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June 2021 Newsletter

BEWARE OF MINI UMBRELLA COMPANIES

Umbrella companies employ temporary workers such as contractors on behalf of employment agencies or very large companies

An umbrella company should provide each worker with an employment contract and payslips. It should also provide a breakdown of the worker’s assignment rate received and list its costs including employer’s national insurance contributions (NIC). The employer’s NIC should not be deducted from the worker’s contract rate.

Some umbrella companies try to boost their profits by bending the law to take advantage of tax breaks designed for small companies. One method is to form multiple ‘mini umbrella’ companies (MUCs) each of which employs only one or two people. Each MUC then claims the employment allowance which is worth up to £4,000 per year and may also use the VAT flat rate scheme to save some VAT.

If you are a contractor caught up in a mini umbrella scam you should speak to your ultimate customer immediately and warn them about potential fraud in their supply chain. If your business uses temporary workers be sure to carry out due diligence checks on your supply chain and be clear about who pays those workers and how. Alarm bells should ring if your workers have been promised non-taxable pay, higher take-home pay or have been asked to sign a loan or annuity agreement.

 

BUSINESS RATES ON EMPTY PROPERTIES

As a landlord you may have lost income during the pandemic as tenants have left or gone into liquidation

Council tax (for residential properties) and business rates (for commercial premises) remain payable when a building is empty but there may be reliefs available. Some local authorities allow landlords to claim a discount on council tax for empty residential properties but this varies across the country. It is always worth asking your local council whether they offer such relief.

No business rates are due on an empty commercial property for the first three months it is vacant. This is extended to six months for industrial or warehouse properties. After that period the landlord can claim an extension to this empty-property relief for listed buildings or those with a rateable value under £2,900. Charities and community amateur sports clubs also qualify for some business rates relief. Where the owner is a company in liquidation or administration and is not occupying the property business rates will not be due.

If you are facing a business rates bill on an empty property you can also contact your local council and claim hardship relief or a discount on those rates.

 

PROBLEMS WITH HOLIDAY LETS

Landlords of furnished holiday accommodation qualify for tax breaks if their property is available for short term lettings for at least 210 days a year and is actually let for 105 days in the year

Due to the Covid-19 pandemic Easter holiday lettings were prohibited in many parts of the country and the 2020 summer season was heavily restricted. This is likely to mean that the 105-day minimum holiday letting was not achieved for many properties in the tax year 2020-21.

All is not lost as you can retain the favourable tax treatment for your holiday letting business by claiming a ‘grace period’ for the 2020-21 tax year. To qualify you must have let the property as short lets for at least 105 days in either 2019-20 or 2018-19 and be intending to let it again in 2021-22 as a holiday rental. If you have more than one holiday property, the number of days let can be averaged over all properties in a single tax year to achieve the minimum 105-day requirement.

If you plan to sell one or more of your holiday properties, any profit will be subject to capital gains tax (CGT) which is normally charged at 28% for residential property. The business asset CGT rate of 10% may be available if the property qualified as a furnished holiday let within three years of the sale.

 

HOW TO REPORT EMPLOYEE BENEFITS

Employee expenses and benefits provided in the year to 5 April 2021 must be reported to HMRC by way of the P11D process by 6 July 2021

Every employee who received benefits or expenses in the year should be included in that process even if they have already left the company. Employers who have already accounted for the value of the benefits during the payroll process do not have to complete a P11D for those employees but must submit a P11D(b) to HMRC to report the class 1A NIC which is due.

Many employees were provided with extra support from employers in 2020-21 to enable them to work in a covid-secure way. HMRC introduced some concessions to ensure that employees are not taxed on the benefit of this necessary support. Where the employee was required to work at home as the workplace was closed or they had to self-isolate, the following costs are not treated as taxable benefits if met by the employer:

• broadband internet connection if it was not already available; 

• computer tablet, laptops and office supplies;

• reimbursing employee for the cost of home office equipment; and

• working at home allowance up to £6 per week.

Strictly there should be no significant private use of the broadband and equipment to allow the provision to be tax free but HMRC says that the private use measure should be based on the employee’s duties and the need for them to have the equipment or services provided to do their job.

 

CGT ON SALE OF HOMES

Capital gains tax (CGT) may be due when you sell a second home or a property that has not been occupied as your main home for the entire period of ownership

For sales of UK homes completed since 6 April 2020 any CGT due must be declared and paid within 30 days of the completion date of the deal. Some conveyancing solicitors and estate agents are still unaware of this requirement or do not inform their clients about the shorter reporting period so particular care is required. Non-resident sellers must also declare the disposal of all UK properties within 30 days.

