Latest Industry News

COVID-19 Update 3

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The Chancellor announced on 24 September a whole new raft of measures and support schemes for businesses and individuals during the COVID-19 crisis. Some of this is very welcomed news but some not so much. As with so many things in life we all wish that more could be done by the government (removing the IR35 changes in the private sector expected from April 2021 for a start!) but alas we can only deal with what is in front of us. I have gone through the new measures below. For any questions please get in touch with us via [email protected].

VAT Payment Deferral extended

One of the measures introduced earlier was the deferral of VAT accumulated between 20th March 2020 until 30th June 2020 till 31 March 2021. However, now businesses who deferred their VAT will no longer have to pay a lump sum at the end of March next year. They will have the option of splitting it into smaller, interest-free payments over the course of 11 months.

VAT rate for hospitality and tourism sector

For those companies operating in the hospitality and tourism sector, only the VAT rate was reduced to 5%. This was originally due to end in January but this is now being extended to 31 March 2021.

Business Loans

The term of the Bounce Back Loan and Coronavirus Business Interruption Loan Scheme has been extended from six years to 10 years. This would mean monthly repayments are almost halved. Please note that if you intend to close your company all loans must be repaid first.

The deadline for applying for all government coronavirus loan schemes has been extended to the end of 2020.

There will be no adverse effect on credit ratings because of taking the loans.

Self-assessment

Those with self-assessment tax bills who need more time to pay will be given it as per the Chancellor.

Job Support Scheme (JSS)

The main announcement was the Job Support Scheme, the successor to the Job Retention Scheme (commonly known as the furlough scheme). Under this scheme, the government will cover up to 22% of pay for workers in “viable” jobs for the next six months. The government will subsidise the pay of employees who are working fewer hours than normal due to the COVID-19 crisis.

Simply, employees must work at least a third of their normal hours and their employer will pay two-thirds of their salary and the government will pay one third. The grant is capped at £697.92 with all small and medium-sized businesses eligible for the scheme. The scheme is expected to run from 1 November for six months.

In terms of eligibility and detail on the scheme, the government has produced a factsheet. It appears that this is geared towards small, medium-sized enterprises. Some of the main points to note are the following;

  • Employees must be on an employer’s PAYE payroll on or before 23 September 2020.
  • For the first three months of the scheme, the employee must work at least 33% of their usual hours
  • For every hour not worked by the employee, both the Government and employer will pay a third each of the usual hourly wage for that employee.
  • The Government contribution will be capped at £697.92 a month.
  • Grant payments will be made in arrears, reimbursing the employer for the Government’s contribution.
  • The grant will not cover Class 1 employer NICs or pension contributions, although these contributions will remain payable by the employer.
  • Employers must agree the new short-time working arrangements with their staff, make any changes to the employment contract by agreement, and notify the employee in writing. This agreement must be made available to HMRC on request.
  • “Usual wages” calculations will follow a similar methodology as for the Coronavirus Job Retention Scheme. Full details will be set out in guidance from the government shortly.

Job Retention Bonus

Rishi Sunak also clarified that employers retaining furloughed staff on shorter hours can claim both the Job Support Scheme and the Job Retention Bonus, which will be available in February next year. The bonus will be a one-off payment of £1,000 to UK employers, for every furloughed employee who remains continuously employed through to 31 January 2021. Employees must earn above the National Insurance lower earnings limit (£520 per month) on average between 31 October 2020 when the CJRS ends and the end of January 2021.

The bonus payments will be made from February 2021. Please get in touch with us in February about applying for this.

Update on Government schemes in response to COVID-19

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Update on Government schemes in response to COVID-19

We are now well into the lockdown and we hope that you are keeping safe and well. Here, at Banner & Associates we are adjusting to working from home and although there are some differences to the way we service our clients. Remember if you want a phone call then please email the relevant person to arrange a time for a call.

I have outlined below some updates to the schemes that the Government has announced in relation to COVID-19.

Stay safe and best wishes to all.

Companies House 3-month extension to filing of accounts

You can get a 3-month extension to the filing date for your accounts from Companies House. The application for this extension must be done prior to the due date for the accounts.

This application can be done online using this link, https://www.gov.uk/guidance/apply-for-more-time-to-file-your-companys-accounts

If you do request an extension to the filing date for your accounts, please let us know. Remember this is just an extension and the accounts will still be due at some point.

Time to pay arrangement for COVID-19

The HMRC phone number for arranging a time to pay arrangement has now changed to 0800 024 1222. This should be phoned if you want an extension to corporation tax or PAYE/NI.

Please note that VAT payments are automatically deferred to 31 March 2021.

