Income tax pilot companies have to file manual returns for coronavirus grants

Posted by & filed under HMRC updates.

Businesses participating in the Making Tax Digital for Income Tax Self-Assessment (MTD ITSA) Pilot are being advised they cannot make a digital return if they have claimed certain Covid-19 support grants>

This includes:

  • Self-Employment Income Support Scheme
  • Coronavirus Job Retention Scheme

These grants are taxable in 2020/21 and HMRC says they must be returned separately in a new box in the Self-Employment schedule. This requires a tax return to be submitted via the existing Self-Assessment process, rendering digital filing impractical. 

HMRC is contacting businesses participating in MTD ITSA to make them aware of the situation.

HMRC comments:

“Subject to any change in circumstances, future tax years will be unaffected, and we look forward to welcoming these businesses back into the MTD ITSA service at that point.

Tax expert and AAT past-president Brian Palmer comments:

“This is unfortunate for the small number of filers involved in the pilot. But it is perfectly understandable that this early on the roll out the MTD-ITSA pilot the Department is not diverting resources to solving a minor problem not of its making. 

“In the short term it is far better for us all if HMRC devotes its resources to supporting the UK government in its fight against the coronavirus. However, it must use this occurrence to inform its future design thinking to ensure that MTD has the flexibility built in to adapt to future unforeseen challenges that require in year system changes.”

Sharpen Your Tax Skills Online – a virtual masterclass in taxation

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HMRC’s surprise victory puts IR35 back on the agenda

Posted by & filed under IR35.

A presenter for talkSPORT radio faces having to pay £140k in back taxes after HMRC overturned an earlier tribunal finding. Brian Palmer analyses the implications.

The Upper Tribunal (UT) ruling has blindsided IR35 experts, who have deemed it “surprising and unexpected”. It goes to show the unpredictability of the IR35 process. 

With all that has happened over the recent months, you could be forgiven for thinking IR35 had gone away. However, nothing could be further from the truth.

This coup for HMRC is a timely reminder that the burden of determining IR35 status is about to be placed on the shoulders of medium and large private-sector employers from next April.

What is IR35?

Put simply, IR35 is 20- year-old legislation designed to crack down on the practice of hiring individuals through an intermediary, such as their own personal service company, as a means of evading tax and national insurance liabilities.

It used to be solely a contractor’s responsibility to determine their IR35 status. However, over the years successive changes in legislation have eroded that position.

In April 2017 the most significant change flipped the situation for those engaged by public sector organisations. As a result, the engager was made responsible for determining whether IR35 rules should apply, and for deducting and paying the right tax and NICs.  This change was known as off-payroll working in the public sector, and from 6 April 2021 will be extended to the private sector.

AAT guide to IR35

AAT has produced a technical guide to IR35 determinations, payroll and tax, which can be accessed in AAT Knowledge Hub.

View guide

What is the talkSPORT case?

talkSPORT presenter Paul Hawksbee successfully won an appeal over his IR35 status at a First Tier Tribunal (FTT). It was a narrow decision, with Judge Scott using his casting vote to rule him outside of IR35.

HMRC didn’t take defeat lying down. It appealed, leading to a spectacular victory in the UT. As a result, Hawksbee’s company Kickabout Productions Ltd faces a tax and NIC liability of £143,126.

Facts of the case

Kickabout Productions Ltd was paid a flat fee per show for Hawksbee, who had been hosting the show for 18 years and was required by talkSPORT to present weekdays for 44 weeks of the year. He had no employee rights or benefits.

The first, of the two contracts reviewed prohibited Hawksbee from working for any other UK radio broadcaster during the term of the contract. Although, he was allowed to do work which did not interfere with his talkSPORT duties.    

MOO

HMRC focussed its appeal on the FTT’s Mutuality of Obligation and Control findings.

Mutuality of Obligation (MOO) is the obligation on an employer to provide work and on the employee to accept that work. The existence of MOO is taken to be a strong indicator of an employment relationship.

FTT panel members had agreed on the presence of MOO only for Judge Scott to state he did not consider it to be strong indicator of employment in the case. In response, the UT concluded he had made an error of law and remade the decision.

Control

The UT did not accept HMRC’s argument that the FTT failed to express a conclusion on whether there was sufficient control or not for an employment relationship.  It found that while talkSPORT had little control over he went about his work, it did have control over how he performed his tasks, when and where he performed those tasks.

The UT concluded that talkSPORT exercised control to a level consistent with an employment contract. 

Other factors

After considering other factors to establish if they pointed at self-employment or employment, it concluded they were sufficient to indicate the existence of a hypothetical contract of employment.

