December is probably the second most popular trading year end for businesses; the most popular being the 31 March.
Your end of year planning should include a review of your results – prior to your year end – so that there is an opportunity to make any advantageous changes. From our perspective, there is nothing quite so depressing as being made aware of these “opportunities” after the year end date has passed and when there is no way to incorporate possible tax saving strategies.
For traders with a December year end, a good time to do this is from October 2019, when the results for the nine months to 30 September are available.
Apart from your management accounts we could also discuss the following matters and if any investment be considered before or after your year end:
- Are you contemplating the purchase of new equipment or vehicles?
- Are you considering significant repairs or improvements to plant or buildings?
- Could you write off or consider a sale of redundant stock?
- We could estimate your business taxes based on trading for the current year and plan for savings to fund the future payment.
- If you have made trading losses are there opportunities to set off these losses against past profits and recover tax to aid cash flow?
With all the uncertainties that the exit form the EU has caused in the past two years there has never been a more opportune time to invest in planning. Business fitness could be the key issue for 2020 and beyond.
Accordingly, if we have not already organised a review, and your trading year end is imminent, please call so that we can discuss your options.
If your company engages in direct marketing, you may want to consider the following case published by the Insolvency Service:
A property renovation boss who caused his company to make more than 110,000 unsolicited marketing calls has been banned for five years. From its incorporation in August 2015, the company relied heavily on direct marketing techniques – cold-calling members of the public to advertise their services – to generate business.
The company should have used the Telephone Preference Service (TPS) list before making these calls to screen out individuals who had elected not to receive them.
The renovations company did not access the list and within 3 months in 2015 made over 110,000 calls to people registered with the TPS, who should not have received them.
The Information Commissioners Office (ICO) received 133 complaints about the unsolicited calls and, following an investigation, the regulators concluded that the company was in breach of the Privacy and Electronic Communications regulations.
The maintenance company failed to provide the ICO with evidence that they had acted correctly and, in January 2017, the ICO informed them that it was going to fine the company £80,000.
Before the penalty could be levied, however, Jonathon De Sousa (the director) placed the company into Creditors Voluntary Liquidation in March 2017.
An Insolvency Service investigation into Jonathon De Sousa’s conduct following the liquidation revealed that his company had also not paid £250,000 worth of taxes.
On 30 July 2019, the Secretary of State accepted a 5-year disqualification undertaking from Jonathon De Sousa after he did not dispute that he had caused his company to fail to comply with Privacy and Electronic Communications regulations and failed to pay the appropriate levels of tax.
Effective from 20 August 2019, he is prohibited from being involved in the formation, management, or promotion of a company without permission from the court.
Anthea Simpson, Chief Investigator for the Insolvency Service, said:
It is not acceptable for companies to harass members of the public with unwanted marketing calls, and we will continue to work with the ICO to curtail the activities of unscrupulous directors.
Directors who try to evade the consequences of their actions by putting their company into liquidation should expect to be investigated, which could lead to them being disqualified from being a company director again for a number of years.
Powers to protect the public from similar companies have recently been made stronger. Directors and managers of affected companies can be personally liable for fines of up to £500,000. This is intended to stop rogue companies closing down and setting up another business immediately afterwards.
Just one month to go until the so-called “Domestic Reverse Charge” will apply to VAT registered traders who are also registered to use the Construction Industry Scheme.
There has been an awful lot of commentary in the press claiming that from 1 October, building contractors will be lumbered with paying their sub-contractors’ VAT.
Perhaps a brief summary of the reason for this change would be useful.
HMRC has noted that a growing number of sub-contractors are registering for VAT, adding 20% VAT to their invoices, collecting this VAT charge from their customers and then disappearing without passing on the VAT collected to HMRC. Needles to say, HMRC are not too pleased with this trend.
And so, from 1 October 2019, VAT registered subcontractors invoicing their work to other CIS registered firms will not charge VAT on the supply. Instead they will advise the main contractors that their supply is subject to the reverse charge process.
Prior to 1 October, contractors would simply pay the VAT inclusive amount to their VAT registered sub-contractors and then claim back the input VAT paid on their VAT return.
