devil is in the detail, with quite a ‘high bar’ to clear for HMRC to accept that home is a workplace and that travel to any of your premises is to a temporary workplace that is not taxable.

This article was originally written by our colleagues at MHA MacIntrye Hudson.

VAT treatment of property search fees charged by solicitors and conveyancers

HMRC have announced the formal withdrawal of the ‘postal concession’ with effect from 1 December 2020.

What is the postal concession?

The postal concession was agreed between HM Customs and Excise and the Law Society in 1991. It allowed conveyancing solicitors to treat property searches conducted by post as disbursements, so that VAT did not have to be charged by the solicitor to the buyer of the property.

Why has this changed?

In 2017, the law firm Brabners LLP lost a VAT case before the First-tier Tribunal that online search fees should be treated as disbursements. Following a consultation process, HMRC have justified the withdrawal of the postal concession on the grounds that postal and online searches need to be dealt with on a consistent basis. HMRC also feel that postal searches are largely obsolete and that the concession serves no useful purpose.

What next?

HMRC state that further guidance will be issued on the treatment of disbursements more generally, following withdrawal of the concession on 1 December 2020. Watch this space!

If you have any questions, please contact Jonathan Main on 07760 166802.

Business Protection: Tax efficient life cover

The current global COVID-19 pandemic has shown us just how quickly the unexpected can happen, and the major impact that it can have.

These times of uncertainty highlight the importance of protecting what matters to you and your family.

Although state benefits provide some support, few families want to rely on the state to maintain their standard of living. It is therefore crucial to keep abreast of the level of your insurance cover.

Over the next few weeks, we will look at the different types of protection a business owner should consider.

Tax efficient life cover

What is it?

  • A policy that provides individual life assurance – for example to a salaried director.
  • It is provided for the individual and paid for by the company.
  • It pays out a tax-free, lump sum on the death (or in circumstances where a ‘significant illness’ involves retirement) of the person insured.
  • The proceeds go to the employee’s family or financial dependants.

Why have it?

You should have it in order to protect loved ones from financial worries, should the worst happen. You insure your car so shouldn’t you insure your most valuable asset – yourself?

It is also a tax efficient benefit which can be offered to business owners and employees.

Why think about it?

  • It provides the opportunity for smaller companies to offer a death-in-service benefit to its employees (including salaried directors).
  • Offering life and ‘significant illness’ cover demonstrates how much your business cares about the well – being of your employees, which can be useful in both recruitment and retention.

It is an important financial planning solution for:

Small businesses

Often small business don’t have enough employees to be able to offer a group scheme. However, relevant life cover can be on an individual basis. Therefore, a small business can take advantage of the tax efficiencies generally enjoyed by larger companies.

High earning employees

Group schemes are restrictive in the amount of cover provided, and what is included as ‘salary’. For a higher earner this may not provide sufficient cover.

As opposed to a Relevant Life Plan, there are some little known pitfalls with a group life scheme – this is because a group scheme falls under pension legislation.

Why does that matter?

If the person covered dies, the lump sum death benefit is added to the employee’s pension fund. So, when it comes to calculating the lifetime allowance (currently £1,073,100 tax year 20/21) – this lump sum could make a big difference as anything over the allowance is taxed at up to 55%.

Crucially, benefits from a Relevant Life Insurance Policy won’t count towards either the annual or the lifetime pension allowance.

How does it work?

Sam Jones is a salaried Director of ABC Ltd. He wants to know that if he dies, his wife Sue and son Josh have no financial worries. He needs life cover to protect his family; a lump sum of cash from a life policy will provide that protection.

  • His company – ABC Ltd takes out a policy on Sam’s Life
  • The plan is put into a Trust with Sue and Josh as beneficiaries
  • Sadly, Sam dies or has a ‘significant illness’*
  • The Trust makes a claim to the life company
  • The life policy pays the claim money to the trustees
  • The trustees then pay out to:
    • Sue and Josh if Sam has died
    • Sam himself (in the case of a significant illness)

* which leads to retirement or anticipated retirement

And the tax efficiency?

