January 2020

This week Esther attended a Brexit webinar which covered the key changes you will need to consider if you trade with customers in the EU.

This is a brief summary with links provided for you to obtain further information, if required.

The Key Brexit Changes

      1. Exporting – customs declarations
      2. Work Permits – country dependant
      3. Data Sharing – ecommerce
      4. Northern Ireland Protocol

1.    Exporting Goods

Whilst at first glance it would appear that we have a tariff-free agreement in place with the EU (with some exceptions such as plant and meat exports) this is not necessarily the case.  Instead you need to consider the Rules of Origin.

Rules of Origin

Where goods originate in the UK the export can be tariff-free, however where the goods originate elsewhere there could be tariffs applied, even if they come to the UK for modification before being sold to customers in the EU.

For example, cane sugar is imported to the UK from the Caribbean, where it is then refined in the UK to make the end product (sugar) which is packaged and sold to supermarkets across the world.  As the sugar cane does not originate in the UK, tariffs will apply when the sugar is sold to supermarkets in the EU and customs declarations will be required.

The rules of origin apply in both directions, therefore impact goods you export and goods you import.

Businesses will be able to self-certify the rules of origin for their exports, however qualifying evidence will need to be submitted.  You have a 12-month grace period to gather this evidence.

Exporting to Northern Ireland is tariff-free but businesses need to register for the Trader Support Service on Gov.Uk.

Gov.uk/rules-of-origin-for-goods-moving-between-the-uk-and-eu

Exporting Goods via the Post Office or a Postal Service

Businesses who use a parcel provider to send their goods to customers in the EU will need to consider the value of what is being sent.  The rules now match those already in place for goods sent to the US and other overseas locations, outside the EU

·         Under £900

Where the value of the goods being posted is less than £900 you need to complete a customs form online

·         Over £900

Where the value of goods being posted is greater than £900 you need to carry out a full customs declaration using your EORI number

EORI numbers

All VAT registered businesses should have automatically been provided with an EORI number but if  you haven’t received this you can apply online, it takes around 5 days to be confirmed – Gov.uk/eori

You may need more than one EORI number:

  • If you move goods to or from the EU your EORI number will start with GB
  • If you move goods to or from Northern Ireland you will need an additional EORI number that starts with XI

 

Expect to see an increase in your postal charges as the shipping providers will need to increase fees to cover additional administration costs.

2.    Business Trips to the EU

Unlimited free movement within the EU for UK citizens has now ended.  In its place we are restricted to 90 days travel within a 180 day period, without the need for a visa.  This applies to business travel and holidaymakers.

Visa-free

There are only certain work-related tasks you are allowed to perform without the need for a visa, a few examples include:

  • Conducting meetings and consultations
  • Research and design
  • Attending trade exhibitions
  • Tour guides, where the tour starts in the UK.

 

Excluded:

  • Direct sales activity to the public
  • Musicians on tour

Work Permits

Where the activity is excluded from the visa-free travel you will need a work permit. This is required for each country you’re travelling to.

You will also need to check that the qualifications which permit you to work are recognised in the country you are working in.

ESTA Forms

From 2022 all travellers to the EU will need to complete an EU version of the ESTA form and pay a fee (approx. £6).  ESTA stands for Electronic System for Travel Authorization.

3.    Data Sharing

Nothing much changes in this area for now.  The General Data Protection Regulation (GDPR) rules will remain, as they have been written in to UK law.

E-commerce & online advertising

If you do business with countries in the EU you will need to ensure that you comply with the rules of each country you’re selling to.  This could potentially mean a lot of work to ensure you meet the online sales rules for each place your website is used to sell your products!

4.    Northern Ireland Protocol

The Northern Ireland Protocol avoids a hard border on the island of Ireland, in line with the requirements of the Good Friday Agreement.  Instead the EU border is effectively in the Irish sea.

This means that Northern Ireland remains part of the EU single market and therefore goods from Britain need to be treated as exports to the EU with the necessary customs declarations fulfilled, however as Northern Ireland remains part of the UK, trade with customers here remains tariff-free.

It’s a complicated aspect of the Brexit arrangement you should review this protocol carefully if you have customers in Northern Ireland.

Conclusion

Beyond the politics of Brexit there are a lot of people within the government and at HMRC who want this to be an opportunity for businesses.

There is a wealth of information on the Gov.UK website (Gov.uk/transition), however lots of the rules are not yet set in stone and agreements are still being discussed, therefore there’s going to be a period of time in 2020 where you need to keep checking the rules.

As an alternative source of information, you could visit the Brexit Support Hub, hosted by Enterprise Nation.  Here you will find lots of advice, along with advisors available to help by phone and email.

