A company has lost an £11 million dispute with the taxman over whether contract construction workers were entitled to claim travel costs tax-free.

As many as 600,000 temporary workers in the UK are thought to be employed by umbrella companies, used by recruitment agencies and companies to cut temporary payroll costs.

Exchequer Solutions Limited (ESL) is an umbrella company that supplies workers to the building trade and the dispute with HM Revenue & Customs (HMRC) was over whether their workplace was permanent or temporary.

The dispute

The issue revolved around whether ESL employed the workers under the umbrella contract of employment continuously while working on various projects, or whether there was a series of separate contracts, with gaps between the employment, where a worker might be temporarily employed elsewhere.

The appeal against HMRC at the First-Tier Tribunal raised the question of whether workers should be reimbursed for travel and subsistence expenses, without being subject to tax or National Insurance contributions (NIC).

What is an overarching contract?

If there is an overarching or umbrella contract of employment, each place of work is a temporary workplace, and the expenses can be paid tax-free.

However, if there is a separate employment contract for each assignment, the workplace is a permanent workplace, and any payments came within the scope of tax and possibly NIC.

HMRC argued that there was no overarching contract of employment so the payments relating to expenses were subject to PAYE income tax and NIC.

The relevant tax years were 2013/14 through to 2016/17 and HMRC issued determinations amounting to a total of £11 million in unpaid taxes and NICs.

ESL claimed there was an overarching or umbrella contract and appealed against the Regulation 80 Determinations and the NIC Notice of Decision.

Following detailed arguments from both, the judge ruled against ESL’s argument.

In conclusion, the Judge determined that the two parties, ESL and HMRC, should agree on the amount of any liability to income tax and NIC based on the amount of the travel and subsistence expenses paid by ESL to its employees.

Deadline set for full hearing

A deadline of 30 November 2022 was set for agreement to be reached at which time a hearing would be organised to finalise the amount of any liabilities.

Link: Umbrella company loses £11m tax dispute over expenses

Thousands of Britons facing a cost-of-living crunch have been withdrawing funds from their Lifetime ISA (LISA) accounts and getting hit with significant penalty charges.

According to HM Revenue & Customs (HMRC), a record 77,500 LISA savers were issued over £33 million worth of early withdrawal charges in 2021/22.

Early withdrawal from LISAs attracts a 25 per cent penalty. During the pandemic, the Treasury cut the early withdrawal charge from 25 per cent to 20 per cent to ensure those accessing their LISA, while facing serious hardship, were not unfairly penalised. However, this has now ended.

What are LISAs?

• You can use a LISA to buy your first home or save for later life. You must be 18 or over but under 40 to open one.
• You can put in up to £4,000 each year until you’re 50. You must make your first payment into your ISA before you’re 40.
• The Government will add a 25 per cent bonus to your savings, up to a maximum of £1,000 per year.
• The Lifetime ISA limit of £4,000 counts towards your annual ISA limit. This is £20,000 for the 2022/23 tax year.
• You can hold cash or stocks and shares in your Lifetime ISA or have a combination of both.

Although the benefits of leaving LISAs untouched are considerable, they can be accessed in an emergency.

As inflation approached double figures in April, around 9,000 savers decided to accept the penalties to take their money out early.

In total, LISA savers made unauthorised withdrawals worth over £14 million, the highest figures for the year.

If you’re a first-time buyer or think you might be in the future or want to save for retirement, a LISA isn’t a straightforward savings account, and may not be right for everyone.

Small businesses are the lifeblood of the UK economy, but with rapid inflation and other economic headwinds making trade difficult, they can struggle to access support.

There is a wide range of important tax reliefs available to SMEs, which could provide some much-needed financial assistance.

These include:

Employment Allowance claims

This scheme allows eligible businesses to reduce their National Insurance contributions (NICs) bills by claiming up to £5,000 each year of their NIC bill. This is available to employers if their Class 1 National Insurance liabilities were less than £100,000 in the previous tax year.

Super-deduction and Annual Investment Allowance

Businesses can cut their tax bill through the super deduction by up to 25p for every £1 they invest in qualifying equipment, which can include machinery, computers, most commercial vehicles and office furniture.

The temporary £1 million limit for the Annual Investment Allowance (AIA) has also been extended to the end of March‌‌‌ 2023.

The AIA allows businesses to spend up to £1 million on qualifying business equipment, and deduct in-year its full cost before calculating their taxable profits.