The declaration must be made through an online UK property account which is a separate system from annual self assessment tax returns. HMRC will issue you with a reference number when you report the gain, which you must use when paying the tax due. The HMRC computer will issue penalties automatically if the reporting or tax payment is late.

Taxpayers must also report the same gain on their tax return for the year and declare how much CGT they have already paid through the UK property account. If you have paid too much CGT that overpayment must be reclaimed by amending your UK property account. The overpayment cannot be offset against your income tax liability for 2020-21 which is payable on 31 July 2021 with any balance due by 31 January 2022.

If you have disposed of a UK residential property in the last 14 months and this has not already been reported to HMRC please speak to us without delay.

 

AVOID CHILD BENEFIT CLAWBACK

Couples who receive child benefit are in danger of having some of that benefit clawed back as a tax charge if the higher earner has annual income of over £50,000

If your annual income is around £50,000 and you or your partner receive child benefit you must declare the amount of child benefit received on your tax return. If you do not receive an annual tax return to complete, it is essential that we contact HMRC to register for a self assessment tax return.

With planning it may be possible to avoid the child benefit clawback by making Gift Aid donations or personal pension contributions during the tax year. If you run a business with your partner, planning may also be possible to equalise your income levels so that neither of you has annual income of more than £50,000. 

When the higher earner has income exceeding £60,000 all of the family’s child benefit is clawed back.

 

MTD FOR VAT: CRUNCH TIME

Most VAT registered businesses were required to comply with the making tax digital (MTD) regulations for VAT periods beginning on or after 1 April 2019

HMRC has not been imposing penalties for non-compliance with those rules, preferring to nudge businesses with letters and advertising campaigns instead. However HMRC is starting to take a tougher approach with traders who have not signed up to MTD. Around 800 businesses have been told that they can file their current VAT return using the old HMRC portal (online form) but from 8 July 2021 they will have to file using MTD software as the old portal will be closed to them. If the response to this test-run is positive HMRC will roll it out to others in a similar position.

Businesses whose annual turnover is less than the VAT registration threshold of £85,000 are not required to file using MTD until their first VAT period starting on or after 1 April 2022 but should prepare for their move to MTD sooner rather than later.

The MTD regulations require that the VAT data flows through the accounting system without manual intervention such as re-typing or copying and pasting figures. If your system still contains these manual breaks they need to be replaced by digital links without delay. We can advise on the best options available to you. All businesses using MTD for VAT need to have digital links in place in their accounting systems from the first accounting period that starts on or after 1 April 2021.

 

POSTPONED IMPORT VAT ACCOUNTING

As the UK is no longer a member of the EU, import VAT applies to all goods imported from the rest of the world into Great Britain (different rules apply for Northern Ireland) which do not qualify as small parcels (worth under £135). That import VAT will commonly be accounted for as a reverse charge entry on the importer’s next VAT return using postponed import VAT accounting (PIVA). This is a permanent change to the VAT system in the UK.

The reverse charge means that there are two entries on the VAT return which normally cancel each other out. However this will not be the case if there is any non-business use of the goods or where the importer is partially exempt so not permitted to reclaim all VAT on purchases. There is a separate process for deferring payment of customs duty on imported goods. Both VAT and customs duties are included on customs declaration forms.

The monthly PIVA statements are an essential part of your VAT records and are needed to give the correct figures to include on your VAT return. Remember to download the PIVA statements regularly as they are only available online for six months. Where the PIVA statement is not available HMRC will allow you to estimate the amount of VAT paid but the figure should be corrected on the following quarter’s VAT return.

If the import VAT is paid on arrival of the goods in the UK the amount will be shown on a C79 certificate which you should retain as evidence.

 

LOOKING FOR HELP?

We have a team of experts within West & Berry who can advise you and your business.  Please get in touch to set up a no obligation consultation.

Charlotte

Guest blog – Charlotte Allfrey, Metro HR – Things To Consider When Recruiting Your First Employee

As the MD of a small business myself I completely understand the peaks and troughs in workload and the ongoing debate about when might be the right time to hire an employee and grow my business, but of course as an experienced HR Consultant I have a bit of a head start on most of you. That doesn’t mean I don’t find it a daunting prospect, it’s a really big step to take and not something that should be entered into lightly. It will take money, time and commitment and if managed well will reap many rewards. If not managed well or not well set up, employing people can be very time consuming, stressful, challenging but also costly.

Here are my thoughts on things you should consider if you are thinking of taking that next step and becoming a team.

