Some tax enquiry cases…

The Government today (29‌‌ May) announced in what seemed like the final countdown further details about the extension of the Coronavirus Job Retention Scheme (CJRS) and the Self-Employment Income Support Scheme, we’ve outlined these below for you.

The Chancellor announced three changes to the job retention scheme:

1. From 1‌‌ July 2020, the scheme will be made more flexible to enable employers to bring previously furloughed employees back part time and still receive a grant for the time when they are not working.
2. From 1‌‌ August 2020, employers will have to start contributing to the wage costs of paying their furloughed staff and this employer contribution will gradually increase in September and October.
3. The scheme will close to new claimants from 30‌‌ June.

Part time furloughing

From 1‌‌ July 2020, businesses using the CJRS scheme can bring previously furloughed employees back to work part time.

• The government will continue to pay 80% of wages for any of the normal hours they do not work up until the end of August. This flexibility comes a month earlier than previously announced to help people get back to work.

• Employers will decide the hours and shift patterns their employees will work on their return and will be responsible for paying their wages in full while working. This means that employees can work as much or as little as the business needs, with no minimum time that they can furlough staff for.

• Any working hours arrangement agreed between a business and their employee must cover at least one week and must be confirmed to the employee in writing.

• When claiming the CJRS grant for furloughed hours, they will need to report and claim for a minimum period of a week. They can choose to make claims for longer periods such as on monthly or two weekly cycles if preferred.

• Employers will be required to submit data on the usual hours an employee would be expected to work in a claim period and actual hours worked.

If employees are unable to return to work, or employers do not have work for them to do, they can remain on furlough and the employer can continue to claim the grant for their full hours under the existing rules.

Employer contributions

From August, the CJRS grant will be slowly tapered with contributions made by employers as follows:

Month	% of wages CJRS	Max CJRS wages cap	Who pays NIC & Pension?	Employer contribution
June & July	80%	£2,500	Govt	NIL
August	80%	£2,500	Employer	NIL
September	70%	£2,187.50	Employer	10%
October	60%	£1,875	Employer	20%

Note that many smaller employers have some or all of their employer NIC bills covered by the Employment Allowance so will not be significantly impacted by that part of the tapering of the government contribution.

Important dates

It’s important to note that the scheme will close to new claimants from 30‌‌ June. From this point onwards, employers will only be able to furlough employees that they have furloughed for a full three-week period prior to 30‌‌ June.

This means that the final date by which an employer can furlough an employee for the first time will be 10‌‌ June for the current three-week furlough period to be completed by 30‌‌ June. Employers will have until 31‌‌ July to make any claims in respect of the period to 30‌‌ June.

Self-Employment Income Support Scheme 

The Chancellor also announced plans to extend the Self-Employment Income Support Scheme (SEISS) for those people whose trade continues to be, or is newly, adversely affected by COVID-19 (coronavirus). Eligible self-employed people will be able to claim a second and final SEISS grant in August; this will be a taxable grant worth 70% of their average monthly trading profits for three months, paid out in a single instalment and capped at £6,570 in total.

The eligibility criteria for the second grant will be the same as for the first grant. People do not need to have claimed the first grant to claim the second grant: for example, their business may have been adversely affected by COVID-19 more recently.

Claims for the first SEISS grant, which opened on 13‌‌ May, must be made no later than 13‌‌ July. Eligible self-employed people must make a claim before that date to receive the first SEISS grant (a taxable grant of 80% of their average monthly trading profits, paid out in a single instalment covering 3 months’ worth of profits, and capped at £7,500 in total).

If you need help with the issues above, please call us on 0114 272 4984 or email info@shipleystax.com – we are ready to assist.

The Bounce Back loan scheme is fast, attractive and gives small businesses easy access to money. But many unsuspecting SME companies are unaware of a potential 32.5% tax charge if used incorrectly. We look at how this arises and what you can do.

The government introduced Bounce Back Loan scheme on 4 May 2020 to help small businesses get access to a injection of cash up to £50K. As loans, the Bounce Back terms are very attractive: no interest or repayments for the first year, a low interest rate afterwards, and no penalties if you pay them back before the six years are up.

What is the loan used for?

The problem arises when the money is taken out as cash withdrawals to fund private expenses even though the Bounce Back Scheme terms specifically states that it is not for personal purposes.