Ultimately, when deciding the appeal’s outcome, the UT adopted a ridged three-step process to reach its conclusion:

  1. Is there sufficient MOO for employment relationship – if not go to step 2.
  2. Is there sufficient control for an employment relationship – if not go to step 3.
  3. Look at all the other indicators of employment and self-employment and take a view.

The UT examined the MOO factors and concluded that they were sufficient to indicate an employment relationship. At which this finding was sufficient to support one of the two grounds on which HMRC appealed the case and avoided the need for the UT to advance beyond step one of its three step process.

So where does this leave us?

After 20 years of IR35, it is still as controversial as ever.  Over recent years successive HMRC/government initiatives have sought to tighten the scope and focus of the legislation.

However, as Paul Hawksbee is finding, surprises can be costly as well as unpleasant.

As an AAT Licensed Accountant, you need to keep on top of emerging tribunal cases and future legislative developments.

You also need to ensure clients and employers are taking adequate steps to prepare for the changes that come in next April.

Support from AAT

If you’re an AAT professional member, AAT will be here to support you through these changes. We’ll provide guidance to ensure that you have the right level of information at the right time to keep your clients, employers or others who rely on your advice informed.

Further reading

Is it time to ditch clients who won’t go digital?

Posted by & filed under Making Tax Digital.

With Making Tax Digital for Business ramping up over the next three years, should accountants be focusing their efforts on higher value, digitally-savvy businesses?

Businesses are not generally ready for MTDfB as we revealed last week. This week, we look at the flip side of the equation. As accountants focus on their profitability, should they shun businesses who are old-fashioned and costly to serve?

Some accountancy practices are already completely digitally-focused, insisting that clients use certain platforms and tools. Olly Evans, of Bristol-based Evans & Partners, says that for the most part, clients want that too. When they aren’t using digital tools, they try to persuade them to change. “It’s not that we’re giving less choice, we’re just saying, ‘This is the better tool to do things with, we can give our services to you cost-effectively.”

The arguments for focusing on digital are as follows:

  • They’re higher value clients, willing to pay for more services. “We’ve got a client we’re working with…we’ve doubled their fees because they want more help from us,” says Sharon Pocock, partner at Kinder Pocock
  • Non-digital clients are a drain on time and resource
  • The work is more interesting and rewarding. Pocock: “We’ve helped [that client] grow their turnover by over 600%.”

However, the situation is not necessarily black and white, with both a lack of digital infrastructure in some regions and a reluctance in the accounting sector to take clients on a digital journey. Accountants across the country give their views.

Clients who don’t go digital will get left behind

Heather Townsend, author and founder, The Accountants Millionaires’ Club

Just yesterday, FreeAgent announced it was introducing its Co-Pilot service, where business owners (with up to 10 employees) will be matched with a FreeAgent accountant and pay £75 per month for all their compliance needs. This announcement comes hot on the heels of Quickbooks launching their in-house bookkeeping services, QB live, in the UK. Once again, for an eye-wateringly low monthly fee.

But the argument for forcing clients to move to digital record keeping doesn’t just come from the requirement to remain competitive. It’s also coming from the government. MTD for income tax (for the self-employed and those with property income) will be mandated from 2023.

So if a client refuses to go digital, I don’t see how an accountant can still service them. After all, within a few years, nearly every single sole trader and business owner will be required by law to maintain digital records. And, in order for an accountancy firm to profitably service their clients, they need their records digitally.

Next steps: While accountants will always be able to justify their current fees by talking about service, how long before market forces will bring fee levels down? When that happens, automation is the only way to maintain profit margins.

Verdict: Those accountants that aren’t focusing on digital clients and accounting services need to start moving in that direction.

We do turn away clients – it’s a matter of practicality

Dan Hully, co-founder and CEO, Quantico

As a business, we’re targeting growth organisations, in particular start-ups and scale-ups, technology-based companies. So it’s very rare to come across a potential client that isn’t embracing digital technologies, though we do come across some.

From a very practical point of view, working non-digitally makes the job a lot harder. It’s much harder to collaborate, you have to arrange specific times to be able to have access to the accounting systems that you’re using. You have to do everything at the end of a quarter, instead of keeping things up to date as you move along.

Even HMRC is embracing digital. Any organisation that finds itself less tech-savvy than HMRC has got a few questions to answer.

We’ve also found that generally, attitudes to technology is a good indicator of how easy a client will be to work with. We want clients to embrace our methodology and approach so that we can give them the best service, which is why it’s a red line for us.

Next steps: Accountants should explain the benefits of using digital tools to their clients. For the vast majority, it will be hugely beneficial for them.

Verdict: From a practical and business perspective, it makes sense to focus on digitally-savvy clients.

