HMRC and small business: complexities don’t help

The general feeling that emerges from a recent HMRC report is that small businesses can feel intimidated by some tax complexities.

Many don’t believe HMRC really understands their needs. And they often assume that they will be accused of, and penalised for, deliberately attempting to avoid tax if they make a mistake.

Based on research carried out in 2018 but only just published, HMRC explored why people contacted its helpline about VAT or corporation tax, rather than using its website resources and online accounts.

The small businesses included in the focus groups and interviews behind the report expressed a belief that HMRC didn’t really understand how they operated, or the pressures involved.

And they also thought that its online systems made managing their tax affairs an additional burden.

The findings show that many small businesses feel their tax affairs require more expertise than they have, coupled with anxieties they have around falling foul of HMRC’s penalties regime.

Direct contact was generally related to confirming receipt of payments, trying to understand complex terms and explanations and checking expenses.

The businesses often felt that they needed to explain their circumstances to a person to avoid penalty charges, something which was both time-consuming and frustrating.

Some admitted that their own internal systems were not always as organised or up to date as they could be.

However, those feelings were exacerbated by HMRC’s online systems failing to send confirmations or updates on payments, submission deadlines or ongoing investigations.

The advent of Making Tax Digital, where the portal does not issue confirmation statements, is expected to add to the dissatisfaction.

Even those who used their Business Tax Account, of which there was limited awareness, found it difficult to find what they needed and still believed they should contact HMRC if they missed a payment.

Online resources were not easy to track down and there was a lack of clarity generally on the status of ongoing cases or queries.

The recommendations for improvement, aimed at increasing the numbers of those self-serving their tax interactions with HMRC, include simplifying the user experience online.

There is also a need to review language used in customer communications across HMRC’s channels and the re-framing of the relationship between the customer and HMRC to clarify obligations and outcomes.

If any of this sounds familiar, it may help to know that you are not alone. The good news is that there are resources to help and here at WNJ we happy to discuss any areas of doubt you may have and any tax issues you may be facing. Please contact me on 01772 430 000.

New Government should delay IR35 changes

Whichever party wins the general election next month should delay changes to IR35, or ‘off-payroll working’, rules that are set to take effect in April 2020.

The call comes from the Federation of Small Business (FSB) and it highlights fears that the move could have significant impact on some businesses and sole traders.

The IR35 – also known as ‘off-payroll’ – rules allow HMRC to tax sole traders as employees if it deems their working arrangement are akin to regular staff.

In April 2017, responsibility for deciding whether IR35 should apply to self-employed workers shifted from contractor to employer in the public sector.

From April next year the same change is set to take effect in the private sector.

Some large companies affected by the extension of the off-payroll IR35 rules have started to curtail their use of contractors working through personal service companies (PSCs)

And a survey earlier this month revealed that as many as 20 per cent of UK businesses are axing contractors completely in order to ensure they are fully tax compliant ahead of the IR35 changes.

And it has been reported that almost two thirds of medium and large businesses are worried about missing out on skilled contractors and temporary professionals ahead of the IR35 expansion.

FSB, which represents small firms and the self-employed, has launched its own ‘Back to Business’ 2019 election manifesto – with the IR35 delay just one of its demands.

As many high streets across the country continue to struggle, FSB is asking the next government to fundamentally reform business rates, by enhancing and making permanent the Retail Discount – which entitles small shops in England to a third off their rates bills – and removing more small businesses from the system altogether.

The small business group is also calling on the government to reduce the burden of Employer’s National Insurance Contributions by uprating the Employment Allowance.

It says doing so would, as in years past, ensure that no small business employing four people on the National Living Wage pays Employer’s NICs.

Elsewhere, FSB is reiterating the need to implement measures aimed at ending a £2.5 billion late payment crisis that it says “destroys 50,000 businesses a year”.

FSB National Chairman Mike Cherry says: “We are urging all candidates standing at this election to listen to, and make every effort to understand, the challenges faced by small firms in the communities they hope to represent.”

R&D tax credit claims up 20 per cent

There has been a 20 per cent increase in the total number of claims for R&D tax credits, according to the latest HMRC figures.

And the good news is that the increase in the take-up is being attributed to a growing number of SME claims, with the department forced to add extra resource to meet the demand.

Manufacturing firms claimed £1.25bn using R&D tax relief in the 2017-18 financial year – more than any other industry sector, new research has revealed.

And since its launch at the beginning of the decade, more than 300,000 claims have been made overall, with £26.9bn claimed in tax relief.

That is a sizeable sum and the figures are moving in the right direction; however it is clear that many small businesses are still unaware of the support available to them.

There is a perception that the credits are just for young companies at the start of their development. That is certainly NOT the case.

