The final SEISS grant: An update

As the ‘mid-point’ of the applications window for the fifth Self-Employment Income Support Scheme (SEISS) approached, HMRC clarified some of its guidance.

Claims for the final grant, worth up to £7,500 must be made by September 30, 2021. New to the process is a “turnover test”.

The amount of support available depends on how much the applicant’s turnover has been affected by the pandemic.

Those whose turnover has reduced by at least 30 per cent can apply for a grant of 80 per cent of three months’ average trading profits, capped at the £7,500 mark.

Those whose turnover has been reduced by less than 30 per cent can apply for a grant of 30 per cent of three months’ average trading profits, capped at £2,850. The grant is taxable.

You should claim this fifth grant if you think that your business profit will be impacted by coronavirus between May 1, 2021 and September 30, 2021.

HMRC should by now have contacted you if you’re eligible for the grant based on your tax returns.

In the meantime, it has updated its guidance to remind subcontractors in the construction industry scheme (CIS) that, when calculating their turnover for the pandemic year and the reference pre-pandemic period, they should include the full amount before any deductions made by contractors.

The taxman has also made a minor change to the wording of its guidance on the turnover test as it applies to members of partnerships.

The guidance now reads: “How you work out your turnover depends on when you were in the partnership and if you have other businesses.

“If you were a member of the same partnership in your reference year and in April 2020 to April 2021 and had no other businesses in either of those years, you’ll need to work out and use the partnership’s total turnover figure for the reference year.

“If you were a member of a partnership in the tax year 2019 to 2020 and had any other businesses in that tax year or in the period April 2020 to April 2021, you’ll need to work out and include your percentage share of the partnership’s turnover.

“This will be the same as the percentage of profit you took from the partnership in your reference year. You should add this to your turnover from any other businesses.”

If incorrect turnover figures were reported when making a claim, the action required depends on whether the grant amount was too high or too low.

If the grant amount was too high, the process described in HMRC’s guidance on reporting and paying back a SEIS grant should be followed.

If the grant amount was too low, an additional claim can be made by phoning the SEISS helpline; the deadline for any additional claim is September 30.

The government has already paid out £25.2billion in financial support to 2.9 million self-employed individuals whose business has been affected by coronavirus through this scheme.

Who can claim

You must be a self-employed individual or a member of a partnership.

You must also have traded in both tax years: 2019 to 2020 and 2020 to 2021

You cannot claim the grant if you trade through a limited company or a trust.

You must have:

• submitted your 2019 to 2020 tax return on or before 2 March 2021
• trading profits of no more than £50,000
• trading profits at least equal to your non-trading income
• Non-trading income is any money that you make outside of your business. For example, if you also have a part-time job or pension.

If you’re not eligible based on the trading profits in your 2019 to 2020 return, HMRC will look back at previous years.

When you make your claim, you must tell HMRC that you intend to keep trading in 2021 to 2022 and reasonably believe there will be a significant reduction in your trading profits due to the impact of Covid-19 between 1 May 2021 and 30 September 2021.

The fifth grant is different from previous grants. In most cases, when making your claim you will need to tell HMRC about your business turnover so it can work out your grant amount.

Turnover includes the takings, fees, sales or money earned or received by your business.

To make your claim, you’ll need to have two different turnover figures. You’ll need to work out your turnover for:

• April 2020 to April 2021
• either 2019 to 2020 or 2018 to 2019

HMRC will compare these figures to work out how much you’ll get.

You will not be asked for any turnover figures if you started trading in 2019 to 2020 and did not trade in the following tax years:

• 2018 to 2019
• 2017 to 2018
• 2016 to 2017

NIC and dividend tax hikes: What it means for you

National insurance contributions and dividend tax rates will increase by 1.25 per cent from April 2022, with the projected £12bn annual income ringfenced to pay for health and social care.

In a move that breaks the Conservative’s manifesto pledge on raising taxes, the Prime Minister Boris Johnson said the rises will pay for the impact of the coronavirus pandemic on the NHS and address the long-standing funding gap for health and social care.