ABC Ltd

  • Receives corporation tax relief on the premiums
  • Pay no employer NI on premiums*

Sam

  • Sam benefits aren’t taxed as an employment income (no P11D)
  • He pays no NI on premiums or benefits*
  • Any benefit would not be included in Sam’s estate for inheritance tax purposes
  • Benefits do not count towards pensions annual or lifetime allowances

*as long as premiums are fully employer funded.

Other blogs in this series will look at:

Contact us

For further information on the content of this blog, please contact Nathan Douse on 01772 821021 or email nathan.douse@mooreandsmalley.co.uk 

The purpose of this blog is to provide technical and generic information and should not be interpreted as a personal recommendation or advice.

This article was originally written by our colleagues at MHA Tait Walker.

R&D Tax Reliefs – A Mechanism to Generate Cashflow as a Reward for Innovative Development

Problem vs Opportunity?

Given the challenges presented to companies during these unprecedented times, many businesses are taking advantage of the Government’s COVID-19 employment and loan schemes. Whilst these serve an invaluable role in supporting business, many companies are nevertheless facing a significant reduction in cashflow, which could be critical to the viability and health of the business. R&D Tax Reliefs present an ideal opportunity to boost a company’s cashflow. Whether you have never claimed under an R&D scheme or have been claiming for many years, the dedicated R&D team at MHA Moore and Smalley can help.

There has been uncertainty over the interaction of R&D and the Coronavirus Business Support Schemes from the perspective of state aid. Via our national association, MHA, we have been in contact with HMRC to clarify the position and are able to advise our clients on the best way forward.

New to R&D Tax Reliefs?

The UK R&D Tax Incentive Scheme will mark its 20th anniversary this year. The scope of activities that can qualify for the relief is often wider than realised and goes far beyond the preconception that R&D must have taken place in a laboratory setting. Across MHA, we have successfully dealt with claims ranging from Chocolatiers, to BitCoin Developers to Diesel Engine Mechanics. If your team have been pushing the boundaries of how-to problem solve within your industry, it is possible that they have been undertaking qualifying R&D:

A reasonable estimate of operational costs (such as staff salaries, payments to subcontractors, spend on prototypes and so on), is made by measuring the intensity of problem-solving activities in response to challenges within a project.

R&D relief for SME’s provides that 25p or 33p is realised for every £1 of qualifying expenditure, depending on whether the company was profitable or loss making (respectively) in the period. Larger Companies must claim under the R&D Expenditure Credit Scheme, whereby the benefit is roughly 10p for every £1 identified. Claims can be made up to 2 years after the end of the accounting period it relates to. The importance of the R&D Scheme is pronounced in the current climate, especially for loss making companies, where the losses can be surrendered for cash credit.

We have developed a highly agile claim preparation process, which follows best-practice guidelines established with HMRC, to ensure that in the current climate we can work remotely to efficiently and safely maximise the value of an R&D Tax Claim. The team have a 100% success rate with claims submitted, and can submit your claim within 3 weeks from starting the process.

Already Claiming R&D Tax Relief?

Claim processing time – Our MHA association has been in regular touch with HMRC during the lockdown, and the latest guidance indicated that HMRC has brought in additional resources to maintain their standard processing window in getting 95% of SME submissions through within 28 days.

Interaction of R&D Schemes with Coronavirus Business Support Funding – it is important to note that the SME R&D Tax Relief Scheme is denoted as State Aid. Furthermore, the recently introduced Employment Retention Scheme and Coronavirus Business Interruption Loan Scheme are also denoted as State Aid. Under EU rules, two forms of State Aid cannot subsidise the same piece of work. Consequently, if claims are being made under the Government’s COVID- 19 schemes, an R&D claim must be made under the less generous R&D Expenditure Credit (RDEC) Scheme.

