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Managing the end of furlough

Written by admin on . Posted in COVID-19, Employment Law, Employment Tax, Redundancy. No Comments on Managing the end of furlough

After playing a crucial part in managing the impact of Covid-19, the Coronavirus Job Retention Scheme (CJRS) is set to end on 30 September. Although some business sectors, such as hospitality, are currently seeing severe staff shortages, other employers may struggle when furlough is phased out.

For September, the CJRS only covers 60% of an employee’s wages, up to a cap of £1,875, with the employer having to top this up to at least 80%. All claims must be made by 14 October.

Redundancies

If you find you do need to restructure your staffing levels, any furloughed staff who are to be made redundant have the same legal rights as any other employees. So any decisions need to be mindful of unlawful discrimination or unfair dismissal.

A business may select staff for redundancy based purely on the fact that they were the ones to be furloughed. The level of risk to this approach will depend on the reasons why staff were chosen for furlough, the selection process used to do this, and whether these were fair. Large groups of 20 or more redundancies will require collective as well as individual consultation.

Alternatives

There are a few alternatives to redundancies to consider:

  • A hiring freeze;
  • Redeployment of staff to different areas of your business;
  • Postponing salary increases; or
  • A temporary reduction in hours across the workforce.

A temporary reduction in hours could be run on a similar basis to flexible furlough, just without the government support. Experienced employees are retained, and employees should be better off compared to being made redundant and having to claim universal credit. Employee consent is required to alter contractual terms.

Payments and support

If you do have to make employees redundant then they are entitled to statutory redundancy payment (after two years of employment) and untaken holiday pay. There may also be notice pay depending on circumstances.

the main form of support for most employees until they find alternative employment will be universal credit. This is a very different animal to furlough, and for many there will be a big drop in income.

This will certainly be the case for higher earners because universal credit doesn’t take account of previous income levels. Anyone with a high earning partner or significant savings may not be entitled to universal credit at all.

Guidance to making staff redundant can be found here. Let me know if you need bespoke advice in this area. I can be reached on 01691 655 060 x Ext.7 or by email at femi.ogunshakin@nexa.law

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No room for giveaways in OBR risk report

Written by admin on . Posted in Budget, COVID-19. No Comments on No room for giveaways in OBR risk report

The Office for Budget Responsibility has given Rishi Sunak its new worry list. It gives the Chancellor little wriggle-room for potential Budget generosity.

Every other year the Office for Budget Responsibility (OBR) must issue a Fiscal Risks Report (FRR). Unlike the six-monthly economic outlooks the OBR produces for Budgets and (theoretically) Spring Statements, the FRR takes a longer view of the UK’s financial position and the risks it faces. Past reports have been, in the OBR’s words, “encyclopaedic”, but in 2021, the FRR focused on just three areas:

Coronavirus (Covid-19) pandemic The OBR says that despite all that has been spent to date, there is an as yet unfunded need for another £10 billion a year to cover:

  •  NHS programmes such as test and trace, revaccinations and the backlog of
  • 5 million elective treatments;
  • catch-up schooling for pupils; and
  • ‘the holes in the fareboxes’ of the railways and Transport for London created by the collapse in passenger numbers.

Climate change Although the government has committed to the climate change agenda, the OBR highlights one elephant in the room that would frighten any politician: the loss of revenue from fuel and excise duties in an all-electric world. The OBR says these are worth about 1.5% of Gross Domestic Product (GDP) – £33 billion. In the short term some of the lost income may be replaced by carbon taxes, but in the long term the hole will have to be filled.

Government debt Government debt is currently just about equal to one year’s output of the UK economy, against 40% in 1980. However, at present the net interest the government pays on that debt is less than a quarter of the 1980 bill (as a proportion of GDP). Ultra-low interest rates are the reason, but the corollary is that even only a small rise in rates would increase that cost significantly.

