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IN A SEEMINGLY DESPERATE BID, the UK Chancellor gave his Summer economic update today in Parliament to revive jobs and the boost the ailing economy following the outbreak of COVID-19 Coronavirus. 

Along with a Stamp Duty holiday (£125k to £500k), a 15% VAT reduction for the catering/leisure industry he announced new job scheme subsidies for young unemployed workers. Here at Shipleys Tax Advisers we outline some of the plans below.

Stamp Duty Land Tax (SDLT)

• The current residential SDLT threshold of £125,000 will rise to £500,000.
• This will apply from 8 July 2020 until 31 March 2021.
• First-time buyers qualify for relief, whereby they pay less, or no tax, if the purchase price is £500,000 or less.
• Applies only to property purchased in England and Northern Ireland.

VAT: Temporary VAT cuts

The rate of VAT on food, accommodation, entry fees etc is cut from 20% to 5% for the next six months.

VAT on food and non-alcoholic drinks

• From 15 July 2020 to 12 January 2021, to support businesses and jobs in the hospitality sector.
• The reduced (5%) rate of VAT will apply to supplies of food and non-alcoholic drinks from restaurants, pubs, bars, cafés and similar premises across the UK.
• Further guidance on the scope of this relief will be published by HMRC in the coming days.

VAT on accommodation and attractions

• From 15 July 2020 to 12 January 2021, to support businesses and jobs.
• The reduced (5%) rate of VAT will apply to supplies of accommodation and admission to attractions across the UK.
• Further guidance on the scope of this relief will be published by HMRC in the coming days.

New Jobs Retention Bonus

• A new bonus of £1,000 will be paid to employers for bringing back and retaining furloughed employees until January 2021.
• Employees must be paid at least £520 per month.

Job Retention Scheme (JRS)

• The Employee Job Retention Scheme (JRS) is due to wind down and it will end in October 2020. The Chancellor has said “It is a false hope to keep furloughing open forever”. 

Kickstart scheme

• The Kickstart scheme will pay employers who take 16 to 24-year-olds for a minimum of 25 hours per week at the National Minimum Wage (NMW).
• The grant will pay the wages or around up to £6,000 for the first six months.
• No cap on the number of places available.

Training places

• Pay employers £1,000 to take on new trainees.
• Apprentices: pay employers to create new apprenticeships, £2,000 per place.
• £1,500 payment for taking on apprentices aged over 25 years old.

Eat Out to Help Out

• The ‘Eat Out to Help Out’ scheme aims to encourage people to return to eating out.
• Every diner will be entitled to a 50% discount of up to £10 per head on their meal, at any participating restaurant, café, pub or other eligible food service establishments.
• The discount can be used unlimited times and will be valid Monday to Wednesday on any eat-in meal (including non-alcoholic drinks) for the entire month of August 2020 across the UK.
• Reclaimed by the business which must apply to participate.

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

The forthcoming Finance Bill 2020 proposes to give HMRC wide powers to make directors personally liable for a company’s tax liability. Under the new proposals, HMRC plans to penalise company directors who intentionally breach the rules of the furlough scheme – the so called “furlough fraud”.

What does this mean for company directors and what should you do to minimise your risk? We outline the issues below.

Identifying abuse of the furlough scheme

With the Coronavirus Job Retention Scheme (“CJRS”) in the process of being wound down towards the end of October, the government is now focussing their attention to identifying those companies who have made fraudulent grant claims for reimbursement of staff wages in this period.

Abuse of the system includes:

• forcing employees to continue to work on a part-time or ad hoc basis despite being declared as furloughed
• where employees not told that their employer was claiming reimbursement of their wages under the CJRS.
• companies claiming furlough for ‘ghost’ employees who may not actually work for the company at all.

With the Coronavirus Job Retention Scheme (“CJRS”) in the process of being wound down, the government is now focussing their attention to those companies who have made fraudulent grant claims for reimbursement of staff wages in this period.

Furlough fraud is manifestly an exploitation of employees, as well as a blatant abuse of a system set up to help companies through this period of unparalleled business turmoil. With billions of pounds paid out through this scheme, HMRC are now looking to seriously penalise those who have flouted the scheme for profit.

Joint and Several Liability of Directors – the new proposals

Legislation is currently being rushed through Parliament and is likely to become law in early July as part of the Finance Bill 2020.

The Bill proposes a new regime which will give HMRC the power to make directors and co-directors jointly liable and severally liable for the company’s tax liabilities if:

• the liability arises from tax avoidance arrangements or tax evasive conduct, repeated insolvency, penalty for facilitating avoidance or evasion; and

• where the company begins insolvency proceedings or is expected to begin insolvency proceedings so that some or all of the tax liability will be lost.

