Pension flexibility proves taxing

Lump sum withdrawals under pension flexibility rules are resulting in over-paid tax as a result of the use of emergency tax codes, it has been revealed.

So if you are thinking about using pension flexibility, it really pays to take advice before asking for the payment.

Recent statistics from the taxman have highlighted the over-taxation of some pension benefits.

More than a million people have received flexible pension payments thanks to the rules introduced just over four years ago.

HMRC’s most recent statistics, to the end of March 2019, show that 1,113,000 people have withdrawn more than £25,600m from their pensions, across 6,136,000 payments.

The amounts withdrawn and the number of payments have both increased each tax year since the ‘freedom’ rules were introduced. In 2018/19 there were over 2,400,000 payments totalling £8,180m.

However, the system is causing some problems for HMRC. In the first quarter of 2019 HMRC refunded £31.1m of overpaid tax to more than 12,500 people.

And it has also emerged that it has given back more than £433m to taxpayers since the introduction of the pension freedoms.

The over-collection is a result of HMRC’s insistence on using emergency tax codes where a pension provider does not have a current tax code for the individual, which is usually the case on a first withdrawal.

More often than not, emergency tax codes create too high a deduction. The excess tax can be reclaimed and HMRC has created dedicated forms to speed up the repayment process.

In theory if no reclaim is made, the tax should eventually be refunded once HMRC undertakes its end of year reconciliation – but that could mean waiting more than 12 months if the payment is taken early in the tax year.

In some circumstances the emergency code issue can be sidestepped, but if it cannot, then you need to be aware of what you will receive initially and the process of reclaiming what you’re owed.

There have been growing calls for the policy to be changed; however, last June, HMRC said it had been reviewing the process for flexible pension drawdown payments, but it had concluded “that any changes at the current time would not significantly improve the tax position for the majority of recipients of a flexible drawdown payment, when compared to the process currently in place”.

To discuss any issues this article has raised please contact me on 01772 430 000.

Is your estate planning up to date?

Death taxes are set to double to a massive £10bn by 2030, according to recent new analysis – almost double the Inheritance Tax (IHT) receipts for the 2018/19 tax year

The prediction by financial services firm Canada Life came as it was revealed the Treasury benefitted from record IHT receipts of £5.2bn in 2018 – which were also up £200m on the previous year.

However, while IHT receipts are on the rise in a big way, it appears that people’s understanding of the system and how it could help them pass wealth onto their beneficiaries isn’t so high.

Take the survey last month from wealth management specialist Quilter, which revealed that only 37 per cent of those asked were aware of IHT rules.

And under half of those quizzed knew about basic IHT rules around gifting or the nil rate band.

However, 60 per cent thought the rules likely to be important when it came to how they could pass wealth on.

And those percentages really highlight a big disconnect between the information available and understanding the practical implications for individuals and their families.

It is also why the forthcoming review of IHT regulations from the Office of Tax Simplification (OTS) can’t come soon enough.

The OTS is the independent adviser to government on simplifying the UK tax system, to make it easier for the taxpayer.

It is set to deliver the second part of its review of IHT regulations shortly, following an initial report in January that looked largely at administrative issues.

The exercise is aimed at simplifying how IHT is implemented, with the upcoming report expected to focus on specific areas of change.

With additional complications like the residence nil rate band still focusing on the nuclear family, the IHT regime appears out of step with modern families and concerns about inter-generational wealth.

A House of Lords committee on intergenerational fairness has already reported across a range of issues from housing to pension credits and estate tax.

Among a raft of recommendations, they called IHT “capricious and not fit for purpose”. Going back to fundamentals, the Lords report questions why and how assets should be taxed at death or on transfer to the next generation.

The report suggested options such as a capital receipts tax payable on income received by beneficiaries or exempting certain assets from IHT if earmarked for first home purchase by a family member.

Whether any of these ideas come to fruition, and whatever the awaited OTS report recommends, there are ways in which the existing IHT regime can currently benefit your own estate planning and ensure a fairer distribution of your assets through your family.

The £3,000 a year annual gift allowance is good place to start. So is reviewing your will and making sure your assets will be dispersed the way you wish.

The first question you should be asking is: “Is my estate planning up to date?”

To discuss any issues around IHT or other tax issues please contact me on 01772 430000.

Construction set for big VAT shake-up

Major changes to the way VAT is collected in the construction industry are set to come into effect from October 1 and they are likely to have a big impact on SMEs in the sector.

They need to act now to ensure their accounting systems and the way that they operate are ready for this latest tax shake-up.

It has been estimated that the new ‘domestic reverse charge’ rules could affect up to 150,000 businesses in the construction and building trade in the UK.

And there are fears that the change could hit the cash flow of sub-contractors in an industry that is already feeling the squeeze when it comes to payments.