Enterprisenation.com/Brexit-advice-service/

 

In the coming weeks the team at a4c are booked onto a number of courses which relate to VAT and accounting treatments following Brexit.  We will be sending out further information in this area once we’ve digested it ourselves.

Watch this space…

 

 

 

 

As you may be aware Limited Companies are only permitted to pay dividends out of distributable profits.

 

Due to the Coronavirus Pandemic, you may have had profits available when the dividends were declared but due to the various lockdowns there is no longer the profit to cover the transaction(s).  What happens next?

Unlawful distributions

Dividends paid where there are insufficient profits are classed as unlawful distributions.  When a director shareholder receives a dividend which is unlawful, they must repay the dividend to the company.

In the current circumstances, you may be strapped for cash and simply unable to repay it and therefore the dividend has effectively become a loan to the director from the company.

Corporation Tax Charge on director loans

Be aware that unless the loan is repaid within nine months of the company year end there will be a 32.5% tax charge under s.455 Companies Act 2010 (CA).  This tax is due and payable when corporation tax for the period would normally be paid.

Beneficial loan?

Another snag is the possibility of a benefit in kind charge in respect of beneficial loan interest on the director shareholder, where the loan is in excess of £10,000.  In this instance, the loan value is added to the payroll and tax and NI will be due via a P11d reporting requirement, payable in July.

Repayment options

The ideal situation would be for you to get back on your feet and repay the loan before the s.455 charge kicks in.  This gives you at least nine months from the company year end to find the funds.

You can do so by voting a dividend from post-lockdown profits to credit the loan account.

The alternative is to declare a bonus, however, this would be taxed as employment income attracting a higher NI charge (both for the director and the company) and losing the advantage of the dividend allowance.

If you are worried about your finances and would like to book a health check call with Esther then please get in touch (esther@a4cgroup.co.uk).

 

Keeping up with the constantly changing government guidlines surrounding the Coronavirus Pandemic has been challenging.

If you run a business impacted by the restrictions then it’s even more important that you’re able to quickly understand what financial support is available to you and how to access it.

At a4c we’ve been doing our best to publish updates on our website and directly to clients via newsletters, but often the latest post we’ve written is quickly out of date!

Find coronavirus financial support for your business

This week we came across a useful online tool on the Gov.uk website which we want to share with you.

Click on the link below and follow the steps for a comprehensive list of financial support available to you and your business:

https://www.gov.uk/business-coronavirus-support-finder

If you then have questions about the support schemes identified please don’t hesitate to get in touch with the team at a4c on 01737 652 852 or email esther@a4cgroup.co.uk.

The government has announced that the self-employed will receive taxable grants to cover November 2020 to April 2021 if your business has been affected by coronavirus.

So, are you eligible?

Who can get the grant? The scheme has only been extended for those that are currently eligible for the Self-Employment Income Support Scheme (SEISS) and are actively continuing to trade but are facing reduced demand due to coronavirus.

If you have not claimed a grant under the SEISS so far, but were eligible to, you can still claim the new grant. The key difference between this grant and the previous ones is that you must be actively trading, it does not appear to be available if you would be trading but are not able to due to Coronavirus.

How much will you be paid? The first grant will cover a three-month period from the start of November until the end of January. The government will provide a taxable grant covering 20% of average monthly trading profits, paid out in a single instalment covering three months’ profits.

The maximum amount is £1,875 for three months, so to get the full amount you need to have average profits of £37,500 per annum.

The second grant will cover the start of February until the end of April. The government will review the level of the second grant and set this in due course.

How do we apply? HMRC has not yet released details of how to apply but with the previous grants, individuals were contacted directly by HMRC

CORONAVIRUS

The Chancellor has announced that the Job Support Scheme (JSS), which will replace the Coronavirus Job Retention Scheme from 1st November 2020, will be expanded to help protect jobs and support businesses required to close as a result of coronavirus restrictions.

What’s the extra help if your business is required to close its doors? If your business has to temporarily close because of coronavirus restrictions, from 1st November, HMRC will pay two thirds of your employees’ salaries up to a maximum of £2,100 per month. Under this scheme, you will not be required to contribute towards wages and will only be asked to cover NI and pension contributions.

Eligibility. You will only be eligible to claim the grant while your business is subject to restrictions, i.e. forced to close, and your employees must be off work for a minimum of seven consecutive days. It’s likely that pubs, clubs, restaurants and other hospitality businesses will be the first to claim. It’s our understanding that pubs and restaurants etc. that are forced to close to diners but which provide a takeaway service will be covered by the scheme. This is subject to confirmation once we have all the detail.

How will it operate? This scheme will operate alongside the JSS and will be available for six months, with a review point in January. In line with the rest of the JSS, payments to businesses will be made in arrears, via an HMRC claims service that will be available from early December.