Try to convince, but be prepared to part ways

Francesca Tricarico, managing director, Future Cloud Accounting

Accountants need to show businesses the new way. If business owners refuse to come on the digital journey with us, we part ways and leave it open for them to come back when they’re ready.

I had this happen with a potential client the other day. We’ve left it open for her to come back, and she will eventually, everyone will have to embrace digital ways of working.

If clients aren’t ready, they won’t see the value, no matter how hard you try to explain it. We understand that for clients, it can feel like they’re giving up some element of control over their finances, which can feel daunting.

Next steps: Keep trying to persuade clients to try a new way of working, and take a patient approach.

Verdict: Digital accounting is not going away – it’s up to us to get clients where they need to be.

Accountants should shoulder some of the blame for the slow uptake of digital tools

Andrew Sullivan, director, Complete HQ

Our business purely works with clients that are digital, and we do stipulate to businesses that if they want to work with us, they’ll have to use specific platforms. We do this because it means we can deliver the level of service that we think our clients deserve. That matters a lot to us, so we’d rather focus on the businesses that embrace the tools that allow us to do that.

Having said that, we do engage with businesses that aren’t necessarily using the tools that w want them to use, on the basis that they convert on sign up, and they take on our conversion service.

I do think there is an element of the accountancy sector that is at fault. It wants clients to retain working ways based on what that accountant has taught them because it suits their own needs, not the needs of the client. Those accountants should be moving with the times, adapting their own processes and systems to better service their clients.

Accountants need to take some responsibility for this and start educating businesses on better ways to work.

Next steps: Accountants need to take some ownership of the situation and make more effort to educate clients.

Verdict: Businesses will go on a digital journey if accountants are willing to lead them.

Older business owners and those in rural areas are being forgotten

Karen Chugg, owner, Phoenix Bookkeeping

I’m based in North Devon. There are businesses in this area that don’t have access to reliable broadband. They can’t even file VAT Returns, so cloud software is not a possibility for them. And there are some businesses out here, run by the same person for decades, that don’t even have an email address.

Those people are always going to have paperwork. When it becomes compulsory to file digital accounts, I’m going to have to somehow persuade them to use online banking, but that might be as far as it’s ever going to go.

There’s a village in North Devon, King’s Nympton, where the residents had to petition to get a reliable internet connection. Even then, it stops short of serving the residences that are a mile outside the village. I’m very much a fan of the digital tools that are our there, but until the country’s digital infrastructure is sorted out, I can’t see how we can expect every client to go digital.

Next steps: In rural areas, it’s all about finding out what’s possible with your clients, and petition harder for better infrastructure.

Verdict: If HMRC wants all businesses to go digital, we need better access to broadband.

HMRC updates – how to collect the 1k job retention bonus

Posted by & filed under HMRC updates.

HMRC has published additional information on the new Job Retention Bonus, which provides a bonus to employers who keep on their furloughed employees at least until the end of January 2021.

The scheme allows employers to receive a one-off payment of £1,000 for every employee, previously claimed for under Coronavirus job Retention Scheme (CJRS), providing they:

  • remain continuously employed through to the end of January 2021
  • earn at least £520 a month on average between the beginning of November and the end of January (a total of at least £1,560 across the three months)

All employers are eligible for the scheme – including recruitment agencies and umbrella companies.

Employers will not be able to claim the bonus for those who are serving a contractual or statutory notice period, that started before 1 February 2021.

Another exemption is where a CJRS claim for an employee was incorrectly made.

HMRC continues to warn that it will crack down on fraud, and withhold payment of the bonus for any claims made under the CJRS that are suspected to be fraudulent until their enquiries are complete.

Secondary legislation for
CJRS to support employment rights


HMRC has brought forward secondary legislation to ensure that employees who have benefitted from the Coronavirus Job Retention Scheme do not lose out on certain entitlements.  

The legislation is the Employment Rights Act 1996 (Coronavirus, Calculation of a Week’s Pay) Regulations 2020.

It is intended  to ensure that statutory rights including redundancy pay, notice pay and compensation for unfair dismissal are based on an employee’s normal pay, rather than their furlough pay (potentially 80% of their normal wage).

Whilst we hope that employers will do everything they can to avoid making redundancies, this new legislation will ensure that where someone who had previously been furloughed does lose their job, they receive their full entitlements.

More information is available here.

Review the latest AT magazine and you could win a Facebook Portal!

Posted by & filed under Members.

The new issue of AT magazine for members is out now, with a special focus on accelerating digital adoption. You can see an online copy of the magazine here.

We’d love to know what think so we can learn how to serve members better. So click the link below and you could win a Facebook Portal.

About the Facebook Portal

The Facebook Portal is a smart display that features built-in Alexa and several clever features for video calling.