After 1 October, contractors will pay the net of VAT amount to their sub-contractors and then make two adjustments to their VAT return: firstly, adding the sub-contractors VAT to their output tax, and at the same time, claiming back the same amount as input VAT.
Accordingly, contractors will pay their sub-contractors VAT, but in the same breath they will claim it back – subject to the usual rules.
The mechanics of accommodating the accounting entries to cope with the new process can be programmed into your bookkeeping software. However, there could be complications if you use one of the VAT special schemes, such as the cash accounting or flat rate scheme.
We recommend that you take professional advice before 1 October, to make the changes required to your invoices and accounts software and to make sure that you do not need to change your present VAT scheme.
Please call if you would like our help to do this.
If you are starting to look forward to the forthcoming end-of-year and Christmas celebrations, and we could all do with a bit of festive cheer, you may find the following article useful: it sets out the rules and regulations that qualify such events for a tax-free status: no benefits in kind, tax or NIC consequences.
The cost of an annual staff party or similar function is allowed as a deduction for tax purposes. However, the cost is only deductible if it relates to employees and their guests, which would include directors in the case of a company, but not sole traders and business partners in the case of an unincorporated organisations. Also, it does not include ex-employees.
If the criteria below are followed there will be no taxable benefit charged to employees:
- The event must be open to all employees at a specific location.
- An annual Christmas party or other annual event offered to staff generally is not taxable on those attending provided that the average cost per head of the functions does not exceed £150 p.a. (including VAT). The guests of staff attending are included in the head count when computing the cost per head attending.
- All costs must be considered, including the costs of transport to and from the event, accommodation provided, and VAT. The total cost of the event is divided by the number attending to find the average cost. If the limit is exceeded then individual members of staff will be taxable on their average cost, plus the cost for any guests they were permitted to bring.
- VAT input tax can be recovered on staff entertaining expenditure. If the guests of staff are also invited to the event the input tax should be apportioned, as the VAT applicable to non-staff is not recoverable. However, if non-staff attendees pay a reasonable contribution to the event, all the VAT can be reclaimed and of course output tax should be accounted for on the amount of the contribution.
Are you making the most of Trivial Benefits
Earlier this year we highlighted the tax concession afforded by the so-called Trivial Benefit rules.
It is possible to make small tax-free payments to employees, including directors…
Employers and employees don’t have to pay tax on such a benefit if all of the following apply:
- it cost you £50 or less to provide,
- it isn’t cash or a cash voucher,
- it isn’t a reward for their work or performance,
- it isn’t in the terms of their contract.
HMRC describes these payments as a ‘trivial benefit’.
You can’t receive trivial benefits worth more than £300 in a tax year if you are the director of a ‘close’ company. A close company is a limited company that’s run by 5 or fewer shareholders.
Readers who manage a business may want to integrate a formal process into their benefits strategy to take advantage of this opportunity.
Every little helps.
If there was a measure of stability in UK politics, we would be expecting the usual dispatch-box presentation by the Chancellor before Christmas. The annual budget is usually presented November each year.
This may still happen this year, but present uncertainties regarding the Brexit outcome, and the present government’s slim majority may scupper that timetable – we may have two budgets this Autumn or none at all.
Never-the-less, we will advise if and when a date is agreed. If we do leave the EU with no-deal, gripping the sides of your chair may be in order as the fiscal changes required (changes to taxation) to meet the resulting economic consequences, may be significant.
We will keep you posted.
The end of next month, 31 October 2019, is the latest deadline for our exit from the EU and the recent hiatus seems to be pushing the UK ever closer to a no-deal outcome.
Accordingly, if you are involved in buying or selling goods to EU countries, you should apply now for an Economic Operator Registration and Identification (EORI) number.
Without an agreed withdrawal with the EU, you will need an EORI number that starts with GB to move goods in or out of the UK. Additionally, if you want to trade with an EU country you will also need an EU EORI number. It will start with the country code of the EU country you got it from. You should apply for one from the customs authorities in the EU country you will trade with.
Apparently, you do not need an EORI number if you are only moving goods between Northern Ireland and Ireland.
