Category Archives: UK Taxation

COVID-19: Accounting for grants and loans

COVID-19: Accounting for grants and loans

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COVID-19: Construction industry furlough claims rejected

COVID-19: Construction industry furlough claims rejected as ineligible.

Why are claims by construction companies for furloughed staff being rejected as ineligible?

One of the qualifying criteria for claiming 80% of the salaries of furloughed employee under the Coronavirus Job Retention Scheme (CJRS) is that the employer must have operated a PAYE scheme prior to the 19th March 2020.

PAYE/Construction Industry Scheme (CIS) Anomaly

HMRC operates two PAYE schemes for construction companies: Subcontractor Only and the hybrid Subcontractor/PAYE scheme.

Subcontractor Only PAYE Scheme – Ineligible for CJRS Grant

Construction companies which fall under the Subcontractor Only category are automatically rejected as ineligible when applying for the CJRS grant. This is despite the fact that these companies have been running employee payrolls for several years.

Construction industry furlough claims rejected

Subcontractor Only / PAYE Scheme – Eligible for CJRS Grant

All is not lost. Construction companies that have been rejected as ineligible for the CJRS grant can contact HMRC’s Employer Helpline on 0300 200 3200 and request that their PAYE scheme be modified to the hybrid version: Subcontract Only / PAYE.

Once HMRC has updated their system, the construction companies affected can re-apply for the grant after 72 hours.

Hector has his limitations

Despite the multiple qualifying criteria listed by the government for making a CJRS claim, Hector has decided to keep things Plain Vanilla for the construction industry by limiting his checks to whether the company’s PAYE scheme is Subcontractor Only or not.

Hector has no time for Tutti Frutti logic like IF PAYE Scheme equals Subcontractor Only and Company runs Payroll then Eligibility is TRUE.

To be fair, Hector is only a tax inspector and not an IT programmer.

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COVID-19: Ineligible furloughed directors

COVID-19: Ineligible furloughed directors are mostly those receiving a monthly tax-free salary of £719 per month for 2019/20.

This issue relates to claims for Coronavirus Job Retention Scheme (CJRS) grants being rejected as ineligible. The companies affected are those where the directors have operated a payroll for themselves only and opted to receive a monthly tax and national insurance free salary of £719 per month for 2019/20.

COVID-19: Ineligible furloughed directors

Personal Service Companies (PSC)

CJRS ineligibility seems more likely to affect personal service companies where the payroll is run solely for directors and salaries are pitched at the PT level.

Class 1 National Insurance – Primary Threshold

The Primary Threshold (PT) for Class 1 National Insurance contributions determines the level of salary that will not attract PAYE and NI contributions for both the employee and the employer during the tax year. This threshold was set as £719 per month and £8,632 per annum for 2019/20.

COVID-19: Ineligible furloughed directors

The Primary Threshold has been increased to £792 per month and £9,500 for the 2020-21 tax year.

COVID-19: Ineligible furloughed directors

Directors tax planning strategy

A number of company directors adopt the tax planning strategy of paying themselves the PT salary during the year and either topping up this salary through interim dividends or paying a bonus salary in March 2020 to utilise their annual allowance (£12.500 for 2019-20).

Dividends are taxed at a lower rate after deducting the annual dividend allowance of £2,000, The lower rate of 7.5% assumes that total income doesn’t exceed the basic rate tax threshold of £37,500 because after this the tax on dividends becomes punitive.

COVID-19: Ineligible furloughed directors

Annual Employment allowance

In cases where a limited company has 2 or more directors and qualifies for the annual employment allowance, it may still be ineligible for the CJRS grant if it did not utilise any of it’s annual employment allowance before 19th March 2020.

The annual employment allowance is an annual grant to small companies to defray the cost of employers national insurance contributions up to £3,000 for 2019-20 and £4,000 for 2020-21.

Eligibility anomaly for directors

The CJRS guidelines explains that where employees, including company directors, receive salaries that vary during the year, the average salary for 2019/20 will be used to calculate the 80% claim for furloughed workers.