Last month, the Chancellor asked the OBR to work on its next six-monthly report for presentation on 27 October. That might be Budget Day, although many commentators believe Mr Sunak will wait until spring, ditching the Autumn Budget once again. Whether or not that happens, the OBR’s message is that the Chancellor cannot afford any giveaways. You have been warned.

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Scammers step-up sophisticated frauds

Written by admin on . Posted in Uncategorized. No Comments on Scammers step-up sophisticated frauds

One side effect of the pandemic has been a surge in scams, with around £535 million reported as lost to investment fraud in the year to April 2021. One investment scam involving a retired detective shows just how sophisticated they can be.

Cloning fraud

A retired detective was pursuing a recommendation to invest in Vanguard, but when she attempted to find out more about the opportunity a Google search led to a cloned website. Further checks showed Vanguard’s logo, address and company number all matched, and the paperwork provided was convincing. The investor even had to comply with money laundering requirements.

Unlike many scams, the funds did not immediately vanish; the investment was available online for a few days. Encouraged by this, along with assurances regarding financial protection, the investor transferred a further substantial sum. It was only at this point that the scam became apparent, because this amount failed to appear on the online account. A call to Vanguard’s customer service confirmed the worst.

Contingent reimbursement model (CRM)

Most major banks are signed up to the CRM. They promise to refund scammed customers provided they were not unduly negligent. The idea is that the financial sector should be familiar with scams and how they operate, whereas the public generally is not.

The detective’s bank initially refused to refund the full investment, but ultimately relented. There are some scams so convincing that even an experienced customer cannot spot them.

Prevention

No website, text, phone call or product should be taken at face value, however credible. The FCA maintains a warning list, and this should always be consulted. It is not a quick check because a search can give several results, but what is very useful is that the correct contact details are provided for the genuine firm.

The payee’s bank details should be carefully checked since they obviously cannot match exactly those of the genuine firm. And of course, banks and other genuine financial institutions will not ask for your financial details over unsolicited phone calls, text messages or emails.

The FCA’s warning list also provides useful advice on how to avoid financial scams in general.

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HMRC: Upper Tribunal deems child benefit discovery assessments invalid

Written by admin on . Posted in Benefits, High Income Child Benefit Charge, self-assessment, Tax. No Comments on HMRC: Upper Tribunal deems child benefit discovery assessments invalid

A discovery assessment can be made by HMRC where income, which should have been assessed, has not been assessed for tax purposes. A recent decision in an Upper Tribunal case, however, found that neither child benefit, nor the related charge, is defined as income, thereby restricting HMRC’s use of discovery assessments to collect underpaid tax.

The high income child benefit charge (HICBC) applies to anyone who receives child benefit when their income, or their partner’s income, exceeds £50,000. Many have been caught out thinking the charge doesn’t apply to them or because they are unaware of their partner’s finances.

Individuals who pay tax under PAYE may never have needed to fill in a tax return. However, they are required to do so just to report the HICBC.

The decision

Jason Wilkes owed around £4,200 in unpaid taxes as a result of being subject to the HICBC for the tax years 2014/15 to 2016/17. Crucial to the decision was that Wilkes had not filed returns for these years or been issued with a notice to file.

HMRC raised discovery assessments to collect the tax due. However, since no income as such was ‘discovered’, the assessments raised were invalid.

Refunds all round?

The answer, sadly, is no. Discovery assessments are valid if tax returns have been submitted but the HICBC omitted; there is then ‘income’. This will be the case for many taxpayers.

It seems unfair that those complying with the law are at a disadvantage to those who have not. However, this is down to HMRC relying on discovery assessments rather than issuing a notice to file tax returns.

If you have been required to pay the HICBC for prior years then check to see if you fit the refund criteria: tax returns not filed, with discovery assessments used to collect the tax due.

Details of the high income child benefit charge can be found here. Let me know if you’d like to know more – or require assistance in this space.

