In April 2020, the government are planning to make changes to the employment allowance. Since 2014 many businesses have been able to claim £3,000 per year as a deduction against Class 1 NI, but from April things are changing!
Here is a quick summary
Employers won’t automatically qualify for the EA (Employment Allowance) and must claim it each year. This will mean submitting a declaration confirming that you’ve checked and qualify by meeting the eligibility conditions.
Employer with more than £100k of Class 1 NI won’t qualify
Connected employers won’t qualify – sharing staff, premises or other resources
EA will be counted as State Aid and the maximum state aid allowed is 200,000 euros
So even if items 2 to 4 don’t apply, item 1 will apply to every business wanting to make a claim.
Firstly, I recommend that your Accountant signs you up, we will sign up our clients who are above the threshold to avoid potential problems.
Many businesses have found the process confusing because
• They were in the Pilot
• They didn’t realise they needed to register
• They thought the software would do the registration
The best time to register is after you have filed your last pre-MTD VAT return and made payment or had a refund and at least 7 days before the end of the next VAT period.
The reason why this is important is that HMRC need time to switch businesses from old gateway to the new MTD system.
We have had spoken to businesses who registered at the wrong time and found that they either can’t submit returns or Direct Debits or repayments have been delayed causing significant cash flow problems particularly for businesses expecting six figure refunds.
It is important to register for MTD and then register your software.
• The personal allowance threshold, the rate at which people start paying income tax at 20%, to rise from £11,850 to £12,500 in April – a year earlier than planned
• The higher rate income tax threshold, the point at which people start paying tax at 40%, to rise from £46,350 to £50,000 in April
• After that, the two rates will rise in line with inflation
• National Living Wage increasing by 4.9%, from £7.83 to £8.21 an hour, from April 2019.
Off Payroll IR35
• The employer will be responsible for deduction of tax and NI for personal service companies
• Small organisations will be exempt
• The crackdown is the biggest revenue-raising measure in this year’s Budget
Support for the High Street
• Small retail businesses will see their business rates bills cut by a third for two years from April 2019, saving them £900 million.
• Local high streets will benefit from £675 million to improve transport links, re-develop empty shops as homes and offices and restore and re-use old and historic properties.
• Public lavatories will receive 100% business rates relief.
• This adds to previous reductions in business rates since Budget 2016 which will save firms over £12 billion over the next five years.
Annual Investment Allowance
• The government will increase the Annual Investment Allowance five-fold from £200,000 to £1 million to help businesses to invest and grow.
• Also, from October 2018, businesses will be able to deduct 2% of the cost of any new non-residential structures and buildings off their profits before they pay tax.
HMRC are getting tough on those who seek ways to avoid tax and the schemes are often treated as Tax Fraud.
The Finance (No. 2) Act 2017 contains some of the most significant changes to tax legislation in recent memory (the 2019 Loan Charge).
The legislation which is retrospective targets Employee Benefit Trusts, Employer Financed Retirement Benefit Schemes, Contractor Loans and many others where an employee was rewarded with a loan from the employer or a trust, but in realty the employee was never going to repay the loan and just wanted tax free money.
The 5th April 2019 Loan charge will require Income Tax and National Insurance to be paid on the balance outstanding, as most of the loans will be high value that probably means 40%/45% income tax and Employee NI at 2% and Employers NI at 13.8%, so that could be 45% + 2% +13.8% = 60.8% tax on the loan, plus possible interest and penalties
How re-describing loans is claimed to work
Scheme users are being told they can sign documents saying that the sums they’ve received from their disguised remuneration scheme under loan agreements are not loans at all. Instead, these sums of money are merely held by them in a ‘fiduciary capacity’ – for example, an individual acts in a fiduciary capacity if they hold money, or assets, for the benefit of someone else, not themselves.
It’s wrong to claim that the loan charge won’t apply because the sums received aren’t loans.
Why you shouldn’t use this scheme
Renaming something now doesn’t change what happened in the past. Attempting to describe a loan as something else doesn’t mean it’s not a loan.
The loan charge will apply to more than just loans, including any form of credit or other right to a payment regardless of what it’s called. If you adopt this approach and choose not to reflect the loan charge on your tax return you may face a significant penalty in addition to the tax charge.
Deliberately misleading, or concealing information from HM Revenue and Customs (HMRC) may result in criminal prosecution.