Some businesses use the VAT they collect from customers as working capital before they pay it over to the HMRC. They will need to prepare for potential cash flow problems when the new rules come into effect.

It makes it really important that businesses look closely at their supply chain and their customers and determine how the change will affect them, and what they can do to minimise any impact.

The reverse charge will apply throughout the supply chain where payments are required to be reported through the Construction Industry Scheme (CIS).

It is expected that supplies between sub-contractors and main contractors will be most affected by the change.

At present a sub-contractor is responsible for charging and accounting for VAT to the taxman on supplies to main contractors.

Under the new reverse charge rules the main contractor will be responsible for declaring the VAT on supplies received from the sub-contractor.

An equivalent VAT deduction can also be claimed by the main contractor subject to the normal rules of VAT recovery.

The new rules apply only to certain building and construction services and to charges in the supply chain – not to end users.

The reverse charge will exclude businesses that supply specified services to connected parties within a corporate group structure or with a common interest in land. In these circumstances, the taxman says, the supplies in question will then revert to normal VAT accounting rules.

What it does mean is that VAT cash will no longer flow between businesses. For every transaction, the VAT will be registered and clearly stated on the invoice as a reverse charge.

Businesses which receive services from another contractor will need to determine which VAT rate applies and whether the services received will be subject to the charge.

HMRC says that it is introducing the new rules because of growing concern over the amount of “missing trader fraud” taking place.

The fraud involves a supplier issuing a VAT invoice and collecting the tax from their customer before going “missing” – without declaring the VAT to HMRC.

In a statement HMRC said: “VAT fraud in construction sector labour supply chains presents a significant risk to the Exchequer.

“Organised criminal gangs fraudulently take over or create shell companies to steal VAT whilst operating alongside actual construction services.”

To discuss how the construction industry domestic reverse charge for VAT could affect your business, or to talk about any aspect of VAT, please contact me on 01772 430000.

Is it time to ditch the spreadsheet?

Here is a stark statistic. An estimated 88 per cent of spreadsheets include mistakes, and half of those used by big businesses have “material defects,” according to a recent report.

And those errors are costing businesses billions. JP Morgan’s so-called “London whale” fiasco, which led to a $6 billion loss, involved a spreadsheet mistake.

Canada’s Canopy Growth and Societe Generale are two other big names that have suffered big losses. The spreadsheet horror stories keep on coming and it’s not just the big businesses that are at risk.

The serious operational risk businesses are facing because of lack of control over their spreadsheets, or end-user computing (EUC) tools, has been highlighted in a new study by cloud-based application EUCPlus.

More than half the businesses polled admitted to not having a comprehensive policy governing the use of EUC applications, ultimately opening them up to significant risk.

Over 47 per cent of respondents said their organisation used over 1,000 spreadsheets for day-to-day functioning, and 30 per cent admitted that more than a quarter of the spreadsheets used were critical to the running of their organisation.

Little wonder that businesses are being encouraged to switch to accounting software as they grow and develop, in order to avoid potentially costly spreadsheet errors.

Also, when your spreadsheet template isn’t working, you’re on your own. Finding and fixing errors can be time consuming when you’re trying to get on with running your business.

There are other compelling reasons to ditch the spreadsheets, no matter how comfortable you may feel with them.

The bottom line is that spreadsheets lack the power that modern small business accounting requires.

The right accountancy software, linked to the cloud, can help you see the bigger picture when it comes to your business, aiding you in developing your strategy.

We can help businesses implement the right software solutions for them – which will allow them to work much more effectively.

To discuss what software will work best for your business please call me on 01772 430000.

The green route to growth

As businesses grow and enter new supply chains it is becoming a common requirement for them to demonstrate their commitment to reducing their carbon footprint.

It can open new opportunities but also be a daunting task. However, help is at hand for Lancashire’s SMEs. And the benefits of getting it right can include significant cost-savings as well as paths to new markets.

The Making Carbon Work (MaCaW) project is a University of Central Lancashire (UCLan) and industry collaboration that aims to help small businesses overcome the challenges and barriers they face when looking to move to a low carbon model.

WNJ has referred a number of its clients to MaCaW, which is supported by Boost, Lancashire’s business growth hub.

We are delighted to be able to help business reduce their carbon footprint and save costs by signposting them to this scheme.

The project looks to support them as they work to implement low energy practices which will not only reduce their “carbon burden” but will also deliver cost savings to their organisation.

The programme includes carbon baseline analysis, site visits and energy audits, along with the creation and implementation of an integrated low-carbon action plan.

There are 50 per cent match funded grants available – up to £8,000 – for relevant equipment. And the project will help organisations to manage and report their emissions effectively.

The ERDF supported programme is aimed at county-based companies that employ less than 250 people and have an annual turnover of less than £45m or a balance sheet total less that £38m.

