As we all enjoy the warm weather at home and with the majority of us taking staycations, team Harbour Key has been very busy as the UK returns to the new normal, while encouraging staff to catch up on annual leave.
Although we are still focussed on supporting clients dealing with the issues and fallout from the Covid-19 pandemic, the team have been working on and supporting a number of transactional projects. Transactional work is not totally dead(!), the Americans still appear to be keen on spending money in the UK, with a couple of clients receiving unsolicited approaches. In addition, large businesses who spent money pre-pandemic buying up non-core businesses to widen their offering or markets, are now scaling back and “dumping” non-core businesses. This has presented an opportunity for former owners or current managers. One of our former business clients was to be sold by its new listed owner to an American company who pulled out at the last minute, which meant the business was going to be closed as the owner could not afford to invest more money. Our client, who was still a part owner and involved in the business and who we were advising on the sale when it fell through, was asked if he and the management team wanted to buy it. We asked the client if he wanted the business, who advised us that he could not afford it, to which we said: “If they are going to close it will they want anything for it? Why not ask the question?”. After a few discussions, and some work around cleaning up the balance sheet, our client and the management team now own that business, which, although difficult times persist, will hopefully survive.
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A number of Government updates were released throughout July regarding the Furlough Scheme and the Self-Employed Income Support Scheme. Our update sent out at the end of July can be found online here.
Key highlights:
- More guidance and examples have been provided by HMRC regarding the more complex Flexible Furlough Scheme currently operating;
- 90 day “amnesties” to repay incorrectly claimed Furlough or Self-Employed Income Scheme grants;
- The second Self-Employed Income Scheme grant applications go live on Monday 17th August;
- Any £10,000 small business grants or £25,000 hospitality grants not claimed from the respective local authority by qualifying businesses, will no longer be available from 31 August. Any surplus funds are to be repaid by the Local Authority back to central Government. Simple message, if you have not claimed, please do so now!
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The Chancellor has called for a review of Capital Gains Tax (“CGT”), as he looks to claw back recent spending. The Chancellor has asked the Office for Tax Simplification to look at whether the current rates are “fit for purpose”. It has prompted speculation that he will look to bring CGT in line with higher rates of income tax, given that it is mainly paid by those in this bracket. We have long stated that the normal rate of Capital Gains Tax (20% for non-residential property assets), is too low, and the Covid-19 pandemic Government spending provides the back drop for increasing the rates.
In a letter to the OTS, Mr Sunak says: “I would like this review to identify and offer advice about opportunities to simplify the taxation of chargeable gains, to ensure the system is fit for purpose and makes the experience of those who interact with it as smooth as possible, as set out in the agreed terms of reference.” The review is also to put forward suggestions re allowances, exemptions, reliefs and the treatment of losses within CGT, and the interactions of how gains are taxed compared to other types of income. Some commentators have highlighted that this could mean the end of Entrepreneurs’ Relief, now known as Business Asset Disposal Relief following the changes in the March Budget, reducing the lifetime allowance from £10m to £1m. It could be the end of Capital Gains Tax, with gains being taxed as income, which happens in other jurisdictions.
Publication of the OTS report is expected in October, in advance of the November Budget.
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Making Tax Digital
HMRC has announced that the Making Tax Digital (“MTD”) program will be extended to firms with turnover below the VAT threshold of £85,000 from April 2022.
Taxpayers who file self-assessment returns for business or property income of more than £10,000 a year will be brought into the program, 2023. This change has always been on the cards, but has been delayed, which means that smaller businesses and landlords, will now need to look at using MTD compatible financial management software to look after their financial affairs and tax reporting.
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HMRC's Big Brother "CONNECT" I.T. system.
HMRC have announced that the tax gap has been reduced to a record low of 4.7%, or £31bn. Experts point out that large slices of this will be due to taxpayer error, failure to take reasonable care when completing tax returns or misinterpretation of rules. However, the tax gap is predicted to increase and tax revenue to shrink as the economy contracts as a result of the Covid-19 pandemic, therefore putting more pressure on HMRC to raise revenue. One of the major reasons for the reduction in the tax gap is the growing power of the Connect IT system used by HMRC to gather information, which we have reported on previously, and other software systems which undertake analysis, benchmarking and predictive analytics using the data.
Evidence of the improvement in HMRC collection, can be seen in respect of the number of landlords found to have underpaid on their tax bills more than halving last year, with HMRC identifying 7,362 landlords who had underpaid or not paid income tax in 2019/20, marking a 55% decline on the 16,318 recorded the year before. There is also evidence of HMRC targeting the wealthiest with sophisticated tax affairs, launching 430 investigations into serious and complex evasion in 2019/20, a 26% increase on 2018/19 and 65% up on 2017/18. This will be driven in part, by the information and analysis obtained from Connect.
As the Connect system has developed, it now has a wider reach, obtaining more and more information about individuals and businesses, resulting in more enquiries and compliance checks. More details about the Connect system below.
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HMRC also issued at the end of July another tranche of the “nudge” letters to taxpayers where they have received information from another jurisdiction, indicating that the taxpayer may have offshore income and gains they are not reporting. The main difference in these letters from previous versions, is that they have been issued by HMRC’s Risk and Intelligence Service Offshore team. It understood the nudge letter are based on this team checking the information received from offshore countries, against individuals’ tax returns and conducting risk assessments, i.e. the letter is not speculative.
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Miscellaneous:
- The Government has announced a new funding package to help small and medium-sized businesses recover from the effects of the Covid-19 pandemic. Small and medium-sized businesses will have access to grants to help them access new technology and other equipment, as well as professional, legal, financial or other advice to help them get back on track. The support will be fully funded by the government from the England European Regional Development Fund and distributed through local Growth Hubs, with grants expected to be in the region of £1,000 to £5,000. The funding is not yet available, but details of the announcement can be found via this link.
- Innovate UK has launched a number of competitions, including the Sustainable Innovation Fund. More details can be found online here.
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Date for your diary
- 11 September 2020 - Jobs, Skills and Apprenticeships 'Lift Off 2020' event at Gloucester Rugby Club.
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As ever, matters are still developing and we will endeavour to keep you up to date, flag to you opportunities and signpost to the key details as best as we can via our updates. A summary of the Government’s support schemes can be found at our website, including a list of non-Government funding opportunities, which we update regularly and can be found HERE.
We know that this is a very difficult time for all businesses and some difficult decisions are having to be made. We have spoken to many of you and for those we have not, we would like you to know that we are here ready to help if you need us to provide advice, deal with queries, or just be a business sounding board.
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Please do not hesitate to contact us if you wish to discuss anything covered in the newsletter or any tax, accounting or business-related matter.
To find out more about Harbour Key, or any of the issues above, visit our website, contact us by email or telephone on 01452 713277.
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#STAY ALERT #CONTROL THE VIRUS #SAVE LIVES
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