The Portal has a smart camera that pans, zooms and widens automatically, so you can move and talk freely while always staying in frame. And Smart Sound enhances voices while minimising unwanted background noise.

The Portal also works with Messenger and WhatsApp, so easily video call friends and family on smartphones or tablets using Messenger or WhatsApp.

With the Story Time feature, you can bring your children’s favourite stories to life with music, animation and augmented reality effects. And bring even more fun to calls with AR masks and more.

Hopefully, this sounds like a fun product. If you’d like the chance to own one, all you have to do is head to our survey page and give us your sincere feedback on AT magazine!

Five vital digital skills you’ll need in future

Posted by & filed under Digital skills.

Top 10 firm Grant Thornton has overhauled its training to place greater emphasis on digital skills. Here are five key skills it has highlighted

There is a significant digital skills gap in the profession, according to research from education provider, BPP. Its study found that data, artificial intelligence and automation were the most important skills accountants said they would need training for over the next decade.

One firm that is actively trying to help build its employees’ digital skills is Grant Thornton. Head of audit, Fiona Baldwin says: “Data and technology play a vital role in the modern-day accountancy profession as clients become more sophisticated with their own finance systems and embrace digital working as the new normal with ever-increasing integrated systems across their whole businesses. As auditors, therefore, it is important that we have the skills and experience to audit those systems in an effective, efficient and value-add manner.”

Grant Thornton’s programme will provide its trainees with a strong understanding of the role that data and technology play in modern-day accountancy. “Our aim is to accelerate digital literacy and data analytical skills to give our associate population further credibility and expertise to effectively advise our clients,” says Joanne Ritchie, head of early careers at Grant Thornton. So what are the areas the firm is focussing on?

1. Managing big data

Accountants are faced with much more information than ever before, which they use to provide insight to a business. Big data has massive implications for accountants, according to BPP’s director of technology programmes Robbie White. He said: “Organisations will have millions of transactions and so an understanding of where data is being generated, what it does and how it impacts the performance of the business are now expectations which any company will have of an accountant. Accountants must learn the ability, therefore, to wrangle data, while still managing data governance and logical data transformation processes which will be crucial in complex environments.”

2. Analysing and visualising data

Using big data to provide more logical insight is the next important skill-set. Accountants are increasingly being expected to use analytics to manage huge volumes of data. Analytics and data visualisations provide the intelligence into what is actually happening within the business.

Accountants can then make decisions armed with this information. Previously, they may have reviewed just a sample of data, the expectation now is to have the entire population of data available to review at any given time, says White. It also means that principles like continuous control monitoring, smart audits and automated mitigations are becoming a reality.

“Accountants must learn to represent data in a meaningful manner using whichever tools are available to them. There is now an expectation that most accountants will have audit analytics experience and are knowledgeable in business intelligence – such as Microsoft PowerBI, Tableau or Altryx,” he says.

3. Beef up on cyber security

As more data and information is gathered and analysed, there is a greater need for robust cyber security. Accountants working with data or advising clients must be aware of their responsibility and the part it plays in the wider assurance process.

“The importance of ensuring business data is managed effectively and efficiently is key, but also knowing the types of security controls that are needed within an IT context are critical,” says White.

Not only is cyber security one of the fastest-growing concerns in many businesses, but it’s increasingly important it is understood beyond the IT team. White explains it is “critical that every accountant is aware of the best practices around cyber security”, and their firm’s approach to wider IT security issues.

4. Understand Digital Disruption

All Professional services firms are having to deal with the disruption to their business models that digitalisation innovation brings. The ability to manage this change, and also leverage proven mechanisms for embracing digital practices, is crucial and can lead to more success. “Research shows that the digital transformation of businesses is one of the largest global growth markets and organisations, irrelevant of size, are making changes to their business models to accommodate this global shift,” says White. “Accountants will be expected to practice ideas such as design thinking, agile project management methodologies, horizon scanning of technologies and overall resilience in order to make the most of this opportunity.”

Grant Thornton is looking beyond the new for trainee modules to other ways of arming employees with what they need. This, says Ritchie, is a need at all levels of the firm, highlighting that it is vital to equipping staff with the expertise to harness digital tools. “Our business school, with the support of our firm’s digital leadership team, continues to design and deliver relevant training,”

5. Ethical and legal matters

Ethics and the decision-making process around technology will increasingly rely on assurance practices in designing technology. It is important for accountants to have an understanding of the ethical decisions which they will, and do, face.

“Ethical decisions around the design of machine learning models and artificial intelligence already receive much focus and providing independent, fair and justified assurance and insight into these types of ethical debates will support accountants’ future skills,” says White. Understanding the relevant frameworks, models and mechanisms of reviewing these ethical issues are now key skills for accountants, he adds. 