Repay in full before the 5th April 2019 – but be aware that if the company distributes money to you it may be taxable
Settle with HMRC
Doing nothing is not an option, its likely you lead to bigger penalties and possible legal action.
The Advice from HMRC
Any arrangements to avoid the loan charge, which seek to deceive HMRC as to what is really happening, may be fraudulent.
A number of previous cases promoted as being compliant and legal have resulted in criminal convictions for the key people involved and extensive investigation of several hundred users. HMRC will investigate all of these arrangements and is likely to take similar action if it finds any that are seeking to deceive. At the very least, anyone who takes part in an offensive arrangement is likely to face penalty sums, chargeable along with any tax and interest that will be due.
Tax avoidance doesn’t pay. Most arrangements simply don’t work and people can end up paying more than they were trying to avoid. Users may have a long-term requirement to deal with the cost, commercial and tax fallout from these transactions with no support from the promoter of the original arrangement. If users are worried about their financial position, it is better to contact HMRC rather than risk more investigation and what is likely to be a larger bill.
Moyes’ disqualification follows an investigation by the Insolvency Service into Glasgow-based Professional Pre Season Tours Limited, which ceased trading in April 2014.
The company had been involved in arranging pre-season tours for various football clubs, including Everton, Chelsea, Liverpool, Leeds United, Sheffield Wednesday, Nottingham Forest, Norwich City, Aberdeen, Hibernian and Celtic.
The investigation found that Moyes transferred over £300,000 from the company to himself as a ‘bonus payment’ shortly before the company stopped trading. However according to the company accounts, no money was actually transferred, although it allowed him to claim a loan account debt was settled. In reality, this money had already been withdrawn for his personal use.
Investigators established that he withdrew at least £420,400 in cash from the company while it was trading, but failed to declare the full amount.
Because the fictitious transfer resulted in a nominal asset of the company being turned into a liability, it was unable to pay its obligations to HM Revenue and Customs (HMRC) in terms of PAYE and National Insurance contributions. At liquidation it owed £271,180 to creditors, of which all but £4,067 of which was to HMRC.
We all need to pay tax, those who seek to find ways round the system need to know that HMRC will find them and make them pay!
All companies must deliver correct and complete tax returns.
A company may not be able to do this if its tax accounting arrangements are not fit for purpose. These arrangements will range from how it accounts for its business transactions to how it works out its final tax liability.
Schedule 46 FA09 sets out rules for certain large companies. Those companies must establish and maintain their tax accounting arrangements and their Senior Accounting Officer (SAO) is responsible for ensuring that they do.
This guidance tells the reader about
the rules that put responsibilities on those companies and particularly their SAOs
the actions that those companies and SAOs must take
how HMRC will ensure that they comply with the rules, and
the penalties chargeable if they fail to comply.
The way in which HMRC ensures compliance with the SAO rules is consistent with HMRC’s wider strategy for Mid-sized and Large Businesses by which we seek to build and maintain open and transparent relationships with companies and to work collaboratively with them in real time to reduce their level of tax compliance risk.
Currently SAO rules only apply to large companies (turnover of £200m plus) but will HMRC extent this to smaller companies?
Senior Accounting Officer Main duty: what is the main duty
The main duty of a Senior Accounting Officer (SAO) is to take reasonable steps to ensure that a qualifying company, see SAOG11000, establishes and maintains appropriate tax accounting arrangements.
This means, in particular, that the SAO must take reasonable steps to
monitor the accounting arrangements of the company and
identify any respects in which those arrangements are not appropriate tax accounting arrangements.
A penalty of £5,000 is charged for the following failures:
Failure by the company to notify HMRC of the name and contact details of its SAO
Failure by the SAO to carry out their main duty under the rules
Failure by the SAO to provide a certificate to HMRC, or providing a certificate that contains a careless or deliberate inaccuracy.
The penalty is payable by the person responsible for the failure, as above. The penalties are at a flat rate and cannot be mitigated.
K Thathiah v HMRC  UKFTT 601 (3 August 2017)
The FTT found that a senior accounting officer (SAO) had not breached his main duty under FA 2009 Sch 46.
The case related to VAT errors totaling £1.3m despite providing ‘clean’ certificates, however, it was decided that reasonable steps were being taken to ensure the accuracy of VAT returns for example setting up a team, providing training and using an agent.
I think all SAO’s should take this a warning! get the right systems and procedures or face personal penalties