Increased cash grants will also be available. Increased cash grants will also be available if your business is required to close. These grants will be linked to rateable values, with up to £3,000 per month payable every two weeks, compared to up to £1,500 every three weeks which was available previously.

Whilst workplaces were closed for an extended period, more and more people took to creating dedicated workspaces at home. HMRC is now targeting these spaces – how can you avoid a tax bill?

Sanctuary. As offices closed across the UK back in March, working from home became the norm for many people. Even when things began to reopen later on, many have opted to keep doing so. However, combining this with the closure of schools for nearly six months has meant a need to segregate work life from home life. One option to achieve this is by converting an unused space, for example a spare bedroom, into a dedicated office. But could this lead to a tax problem in the future?

The problem. The issue stems from restrictions to private residence relief (PRR). This generally works so that you don’t pay capital gains tax (CGT) when you sell a property that has been your only (or main) home at a gain. However, if any part of the property is used exclusively for business purposes, HMRC argues that it can’t be a “residence”, and so the relief must be apportioned. The following simple example illustrates the potential consequences.

Example. Ricky bought his three bedroom home in 2000 for £250,000. He converted one of the bedrooms (comprising 20% of the property’s floor space) into an office, and banned his partner and children from using it. He sells the house for £550,000 in 2025. 80% of the gain, i.e. £240,000, will qualify for PRR. However, the other £60,000 is charged to CGT.

Avoid the trap. Fortunately, it is easy to sidestep this trap. Simply ensure that the room has multiple uses. Turn it into a reading room that your desk and computer just happen to be in, and it can’t be said that it is being used exclusively for business. Advertise it as a “study” or “reading room” when you come to sell it, rather than an “office”.

Tip. If the part of your home used for business is one of those fancy sheds in your garden the chance of there being a taxable gain when you sell your home is remote. You should value the “shed” separately from your main home; its sale value is likely to be less than what it cost you to install, i.e. you’ll have made a loss not a gain

Following Borris Johnson’s speech on the 22nd September 2020, there are new restrictions and changes within the UK’s Lockdown.

Here are the critical changes which we must observe starting from Monday 24th September.


The main safety precautions are as followed:

  • HANDS – you must wash your hands regularly and for at least 20 seconds.
  • FACE – you must wear a face covering in enclosed spaces.
  • SPACE – you must observe social distancing (2 metres) apart from others outside your bubble.

Face Coverings

– Customers and staff in private hire vehicles and taxis must wear face coverings (from 23 September).

– Customers in hospitality venues must wear face coverings, (except when seated at a table to eat or drink.)

– Staff in hospitality and retail will now also be required to wear face coverings (from 24 September).

– This guidance on face coverings being worn in close contact services will now become LAW .

(If you are already exempt from the existing face covering obligations, you shall remain exempt).

Working from home

– Office workers who can work effectively from home should do so in the winter.

– Public sector employees who work in essential services (including in the educational sector) should continue to go to work where necessary.

– If you cannot work effectively from home, you should return to work. Extra consideration should be given to those people at higher risk.

Businesses

  1. Businesses selling food or drink, social clubs, casinos, bowling alleys, amusement arcades (and other indoor leisure centres or facilities), funfairs, theme parks, adventure parks and activities, and bingo halls, must be closed between 10pm and 5am. This will include takeaways but delivery services can continue after 10pm (from 24 September).
  2. In licensed premises, food and drink must be ordered from, and served at, a table. Customers must eat and drink at a table in any premises selling food and drink to consume indoors, on site (from 24 September).
  3. Businesses will need to display the official NHS QR code posters so that customers can ‘check-in’ at different premises using this option as an alternative to providing their contact details once the app is rolled out nationally (from 24 September).
  4. Businesses and organisations will face stricter rules to make their premises COVID Secure (from 28 September). (A wider range of leisure and entertainment venues, services provided in community centres, and close contact services will be subject to the COVID-19 Secure requirements in law and fines of up to £10,000 for repeated breaches).
  5. Employers must not knowingly require or encourage someone who is being required to self-isolate to come to work.

Meeting people safely

– Support groups must be limited to a maximum of 15 people.

– Indoor organised sport for over 18s will no longer be exempt from the rule of six. ( There is an exemption for indoor organised team sports for disabled people (from 24 September).

– There will be a new exemption in those areas of local intervention where household mixing is not allowed to permit friends and family to provide informal childcare for children under 14 (from 24 September).

– Weddings and civil partnership ceremonies and receptions will be restricted to a maximum of 15 people (down from 30).

– Other significant standalone life events will be subject to the ‘rule of six’ limits, except funerals (from 28 September).

– Government has announced an extra £60 million to support additional enforcement activity by local authorities and the police.