HMRC sets out process for employers to remedy inflated CJRS claims

Posted by & filed under HMRC updates.

HMRC is providing new help to businesses who have claimed too much under the Coronavirus Jobs Retention Scheme (CJRS) or the Self-Employment Income Support Scheme (SEISS).

HMRC has announced an online process to correct mistakes and avoid penalties, provided the money is repaid on time. That means the latest of the following:

  • 90 days of receiving the CJRS money you’re not entitled to
  • 90 days of when circumstances changed so that you were no longer entitled to keep the CJRS grant
  •  20 October 2020 if you received CJRS money you’re not entitled to, or if your circumstances changed, on or before 20 July.

Watch: How to account for Government help?

Our on-demand financial reporting webinar explains how to account for coronavirus loans and grants, along with balance sheet and going concern issues. It is free to AAT members.

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Fraud screening

HMRC says both CJRS and SEISS schemes will attract fraudsters and that opportunists may seek to inflate claims or make claims where they are not eligible.

It will, therefore, be looking at CJRS claims where the amounts are significantly different to what it would expect to see based on its monthly PAYE data. It will also be following up tips received via the Fraud Hotline.

Earlier this month, police arrested a West Midlands man as part of an investigation into a suspected £495,000 Coronavirus Job Retention Scheme fraud.

However, HMRC believes inflated claims are mostly due to errors, not deception.

HMRC comments:

“We are prioritising work to support our customers, while tackling serious fraud and criminal attacks.

“We understand mistakes happen, particularly in these challenging times, and will not seek out innocent errors and small mistakes for investigation, but rather help customers to put them right.”

How employers can correct mistakes

Employers can let HMRC know of mistakes as part of their next online claim. There is no need to call especially. 

However, if employers do not plan to submit further claims – or they have claimed less than they were entitled to – they need to contact HMRC.  This is also the same for those who have applied under SEISS.

Deadline Reminders

HMRC has also issued a number of deadline reminders this week.

CJRS claims

  • HMRC is reminding parties to submit CJRS claim for periods ending on or before 30 June 2020 by the final date of 31 July 2020. Failure to make a claim by this date means you will be unable to make a claim for periods starting on or after 1 July.
  • From 1 August employers must pay National Insurance (NI) and pensions contributions for employees, including when they are furloughed. CJRS Grants can no longer be used to cover these costs. August claims can be submitted in advance now.

Eat out to help out

  • The scheme starts on Monday 3 August. Businesses can register online  to participate.
  • The service to claim reimbursements will be available on 7 August 2020.

Six tax changes to keep your eye on

Posted by & filed under Tax, Tax reform.

Even with Government delaying some reforms, such as IR35 roll-out, there’s still a lot going on in tax at the moment.

Here’s a run-down of the most important changes.

1 Indirect tax

Beyond the key VAT deferral scheme, RSM VAT tax partner Philip Munn notes several other VAT and indirect tax measures that eligible organisations should be aware of:

With lockdown likely delaying shipments of goods, HMRC has temporarily waived export time limits so that the VAT zero-rate can still be applied to goods that are sent outside the EU if other export conditions are met.

HMRC will agree to a three-month extension to the usual 30-day deadline for appealing or requesting a reconsideration of an HMRC decision (including VAT assessments).

Temporary VAT and duty reliefs have been announced on a variety of personal protective equipment.

Import VAT and duty deferment account holders have been offered the opportunity to apply for extra time to settle amounts owed.

2 Tax policy consultations

EY partner and UK tax policy leader, Chris Sanger, feels there’s an unsung element in the raft of Covid-19 measures – the timing of tax policy consultations, whereby the Treasury and HMRC have provided an extra three months for most consultations.

“This was a welcome decision, as consultations cover important issues upon which the government will benefit from taxpayer input,” says Sanger. 

“Given the current environment, without an extension, that input would likely have been sparse, as attention will naturally and rightly be focused elsewhere. The extension should allow for engagement, while still enabling the government to deliver important tax policy changes within the current fiscal timetable.”

3 What’s happening at HMRC?

The Treasury and HMRC are doing their level best to keep the budget and finance bill process on track, says Bill Dodwell, tax director at the Office of Tax Simplification (OTS). “Since there were no budgets in 2019, there are expected to be two in 2020. The finance bill is going through parliament as usual, subject of course to debates and committee hearings taking place through video conferencing.”

There has, however, been an important deferral, says Dodwell: “The implementation of the off-payroll working rules is now intended to take effect from April 2021 instead of 2020. The government has rejected calls to defer the measure beyond 2021.”

The Construction Industry Reverse Charge VAT scheme has also been deferred until 1 March 2021.