From April 1, 2022, there will be a temporary 1.25 per cent increase in class 1 (employee) and class 4 (self-employed) national insurance contributions (NIC) paid by workers, as well as a 1.25 per cent increase in class 1 secondary NIC paid by employers (so 2.5 per cent in total).

The increase will apply to employed (include deemed employees) and self-employed individuals and partners earning above the class 1 primary threshold / class 4 lower profits limit (currently £9,568 in 2021/22).

Employers will pay the additional 1.25 per cent for staff earning above the class 1 secondary threshold (currently £8,840 in 2021/22).

Existing reliefs and allowances from employer’s secondary class 1 NIC will apply to the levy, including the £4,000 employment allowance, reliefs for employers of apprentices, newly employed veterans and new employees in freeports.

From April 2023, the increases will be legislated separately as a “health and social care levy” and NIC rates will return to 2021/22 levels.

The revenues will be ringfenced for health and social care. From April 2023, legislation will also extend the revenue raising measure to individuals over state pension age in employment, who are currently exempt from paying NIC.

The levy, including the temporary NIC increase in 2022, will be legislated for shortly.

Dividend tax rise: The impact

Alongside the levy, which will be paid by employees, the self-employed and businesses, the government has announced a 1.25 per cent increase in dividend tax rates from April 1, 2022.

That will take the rates to 8.75 per cent for basic rate taxpayers, 33.75 per cent for higher rate taxpayers and 39.35 per cent for additional rate taxpayers. The £2,000 dividend allowance will remain.

According to calculations, someone taking £45,000 per year in dividends will see their tax bill increase by £378, while someone receiving £75,000 in dividends will pay an extra £753.

Shareholders who hold their investments in a tax-free ISA will not be affected as they do not pay tax on dividend income.

The government says the increase in dividend tax rates will be legislated for in the next Finance Bill and the government estimates that 70 per cent of the revenue raised will be paid for by additional and higher rate taxpayers in 2022/23.

HM Treasury’s analysis of the impacts of the measures concludes that households with the highest 20 per cent of incomes will contribute more than 40 times that of those with the lowest 20 per cent of income, with more than one-third of the overall tax increases coming from the top 10 per cent of households.

However, the analysis does not include projections of the impact of the increase to class 1 secondary NIC paid by employers, stating: “Whether, how and when employers will pass on the impact of this is unclear, particularly in the short run; business may choose to adjust wages, prices or profits.”

Social care contributions

The revenue raising measures will contribute to funding social care in the UK, the financing of which will change from October 2023.

Under the government’s plans the amount individuals will pay towards personal care throughout their life will be capped at £86,000.

Meanwhile, individuals with assets of less than £20,000 will not make any contribution to care costs from savings or the value of their home (an increase from £14,000), and those with assets between £20,000 and £100,000 will be eligible for means-tested support.

The Treasury confirmed that pension funds will be exempt from the tax rises, shielding retirement savings.

Reaction to the announcement

Mike Cherry, chairman of the Federation of Small Businesses (FSB), said: ‘Business owners who have done all they can to retain and support their staff during the pandemic are now being punished with a fresh assault on dividend revenue.’

Kitty Ussher, chief economist at the Institute of Directors, said: ‘The surprise new tax on dividends will yet again target small company directors. Incorporated sole traders and other owner-managers, who relied on dividend income, were the only group of workers that were not supported by the government during the pandemic.”

And Frank Haskew, head of The Institute of Chartered Accountants in England and Wales tax faculty, commented: “This change is likely to be a substantial increase in administrative burdens and costs for businesses with the need to amend payrolls to reflect increased NIC rates from April 2022 followed by a brand-new levy with effect from April 2023.”

Small firms call for cut to “jobs tax”

The country’s largest business group has called on policymakers to cut Employer National Insurance Contributions (NICs) and relaunch the SME Brexit Support Fund.

The Federation of Small Business (FBS) is urging the government to address rising input prices, lack of access to the right staff and trade disruption which it warns threaten the road to post-lockdown recovery.