However, it would appear that the average salary in the guidelines is for the period up to February 2020 and not March 2020 which is the final month in the tax year. Therefore directors who ran a final payroll in March 2020 to utilise their annual allowance are left high and dry.

One argument put forward by commentators is that if these directors aren’t paying their taxes during the year how can they expect the tax payer to bail them out now. Maybe, this was the logic of behind the CJRS ineligibility rule. A fair cop.

Nevertheless, for the optimists this may just be a quirk in the computer software which was developed in the record time of 3-4 week. We are currently waiting for the CJRS support team at HMRC to get back to us on this issue within the next 48 hours. Unfortunately, that was promised on Tuesday 21/04/2020 at 10am.

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COVID-19: Befuddled? We are tax agents

Canalitix Accountants

Canalitix Accountants are tax agents who can guide you through the claims process for Coronavirus Job Retention Scheme (CJRS) and Self Employed Income Support grants.

HMRC has recently reached out to Canalitix Accountants and other UK tax agents to assist businesses with their claims for furloughed staff wages under CJRS.

The CJRS dedicated online claims system is expected to go live on 20 April 2020 and we would welcome the opportunity to assist businesses including company directors and contractors on PAYE with their claims.

HMRC Step by Step Guide for submitting CJRS claims

COVID-19: Befuddled? We are tax agents

Payroll bureau and HMRC file only agents

Payroll bureau and HMRC file only agents cannot access the CJRS dedicated online services.

However, file only agents can assist business with their CJRS claims because they hold information on furloughed staff, such as national insurance (NI) number, salary, employer’s NI and pension contributions.

HMRC Money Laundering Regulations

Contact us

You can contact us via our main website or using the from the Contact Us menu above:

RECAP – Coronavirus Job Retention Scheme

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COVID 19: Applying for 80% of furloughed staff wages

This article on COVID 19: Applying for 80% of furloughed staff wages looks at the eligibility and qualify criteria for employers planning to apply to HMRC for help under the government’s Coronavirus Job Retention Scheme.

Coronavirus Job Retention Scheme

Under the Coronavirus Job Retention Scheme, Employers who have had to put staff on furlough leave during COVID-19 are eligible to apply for a grant to cover 80% of furloughed staff wages up to £2,500 per month.

On 27 March 2020, the government issued new guidance which:

  1. Extended the scheme to cover the associated Employer National Insurance contributions, as well as the minimum employer pension contribution (currently 3%) on that wage
  2. Allowed companies to reemploy staff made redundant after 28 February and place them on furlough.

Eligibility Criteria

Under the scheme, the grant of 80% of furloughed staff wages can be claimed for any of the following groups provided they are paid via PAYE:

  1. Employees of businesses, charities, recruitment agencies and public authorities
  2. Company directors of limited companies
  3. Members of Limited Liability Partnerships (LLP)
  4. Agency staff, including those paid via umbrella companies
  5. Zero-hours contract staff
COVID 19: Applying for 80% of furloughed staff wages

Staff consultation

Employers must engage in formal consultation with staff representatives concerning changes employment contracts of staff expected to be put on furlough leave.

The government has advised employers that the decision process to decide who to offer furlough leave must comply with the equality and discrimination laws,

The consultation should explain that only staff who were on the payroll on or before 28 February 2020 will be eligible for furlough leave. However, based on new guidance from the government, companies may reemploy staff made redundant after 28 February 2020 and place them on furlough leave.

The government has indicated that furlough leave should be approved for 3-weekly intervals and employers can claim the 80% grant from the date that staff have been placed on furlough leave which can be backdated to 1 March 2020 until 30 June 2020. The scheme may be extended beyond June 2020 if the government decides it’s necessary to extend the social distancing measure beyond this date.