While HMRC has introduced a number of tax-payer supportive easements – including allowing a deferral to the digital links requirements for MTD for VAT – other changes, such as the new 30-day reporting for taxable gains from residential property and changes to the main residence exemption, are going ahead as originally planned, says Dodwell.

4 Consequences of self-employed deferrals

Mark Lee, business coach and chairman of the Tax Advice Network, warns of the law of unintended consequences in reference to HMRC’s deferral of self-employed income tax payments from July 2020 to January 2021. The self-employed pay tax in three instalments each year – two in January and one in July. This means that the tax bills in January 2021 will be even higher than usual, as three instalments will be due.

“This will cause cash flow problems for the self-employed next January,” he explains “So I anticipate a further announcement to allow the tax payable in January 2021 to be paid in six instalments.

“One of the challenges for accountants will be whether to raise clients’ hopes that the January 2021 income tax payments will be payable over six months or monthly ahead of any official announcement. This will be relevant, for example, when preparing cash flow projections and/or assisting clients to obtain funding for the big tax bill.”

5 What will the Chancellor do next?

“I think the Chancellor has a real balancing act in front of him,” says Guy Smith, senior tax manager at inTAX. “How and when to inevitably raise taxes without jeopardising economic recovery. His priority will be to kickstart the economy and then monitor societal habits adopted during the lockdown, for example, home working and e-commerce.”

But when tax increases do happen, Smith would recommend the Chancellor avoids big promises to reduce the deficit in a set timeframe, à la George Osborne, and to certainly avoid the “A” word (austerity).

“Instead, we are likely to see lots of fiscal drag, with personal allowances being frozen or very limited rises and the same action being taken with the tax bands. I doubt he will want to increase duty on alcohol with pubs and the hospitality trade being so badly hit by the virus, but he may look to increase duty on petrol after years of no increases, especially as the price on the forecourts is so low.”

Smith expects a ramping up of tax investigations, as happened in the wake of the global financial crisis.

“The emphasis this time might be on fraudulent furlough claims, which Jim Harra has already suggested will be considered by HMRC as a criminal act rather than civil offence. Offshore tax-related enquiries are also likely to be higher, especially as HMRC now has access to more data than it ever has before.”

6 Employment watch

Beyond the well-publicised furlough provisions, or Coronavirus Job Retention Scheme (CJRS), there are a number of other areas where Covid-19 has affected tax legislation and rules applying to employers and employees, says Susan Ball, tax partner at RSM:

  • Repaying employers for statutory sick pay paid to employees, which was last seen in 2014.
  • Postponing the off-payroll working reforms due to come in for the private sector by 12 months to April 2021.
  • HMRC has published guidance – How to treat certain expenses and benefits provided to employees during coronavirus (COVID-19).
  • P11D and PAYE Settlement Agreement (PSA) deadlines are unchanged. But HMRC has extended the deadline for filing PAYE returns and paying tax due in regard to Short-Term Business Visitors (STBV) to 31 May 2020 in relation to the 2019-20 annual return.
  • Covid-19 will potentially be regarded as a reasonable excuse for missing some tax obligations, including the late submission of P11Ds and PSAs.
  • Businesses with outstanding tax liabilities (PAYE, NIC,  VAT, corporation tax) may be able to defer payment through HMRC support, which will be reviewed on a case by case basis. 

Sharpen Your Tax Skills Online – a virtual masterclass in taxation

Sharpen Your Tax Skills is back with another masterclass from tax expert Michael Steed. Now completely online, you’ll get more for your booking than ever before with almost seven hours of expert insight and advice, interactive training and in-depth analysis of all the latest taxation issues.

Book now

The skills accountants need in the Brexit busy period

Posted by & filed under Brexit.

From briefing clients to thinking more strategically, here are the skills accountants will need to arm themselves with in order to tackle the coming Brexit busy period…

Suddenly, it’s here. If you’ve watched TV news or scrolled through newspaper websites in the past week or so, you may have noticed pics and footage of the mask-clad likes of Angela Merkel and Emmanuel Macron poring over documents in Brussels.

It’s a jolting reminder that there is another big event going on that would have dominated headlines this year: Brexit.

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In January, the UK  left the EU. And from 31 December it will leave behind conveniences of the EU single market and customs union. The weeks leading up to the end of this transition period (which the UK has been in since leaving the EU in January) are set to be a fraught time for businesses, many of whom will be dealing with the tremors of Covid-19.

Those working as accountants are set to be busy too, advising clients and C-suite staff on what actions to take, informing them of VAT changes and factoring in any potential disruption into their cashflow forecasts.