The Lancashire-headquartered organisation’s Small Business Index (SBI) report lays bare the impact of rising costs and skills shortages.

Exporters are also continuing to struggle amid rising shipping fees and the loss of goods in transit.

Among the 1,500 respondents that contributed to the full Q2 2021 report, close to two thirds (64 per cent) revealed their operating costs have risen over the past year.

Four in ten (43 per cent) cited inputs such as raw materials as a contributor to the rise, an 11-percentage point increase on the same quarter in 2019. Labour (36 per cent), utilities (28 per cent) and fuel (26 per cent) were also commonly flagged.

Despite a cooling in consumer prices, Office for National Statistics (ONS) figures showed growth in the headline rate of input prices of 9.9% last month.

Elsewhere, more than a third of small firms (37 per cent) highlighted access to appropriately skilled staff as a primary barrier to growth over the coming 12 months.

Close to seven in ten (70 per cent) of those in the construction sector cited skills shortages as a barrier.

The ONS has also revealed that there were 953,000 job vacancies in the three months to July, a record high.

The FBS study also reveals that on top of the one in five (23 per cent) small exporters that have temporarily or permanently stopped selling into the EU, a further fifth (21 per cent) are considering halting sales.

More than half (53 per cent) have had goods held indefinitely at EU border crossings since April and a similar proportion (45 per cent) have lost goods in transit.

FSB national chairman Mike Cherry said: “Small firms are emerging from lockdowns under the strain of spiralling input and shipping costs, skills shortages, new exporting paperwork, emergency debt repayments, rent accruals and business rates.

“The government should urgently move to mitigate cost pressures by reducing Employer NICs, which are serving as a jobs tax and yet another cost to think about in an environment where finding the right people is a nightmare.

“This government was elected on a manifesto that rightly promised to cut the jobs tax, and ministers must rediscover that reformist zeal if they want to unlock growth within the small business community and secure our economic recovery.”

He added: “Our exporting firms tend to be among our most innovative and profitable. Unless we can get them firing on all cylinders again – and produce more of them – we’re going to find our recovery is permanently hampered.

“Small businesses didn’t have a chance to make full use of the SME Brexit Support Fund before it closed. It should be revamped and relaunched to help our great international-facing firms access the help they need to innovate, hire and grow over the critical months ahead.”

National Minimum Wage warning for employers

Employers who are flouting the law and not paying their workers at least the National Minimum Wage for their age have been warned that they face hefty fines.

Steve Timewell, HMRC’s Individuals and Small Business Compliance, director, spelled out its approach to those flouting the rules.

He said: “We always apply the law and take action. Workers cannot be asked or told to sign-away their rights.

“We are making sure that workers are being paid what they are entitled to and, as the economy reopens, reminding employers of the rules and the help that is available to them.”

In the 2020 to 2021 tax year, HMRC says it helped more than 155,000 workers across the UK recover more than £16 million in pay which was due to them, and it also issued more than £14m in penalties.

Steve Timewell says that there is help and advice available for businesses that are unsure of the rules.

However, he added: “Any employer deliberately or unapologetically underpaying their staff will face hefty fines and other enforcement action.”

The National Minimum Wage hourly rates are currently:

• £8.91 – Age 23 or over (National Living Wage)
• £8.36 – Age 21 to 22
• £6.56 – Age 18 to 20
• £4.62 – Age under 18
• £4.30 – Apprentice

HMRC: ‘We are here to help’

HMRC has reinforced the message that it recognises “the pressure” many people are still facing because of the Covid-19 pandemic, and it is here to help.

It used the publication of its performance report for the first quarter of 2021-2022 to make the point.

In a statement HMRC said: “We are doing everything we can to help. Our message to customers remains: if you can pay your taxes then you should do so – but if you’re struggling, we want to work with you to agree a plan based on your financial position.”

It added: “During the pandemic we have taken a common-sense approach to individual customer circumstances.

“Where people cannot pay their tax, we have enabled them to defer payment, and to pay off their debts over time in affordable instalments.

“Where people cannot deal with our compliance enquiries, we have deferred these if possible – with some direct face-to-face interventions moving into the next financial year.”