Of particular concern – and potentially worrying for some – is that these proposals include circumstances where a director did not know about a co-director’s fraudulent conduct – hence the “joint and several” liability. HMRC will seek to apply these provisions for penalties raised in relation to fraudulent furlough payments. It is understood that the penalties will apply in cases of deliberate fraud but could also catch directors who unintentionally breached the rules or who did not know that their fellow directors had made a claim under the scheme.

Of particular concern is that these proposals include circumstances where a director did not know about a co-director’s fraudulent conduct – hence the “joint and several” liability.

Penalties

Penalties for those found guilty are likely to include fines for companies, while directors of companies which have subsequently been liquidated could face personal liability for the falsely claimed furlough costs. Imprisonment for convicted fraudsters is also a possibility as exploitation of the CJRS amounts to defrauding the Treasury. The end result is directors potentially being personally liable even in circumstances where they did not personally benefit from the CJRS grants.

HMRC’s tougher approach

These new powers – indicating HMRC’s intention to take a strong approach to recovering any payments made as a result of fraud – looks to be just the start of a new wave of anti-fraud HMRC enforcement and enquiries arising out of COVID-19 crisis.

It remains to be seen exactly what form these measures will take, however directors are well advised to check whether any CJRS claims have been made on behalf of companies of which they are officers, ensure that any such claims were made in accordance with the rules and confirm that any payments received were then applied properly.

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.

As lockdown slowly eases across the UK, we look at some of the practical issues faced by individuals already impacted by COVID-19. One issue we are being asked about is the impact of buy-to-let landlords who have decided to take a mortgage payment holiday. We outline the impact of this and how this can affect your tax payment for the year.

In March, the Government announced that homeowners struggling to pay their mortgages due to Coronavirus would be able to take a three-month mortgage payment holiday. They confirmed that this option would also be available to buy-to-let landlords, who may suffer cashflow difficulties if, as a result of the virus, their tenants were unable to meet their rent in full when it is due. In May, the Government announced that those struggling to pay their mortgages because of the impact of Coronavirus would be able to extent their mortgage payment holiday by up to three months.

… interest continues to accrue during the period of the mortgage holiday, although the landlord will not be required to make any payments during this time.

Where a landlord opts to take a mortgage payment holiday, what impact does this have on tax relief for interest payments and, in turn, their tax payments?

Interest continues to accrue

The first point to note is that interest continues to accrue during the period of the mortgage holiday, although the landlord will not be required to make any payments during this time. This is important and will impact on the timing of the associated interest relief, which will depend on whether accounts are prepared on a cash basis or on the accruals basis.

At the end of the holiday, the missed payments and interest may be recovered by extending the term of the mortgage or by making higher payments once payments restart.

Relief as a basic rate tax reduction

From 2020/21 onwards, tax relief for finance costs (such as mortgage interest) on residential properties is given only as a tax reduction at the basic rate. This means that 20% of the allowable finance costs are deducted from the tax that is due.

As expenditure under the cash basis is recognised when paid, if the landlord does not make a payment, there will be no relief for that expense until the payment is made.

Impact of a mortgage holiday – Cash basis

Most landlords whose rental receipts are £150,000 a year or less will prepare the accounts for their property rental business under the cash basis. As expenditure under the cash basis is recognised when paid, if the landlord does not make a payment, there will be no relief for that expense until the payment is made.

Where the landlord takes a mortgage, no interest will be paid during the period of that holiday. As a result, a landlord may pay less in interest in 2020/21 than in 2019/20. The interest rate reduction is calculated by reference to the interest paid in the year.

Example

Ali has a buy-to-let property on which he has buy-to-let mortgage, the interest on is £500 per month. As a result of the Covid-19 pandemic, his tenant struggles to pay his rent on time. Ali takes a three-month mortgage payment holiday. The mortgage term is effectively extended as a result.

Under the accruals basis relief is given for the period in which the expense arises rather than when payment is made.

In 2020/21, Ali only makes nine mortgage payments instead of the usual 12, paying interest of £4,500 rather than £6,000. The tax reduction for 2020/21 is £900 (£4,500 @ 20%) rather than £1,200 (£6,000 @ 20%).

Tax reduction – accruals basis

Under the accruals basis relief is given for the period in which the expense arises rather than when payment is made. As interest continues to accrue throughout a mortgage holiday, the landlord will be able to claim the full tax reduction on the interest accruing in the 2020/21 tax year, even if the interest was not paid in full in the year because the landlord took advantage of a mortgage payment holiday.

So if, in the above example, Ali prepared his accounts for 2020/21 on an accruals basis, he would be able to claim a tax reduction of £1,200, whereas under the cash basis his deduction will only £900, the higher deduction will of course reduce any rental profits (or increase a loss) subject to tax and thereby reduce any tax payable in the year.

If you need advice regarding your rental properties please call us on 0114 272 4984 or email info@shipleystax.com.