You can find more information about what you need to do for your clients and company here. But how can you prepare yourself? What skills do you need to equip yourself with? And is there anything you should be doing before sitting down with your business for a chat? Here, we speak to leading experts to find out…

Assess your own needs first

Before setting up Zoom calls with your client, think about your own business and how Brexit is likely to affect it. Do you employ workers from the EU? Are your staff Brexit buffs or would they benefit from some training sessions? And do you have a network of advisers (say, customs and VAT experts) that you can call upon? Whatever happens, remember that working for a practice is an advantage in itself. “The nature of our business [as a practice] means that it helps us see all the individual quirks and peculiarities that companies might face,” says Andy Wallis, corporate and international tax partner at chartered accountants/financial advisers Kreston Reeves.

Perform client ‘triage’

When the consequences of Brexit begin to take effect in January, you’re going to be busy. Clients could be ringing you up, worried about their goods being delayed at ports or wondering how to do a customs declaration – all at a time when you’re likely to be neck-deep in year-end accounts.

To make your workload easier, categorise your clients by those businesses who you think will be most affected by Brexit. How often do they trade in/with EU countries? Do they need to hire extra staff or review their contracts to deal with the changes? And do they work in sectors likely to be affected by delays (e.g. perishable goods)?

Be Brexit-ready

Read our guide on how to prepare for life after the transition period.

Brexit guide

Get to know the business inside-out

To give the best advice, spend some time analysing any part of the client’s business (or company that you work for) that could bear the brunt of Brexit.

“Start by identifying how Brexit will impact the business,” advises Lucy Sutcliffe, national customs duty director at Baldwins Accountants. “The best way of doing that is looking at how the supply chain and end-to-end supply chain is set up. What does that look like in terms of value and trade? What measures can you put into place so they won’t be paying UK import duties that become liable? What customs declarations will they need to submit? Will they need help from an agent with this?”

How to speak to your clients

When it’s time to speak with your clients/business, you might hit a stumbling block. Brexit is so complex, one German academic study found it was more complicated than the 1969 moon landings. Emailing the AAT checklist (on Knowledge Hub) to your client/business should definitely help.

Amanda Tickel, international tax partner and Global Brexit lead at Deloitte, recommends sketching a framework for discussion first, spanning areas such as:

  • people (EU employees, business travel);
  • supply chain and customs;
  • trade access;
  • legal and regulation (data transfers, compliance) and
  • tax.

“Make sure you have a framework, otherwise you’ll end up having a very long meandering conversation about Brexit,” she says.

Brexit is a famously divisive subject too. “The best way to approach it is that not all change is bad,” advises Sutcliffe. “Brexit is going to happen in any event, and whatever the outcome, it won’t satisfy a certain percentage of people in business.”

Forecasting cashflows

Covid-19 has clearly strained many companies’ coffers. The disruption caused by Brexit, whether it’s delayed payments, late delivery of goods or currency fluctuations, could also hit these companies hard, perhaps even destroying them. Having a healthy cash flow in the months ahead will be vital.

Because nobody can predict what will happen (negotiations are still ongoing with the government angling for a free-trade deal), Wallis recommends, “accountants need to scenario-plan; any cashflow forecasting will need to be based on a huge number of different scenarios.”

Scenario-planning may help you spot any areas of the business that could be prone to cash depletion should Brexit prove to be tumultuous.

“Businesses will need to consider whether there’ll be additional costs,” advises Sutcliffe. “Can they renegotiate with the supplier? Could they pass on these costs to the customer, which would make them less competitive? If neither of these options is a possibility, they may have to consider absorbing these costs into the business itself.”

Dealing with apathetic businesses

What to do if the company CFO just shrugs his shoulders when you mention Brexit? Or your client is too preoccupied with dealing with coronavirus?

“Make your client aware there are changes afoot and warn them of any additional costs (duty costs, resources, admin costs),” says Sutcliffe. “It might be that the business decides that they’ll wait until January before they take any action. But they could be missing out on customs provisions that reduce import duties as a result.” And if they’re really ‘meh’ about the whole thing? “There have been many references to ‘falling off a cliff-edge’,” she says. “Try drawing that analogy.”

Think commercially

“It’s important to think with a wider perspective,” says Wallis. “For example, if your client deals with fresh produce/, there could be logistical problems, such as changes in the shipping processes and delays at ports.

Keep up-to-date with any developments

The news on Brexit changes almost on a daily basis. Setting up news alerts and/or reading the following sources should help:

Are small businesses ready to deal with Making Tax Digital?

Posted by & filed under Making Tax Digital.

As the government announces the next phases of Making Tax Digital, are small businesses on track?

Last week, the government announced the next phases of MTD, coming in 2022 and 2023, respectively. The roll-out of MTD will take place as follows:

  • 2022: All VAT-registered entities
    will have to use MTD-compatible software to file their VAT Returns from periods
    starting on or after 1 April 2022.
  • 2023: From April, MTD for Income
    Tax will be introduced for unincorporated entities and landlords with an annual
    turnover above £10,000.
  • MTD for Corporation Tax:  a consultation document is expected to be
    published in the Autumn.