The report revealed that the amount of outstanding tax debt has continued to reduce as HMRC has “supported customers to pay where they can, including through affordable instalment plans.”

And it added: “As the UK slowly emerges from the pandemic, we are also working towards a return over time to more normal levels of compliance activity, while recognising the very real needs and challenges that businesses and individuals still face.

“We are contacting customers who have fallen behind with their tax during this difficult time. At all times, we will take an understanding and supportive approach to dealing with those who have tax debts or are concerned about their ability to pay their tax.”

It added: “These decisions to support customers – as well as the economic impact of the pandemic itself – have inevitably had an impact on compliance yield (the additional revenue we collect from our compliance activity).

“Between April and June 2021, with much of the economy still under Covid-19 restrictions, compliance yield remained lower than its usual pre-pandemic level for quarter one, at £7.4billion. However, we expect yield to recover over the course of the financial year.

“As the country slowly returns to a steady state, we are restarting our debt collection work – but we will continue to carry out this work in a way that is sensitive to customers’ altered needs and capabilities.

“Our immediate priority for customers is to continue helping them to comply with their tax obligations and supporting them with the economic impact of the pandemic, through the Coronavirus Job Retention Scheme, the Self-Employment Income Support Scheme (both of which have been extended to September 2021) and other measures to support people while the economy recovers.

“As the UK builds back better, we will continue to ensure the right tax revenue comes in and protect the tax system and individuals from fraudulent attack.

“Our approach to increasing compliance activity will be informed by customers’ individual circumstances, particularly if they are still severely affected by the effects of the pandemic.

“We will also carry-on supporting businesses to adjust to the changes to trading rules following the UK’s transition from the EU, so they can continue to compete successfully on the global stage.”

Help is at hand to grow international trade

North West businesses are being urged to take advantage of match-funded grants to help grow their international trade.

The Department for International Trade (DIT)’s Internationalisation Fund offers eligible businesses match-funded grants of £1,000-£9,000 for future activity to develop international markets.

The fund, which is supported by the European Regional Development Fund (ERDF) can be used to support a market research, translation services, market visits and several other areas of market development.

Speaking at a recent international trade conference organised by Lancashire Business View magazine, Bobbie Charleston Price, international trade team leader at the DiT, urged North West SMEs in all sectors looking to increase their exporting potential to apply to the fund.

She told the conference: “If business believe they have got a product or service that will be of interest to international markets we want to talk to them.”

The funding can be used for help with a range of issues, including market research, IP advice, translation services, international social media and SEO work, trade fairs, independent market visits and consultancy.

As well as the money, the scheme will introduce businesses to a network of support, including DiT’s international trade advisors, who worked with companies to develop international action plans.

The scheme is already supporting North West businesses, but it is still available for firms based across the region, with a closing date of March 2023 for applications. For more information email info@tradenw.org

An International Trade Adviser will:

• Check your eligibility
• Provide more details about the fund
• Discuss your project and support your company to make the application

The fund can be used to support areas including (but not exclusively limited to):

• Market research
• Intellectual Property advice
• Translation services
• International social media/SEO
• Trade fairs
• Independent market visits
• Consultancy and other international commercial services

Is your business eligible?

The company must be based in England and must be a small or medium sized enterprise (SME) with up to 250 employees.

No more than 25 per cent of the business is owned by an enterprise which is not an SME.

Annual turnover does not exceed €50 million or annual balance sheet does not exceed €43 million.

End of furlough: are you prepared?

The government’s Coronavirus Job Retention Scheme (CJRS) will come to an end on Thursday September 30.

Furlough was introduced in the first lockdown of 2020 following the financial struggles of thousands of businesses

Employers were given the option to furlough workers instead of making them redundant, with the government paying a certain amount of an employee’s pre-tax monthly salary.

The end of furlough at the end of September means that some employers will have difficult choices to make.

The Chartered Institute of Personnel and Development (CIPD) has spelled out some of those on its website.