It is important to remember that although the Coronavirus Business Support Funding may have been claimed only for a portion of the accounting period, if it did indeed subsidise a cost involved in an R&D project, then the entire project must be claimed under the RDEC Scheme. It may be possible to demonstrate that R&D activities had ceased for the duration of the lockdown (and hence when the govt support was claimed), however the facts would need to support this.

Another factor to consider is the definition of ‘de minimis’ aid, where the funding does not exceed more than EUR 200,000 over a 3-year period. The portion of the project subsidised through de minimis aid is claimed under the RDEC Scheme, whilst the remainder can be claimed under the more generous SME Scheme if applicable. Whatever the circumstances, it will be very important for companies to note which projects were live during the claim period and whether they interacted with any such funding. It has been confirmed that the VAT deferment Scheme should not affect R&D Tax Claims. The EU is currently looking into the suspension or modifications of conventional State Aid rules for Coronavirus Business Support Funding based schemes within member states, and our team is keeping a close eye on these developments.

Who remembers Budget 2020? – The Government had proposed three key changes that affected R&D Tax Claims as below:

  • As a measure to prevent the abuse of the R&D Tax Relief Scheme, the Government had run a consultation with industry, where our colleagues at MHA MacIntyre Hudson provided feedback, on the introduction of a cap to cash credit payments for loss making claimant companies. This cap was proposed as being three times the total PAYE & NIC contributions made by the company in the claim period. The industry highlighted that whilst such as measure might prevent ‘shell’ companies from making claims, it would unfairly target start-ups, where directors do not reward themselves salaries. As a result, the Government have delayed the introduction of this cap to the cash credit to 1st April 2021, subject to further consultation with the industry on how to identify companies that have a genuine UK footprint in terms of development activities
  • The RDEC credit rate was increased from 12% to 13%, resulting in an effective benefit rate increase from 9.7% to 10.5%
  • Although the use of extensive data sets in testing and development within software projects continues to increase, there is no current mechanism within R&D Claims to qualify the costs of these. In response, the government is running a consultation on treating the costs of acquiring these data sets as a consumable item.

And last but not the least…

We predict that although the current lockdown has a stranglehold on the economy, many companies are looking to the future. Our role is to provide you with critical advice on how R&D projects could be structured to provide the maximum benefit both now and in the future.

To get in contact with our R&D Tax Specialists please email info@mooreandsmalley.co.uk and a member of the team will get in touch.

For information about other tax reliefs that are available for businesses and may help to increase cash flow, please read our factsheet here.

This article is based on a piece written by our colleagues at MHA MacIntyre Hudson.

Working from home – what can be provided tax free?

There has, of course, been a huge increase in employees working from home as a result of the Coronavirus outbreak. The employer may have closed their premises, or employees may be following advice to self-isolate.

But what are the tax implications of the various items that employers provide to employees in this situation? And can any be provided / paid tax free?

Some of the key items – and the associated conditions – are considered below. There is an important new exemption for Coronavirus-related reimbursed home office expenses.

These principles would not be relevant to employees who have been furloughed under the Coronavirus Job Retention Scheme and therefore are not working.

The principles around some other key benefits changes arising from coronavirus, as well as homeworking costs for self-employed individuals, are considered further below.

 NON-TAXABLE TAXABLE
Mobile phones and SIM cards (no limit on private use)

Must be only one per employee

 
Broadband

Connection needed to work from home

Wasn’t already provided

Must be for business use

Private use limited
Broadband

Connection was already provided





New exemption

Reimbursed expenses for home office equipment purchased by the employee

Equipment obtained solely to enable employee to work from home during the Coronavirus outbreak

Would have been non-taxable if provided directly by the employee (see below)

Only temporary – from 16 March 2020 to the end of tax year 2020/21
 

New exemption

Reimbursed expenses which don’t meet the conditions of the new exemption

Can potentially be reported on PAYE Settlement Agreement (PSA)