The SME R&D relief provides an enhanced deduction for tax purposes of an additional 130 per cent of qualifying revenue expenditure on qualifying R&D, in addition to the 100 per cent deduction already available for revenue expenditure under the normal tax rules.

Where the SME is loss making, alternatively, the SME may claim a tax credit up to 14.5 per cent of the surrenderable loss.

So who is eligible for R&D tax relief? HMRC has set out some clear rules and guidelines.

It says your company can only claim for R&D tax relief if a “project seeks to achieve an advance in overall knowledge or capability in a field of science or technology through the resolution of scientific or technological uncertainty” – and not simply an “advance in its own state of knowledge or capability”.

The project must relate to your company’s trade – either an existing one, or one that you intend to start up based on the results of the R&D.

And if your company or organisation is claiming tax relief under the SME scheme it must own any intellectual property that might arise from the project.

It is not enough to say that a product is commercially innovative. You can’t claim in respect of projects to develop innovative business products or services if they don’t incorporate any advance in science or technology.

You can’t claim R&D tax relief under the SME Scheme if you’ve been subcontracted to do the work on behalf of somebody else.

It’s also worth pointing out that your project doesn’t have to be a success in order to qualify for the relief. The fact that it failed can be used to show that its work was genuinely pioneering.

However, if your company receives a subsidy or grant for an R&D project, it may affect how much tax relief you can claim.

Gaining this support can be an important part of a business’ decision whether to make an investment that can see very real benefits for its future.

The requirements of the scheme are broad. It can include creating new products, processes or services or changing or modifying existing ones.

To discuss the possibility of claiming R&D tax relief please contact me on 01772 430000

Scammers on the rise

HM Revenue and Customs (HMRC) is warning taxpayers to prepare for a surge in activity by fraudsters in the run up to the January 31 self-assessment deadline.

Over the last year, HMRC received nearly 900,000 reports from the public about suspicious HMRC contact – phone calls, texts or emails.

More than 100,000 of these were phone scams, while more than 620,000 reports from the public were about bogus tax rebates.

Some of the most common techniques used by the fraudsters include phoning taxpayers offering a fake tax refund, or pretending to be HMRC by texting or emailing a link which will take customers to a false page, where their bank details and money will be stolen.

Fraudsters are also known to threaten victims with arrest or imprisonment if a bogus tax bill is not paid immediately.

It is a problem that is not going to go away. Gareth Shaw, head of money at the consumer group ‘Which?’ says: “The number of people targeted by HMRC scams is staggering and the problem is only likely to get worse as the self-assessment deadline looms.

“Sophisticated tactics like number spoofing see innocent people losing life-changing sums everyday.”

HMRC operates a dedicated customer protection team to identify and close down scams but is advising taxpayers to recognise the signs to avoid becoming victims themselves.

Genuine organisations like HMRC and banks will never contact customers asking for their PIN, password or bank details.

And people should never give out private information, reply to text messages, download attachments or click on links in texts or emails which they are not expecting.

WNJ can help ease the stress that the self-assessment process can bring. To discuss how we can help you please contact me on 01772 430000.

Accidental landlords on the wain

The number of homes let by ‘accidental landlords’ has fallen for the first time in five years, a new report reveals.

So-called accidental landlords are those who didn’t buy a property with the intention of letting it out, but who have ended up doing so.

That’s usually because they cannot sell and need to move, or have decided to buy a new home and hold on to their existing property as an investment.

Research from lettings expert Hamptons International has revealed that one in 14 (7.1 per cent) homes that came onto the rental market this year had been listed for sale within the previous six months, the lowest level since 2015.

It says that since tax changes were introduced in the 2018 Budget, the proportion of homes let by accidental landlords has fallen.

The changes that come into being in April 2020 will increase the amount of tax some landlords, who have lived in their rental property at some point, will have to pay if they sell.

Aneisha Beveridge, head of research at Hamptons International, said: “Despite a weaker sales market, which tends to encourage accidental landlords, the proportion of homes to let having previously been listed for sale has fallen for the first time in five years.

“The tax changes being introduced in April 2020 will increase the capital gains tax bill for some accidental landlords who choose to sell after that date.

“Great Britain’s most expensive regions and where prices have risen the most, recorded the biggest fall in accidental landlords.

“This is unsurprising given that landlords in these areas will have seen the greatest gains and therefore could see their tax bills rise the most.”

As well as changes to capital gains tax, bigger potential stamp duty bills for buying another property and changes to tax on rental income have also contributed to the decline in accidental landlord numbers, the agency says.

Previously people could offset all their mortgage interest on the property against rent and only pay income tax on the difference.