Mark Nelson, business engagement officer at MaCAW, says: “We aim to work with SMEs across all sectors to identify and prioritise the opportunities available to them.

“We encourage businesses to look at everything they do in their organisation in terms of the amount of carbon they are generating.

“It is about raising awareness of the benefits of carbon reduction, not just in terms of the environment but also the savings companies can make by going on this journey. From an SME’s point of view it makes real business sense.”

There are plenty of simple ways that businesses can start their low carbon journeys. They include:

• Nominating an ‘Energy Champion’ to promote energy efficiency throughout the business
• Regularly monitoring energy use so it can be compared with weather, production or sector specific standards
• Conducting ‘walkaround’ energy surveys to identify were use is concentrated, understand how it can be controlled an identify opportunities to make savings
• Committing to an achievable reduction target and reviewing regularly to reflect improvements made
• Exploring upgrades to equipment to reduce energy use, increase production capacity and develop new product lines

MaCaW is a further initiative from UCLan that WNJ has been able to introduce to clients. In addition to the Innovation Clinic and its funding for training project.

For information on how Making Carbon Work (MaCaW) can help your business make energy and cost savings contact 01772 893963 or email: macaw@uclan.ac.uk

Do you need help upskilling?

A new project has been launched to support Lancashire SMEs in increasing the skills and capability of their employees.

The UpSkilling Lancashire project team will help businesses identify, design, develop and implement workforce education training programmes in response to the needs of the company.

WNJ is looking to make its clients aware of the benefits of the programme, which was officially launched last month, and how they can use it to develop the skills of their workers.

Charlotte Duffell (pictured), project manager of UpSkilling Lancashire, says the project, funded by the European Social Fund, will support businesses to become more competitive and to achieve their strategic goals.

She said: “The programme has been launched to support SMEs bridge skills gaps through, among other initiatives, workplace training, an important aspect of workforce development.

“Every business has different needs, which is why the team works closely with the employer to gain an understanding of the business objectives to determine exactly the level and type of support they require.

“It will assist SMEs in gaining the competitive edge required to be able to achieve growth and success, providing a vital boost to Lancashire and helping to promote the county as a place where businesses can thrive.”

UpSkilling Lancashire is led by the University of Central Lancashire (UCLan), in partnership with Burnley College, Edge Hill University, Forest of Bowland (Area of Outstanding Beauty) Project, Lancaster and Morecambe College, Myerscough College and Preston’s College.

There are many services available through the programme, including
• Suggested pathways to training opportunities, workshops and courses
• Guidance on the Lancashire apprenticeship offer up to degree level
• Utilising current student knowledge and skills via placements and internships
• Connecting businesses who can benefit from working together whilst supporting the local economy

To qualify for free support through Upskilling Lancashire, businesses must be based in Lancashire and employ 250 employees or less.

For more information on the programme, contact 01772 895500.

Have you got a great idea?

A project based at the University of Central Lancashire (UCLan) is working hard to provide SMEs with the essential tools to develop product ideas from concept to market.

The Innovation Clinic is now offering free workshops on ‘developing a new product’ as it looks to engage with more Lancashire businesses.

One of the sessions will take place on Wednesday May 1 at The Whitaker in Rawtenstall.

WNJ has referred a number of its clients looking to develop their ideas to The Innovation Clinic team and the workshop is a great way for businesses to tap into their expertise.

The workshop sessions aim to guide SME’s through the key steps of product development, with clinic experts sharing their industry knowledge on:

• What makes a good product
• Understanding your market – competitors, demand and legislation
• The importance of design
• New product development – the steps
• Understanding the cost involved
• Routes to funding
• 1:1 specialist advice

The Innovation Clinic has extended its support and expert advice to more than 175 Lancashire SME’s and is looking to help more businesses in the county.

WNJ is delighted to be able to signpost clients to these opportunities and work alongside the Innovation Clinic to help our clients grow their businesses.

Since its creation more than five years ago its aim has been to reduce failure rates of new product development as well as promote a successful innovation culture in Lancashire.

And it is having success, helping businesses in sectors from engineering to sports equipment to bring new products to market.

Its team brings together extensive industry and academic expertise, state of the art facilities and technology to provide fully funded and tailored support.

And it is available at any stage of the development process – from initial concept and market research right through to launch.

Speaking last year Iain Martin, who helped set up the programme, explained: “Having an idea is one thing; that idea being good is another thing and actually being able to roll that good idea out in a commercially viable way is yet another.

“What we do is sit down and work with the business at any stage of the process. For instance, we’ll help them to sense check their idea, to really evaluate if it is any good and also if there is a market demand for it.”

To register for the free workshop log on to: https://www.eventbrite.com/e/developing-a-new-product-by-uclan-innovation-clinic-free-workshops-tickets-58442703700

Under the microscope

As figures reveal, HMRC’s investigative work is more focused and better targeted than ever before. In 2017-18 the taxman collected £30.3bn through compliance activity.