It says that apart from a full return of furloughed staff – with additional recruitment in some cases – there are several options, depending on the needs of the business.

These could include agreeing temporarily reducing working hours with some or all staff, or considering other strategies, including natural wastage, recruitment freezes, stopping or reducing overtime and offering early retirement to volunteers – subject to complying with age discrimination law.

The CIPD says retraining or redeployment, sabbaticals and secondments, pay freezes or short time working could be other alternatives to considering redundancy.

It is important to take advice on the HR and legal aspects of taking and carrying out some of these choices, including ensuring the correct consultation is carried out.

Businesses also need to be aware of the health and wellbeing aspects of a return to work for staff who may have been away for some time.

CIPD says that some form of ‘re-induction’ process should be considered, and managers should talk people on an individual basis if they have concerns.

Its advice also says that, depending on your business plans, some form of hybrid working or a ‘phased’ return might be suitable.

If you have an Employee Assistance Programme, or other professional support, you may want to signpost staff to that.

CIPD adds: “Ensuring all staff are aware of the health and safety steps you have taken to minimise Covid related risks is important, but people may have additional mental health issues about the return, and you need to be able to address them.”

It is also important to keep everyone fully in the picture about the business and its future direction. Good communication will help things go more smoothly.

The end of furlough, coupled with the repayment of Covid loans, makes it even more vital that businesses manage their cash flow.

There may be increased costs as staff return, with some needing retraining, adding to the pressure.

Businesses that manage their cash well will come out of this stronger. Keep on top of your cash flow forecasts.

Look at your payment terms and see if they need to be changed to meet the new climate. Do you need to ask for more payment up front? Have honest conversations with suppliers and customers.

Control your costs. Look at your overheads to make sure you are getting the best deals possible.

Assess your office systems and purchasing and ordering processes to make sure you are not incurring unnecessary costs.

Ensure that your stock control is in order and is fit for purpose. Again, are the right processes in place? Now is the time to re-evaluate.

Heading for the exit

Timing is everything and that is especially true when it comes to making the right exit.

There are predictions that growing numbers of business owners will look to take their leave as the UK comes out of the pandemic.

The fact is planning a proper exit strategy is vital for any business owner. Putting one in place will help when it comes to decision making and will make the process, when it happens, easier and more profitable.

The strategy you create then needs to be continually revisited to ensure it still fits with your situation and your personal goals, as they can change over time and depending on the performance of the business.

Creating a clear exit strategy requires both time and care. Business owners need to be clear of their financial goals and how long they want to stay involved.

Getting an accurate picture of your finances – both personally and professionally – is important.

This will play a central part in your deliberations as you look at considering your exit options. Looking at several different strategies will help you decide on your best route out.

If your business has investors or other stakeholders, you need to keep them informed of your intentions and the strategy. Investors will want to know how they will be repaid.

Deciding what kind of exit can be challenging and again time and care is needed. Do you want to sell? Have you a buyer in mind? Is a management buy out an option? If it is a family business, are you planning to hand over the reins to the next generation? Or will you liquidate and close the business?

When it comes to a family business it is important to talk – and listen – to those who will be affected by your decisions. Deciding on a gradual handover or a complete break will often depend on the dynamics of the family.

Also, you shouldn’t just assume that the next generation wants to take over. And if they do, they may very well have their own ideas about the direction the business should take. That is why open lines of communication are so vital.

For owners that have spent decades building up a business, leaving can be an emotional experience. The best exit strategies don’t end at the point of sale, you need to look at what happens the day after you walk away for the final time – what do you plan to do next with your life.

Getting the right professional advice and support is vital in creating the right exit strategy for you. To discuss your options please contact me on 01772 430000

Fifth SEISS grant – how it will work

Details are emerging about the government’s fifth Self Employed Income Support Scheme (SEISS) grant.

If you’re eligible based on your tax returns, HMRC will be contacting you this month to give you a date that you can make your claim from. It will be given to you either by email, text message, letter or within the online service.

The online service to claim the fifth grant will be available from late July. You’ll need to confirm that you meet other eligibility criteria when you make your claim.