How much you want to pay someone is probably the first thing you think about. Carrying salaries in your cash forecast is a big consideration, but salary isn’t the only cost, there are many other costs and commitments associated with employing people which you will need to factor into your forecast and diary:

  • Insurance – You will be legally required to have Employers Liability Insurance for even 1 employee, this covers you and your business for compensation costs if an employee becomes ill or injured as a result of their work.
  • Employer NI – as an employer you are required to pay 13.8% of an employee’s monthly salary to HMRC as National Insurance contributions.
  • HMRC Registration – You will need to register with HMRC as an employer and get a Company PAYE reference number to set up your company payroll.
  • Employer Pension Contributions – If your employee is eligible you will be required to auto enrol them to a ‘Qualifying Pension Scheme’ such as Nest and pay a contribution of 3% of their monthly salary to their pension pot.
  • Other Rewards and Benefits – you may decide to offer other benefits to employees which may have a cost attached, life cover, access to an employee assistance programme, or a bonus.
  • Equipment – you will need to purchase various equipment for your new employee(s) depending on their job role such as a laptop/desktop computer, mobile phone, tablet, desk, chair, stationery, any uniforms or personal protective equipment etc.
  • Payslips – All employees should be provided with an itemised payslip, you can set your own payroll up through an HMRC portal, but many businesses prefer to outsource managing a payroll to an accountant, there will be a small monthly charge for this, but in my view it’s worth it.
  • Recruitment Costs – if you use a recruitment agency you will pay a placement fee which could be anything from between 10-20% of the employee’s annual salary. The CIPD’s Resourcing and Talent Planning Survey 2020 suggests the cost of recruitment per hire is between £2,000 and £5,000 – over and above recruitment agent’s fees and the salary. This becomes a big extra spend if employees don’t stay with you and you end up re-recruiting. However, each time you replace someone the hidden cost increases because you also lose valuable knowledge and experience which takes time for a newbie to develop.
  • Your Time – You will need to spend time engaging with and helping your employees learn about their role, your business and how things need to be done, discussing workloads and priorities, but also managing, supporting and checking in with them.
  • What’s your strategy? If you help your team understand your business strategy and goals and what their role is and how it fits into the bigger picture they will have clarity and will be able to help you move your business towards its goals.
  • Documentation – You will need certain documentation in place to protect you and your employees such as a legally sound contract of employment and some core policies and procedures to get you started.
  • Health and Wellbeing – You will be responsible for providing a safe and appropriate working environment for your employees which includes looking after their health, safety, welfare and mental wellbeing.

If that hasn’t put you off, and you are ready to take the plunge and recruit your first employee, here are my top tips for doing it well:

  1. Create a job description with a person specification for the role which clearly sets out the roles, responsibilities, and accountabilities for the job.
  2. Go through a proper recruitment process and assess applicants equally and consistently against the job description.
  3. Search for similar jobs yourself to benchmark the salary you are offering to make sure it is a fair wage and think about ways to add to the reward package to attract good candidates and retain people.
  4. Make a formal offer of employment in writing (beware – a verbal offer is still legally binding).
  5. Ensure you offer the statutory minimum entitlements in terms of pay and holiday.
  6. Carry our pre-employment checks to make sure they have the right to work in the UK and have the qualifications they say they have, ask for referees you can contact.
  7. Start someone with a probationary review period (a trial period) and give them an in-depth induction to the role and the company.
  8. Provide a comprehensive contract of employment from day 1 (a legal requirement) or ahead of their start date to ensure terms are agreed – if the relationship breaks down it will be the contract that will be relied upon. Seeking assistance from an HR Consultant would be advised.
  9. Set up a core suite of policies and procedures to help manage expectations on both sides.
  10. As a founder/owner you will naturally set the culture and tone for your business but it would be better if you could lead by example and live and breathe the values you expect your team to demonstrate.
  11. Communicate with your team – continuous ongoing performance and progress conversations that check in to see how someone is, ask what’s going well and what support is needed, and give and ask for feedback on how things are going are far more beneficial than a yearly appraisal.
  12. Get some advice tailored to your business to ensure you meet your legal obligations – don’t guess, particularly if this isn’t your area of expertise. Getting your legal obligations wrong can be a costly mistake.

If you follow these guidelines you will be well on your way to meeting your legal obligations and protecting your business from costly claims and high employee turnover. You will also free yourself up to get on with doing what you do best – running your business.  I believe if you have happy people you will have a happy business. Engaged employees that feel well rewarded and valued love doing great work, they will embrace change, be accountable, motivated, and productive, will be open to learning and development, and they will be innovative and creative – what’s not to love about that?

If you want to discuss your recruitment or business growth plans I offer a free 30-minute consultation so get in touch at www.metrohr.co.uk  hello@metrohr.co.uk

 

Charlotte Allfrey

Managing Director and Senior HR Consultant

Metro HR Ltd