Self-assessment due on 31 July 2020 has also been automatically been moved to 31 January 2021. This would mean that on 31 January 2021 you will be paying not only the second payment on account that would have been paid on 31 July 2020 but also the tax due for the tax year ended 5 April 2020 and the first payment on account for the 2020/21 tax year. Although the payments on account can be reduced to £nil there are potential consequences of doing this being interest and a requirement to pay the 2020/21 tax bill early.

Self-employed scheme

If you are a Director of a limited company then you do not qualify for the Coronavirus Self-employed Support Scheme you in fact qualify for the Job Retention Scheme.

Also, there are some scammers out there pretending to be HMRC and contacting individuals saying that they qualify for the Coronavirus Self-employed Support Scheme. If you receive a call from HMRC asking for personal information, then hang up immediately!

Job Retention Scheme

There is a lot more information now on the Job Retention Scheme and I am going to go through it all below. Please note that the HMRC portal through which this can be claimed is still under development and is expected to be completed by 20 April 2020. Thereafter the grants will be paid and the timing of when the grants will be paid is still unclear at this time.

  • Employees and Directors can be put on furlough rather than being made redundant. This is available to Directors of Personal Service Companies too, but it is only for your salary NOT dividend.
  • While on furlough the employees must do no work at all! Furlough in this instance is an alternative to redundancy and means a leave of absence from work.
  • Directors are permitted to carry out statutory duties only but not allowed to work or even look for work. Training is permitted though.
  • There is a minimum furlough period of three weeks and currently a maximum of three months, though this could change. Employers can apply furlough for any period within these parameters.
  • Furlough pay granted by Government is 80% of the normal pay as at 28 February 2020.
  • Employees must be on the payroll at 28 February for furlough pay to be available.
  • The maximum amount of furlough pay is £2,500. Employer NIC and mandatory Auto enrolment contributions will be paid in addition. Please note that for most of our clients no Employer NIC or Auto-enrolment apply. This is because if you have more than one employee then we will be claiming the Employment allowance. Auto-enrolment is not mandatory for Directors.
  • Claims will be made through a special portal, which is expected to be available by 20 April 2020.
  • If we are your agent with HMRC for PAYE then we will be able to do this on your behalf. In some instances, we may not be your agent and in which case you as the Employer will have to make the application yourself as this would be quicker than us becoming your agent and then doing the application. 
  • The payments will be taxable on the Employer.
  • Being furlough does not exclude you from continuing to take dividend and you are not excluded from it if you are in receipt of rental income.
  • This is a government grant and not a loan so will not need to re-paid. However, HMRC retains the right to retrospectively audit all claims.

Another point to note that as for most of our clients the monthly salary is equal to the personal allowance, it would make sense that we would continue processing the monthly salary at this amount and then if you are ‘furlough’ we can claim a grant for 80% of this and your company pays you the remaining 20%.

If you are going to be ‘furlough’ it is necessary, that you can demonstrate this and that there is a letter in place confirming your status as being furlough and the same for any other employees. I did a search on google and there are many free furlough templates available. This is essential as per my last point HMRC retains the right to audit claims retrospectively.

Please email Ron at [email protected] if you are going to furlough and from when you wish to claim the Job Retention Scheme grant (1 March 2020 or later) and if for all employees or just you as the Director. Also please ensure you have the evidence of the furlough letter and something to confirm that you are not working. You do not need to send this to us but you must have it in place.

As always, we will help you with the applications and make them on behalf of clients where we are your agent. Please note this is additional work to our usual workload and we will get it done for you but we ask for your patience and understanding. These are unprecedented times that are unimaginable. We are all working hard from home and some of our staff have been sick with suspected COVID-19 including myself. Please be patient we are all in this together!

Budget 2020

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Budget 2020 – Key Points

Newly appointed Chancellor of the Exchequer, Rishi Sunak, has just delivered his first ever Budget to the House of Commons, in fact the first Budget since October 2018 and it’s packed with implications for small businesses. We have highlighted below what would affect our clients the most. We have not gone into detail about other points covered in the Budget regarding the economic outlook and spending plans for the government.

Also please note that there has been no change in the bandings or amounts in respect of income tax thresholds for the 2020/2021 tax year remain the same as those for the 2019/20 tax year. My blogpost, DIVIDEND FOR 2019/20 .

IR35 changes will go ahead

The planned changes to how IR35 operates, moving the compliance requirements from the contractor to the client for large and medium-sized private sector businesses who engage freelancers, will go ahead from 6th April 2020. I have written a separate blogpost about this called ‘New IR35 rules – some guidance’.

Entrepreneurs’ Relief is restricted rather than abolished

There were rumours that Entrepreneurs’ Relief, which reduces the rate of capital gains tax to 10% on the sale of all or part of a business, would be abolished altogether.