However, this is being cut back to a maximum 20 per cent tax credit against mortgage interest, which will be in place fully from April next year.

Total rental revenue is also now added to a landlord’s income to decide their tax rate – previously it was only profit after interest that counted. That potentially means some will find themselves moving up a tax bracket.

To discuss any aspect of these changes and how they may affect you please contact me on 01772 430 000.

Calls for small business support grow

UK business leaders are calling for decisive action to support struggling small firms.

The Lancashire-headquartered Federation of Small Business (FSB) is calling for a major reduction in business rates bills for small firms, as thousands struggle to stay afloat amid spiralling operating costs.

It is calling for the ‘Retail Discount’ – which allows small retailers with rateable values of up to £51,000 to claim a 33 per cent discount on their rates bills – to be increased to at least 50 per cent.

And it wants the support to be made permanent and extended to small firms operating in other sectors, including manufacturing.

The organisation is also calling for the threshold for Small Business Rates Relief to be increased from £12,000 to at least £30,000.

The FSB has been arguing for wider business rate reform as confidence among small businesses falls and costs spiral.

Responding to ONS figures showing monthly retail sales were flat (0.0 per cent) in September, FSB national chairman Mike Cherry said: “The latest retail sales figures reflect a difficult year for the sector, and demonstrate the struggles our high street firms are currently facing.

“Confidence among small retailers remains low, with pressure from employment costs, high rents and competition from large, exclusively online brands.

He added: “While the retail rates discounts this year have been welcomed, these will soon come to an end – leaving us with a system that remains regressive and is not linked to a business’ ability to pay.

“Given the pressure on small businesses, improving the relief by increasing the 33 per cent discount to 50 per cent or more, making it permanent – and indeed extending it to include small firms across the economy, would help revitalise and reform town centres.”

The organisation also says small business want to see “a significant uprating” of the small business discount on national insurance bills available through the Employment Allowance.”

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

Loan Charge review announced

An independent review of the Loan Charge will be led by Amyas Morse, former chief executive of the National Audit Office, it has been revealed.

Announced by Chancellor Sajid Javid, the appointment follows months of pressure from MPs, taxpayers and campaigners concerned by the controversial charge and its impact on people.

The Loan Charge came into effect on April 6 and applies to anyone who used so-called ‘disguised remuneration schemes’.

The legislation added a 45 per cent non-refundable charge on all loans advanced through the schemes – some of them dating back to 20 years ago – unless the individual had agreed with HMRC to settle their tax affairs beforehand.

However, many of the 50,000 people caught up in the issue are low paid and were persuaded by their employers to join the schemes. Many of them are reported to be facing bankruptcy.

Yet, at the time the schemes were set up, HMRC did not question their legitimacy.

The Treasury says Sir Amyas will report back with his recommendations by mid-November, ahead of the January deadline when individuals would need to pay the charge.

The review will consider whether it is an “appropriate way” of dealing with individuals that entered the schemes.

Instead of being paid a salary that would be subject to income tax and national insurance, workers in these schemes were loaned money — typically via an offshore trust — on terms that meant the debt was unlikely to be repaid.

Financial Secretary to the Treasury Jesse Norman said: “These disguised remuneration schemes are highly contrived attempts to avoid tax, but it is right to consider if the Loan Charge is the appropriate way of tackling them.

“The government fully appreciates the concerns expressed by individuals, campaigners, and MPs who have raised concerns about the Loan Charge.”

The government says that while the review is under way the Loan Charge remains in force.

Federation of Small Businesses (FSB) national chairman Mike Cherry, said: “Telling sole traders that they’ll have an update on where they stand as late as November, with then potentially only two months to settle-up, is unreasonable, especially so in such an uncertain and unpredictable climate.

“The loan charge is causing misery for thousands of sole traders – many of whom were acting on the advice of employers or financial professionals when they agreed to schemes which were, at the time of participation, perfectly legal.

“Interventions like the loan charge make it impossible to plan for the future. Many who are playing fair when planning their tax affairs today will be wondering where else the Government might suddenly change the rules, start applying new laws to years past and demand big pay-outs.

“In future, HRMC should establish a tax efficiency white list, guaranteeing that – if the scheme is listed – you have cast iron protection from a retrospective grab if you use it.”

To discuss any business or personal tax matters please contact me on 01772 430 000.

Why it doesn’t have to be taxing!

With so many tax topics currently impacting on small businesses, it is little wonder that it can be struggle to keep up leaving owners and managers feeling intimidated by the whole process.

That is the starting point to a special information and advice session that WNJ is organising next month in conjunction with The Business Clinic.

We’ll be looking to help business owners better understand their tax bill and plan for their tax liabilities.