Existing exemption

Home office equipment Provided by employer

Mainly business use

No significant private use – based on employee’s duties and the need for them to have the items for their job, not time spent


Laptops, tablets, desktops etc Office supplies

Provided by employer

Mainly business use

No significant private use – based on employee’s duties and need for them to have the items for their job, not time spent
Laptops, tablets, desktops etc
Office supplies


Reimbursed expenses for IT / office equipment bought by the employee

Can be reported on PAYE Settlement Agreement (PSA) 
Additional household expenses

Electricity, heating etc

Can be paid or reimbursed

£4 per week up to 5 April 2020

£6 per week from 6 April 2020

Employees should check with the employer if they will accept claims above these amounts and should keep relevant receipts
 
Employer-provided loans

Salary advance / hardship loan

Value of less than £10,000 in a tax year
 
  Reimbursed accommodation / subsistence

expenses for employees who are self-isolating but cannot do so in their own home
Employee using own vehicle for business

Approved mileage allowance payments

Up to 10,000 business miles – 45p per mile

After that – 25p per mile
 
Other benefits

Cost £50 or less to provide

Not cash or cash voucher

Not reward for performance

Not contractual

Could be flowers if somebody is unwell or self-isolating
 

 

Some other benefits changes arising from coronavirus

  • Salary sacrifice – the government guidance on the Job Retention Scheme is that coronavirus counts as a ‘life event’ that could warrant off-cycle changes to salary sacrifice arrangements.
  • Child benefit – families that were not previously eligible for child benefit (due to the tapering of the benefit where the annual income of one parent is £50k+) may become eligible if their income has fallen due to coronavirus. Claims can only be retrospective for a maximum of 3 months.

Self-employed homeworking costs

There needs to be a reasonable method for apportioning costs between business and private use, for example based on the number of rooms or homeworking time. Costs which can potentially be claimed on a proportionate basis are:

  • Heating, electricity
  • Council Tax
  • Mortgage interest or rent
  • Internet / phone use

Flat-rate simplified expenses can be used as an alternative to actual costs. This method is available to self-employed sole traders and business partnerships that have no companies as partners. Individuals must work 25 hours or more a month from home.

The flat rate does not include phone or internet expenses, which must be claimed based on the business proportion of actual costs.

Hours of business homeworking per month Flat rate per month
25-50 £10
51-100 £18
101+ £26

Find out more

If you have any queries on any of the above or would like to discuss how we can assist further, please contact a member of the tax team.

This article was originally written by our colleagues at MHA MacIntyre Hudson.

Use tax breaks to conquer coronavirus cash concerns, says North West expert

Businesses in the North West are being urged to make use of existing tax incentives to help them boost cashflow and overcome the coronavirus crisis.

Tony Medcalf, a tax partner at North West-based accountants and business advisors MHA Moore and Smalley, believes businesses should not forget the value of the support that was already on offer before the crisis.

He said: “The government has announced some outstanding business support measures since the pandemic came to light, and many businesses are making good use of measures like loans, grants and payment holidays.

“However, with so much going on it’s easy for businesses to forget about the tax incentives that already existed and can be vital in boosting cashflow.

“For example, business may look to bring forward existing tax claims by changing their accounting period, claim tax allowances for investment in new plant and machinery, or apply for tax relief for research and development activity.

“Cashflow can be the difference between life and death for the business, so business owners should be speaking with their professional advisors as soon as possible to make sure they capitalise on all the incentives available.”

To help businesses, MHA Moore and Smalley has produced a guide to the different tax reliefs and incentives that businesses may be able to employ to improve cashflow in their business.

Meanwhile, the firm has reminded businesses furloughing workers to ensure they remember that payments received under the Coronavirus Job Retention Scheme (CJRS) are classed as taxable income.

Tony added: “While, businesses can use the CJRS to continue paying their furloughed employees, they should remember the grants claimed back from government are considered as income on the company’s balance sheet and will be classed as taxable for the purposes of corporation tax.”