In these circumstances, as a company, you essentially have two basic options: treat the withdrawal as dividends or treat the withdrawal as a loan owed to the company by the shareholder/director.

In a Coronavirus riddled world, many small companies will not be in a profitable place and hence may not be able to legally declare dividends. In such scenario, to avoid the prospect of “illegal” dividends, the second option kicks in and you are faced with treating the monies withdrawn as a “loan”. Specifically, they become what is known as directors’ loans which is a loan from the company to the director/shareholder. The upshot of this is that you must repay the loan balance to back the company at some point in the future.

Corporation tax charge on loans: 32.5%

And this is where the problems kick in.  The Bounce Back loan has very attractive repayment terms, so it is tempting to leave it outstanding beyond the first 12 months. However, loans to directors can be subject to a corporation tax charge at 32.5% if not repaid within a certain time period. This 32.5% tax charge becomes due if you do not repay the director’s loan back to the company within 9 months of the company’s year-end passing. For those withdrawing the full £50,000, the tax charge can amount to an eye watering £16,250! This tax is payable by the company and will no doubt severely impact cashflow.

Can you avoid the 32.5% tax charge?

If you’re planning on taking a loan and repaying it within 9 months of your company accounting year-end (the date in which you actually applied for the BBL loan does not matter here for tax), no corporation tax charge will arise.  But, if you end up having to pay the 32.5% tax charge, there is some relief as you can reclaim the tax back from HMRC at a later point when the loan is cleared and under certain circumstances.

Personal tax issue

Also, as if paying 32.5% corporation tax wasn’t enough, there is a potentially a further additional tax on the loan when borrowing money from your company. This occurs when a director’s loan exceeds £10,000 at any point during the year; HMRC treat this as receiving a “benefit in kind”. This can have personal tax implications, including a National Insurance charge for your company. However, to avoid this, the company can charge you interest on the loan at HMRC’s official rate for the duration of the “loan”.

Paying a salary instead

The more straightforward option is to pay yourself a salary. But by doing so you will be essentially taxing the loan via PAYE. This may or may not be cheaper than paying the £16,250 above depending how it is structured.

But remember, Bounce Back Loans are not for personal purposes, and insolvency practitioners (who would presumably act on behalf of banks should you fail to repay the loan) have warned that increasing salary payments after receiving Bounce Back Loans may be treated as a being for personal purposes, although we feel this interpretation may be open to challenge.

If you are considering taking out a Bounce Back Loan and need help with the issues above, please call us on 0114 272 4984 or email info@shipleystax.com.

If your business pays VAT, you can defer it until 31 March 2021. To defer, you do not need to tell HMRC – but make sure you remember to cancel your direct debit.

To help businesses struggling with their cashflow during the COVID-19 pandemic, VAT registered businesses can opt to defer the payment of VAT that becomes due between 20 March 2020 and 30 June 2020. This will cover returns for the quarter to 28 February 2020 (due by 7 April 2020), quarter to 31 March 2020 (due by 7 May 2020) and the quarter to 30 April 2020 (due by 7 June 2020).

Businesses do not have to take advantage of the option to defer – they can instead choose to pay their VAT as normal. Where they have sufficient income and have received payment from their customers, this may be a preferable option to prevent running into debt later. The VAT will still be due – the payment date is simply delayed.

HMRC will not charge interest where VAT is paid later as a result of this measure.

Businesses that wish to take advantage of the option to defer paying their VAT do not need to tell HMRC – they simply delay paying the VAT over to HMRC.

Cancel direct debits

Where a business has set up a direct debit to pay their VAT, they will need to cancel the direct debit if they wish to take advantage of the deferral option. If they forget to do this, the VAT payment will be taken automatically.

Paying deferred VAT

Any VAT that is deferred must be paid over to HMRC by 31 March 2021.

File returns on time

Deciding to defer payment of VAT does not affect the obligation to file a VAT return. VAT returns that fall due within the deferral window should be filed as normal and on time.

VAT repayments

Where a VAT returns shows that a repayment is due, HMRC will make the repayment as normal.

After the deferral period

When the VAT deferral window comes to an end, VAT for periods outside the window must be paid as usual.

If you need help with VAT deferral or any COVID-19 financial or tax issue please call us on 0114 272 4984 or email info@shipleystax.com – we are ready to help.