Business rates savings

Any tax cut is welcome, which is why the retail, hospitality and leisure sectors, should take advantage of the 50 per cent business rates cut.

The Government says this is worth £1.7 billion for up to 400,000 eligible properties.

The business rates multiplier has also been frozen for another year. This is used to calculate business rates and usually rises with inflation each year, but for the coming year has been held at 49.9p and 51.2p, depending on the type of business.

There is further relief through green technologies, where there will be no business rates from April this year and eligible heat networks will also receive 100 per cent relief.

Big discounts on digital technology

Eligible businesses can receive a 50 per cent discount on buying new software worth up to £5,000 with the Government’s Help to Grow: Digital initiative, which also offers free impartial advice and guidance on the best technology to choose.

Its sister scheme, Help to Grow: Management, is 90 per cent funded by the Government and uses UK business schools and one-to-one mentoring to deliver business expertise on everything from leadership and financial management to marketing and digital adoption.

Claimants for both schemes must:

• Be based in the UK;
• Have actively traded for at least a year; and
• Have between five and 249 staff members.

Fuel duty savings for businesses

The Government has cut fuel duty on petrol and diesel by five pence per litre for 12 months.

The Government says that this represents a saving of £200 for the average van driver and £1,500 for the average haulier.

However, the reality is that many of these savings have been absorbed by fuel retailers who have continued pushing up the price at the pumps.

As a result, Boris Johnson has reportedly asked transport officials to draw up plans to target petrol stations that choose not to pass on the 5p fuel duty cut to customers.

According to reports in The Telegraph, Transport Secretary Grant Shapps has suggested a “pump watch” name-and-shame scheme, with Downing Street officials confirming that they “are considering mechanisms available to expose those companies that aren’t passing on tax benefits to consumers.”

Link: Five ways SMEs can get financial support for their business

Changes to charges and penalties applied to late submission of VAT returns will kick in from January next year.

For the VAT period starting on or after 1 January 2023, new penalties will replace the default surcharge for returns submitted or paid late.

Any VAT returns received late will also be subject to late submission penalty points and financial penalties.

What happens if I submit my VAT return late?

A new points-based system is set to be introduced for late submission penalties. For each late return, you will receive one penalty point.

Once a penalty threshold is reached, you will receive a £200 penalty and a further £200 penalty for each subsequent late submission.

The late submission penalty points threshold will vary according to your submission frequency.

How am I affected if I pay late?

Up to 15 days overdue – No penalty charge if you pay in full or agree to a payment plan on or between days one and 15.

Charge at 16 and 30 days overdue – The first penalty charge will be at two per cent on what you owe on day 15, if you pay in full, or agree to a payment plan on or between days 16 and 30.

Overdue by 31 days or more – On top of what you owe on day 15, there will be a further two per cent added to what you owe on day 30. In addition, you will incur a second penalty at a daily rate of four per cent per year for the duration of the outstanding balance.

HM Revenue & Customs (HMRC) is giving people some breathing space to familiarise themselves with the new arrangement and will not be charging a first late payment penalty for the first year from 1 January 2023 until 31 December 2023, if you pay in full within 30 days of your payment due date.

How much interest will I pay on late payments?

From next January, HMRC will charge interest on late payments from the day your payment is overdue until it is paid off in full.

The rate is the Bank of England base rate plus an additional 2.5 per cent.

More detailed guidance on VAT penalties is set to be published in December.

Link: Prepare for upcoming changes to VAT penalties and VAT interest charges

New legislation allows HM Revenue & Customs (HMRC) to recover Coronavirus Job Retention Scheme (CJRS) grants that have been overclaimed.

Those who fall foul of the legislation could face interest charges, financial penalties and even be named and shamed.

If a business overclaimed a CJRS grant and has not repaid it, it needs to inform the tax authority within 90 days.

The new legislation allows looking for incorrect claims, but the authority says by paying back anything owed, any tax liability can be avoided.

However, firms may be penalised if they did not notify HMRC within the notification period that they were chargeable to income tax on an overclaimed CJRS grant.

If a penalty is applied, there are factors taken into consideration which include:

• When the CJRS grants were received;
• When it became repayable; or
• When it became chargeable to tax because circumstances changed.

The authority can then charge a penalty of up to 100 per cent of the amount the business was not entitled to receive.

If the business was aware it was not entitled to a grant and did not disclose that within the notification period, the law says that the failure was deliberate and concealed and substantial penalties could apply.

When determining the amount involved, HMRC will make a tax assessment of the amount the business was not entitled to and have yet to repay.