This, thankfully, did not happen. Instead, everyone will be able to claim Entrepreneurs’ Relief on a maximum of £1million worth of eligible gains during their lifetime, down from £10million, with the reduction applying from Budget Day, 11th March 2020.

Coronavirus

The Chancellor began speaking about coronavirus as this being the most pressing matter globally and nationally. He introduced various measures to help businesses survive the outbreak. Here are the key points for you.

  • For small businesses with staff, including those who work through their own limited companies, where a director or employee has to self-isolate or falls sick with coronavirus, the affected individual can be paid Statutory Sick Pay for up to two weeks and reclaim the cost in full from the government. This relief applies as long as the business had fewer than 250 employees on 28th February 2020. As Statutory Sick Pay cannot normally be reclaimed, this could bring a welcome cash boost, however small, to your clients. This relief cannot be claimed by sole traders and partners who do not have employees. The rules around claiming certain other state benefits have been relaxed for the duration of the coronavirus outbreak but as not all self-employed individuals claim benefits, this will not help everyone.
  • Small- and medium-sized businesses affected by coronavirus have the option to apply for a loan under the temporary Coronavirus Business Interruption Loan Scheme. Under this new scheme, banks and other lenders will be able to make loans to affected businesses of up to £1.2million per loan, with up to 80% of each loan backed by a free government guarantee.
  • Small businesses in the retail, hospitality and leisure industries will pay no business rates for 2020/21 and many will also be eligible for a £3,000 cash grant to help meet their costs.
  • HMRC’s Time to Pay service will be scaled up to give businesses affected by coronavirus more time to pay their taxes. HMRC will also waive late payment fines and interest where a business is unable to contact HMRC or pay their tax due to coronavirus. Both options are potentially welcome news.

Increase in Employment Allowance

The Employment Allowance will be increased from £3,000 to £4,000 from 6 April 2020. The Primary Threshold and Lower Profits Limit will also both be increased to £9,500, however the Secondary Threshold remains unchanged. This would not necessarily have a drastic impact if you are taking a low salary.

Corporation Tax rate holds steady

The rate at which limited companies pay Corporation Tax was originally planned to fall from 19% to 17% on 1st April, but these plans have been axed. The rate of Corporation Tax will now remain at 19%.

Pensions

The tapered annual allowance on pensions has gone up. This measure increases the income limits used in calculating the tapered annual allowance and decreases the minimum tapered annual allowance. Threshold income, which is broadly total income before tax (less employee/personal contributions), is increased from £110,000 to £200,000. Adjusted income, which is broadly total income before tax plus employer contributions, is increased from £150,000 to £240,000.

The minimum tapered annual allowance is decreased from £10,000 to £4,000. The measure will have effect for the tax year 2020/21 and will be effective for benefits accrued on or after 6 April 2020.

Proposals to offer greater pay in lieu of pensions for senior clinicians in the NHS pension scheme will not be taken forward. Those with adjusted income over £300,000 will see a reduction in their annual allowance and will pay more tax consequently. Likewise, those with adjusted income below £300,000 are likely to see a reduction in the tax they pay because they are either no longer impacted by the taper and are entitled to the full £40,000 annual allowance, or they are still impacted by the taper, but their tapered annual allowance has increased.

A small business-friendly Budget?

While the measures to support businesses through coronavirus will be welcome, there is little tangible support for those self-employed traders who do not have business premises and for whom self-isolation effectively represents a two-week business shutdown. It is also disappointing to see the IR35 changes go ahead in spite of the ongoing House of Lords review and the questions raised by many contractors and representative organisations.

New IR35 rules

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New IR35 rules – some guidance

Well the budget did not deliver for many of us and the new IR35 rules will be coming in from 6 April 2020. We have outlined some points about the new legislation below. If you have any questions, please give us a call or an email to arrange a call with Ron or Roshan.

The new off-payrolling regime in brief

Where a contractor’s personal service company (PSC) receives payments for work done by the contractor (you) from a non-small private sector client, the client must from 6 April 2020 determine whether or not the contractor would have been an employee if they had been hired directly, i.e. not via the contractor’s PSC. If the client determines that they would, then the contractor will be considered a deemed employee and the fees payable to the PSC will be subject to PAYE (with any VAT and expenses paid gross to the PSC).

What are your choices?

Generally, PSCs are (in many cases) automatically deemed to be inside of IR35 and thus being told that if they wish to continue contracting then they must go via an umbrella company. It is either this or the contract would cease from before 6 April 2020 and the contractor would have to go and find another contract (an outside of IR35 contract). From what we understand and have been told there are few outside IR35 contracts available in the market presently. Most of our clients have taken the umbrella contract as they effectively have no other choice and sometimes it is better the devil you know than the devil you don’t!