If you do not apply, you may be faced with increased costs and delays. For example, if HMRC cannot clear your goods you may have to pay storage fees. Clearly, these delays could have serious repercussions if your exported goods are mired in red-tape at border crossings – your EU customers may look elsewhere for supplies – or your production and delivery in the UK may be affected if you cannot affect delivery of supplies from the EU.
There is a simple online application process to apply and there is no obligation to use the number if by some miracle we agree withdrawal terms with the EU before 31 October.
We have alerted building contractors and sub-contractors in previous newsletters of changes to the VAT rules from 1 October 2019.
In a nut-shell, if you are subject to the Construction Industry Scheme and if you are registered for VAT, from the 1 October 2019 you may need to change the way you account for VAT on supplies between sub-contractors and their contractor customers.
At present, sub-contractors registered for VAT are required to charge VAT on their supplies of building services to contractors. From 1 October this approach is changing.
From this date sub-contractors will not add VAT to their supplies to most building customers, instead, contractors will be obliged to pay the deemed output VAT on behalf of their registered sub-contractor suppliers.
This does not mean that contractors, in most cases, are paying their sub-contractors’ VAT as an additional cost.
When contractors pay their sub-contractors’ VAT to HMRC they can claim back an equivalent amount as VAT input tax; subject to the usual VAT rules. Accordingly, the two amounts off-set each other.
The change is described as the Domestic Reverse Charge (DRC) for the construction industry. It has been introduced as an increasing number of sub-contractors have been registering for VAT, collecting the VAT from their customers, and then disappearing without paying the VAT collected to HMRC.
Beware cash flow concerns
However, the change to DRC may create cash flow issues especially if you use the VAT Cash Accounting Scheme or the Flat Rate Scheme.
We recommend that all affected CIS readers contact us so we can help you make the necessary changes to your invoicing and accounting software and reconsider the use of VAT special schemes if your continued use would adversely affect your cash flow.
In much the same way that we make judgements about our personal fitness: are we overweight, do we get enough exercise, do we eat the right food; similar judgements can be made about your business.
There is also a raft of external pressures that we have to consider as individuals. For example, if you are about to run a marathon your diet and daily exercise will need to prepare you for the physical demands of the coming event. Simply continuing a couch potato regime will inevitably lead to disaster.
In much the same way, we not only need to meet current demands when we sit down to manage our business activity on a day by day basis, we also need to keep a weather eye on changes to the economy and the antics of the politicians that pull the strings.
If a slow-down in activity is likely, for whatever reason, the demands on your business will likely result in lower sales, pressure on your profit margins, a reduction in cash balances and downward pressure on your earnings from the business.
Compare this with a rapid up-turn in economic activity. You will need sufficient cash reserves to meet increased sales, investment in stock and possible increased staffing costs.
In both cases, significant changes will make similar demands on your business cash flow, and whilst the details will differ, to survive these changes we need to be prepared, we need to manage our business fitness.
Without a doubt, losing the ability to move goods and personnel across Europe is probably the most dramatic change in the UK’s ability to trade in the EU since we first joined in the 1970s. Even if our business does not actively trade with companies in the EU, it is highly likely that a number of our suppliers and customers may do so.
How will this affect your business? What plans do you have in place to counter any down-side risks?
We suggest that undertake a formal risk assessment to identify and counter financial pressures that you may face after 31 October 2019. Please call so we can help you ready your business for the coming changes. The clock is ticking.
If you doubted the resolve of our government regarding the implementation of the 2016 referendum the following announcement may clarify matters.
The Government has signed into law legislation to repeal the Act of Parliament which set in stone Britain’s EU (EEC) membership in 1972. The 1972 Act is the vehicle that sees regulations flow into UK law directly from the EU’s law making bodies in Brussels.
The announcement of the Act’s repeal marks a historic step in returning law making powers from Brussels to the UK.
The repeal of the European Communities Act 1972 will take effect when Britain formally leaves the EU on October 31.
As we have indicated in previous posts, there is growing evidence that a no-deal Brexit is on the cards. Even if this proves to be incorrect, we all need to consider how are lives may be changed.
- Business owners will have to adjust to the changed relationship with the EU: tariffs, VAT charges, transport complications, delay at ports of entry and so on. Google “EORI” now and apply for the number.