There are now many more trained investigation specialists – and they are using the latest technology and information at their disposal to launch campaigns and set up taskforces designed to maximise tax revenues.

HMRC’s ‘Connect System’ currently selects nine out of every ten enquiries. It is designed specifically to identify those who may have paid to little tax.

Even if you have done nothing wrong, you can be selected – and that means that no-one is immune to scrutiny.

No business is too small or too large for HMRC to challenge and those targeted include cash businesses, tradespeople, farmers, medical professionals and solicitors.

There is no doubt that tax investigations can be massively disruptive for businesses. They can also be lengthy affairs, enquires can take years to conclude.

Small businesses in particular may have fewer resources to cope with the exercise. There is the time that needs to be spent managing an inquiry and co-operating with the inspectors, not to mention the potential cost in terms of professional fees.

Here is just one example. HMRC opened a full enquiry into a self-employed caterer. The Inspector requested all of the books and records at the outset and subsequently made further enquiries about the expenses claimed.

The practice managed to close the enquiry through correspondence alone, with no adjustments required to the return. Yet the fees still amounted to £2,000.

In another recent case a law firm was subject to an employer compliance review with the taxman specifically considering the status of self-employed workers.

The accountant challenged HMRC’s view that the workers should have been employees.

After a four year enquiry a successful outcome was achieved. However, accountancy costs in respect of the investigation came to £10,000.

These cases, and many others, highlight why it is as important as ever for you to protect against these costs.

Tax Enquiry Fee Protection Insurance schemes, like the one operated by WNJ, can give people piece of mind and help protect them.

For a small yearly cost, professional fees for defending clients in tax enquiries can be claimed under this insurance policy.

Clients in the scheme are also able to obtain helpful advice about the complex areas of Health and Safety and Employment Law, with access to a team of qualified solicitors and barristers.

We can’t take away the stress and anxiety of being under investigation. But we can remove the cost and work to achieve the best outcome.

If you would like to discuss any aspect of this article, want more information about protection from HMRC investigation, or have any tax queries or concerns please contact me on 01772 430000

Cloud accounting – how we can help

Cloud accounting software is changing the way that businesses operate their bookkeeping functions.

With the imminent introduction of Making Tax Digital (MTD) it is important to consider whether this software could assist your business, not only allowing you to file your VAT returns but also enabling you to take advantage of numerous efficiency and cost saving benefits.

At WNJ, we have a dedicated team that can help and advise you and who are all cloud accounting specialists. We work closely with expert providers; Xero, Sage, QuickBooks and FreeAgent to give our clients the best solutions that suit their individual accounting needs.

We will set you up and train you to use all of the functions with confidence. And we can also provide a full or partial outsourced book keeping service.

To discuss cloud accounting benefits and determine which provider would be best suit your business, please call me on 01772 430000.

The advantages of going digital

HMRC’s vision to digitalise the UK tax system is nearly upon us as VAT registered businesses with turnover above £85,000 will be required to use compatible software to maintain their records and to update the taxman quarterly, starting from April.

It may seem like a minefield but help is available when it comes to digital tax advice – and making sure you have the systems and processes to meet the challenge and the switch-over can even help when it comes to running your business.

Whilst much of the press and media coverage has been highlighting the cost to small business of this new legislation, here at WNJ we believe that for many businesses it will be the catalyst to a new age where the legislation is forcing changes which will in a relatively short period of time allow savings in time and money.

Whilst there are many different accounting software solutions, here at WNJ we have ensured that our dedicated Cloud Accounting team have the expertise to show business owners how the use of appropriate software will reap these benefits.

A good accounting solution allows easy invoicing, including quotes, estimates and statements – all you need to do business and get paid. You can track what you’re owed so you can see how much each customer owes at -a-glance and chase overdue balances. And it allows you to bank securely and accurately. It is also time-saving, bank transactions effortlessly flow into software and can be automatically matched to your invoices.

The available software also produces reports such as profit and loss, balance sheet, trial balance, and more – these are ‘clever reports’ that empower business decisions.
It also takes care of VAT when it comes to calculating and submitting returns, giving confidence with compliance. And it’s functions include the ability to produce cashflow forecasts that will allow businesses to plan ahead.

Access to invoicing and expenses apps mean you can work at the office, at home or on-the-go on your computer, tablet, and phone – whenever you need it. And the package can also help speed up sales and purchases, and calculate profit.

There are free webinars available for clients to get the most out of the software and we are always happy to help clients with queries and problem solving.

WNJ has hosted a number of seminars already and plan more over the next year to give clients a further insight into the potential benefits and capabilities of Cloud Accounting.

To discuss the software available and any aspects of the government’s digital tax drive, please call me on 01772 430000.