Penalties and interest payments

The outstanding amount identified by the assessment must be paid within 30 days or any late charge will incur interest.

A further penalty may also apply if the bill has not been settled by 31 days after the due date.

What happens with a partnership?

If a partnership receives an overclaimed CJRS grant that it does not repay, HMRC may assess any of the partners for income tax who will be jointly and severally liable for the amount assessed.

What happens with insolvent businesses?

If a company is insolvent and HMRC cannot recover the tax it owes, company officers can become personally liable to pay the tax charged on their company’s overclaimed CJRS grants.

Naming and shaming defaulters

HMRC says that if a deliberate penalty is imposed it may publish details of the defaulter.

Link: Penalties for not telling HMRC about Coronavirus Job Retention Scheme grant overpayments

A leading business organisation has highlighted the problems faced by industry after new figures show a steep rise in business costs.

According to figures from the Office for National Statistics (ONS), producer input price inflation stands at a record-high 18.6 per cent, and the consumer prices index at nine per cent and could go higher.

It says the disparity between the two figures shows how businesses are having to absorb rising costs rather than pass them on to the consumer.

How could Government help businesses manage costs?  

The FSB says that although the Government cannot control the wholesale price of oil and gas, it can go further to help small firms with property costs – increasing the ceiling for small business rates relief and extending the energy support issued via the council tax system to the rates system.

In addition, a sick pay rebate for the smallest businesses would give them a measure of breathing space.

However, what can businesses do for themselves now?

Make better use of space

Maximise office space by checking whether you are stocking too many supplies or making optimum use of office furniture. You may also be able to renegotiate your lease or find cheaper premises.

With advances in communication technology, you could also explore the possibility of running your business from home or on the road.

Review your suppliers

Make sure you are getting the best value for money, particularly in areas like communication with mobile phone deals and the cost of broadband and consider cloud-based software for general bookkeeping and data management.

Go for ‘nearly new’ equipment

Sometimes, it may not be possible to invest in the latest piece of equipment and so it may be worth considering refurbished or remanufactured supplies.

Properly refurbished computer equipment can result in big savings as can equipment like copiers, without sacrificing too much performance.

Many refurbishment companies even offer warranties on the goods they sell. However, you should be aware that the purchase of refurbished or recycled goods could affect your ability to claim certain reliefs, such as Capital Allowances.

Make better use of your accountant

While accountants can manage your books and compliance tasks, they can also provide strategic advice and identify areas where savings can be made.

Link: Input price growth hits record-high

Research from the Federation of Small Businesses (FSB) shows that successful applications for finance among members have dropped to the lowest level on record.

Conversely, figures from the Bank of England show the annual growth rate of lending to big corporates has increased significantly since the start of the year.

It has led to the accusation that banks are “pulling up the drawbridge” on lending to small businesses.

The FSB’s quarterly Small Business Index (SBI) show just 43 per cent of applications have been approved and that just nine per cent applied in the first quarter of 2022.  That is the lowest number since SBI records began.

Lack of finance ‘a threat to economic growth’

The business body has now called for a culture change in financing and has warned that economic growth will be threatened otherwise.

Commenting on the survey, FSB national chair Martin McTague said: “Lenders pulling up the drawbridge for small firms will threaten our already faltering economic recovery.

“Businesses are born every day across the UK – many need funding to get off the ground, ensuring they reach a stage where they’re profitable and creating opportunities.

“A lot of those who’ve worked tirelessly to adapt, survive and thrive over lockdowns need finance too, empowering them to take their firms to the next level, driving our economic recovery and the transition to net zero in the process.”

A large proportion of what is available is being used to cover cashflow problems, often caused by late invoice payments from customers, according to the FSB.

Managing cash flow problems caused by late payments

The survey shows that 61 per cent sought traditional overdraft or loan products, while a quarter applied for asset-based finance, such as invoice finance.

Other methods included smaller numbers seeking funds through peer-to-peer platforms (seven per cent) and/ or crowdfunding (five per cent).

Your accountant will be able to provide advice and guidance.

How can businesses obtain necessary finance?

Measures that might persuade lenders to provide finance might include:

• Keeping balance sheets and other documentation to show the business has been well run
• Improving the company’s credit rating
• Producing a business plan that is strong, concise and clear
• Opting for the appropriate kind of loan, like instalment, short term or line of credit
• Having the ability to provide collateral for the loan

If you are looking to finance your business, you should seek professional advice beforehand.