Having said that, many commentators are saying that slowly the market will respond to these changes and there will be outside of IR35 contracts available in the future (but no one will be able to tell you when). With that in mind, many of our clients are retaining their limited companies with the intention of getting an outside of IR35 contract in the future.

Some of our clients with large sums of money in their company bank accounts have even foregone taking an umbrella contract and are doing ‘nothing’ while the market responds to these changes. They are the lucky few!

Finally, some have taken permanent roles and we are in the process of closing their companies for them (see ‘Closing down the Company’ for more details).

What does contracting via umbrella company mean?

  • If going via an umbrella, then this would mean that your PSC would no longer be invoicing your client and you would become an employee of the umbrella company. The umbrella company would hold the contract for you to work for your end client.   
  • You would cease to take a salary and dividend from your PSC. (see ‘What about my company?’)
  • Once signed up with an umbrella company and becoming an employee of the umbrella you would send your timesheets to them.
  • The umbrella company would raise invoices to your client and receive funds for the work you have performed.
  • The funds received (excluding VAT) by the umbrella company less their fee and Employers National Insurance (roughly 12% of the funds received) is then processed as a gross salary with applicable deductions for Holiday Pay, PAYE (income tax) and Employees National Insurance.
  • The net pay is then paid to you each month and the applicable taxes paid to HMRC by the umbrella company.   

What about my limited company?

As already mentioned, some of our clients are retaining their limited company with a view that the market will respond to these changes and there will eventually be outside of IR35 contracts available.

We can effectively put your company in a ‘dormant’ state and reduce our fees accordingly. If you would like more information about this then please email Ron or Roshan on [email protected] or [email protected] to arrange a call.

Closing the company

In some instances, clients are choosing to close down their limited company. There are some options available here and it really depends on the funds left in the company as to how to close it down.

The starting point for closing is to produce a final set of accounts for the Company. This should be to the end of the month that the last invoice payment from contracting is received.

At the same time as doing this we would need to close the PAYE and VAT schemes and reconcile these to ensure that there are no further liabilities.

Once the final set of accounts have been approved by you and submitted to both Companies House then we will be able to close the company.

There are two methods of closing the company (Solvent Liquidation or Dissolution) and the method employed would depend on the level of funds left in the company. Ron or Roshan would be able to go into more detail on this over the phone or in a meeting but here are some details below.

Solvent Liquidation

If the PSC has over £25,000 of assets, then a solvent liquidation is a tax efficient option of closing the PSC. Any assets of the PSC (including residual cash) will be distributed to the shareholder(s) as a capital distribution meaning that a lower rate of tax can be obtained which currently stands at 20%. In addition, the shareholder(s) may qualify for entrepreneur’s relief which would lower that rate to 10% at current rates. A significant tax saving!

Dissolution

If the PSC has assets of less that £25,000 then a dissolution and strike off of the PSC may be an option of dealing with it in a simple and cost-effective manner. 

IR35 Update

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Some updates for you all regarding IR35. The rather unpopular Business Entity Tests that were introduced by HMRC are to be scrapped from 5 April 2015 onwards. Hooray! For those of you who didn’t know about the Business Entity Test please note that these were not appropriate and had been campaigned against by various groups representing contractors.

However, the IR35 risk still exists and is not to be ignored. The risk of being investigated remains and there are a few points that need to considered which will help you to stay on the right side of the rules. IR35 status is largely dependent on three factors, so it is important to make sure your contract (and conduct whilst undertaking the contract) contains the following.

  • An unfettered right of substitution. This means that the contractor is not contracted personally to do the work but could send a substitute in case of absence and shows that the relationship is not typically one of employment. The ‘unfettered’ aspect is important here – ideally you shouldn’t need to ask permission from the client before sending the substitute. We here at Banner & Associates recommend that you in fact inact your substitution clause if feasible.
  • Direction, supervision and control. A genuine contractor should decide how to get the work done, not the client, so autonomy and independence in the relationship is vital.
  • There should be no Mutuality of Obligation (MOO) in the relationship. The contractor is under no obligation to do work outside of what is stated in the contract, unlike a traditional employee and the client is not obliged to provide additional work.

The three factors above should be followed either in their entirety or at least one of them should be included in the contract. Remember there is more than the contract itself which might be considered by HMRC. They look at the entire relationship and as such there are other behavioural traits which we recommend to clients to exhibit to ensure you are not caught out by the legislation. For instance, where and when possible use your own equipment. Do not attend team meetings, remember you are not an employee and should not behave like one. Do not use client in-house client travel agencies.