Changes in contracts of employment

Changes to employment contracts should highlight that:

  1. the employer might be able to keep them on the payroll if they’re unable to operate or have no work for them during COVID-19, and
  2. the employer will pay 80% of wages up to a monthly cap of £2,500 during COVID-19 furlough leave

Furlough leave confirmation

In order to be eligible for the job retention grant, employers must write to all affected staff to confirm that they have been placed on furlough leave and a record of this communication must be kept for five years.

HMRC Step by Step Guide for submitting claims

Getting the calculation right

Employees on the payroll for over 12 months

Where the employee has been employed for 12 months or more, employers can claim the highest of either the:

  1. same month’s earning from the previous year and
  2. the average monthly earnings for the 2019-2020 tax year

Employees on the payroll for less than 12 months

Where the employee has been employed for less than 12 months, employers can claim for 80% of their average monthly earnings since they started work

Employees on the payroll for less than 12 months

If the employee only started in February 2020, then employers need to pro-rata for their earnings to date, and claim for 80%.

Getting the prerequisites right

Once HMRC completes the new Coronavirus Job Retention Scheme online application portal, it’s important for employers to get their prerequisites in order before applying for the grant.

Our suggested checklist include:

  1. COVID-19 staff consultation notice
  2. COVID-19 agreed changes to employment contracts
  3. Furlough leave confirmation letters
  4. Online account for PAYE, register with HMRC if you don’t have one already
  5. A P11 payroll report for each affected employee as at 28 February 2020.

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COVID-19: The forgotten self-employed

COVID-19: The forgotten self-employed are individuals who have started their self-employment businesses since 5th April 2019 and, as a consequence are excluded from claiming grants through the self-employment Income Support Scheme.

Being self-employed is like walking a tightrope and trying to balance the demands of creditors, staff and bank overdrafts on the one hand while using the other hand to extract payments from customers while driving new sales. This is on top of satisfying your own physiological needs. Even without a pandemic, walking the walk can be hazardous with the slightest jolt capable of disrupting the balancing act.

Then along comes the news that the government’s coronavirus self-employment Income support scheme excludes individuals who started their businesses as sole traders and/or partnerships after 5th April 2019.

Who can claim a grant for Self-Employment Income Support?

The Self-Employment Income Support Scheme provides a taxable grant worth 80% of self employment trading profits up to a maximum of £2,500 per month for the next 3 months starting 1 March 2020 with the possibility of being extended.

COVID-19: The forgotten self-employed

To be eligible to apply, the application must be a self-employed individual or a member of a partnership satisfying the following conditions:

  • have submitted a Self Assessment tax return for the tax year 2018-19
  • traded in the tax year 2019-20
  • are trading when they apply, or would have been except for COVID-19
  • intend to continue to trade in the tax year 2020-21
  • have lost trading profits due to COVID-19
  • self-employed trading profits must be less than £50,000
  • more than half of the individual’s income must come from self-employment

Further, the averaging process will only apply to those years between 2016 and 2019 where a Self Assessment tax return has been submitted to HMRC.

Allowance for late submission of 2018/19 SA tax return

HMRC has agreed to allow late submissions of Income Tax return for the tax year 2018-19 by 23 April 2020. However, late returns will be risk assessed.

Why not allow the early submission of 2019/20 SA tax return

Considering the 2019/20 tax year comes to an end on 5th April 2020 and the grants are not going to be paid for several months until June 2020, why can’t the government ask the newly self employed to get their 2019/20 SA tax returns submitted online before the end of May 2020.

This is indeed a strange anomaly because the same computer logic that’s required to check whether or not the self-employed is still trading in 2019/20 could easily be applied to process the tax returns of newly created self employment business for 2019/20.

In order to save these new entrepreneurs from the growing food bank and universal credit queues, the government should request all self employed businesses to submit their 2019/20 tax returns before 31 May 2020.

No doubt HMRC are keen to mitigate the risk of fraud from false claims. However, the same risk assessment process being applied to late 2018/19 tax returns could be applied to early returns for 2019/20.

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COVID-19: Deferring VAT and Income Tax

The government has announced that they will support businesses during COVID-19 by deferring VAT and Income Tax payments.