Link: Lending to small businesses hits all-time low

The ‘biggest change to rent law in a generation’ will be delivered with the Renters Reform Bill (the Bill).

The Government says it says it will improve the lives of millions of renters by driving up standards in the private and social rented sector, delivering on the Government’s mission to level up the country.

Levelling Up and Housing Secretary Michael Gove said: “This is all part of our plan to level up communities and improve the life chances of people from all corners of the country.”

A new Private Renters’ Ombudsman will be created to enable disputes between private renters and landlords to be settled quickly, at low cost, and without going to court.

The new law will be put in place for the 4.4 million households privately renting across England by extending the Decent Homes Standard to the private rented sector for the first time – giving all renters the legal right to a safe and warm home.

It is designed to ensure all renters have access to secure, quality homes, levelling up opportunities for the 21 per cent of private renters who currently live in homes of an unacceptable standard.

Part of the Bill will also ban Section 21 ‘no fault’ evictions, protecting tenants from unscrupulous landlords, while strengthening landlords’ legitimate grounds for taking back their property.

Link: The Renters Reform Bill

From 6 July 2022, the Primary Threshold (PT) for National insurance will increase to £12,570. This is the threshold at which employees begin paying National Insurance contributions (NICs).

This will bring the rate in line with the current rate of personal allowances for income tax and means those earning below this amount each year will pay no tax or NICs.

It also means that a larger proportion of a person’s income will be free of NICs, meaning that most employees will enjoy a cut to their NICs.

This jump in the PT comes at a time when many employees are experiencing difficulties due to the cost of living and follows the Government’s decision to increase NIC rates in April.

On April 6th, the rates of NICs increased by 1.25 percentage points. This means, for example, that the main rate for employees rises from 12 per cent to 13.25 per cent.

The increase in NICs was legislated for to increase spending on health and social care and will be formally replaced by a new Health and Social Care Levy in April 2023, which will maintain this increase to provide funding to these sectors.

The increase in the PT means that most employees should see minimal change in their NIC bill, while lower earners below the limit might see their contributions cut entirely.

How does this help self-employed individuals?

The Lower Profits Limit (LPL), the point at which self-employed people start paying Class 4 National Insurance, will also be increased to £12,570 at the same time.

This measure also reduces Class 2 NICs liabilities to nil on profits between the Small Profits Threshold (SPT) and LPL.

This ensures that no one earning between the SPT and LPL will pay any Class 2 NICs but continue to accrue National Insurance credits.

What about employers’ contributions?

The changes to the NI thresholds do not affect the Secondary Threshold. This is the point at which employers must start making contributions, which remains at £9,100 per year.

As such, employers will have to continue paying NICs for their employees once they earn £9,100 per annum or more, even though the employee does not have to contribute until they earn £12,570 per year.

Do Directors enjoy the same threshold?

The PT for Directors for the entire tax year is £11,908 per year. Changes to the NI rules and an increase in dividend tax rates mean that it is important to reassess your remuneration strategy to minimise the tax burden on the business and individuals.

Link: Rates and thresholds for employers 2022 to 2023

HM Revenue & Customs (HMRC) is issuing fresh warnings to employers to ensure their payment reference numbers are correct so that payments are recognised.

Each payment reference number relates to a specific employer and covers a particular accounting period.

HMRC uses these reference numbers to allocate payments and to help process taxes related to PAYE payments as quickly as possible.

The tax authority has said that the use of the incorrect PAYE reference number could result in it issuing penalties and charges even if an employer has paid on time.

To complicate matters further, online banking services may also default to a previous payment reference, creating additional confusion, so employers must check this is right every time a payment is made to HMRC.

How to check if the payment reference number is correct?

Businesses need to make sure that they use the correct Accounts Office reference, which can be found on:

• The letter HMRC sent when they first registered as an employer
• The front of their payment booklet
• The letter from HMRC that replaced the booklet
• Their Business Tax Account if they’ve already added Employer PAYE enrolment to it.

Where an employer is not paying for the current period, they need to add four additional characters to the end of the reference number that indicates the year and the month or quarter the payment is for.

Each tax period has a different payment reference number, so it’s important to make separate payments for each period.

Ensuring you use the correct reference can be complicated. HMRC wants to make sure that employers get this right and avoid penalties, which is why it is encouraging businesses to use its ‘Pay now’ tool on GOV.UK to find the right reference number to use each time.

If this is a further admin burden you don’t need when you are trying to run a business, get in touch with us today to find out how we can take payroll headaches off your plate.

Link: Support from HMRC