And you must make your claim on or before September 30, 2021.

The fifth SEISS grant is the last in a series of government payments worth up to £7,500 made available to support eligible self-employed individuals through the pandemic.

Those who were eligible for the fourth grant should be eligible for the fifth payment. To be eligible, you need to be a self-employed individual or a member of a partnership.

You can claim the fifth grant if you think that your business profit will be impacted by coronavirus between 1 May 2021 and 30 September 2021.

Who can claim

You must be a self-employed individual or a member of a partnership.

You must also have traded in both tax years: 2019 to 2020 and 2020 to 2021

You cannot claim the grant if you trade through a limited company or a trust.

You must have:

• submitted your 2019 to 2020 tax return on or before 2 March 2021
• trading profits of no more than £50,000
• trading profits at least equal to your non-trading income
• Non-trading income is any money that you make outside of your business. For example, if you also have a part-time job or pension.

If you’re not eligible based on the trading profits in your 2019 to 2020 return, HMRC will look back at previous years.

When you make your claim, you must tell HMRC that you intend to keep trading in 2021 to 2022 and reasonably believe there will be a significant reduction in your trading profits due to the impact of Covid-19 between 1 May 2021 and 30 September 2021

The fifth grant is different from previous grants. In most cases, when making your claim you will need to tell HMRC about your business turnover so it can work out your grant amount.

Turnover includes the takings, fees, sales or money earned or received by your business.

To make your claim, you’ll need to have two different turnover figures. You’ll need to work out your turnover for:

• April 2020 to April 2021
• either 2019 to 2020 or 2018 to 2019

HMRC will compare these figures to work out how much you’ll get.

You will not be asked for any turnover figures if you started trading in 2019 to 2020 and did not trade in the following tax years:

• 2018 to 2019
• 2017 to 2018
• 2016 to 2017

There are two levels of grant. HMRC will work out your grant amount based on how much your turnover is down by after comparing your two turnover figures.

The grant is taxable and is worth either 30 per cent or 80 per cent of your average trading profits for three months.

The government has issued guidance to help business work out their turnover when making a claim: https://www.gov.uk/guidance/work-out-your-turnover-so-you-can-claim-the-fifth-seiss-grant

Around 600,000 more people are eligible to apply for both the fourth and fifth grants, after Chancellor Rishi Sunak announcing changes to the scheme which meant newly self-employed people were able to claim.

Are you ready for EU VAT changes?

Businesses selling to European Union consumers must ensure the correct rate of tax is declared following the introduction of new e-commerce VAT rule changes.

Those changes will see them taxed according to the local VAT rate applicable in each EU country.

And it means that businesses must ensure their websites and pricing structures comply with the new tax regime.

The changes came into force on July 1. Companies that sell to EU consumers and are responsible for delivering the goods need to make sure that the correct rate of VAT is declared on the sale.

That rate will be the rate of the consumer’s country. An as each EU nation will have different rates, experts are stressing that may require considerable changes to their websites.

According to The Institute of Chartered Accountants in England and Wales, businesses also need to ensure they are correctly registered within the EU. The new rules affect businesses that sell and are responsible for the delivery of goods to EU consumers.

For sales valued below €150 per transaction, businesses can choose to register for the EU’s Import One Stop Shop (IOSS) or register in each EU country in which they have a domestic customer.

The IOSS facilitates the collection, declaration and payment of VAT on behalf of UK sellers through a prior-appointed EU representative, if the seller has no current establishment in the EU itself.

The IOSS system also ensures that the supplier accounts for the correct amount of VAT at the time of purchase from within the gross amount paid.

Businesses selling B2C goods and services valued above €150 per transaction will be required to register for VAT in every EU member state where they make such sales.

To avoid liability for local VAT on the sale, businesses must change their terms of sale so that their customer is responsible for importing the goods into their country.

The customer will have to pay the import VAT and any customs duty, but businesses must make this clear to their customers at the point of sale.

Businesses could also opt to have their delivery provider pay the VAT and any duties at the point of import into the customer’s country and have the costs charged back to them.