VAT will be deferred for 3 months starting from 20 March 2020 until 30 June 2020 and the self-employed will have their Self Assessment advance payment due in July 2020 deferred to January 2021.

All UK businesses and self-employed individuals are eligible to take advantage of the tax deferrals which are automatic and do not require applications.

During the deferral period HMRC will not charge any penalties or interest for late payment.

COVID-19: Deferring VAT and Income Tax

Businesses and Individuals in Temporary Financial Distress

All businesses and individuals in temporary financial distress as a result of COVID-19 can also participate in HMRC Time to Pay offer, see our VAT PAYE and Corporation Tax Help for Covid-19

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VAT PAYE and Corporation Tax Help for Covid-19

The government has promised support for all businesses and self-employed people in financial distress, and with outstanding tax liabilities, such as VAT PAYE and Corporation Tax.

The HMRC’s Time To Pay service has been set up to support business with their tax affairs. Eligibility will be assessed on a case-by-case basis and will be tailored to individual circumstances and liabilities.

Covid-19: VAT PAYE and Corporation Tax Help

HMRC dedicated COVID-19 helpline 0800 0159 559 has been set up for those concerned about being able to pay their tax due

The burden of UK taxation on corporations and individuals

In this article we attempt to provide an insight into the contentious question of who should bear the burden of UK Taxation: corporations or individuals?

The Institute of Fiscal Studies (IFS) briefing note for the 2017 General Election entitled “Tax revenues: where does the money come from and what are the next government’s challenges?” predicted that by 2019–20 the share of national income raised in taxes is set to reach its highest level since the early 1980s with almost two-thirds of revenues coming from income tax, National Insurance contributions (NICs) and VAT.

The IFS estimated that tax receipts in 2017–18 were expected to reach £690 billion and this was anticipated to rise slightly between then and 2019–20 before remaining relatively flat until the end of 2019–20.

The IFS forecast for 2017 to 2022 shows the greatest divergence between personal income tax and corporation tax. The IFS time series is based on data sourced from the OBR and adjusted to remove revenues forecast raised from the proposed, but now scrapped, increase in Class 4 NICs. ‘Indirect taxes’ includes VAT, fuel duties, and other indirect taxes. The data includes forecasts for periods after 2015-16.

The above chart shows receipts Corporation tax are expected to decrease sharply by 2021-22 while the decline in income tax receipts are expected to be reversed. However, the burden of taxes on the individual is forecast to increase by 2021-22 through a combination of personal income and capital taxes.

The IFS believes capital taxes are “set to become more important; by 2021–22, the share of revenue they account for will have almost doubled relative to 2010. The increase since 2012–13 largely reflects increases in the underlying value of assets (including residential property). It also reflects an increase in stamp duty land tax as a result of a 3% surcharge on buy-to-let investments and second homes introduced in April 2016.

Receipts from property taxes which consists of council tax and business rates are expected to change very little between 2020 and 2022.

Other taxes show a significant decline by 2022. The IFS defined Other Taxes as “a residual measure, including devolved taxes and environmental levies, which are generally part of government schemes that translate higher revenues directly into higher spending.” The apprenticeship levy shown in the OBR chart below is one such tax.

Why should corporations pay more tax?

There are mixed opinions on why corporations should pay more tax. The IFS briefing note to the 2017 General Election entitled “What’s been happening to corporation tax?” explores the political dimensions of this issue. In 2011, The Guardian published an article in which outlined 10 reasons why we should tax corporations.

In The Guardian article above, the dymanics between income and corporation tax is highlighted in point #2: “Corporation taxes are an essential backstop to personal income tax. Cut them to zero, and wealthy individuals will increasingly reclassify their earnings as corporate income, typically using offshore corporate structures, and escape tax. Gauke’s arguments about employees footing the corporate tax bill are irrelevant.”

The issue of how to balance the burden of UK taxation on corporations and individuals is the perennial question that tests central bank leaders globally. Hopefully, with the assistance of big data and artificial intelligence technology, this question should become easier to solve equitably for all in time.