Originally scheduled to take place earlier this year, I’ll be delivering the advice clinic ‘Don’t Let Your Tax Become Taxing’ with my colleague Steve Towler on Wednesday November 27.

Steve deals with tax consultancy and compliance matters here at WNJ, principally for owner managed businesses.

That includes corporate reconstructions and exit planning, as well as advising on income tax, capital gains tax and inheritance tax matters.

The advice clinic is WNJ’s latest collaboration with The Business Clinic – a growing Preston-based community interest company set up to support businesses across Lancashire.

The Business Clinic delivers independent and thought-provoking strategy, skills and support to ensure healthier profits.

The organisation is run and supported by local business professionals like ourselves – who come from an array of different sectors and backgrounds.

They take part in surgeries and clinics giving businesses impartial support and advice and focusing on their strategy and development.

They include ‘peerworking’ surgeries that explore business opportunities and challenges and bespoke open clinics centre on business development and skills.

WNJ’s tax advice session will take place at The Business Clinic’s offices at Lockside Office Park in Preston from 6pm-8pm on November 27. To book your place online visit www.thebusinessclinic.org

And to discuss any tax matters in your business please contact me on 01772 430 000.

Why charities need an experienced auditor

The importance of charities appointing auditors and independent examiners with specific experience and a proper understanding of the sector has been underlined by a new report.

The study by the Charity Commission has revealed that only around half of the charity accounts reviewed met the regulator’s external scrutiny benchmark.

Nigel Davies, head of accountancy services at the Charity Commission, says: “We know from research we have carried out into public trust in charities that the public care deeply about transparency.

“It is therefore vital that charities are able to provide an accurate and clear picture of their finances.

“External scrutiny is an essential part of the checks and balances process that charity accounts go through and so it is disappointing that so many independent examiners and auditors appear to lack the necessary understanding of the external scrutiny framework.

“Those that are getting this right are playing an important role in upholding charities’ accountability to us as regulator, and the public.”

The team at WNJ has widespread experience working with a range of small charities, supporting them and working to understand their specific and special requirements.

It is important to remember that these organisations are totally different to limited companies operating in the commercial world.

Take their fundraising. A charity’s money can come from a wide range of sources, from local authorities, private donations and raffles.

Their stakeholders are also different and that also has to be borne in mind. Working with a charity is a different discipline to working in the commercial world.

A sample of 296 charity accounts was assessed in the latest study. The accounts were assessed against a new external scrutiny benchmark to determine whether a minimum standard of scrutiny by auditors and independent examiners had been met.

The commission drew the accounts, for the financial year ending in 2017, from three random samples of charities of different sizes.

It found that 46 per cent of the accounts failed to meet the benchmark, with standards worse for smaller charities.

Nigel Davies adds: “I hope trustees will learn from this study, in terms of the expectations around reporting, and in ensuring they select an independent examiner that knows about and understands the requirements.”

To discuss any aspects of this report and how we can help your charity please contact me on 01772 430000.

Nutrition specialist’s appetite for growth

A PRESTON family business set up two years ago to specialise in plant-based protein foods is going from strength to strength, with the support of WNJ.

NutreeLife won the prestigious Be Inspired in Business Award (BIBA) for best new business earlier this month.

And its team are hard at work planning for their move into new purpose-built food manufacturing premises in Burscough – a £1.2m investment in the nutrition specialist firm’s future.

NutreeLife is also working with British Olympic legend Daley Thompson on a new range of low-sugar protein sports bars.

The company began life at Red Scar in Preston and today has a turnover approaching £3m and a 13-strong staff.

The business was created to “make great nutrition accessible for all” and its founders have years of experience and dedication in the food, nutrition and beverage industry.

Chief executive Patrick Mroczak and managing director Adam Hodgkinson set out to establish NutreeLife after recognising a gap in the market for a vegan and ‘free-from’ range of protein supplements.

Patrick says the move to West Lancashire is needed to give the business the space it needs as it continues its growth.

The new state-of-the-art facility is currently under construction and will be completed by February next year.

He says: “We were delighted to win the BIBA and to have the work we have put into the business since we began recognised.

“These are really exciting times both for the business and the industry. We are operating in a really growing sector which has massive potential.

“We’re also finding that our innovative and flexible approach is giving us the edge on European manufacturers, with more businesses looking to make their products here in the UK.

“We are also very strong on new product development. We create bespoke recipes for our customers and we have previously invested £1m into our manufacturing operation.”

Patrick added: “We’ve been supported and helped by WNJ right from the beginning of our journey.

“The advice and guidance we have received from them has been invaluable in helping us to get where we are today.”

To discuss how WNJ can help support your business please contact me on 01772 430000.