With the chaos of Covid-19 still hanging over the business community, are small businesses on track for MTD readiness? Accountants give their verdicts.

Learn how to deal with the tax issues from Covid-19

Tax expert Michael Stead explains how to navigate the changes wrought by coronavirus to ensure you, your clients and your business emerge successfully. Free to members.

Watch now

Coronavirus has encouraged more cloud take-up – but more needs to be done

Kathryn Preston, owner, Fletcher Thompson Chartered Accountants

The answer is kind of yes and no. There are always clients that will hold out – the information they’re preparing now isn’t Making Tax Digital-ready. That’s where our focus is.

What scares me is the unrepresented sole traders and small businesses. I’d like to think that we as a profession are talking to our clients about this and giving them their options, whereas the people who are doing their own tax returns are either going to bury their heads in the sand and think they can get away with being unaware of it, or they’re going to take well-meaning but ill-informed advice on social media platforms.

Covid-19 has made people wake up to the fact that they need better financial information. Often the answer to that is cloud software. The people that have made that transition will be ready. So that will help.

However, there are still a lot of people out there that haven’t moved onto software. There are still a lot of people who aren’t aware or have chosen not to do anything about it. I was talking to somebody yesterday who dismissed the need for regular financial information because he knew how much he has in the bank. That’s not going to help him with Making Tax Digital.

Next steps: We’re trying to encourage clients to get into the habit of doing it so that it doesn’t become something very scary in 2023. It’s best to move them across now.

Verdict: There is still a lot of small businesses that are unaware, willfully or otherwise, about what they need to do with MTD.

Businesses are starting to wake up to the urgency

Alexandra Bond Burnett, co-founder and MD, Blue Arrow Accounting

Are small businesses ready for it in general? No. As a digital practice, you surround yourself with people that are using digital technology, so you get stuck in a bubble. However, we’ve had a few companies come to us recently that don’t have that kind of system in place, which made us realise that if you look at the statistics, there’s a huge number of small and micro businesses that aren’t prepared to have everything online.

We’re inheriting businesses that have been with the family accountant for 30 years and mistakes are being made. For those near retirement age, a lot of change is happening and it’s not really being acted upon. So there’s this influx of clients that are starting to realise that they need to get on it and aren’t really with the right accountancy practice to make it happen.

Next steps: We’ve been providing more and more training for small businesses and small business owners, using MTD compliance as a bonus selling point for that.

Verdict: A lot of businesses aren’t ready, but they’re starting to realise it’s necessary – and are looking for new accountants as a result

The MTD roll-out has not been smooth – a lot of businesses won’t be ready

Dean Shepherd, lead technology product manager, Wolters Kluwer Tax & Accounting UK

In short, no. The roll-out of MTD for VAT should have been straightforward in terms of digitalising a tax process, but it’s been widely criticised. Rather than making VAT filing more compliant, many believe it has made it significantly less so.

There will be hundreds of thousands of small businesses for whom completing their tax return is a once-a-year process from a pile of receipts they keep in their desk drawer. The chances of getting all these businesses to suddenly start recording all their income in MTD-compliant bookkeeping solutions and filing reports of their income and expenses quarterly are slim.

The more successful accountants have been extolling the virtues of digital record-keeping, whether MTD for ITSA comes to fruition or not. They educate their clients regarding how digital tools (such as Twinfield and Basecone) can automate bookkeeping and take away the stress of doing it all in one go. They’re then able to deliver regular insight into how their clients’ businesses are performing, becoming a trusted partner as a result.

Next steps: Keep the messaging up, and persuade the stubborn clients that they need to act

Verdict: There are too many small businesses that are nowhere near ready for MTD

There are more digital options available for small businesses now – MTD will force them to choose

Carl Reader, chairman of D&T chartered accountants and #BeYourOwnBoss founder

There are now a number of different software options to help businesses prepare, it’s not just Xero or QuickBooks anymore, it’s now expanded out with banks expanding into this space.

There are quite a few businesses who have done what’s needed, but there is still a huge tranche of businesses who simply haven’t sorted themselves out yet. The biggest challenge for the smaller businesses are the ones who have done things themselves in the past and filed their own tax returns, so this is going to be a lot tougher for them now.

Under company law, companies are obliged to keep proper accounting records. MTD will force a change in behaviour and business owners large and small need to be on top of their tax affairs day-to-day.

Next steps: Offer more options to clients in terms of the software available, and make it clear that this is a legal requirement

Verdict: Businesses aren’t ready, but more choice and the threat of non-compliance will get them there