– We cannot reopen business conferences, exhibition halls and large sporting events, so we will not be able to do this from 1 October.

Conclusion:

All of these measures above must remain in place until March next year according to the Government. These are the measures applied to England, but do check your local lockdown rules if you’re in Wales, Scotland or Northern Ireland

HMRC are changing the way builders charge VAT

From 1st March 2021 HMRC is changing how it collects VAT on some construction services, known as The Domestic Reverse Charge.

Under current rules, a builder charges VAT to their customer, collects the VAT on top of their payment and accounts for it in Box 1 on their VAT return.

This is changing for supplies between VAT-registered builders.

Effectively if the customer is a VAT registered builder then, as a VAT registered sub contractor, you will not charge them VAT or receive a payment of VAT from 1st March 2021 onwards.

If your customer is the end client (i.e. Mr & Mrs Smith, domestic customer) then you continue to charge VAT at 20%.

If your work is zero rated then the normal VAT rules will continue to apply.

Reason for change

HMRC has identified that certain builders have been prone to VAT fraud, where the supplier charges VAT to his customer, receives money for this VAT from the customer but never declares it on a VAT return.

The new procedures aim to prevent this from happening because the supplier is never paid VAT in the first place.

 

Example

Mike is an electrician, VAT registered as a sole trader. He is doing some work on an office block, invoicing the main contractor Steve, for his work.

Steve is also VAT registered, and will then invoice the building owner. Steve is not an “end-user” because he is making an onward supply of construction services to his own customer. He is an “intermediary supplier”.

The invoice raised by Mike will be subject to the new procedures, ie no VAT is charged. Let’s say the value of his work including materials will be for £5,000:

Mike’s VAT return will only include the value of the sale in Box 6 (outputs) of his VAT return:

  • Box 6 – outputs – £5,000

 

Steve will do the reverse charge calculation and make the following entries on his return:

  • Box 1 – output tax £1,000 (ie £5,000 x 20%)
  • Box 4 – input tax – £1,000 (same figure as Box 1)
  • Box 7 – inputs – £5,000 (net value of payment made to Steve)

Other issues to consider

Taking the Steve and Mike example a stage further, they each have their own responsibilities with the new rules.

Mike must ensure that Steve is both registered for the CIS (Construction Industry Scheme) and also has a valid VAT number.

Mike must also specify on his sales invoices the amount and rate of VAT that Steve must declare with the reverse charge ie 5% or 20% VAT.

Mike should include wording on the sales invoice along the lines of: “Reverse charge: customer to pay the VAT to HMRC.”

Steve must tell Mike if he is an “end-user” or “intermediary supplier”. If he is an intermediary supplier, then Mike will not charge him VAT because the reverse charge applies.

It is important that Steve does not pay VAT incorrectly to Mike because HMRC could raise an assessment for the VAT that he should have declared, ie as if the reverse charge had been done correctly.

Penalties issued by HMRC for errors

HMRC has confirmed that penalties will not be charged for mistakes with the new procedures, the exception being if “you are deliberately taking advantage of the measure by not accounting for it correctly.”

Support from a4c

We acknowledge that these changes are likely to cause a great deal of confusion and therefore the whole team at a4c will be prepared to answer any invoicing questions you have in relation to these VAT changes.

Don’t hesitate to call us on 01737 652 852.

We also hope that Xero will be able to support with this new process and we look forward to the forthcoming Xero release which will contain solutions to help you.

Winter Economy Plan

On Thursday 24th September the Chancellor, Rishi Sunak, unveiled the government’s plan to protect jobs and support businesses over the coming months.

Full details are yet to be published but here are the headlines:

 

  • The ability to pay furloughed wages and claim these back via the Coronavirus Job Retention Scheme (CJRS) will cease at the end of October, as previously announced.

 

  • There is going to be a new Job Support Scheme (JSS), starting on 1st November, to support viable jobs.

 

  • The Self-Employment Income Support Scheme (SEISS) has been extended until the end of April 2021.

 

  • The ability to apply for loans, Coronavirus Business Interruption Loan (CBIL) or Bounce Back Loan (BBL) has been extended until the end of November 2020.

 

  • A new Pay as You Grow flexible repayment system, means that businesses can extend their Bounce Back Loans from six to ten years.  They will have the option to make interest-only payments and take payment holidays.

 

  • Self-Assessment tax, which is due to be paid on 31st January 2021, can now be paid in 12 instalments.

 

  • Businesses who deferred VAT payments earlier this year, and were due to repay in March 2021, can now pay it back in 12 monthly interest-free instalments.

 

  • The reduced rate of VAT (5%) in the Hospitality and Tourism sectors has been extended until March 2020

 

More information will be published in the coming weeks so watch this space!