- Travellers to the UK will no longer be recognised as EU citizens – check your passport.
- UK citizens resident in the EU may face changes to their access to local healthcare, and the payment of taxation and National Insurance liabilities in their country of residence and possibly the UK.
The government have issued a fairly robust list of the issues that we will have to deal with, visit their information page:
The repeal of the 1972 Brussels Act is just one of the many legislative changes that will need to take place from 31 October 2019, unless we manage to agree a formal withdrawal agreement or extend the present deadline.
Be prepared. Our posts as we approach the present deadline can be considered a Brexit weather forecast – if you need a raincoat, hopefully, you will be advised…
If, as our new government intends, we leave the EU after 31 October 2019, with or without a deal, what changes will drivers and travellers from the UK be likely to face when they cross the channel after this date?
Bus and coach drivers
According to the latest updates on the Gov.uk website bus and coach drivers will need to consider the following:
• You may need an international driving permit (IDP) if you drive in certain EU countries. You can get an IDP at the Post Office (Present cost is £5.50; you need to be a GB or Northern Ireland resident and be 18 or over).
• Drivers will still need a Driver Certificate of Professional Competence (CPC) qualification and maintain their periodic training obligations to drive in the UK. Note: the EU will not recognise the UK CPC qualifications after Brexit.
• To work for an EU company after Brexit consider exchanging your UK Driver CPC for an EU Driver CPC.
The above points are just a sample of the possible issues that drivers and coach companies will need to consider. We recommend that affected companies undertake a thorough risk assessment to make sure that red-tape does not interfere with their scheduled journeys to the EU after the 31 October deadline.
Insurance and road accidents
A ‘green card’ is proof you have motor insurance cover when driving abroad. You will need to carry one for the vehicle you are driving if there is a no-deal Brexit.
You will need to carry multiple green cards if:
• your vehicle is towing a trailer – you will need one for the towing vehicle and one for the trailer (you need separate trailer insurance in some countries)
• you have 2 policies covering the duration of your trip, for example, if your policy renews during the journey.
If you are involved in a road accident you may need to bring need to bring legal proceedings in the EU or EEA country against either the responsible driver or the insurer of the vehicle if there’s a no-deal Brexit. At the moment you can make a claim via a UK-based claims representative or the UK Motor Insurers’ Bureau (MIB).
You might not get compensation if the accident is caused by an uninsured driver or the driver cannot be traced. This will vary from country to country.
If you presently have a European Health Card (EHIC) this may not be valid if there is a no deal Brexit. Accordingly, additional travel insurance may be required.
According to the European Commission proposals, you will not need a VISA for short trips after Brexit. This means you can stay for up to 90 days in any 180-day period. You may need a VISA for longer periods or to work or study in the EU.
The present legal protections against redundancy is to be extended by six months for new mothers returning to work. Parents returning from adoption and shared parental leave will also be protected.
The move comes in response to a government consultation which found that new parents continue to face unfair discrimination. Research estimates that up to 54,000 women a year felt they had to leave their jobs due to pregnancy or maternity discrimination.
Employers should note that pregnancy and maternity discrimination is illegal, and those on maternity leave have special protection in a redundancy situation. The reforms recently announced will, for the first-time, extend the redundancy protection for six months from the date of a mother’s return to work as well as covering those taking adoption or shared parental leave. This will help ensure new parents are protected from discrimination in the workplace, regardless of gender and circumstance.
Today’s announcement follows a raft of recent measures designed to support working parents, as part of the government Good Work Plan. These include proposed new leave entitlements for parents of sick and premature babies and proposed new measures to ensure large businesses are more transparent on their policies for parental leave and pay and flexible working.
Research commissioned by the Department for Business, Energy and Industrial Strategy (BEIS), found that one in nine women said they had been fired or made redundant when they returned to work after having a child, or were treated so badly they felt forced out of their job.
This change goes further than current EU requirements on maternity entitlements and parental leave.
According to government sources, the aim of this change in redundancy protection is for UK businesses to embrace flexible working and gender equality as this will make it easier for mothers and fathers to return to work and progress in their careers after parental leave.