Photo by Noble Mitchell on Unsplash

 

 

Probate fees reform, round three

Written by admin on . Posted in Inheritance Tax, Lasting Will & Testaments, Wills & Probate. No Comments on Probate fees reform, round three

The Government’s third attempt at revamping the cost of obtaining grant of probate in England and Wales is much more modest in scope than the previous two. The introduction of the new fee structure is planned for early 2022.

Proposal

There is a two-tier fee structure under the current system. The cost is £215 for an application from an individual, and £155 if the application is from a solicitor. Fees were last amended seven years ago, and at that time the cost differential reflected some of the additional administrative work required by the probate service to process applications made by individuals.

  • The cost differential between professional and individual applications has substantially reduced, so the latest proposal is to have a single fee of £273; considerably less than the £20,000 maximum suggested back in 2016, or £6,000 in 2018.
  • No fee is payable for very small estates of £5,000 or less.
  • The same fees apply for obtaining letters of administration where the deceased was intestate.

Probate

Many estates do not need to go through probate. In some cases the value of the deceased’s assets is low. The cut-off point can be anything between £10,000 and £50,000. Each bank and financial organisation has its own rules on how much money it will release before seeing a grant of probate. If all assets are jointly owned, they automatically pass to the surviving owners.

Even when probate is required, you can save the high fees charged by probate specialists if the estate is uncomplicated; approximately 40% of applications for probate are made by individuals in such circumstances. The Death Notification Service lets you notify a number of financial institutions of a person’s death at the same time, and My Lost Account will help trace lost bank and building society accounts, and also NS&I products. It is worth obtaining multiple copies of a death certificate from the beginning as the cost of requesting these later can go up.

Because of Covid-19, probate applications are taking up to eight weeks to process.

If you are involved in a probate application, the government’s guide is a good starting point, otherwise, give me a call.

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Changes afoot for Basis period tax rules

Written by admin on . Posted in Income Tax, MTD, National Insurance Contributions, Pensions, self-assessment, Self-Employed. No Comments on Changes afoot for Basis period tax rules

Although it looks like the next Budget will be pushed back to spring 2022, several tax changes are already on the cards, some more certain than others. The government’s fast progress with reform of the basis period rules for unincorporated businesses has taken some by surprise.

Basis period rules

The basis of taxation for sole traders and partnerships looks like it will change to a tax year basis from 2023/24 onwards. The government’s plan is to simplify the rules by the time MTD for income tax becomes mandatory.

This will not impact on you if you already draw up accounts to 5 April (or 31 March), but for others 2022/23 will be the transition year.

Example

A partnership prepares accounts to 30 June. The profits assessed for 2022/23 will be those from 1 July 2021 to 5 April 2023 (or 31 March 2023), less any unused overlap profits. For 2023/24, profits assessed will be from 6 April 2023 to 5 April 2024 (or 1 April 2023 to 31 March 2024). Profits for the years ended 30 June 2023 and 2024 will have to be apportioned.

Any unused overlap profits can be offset in 2022/23, although some will find themselves taxed on up to 23 months of profits with little overlap profits to offset. In this case, an election will be possible so that the additional profits are spread over five tax years.

The need to apportion profits in future will mean having to estimate figures (with a subsequent amendment) where the second set of accounts is not prepared in time for the 31 January self- assessment deadline.

The simplest solution will be to change to a 5 April (or 31 March) accounting date. Making that change in 2021/22 could be a good option if current profits are low due to Covid-19.

Another change already on the cards is the increase to the normal retirement age for registered pensions from 55 to 57 in April 2028, which will be legislated in the Finance Act 2021/22. Less certain is a proposed 1% increase in NICs for the employed and self-employed to fund social care.

The Government’s policy paper on basis period reform can be found here.

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MTD income tax pilot

Written by admin on . Posted in Income Tax, Making Tax Digital, MTD, Tax. No Comments on MTD income tax pilot

The pilot scheme for Making Tax Digital (MTD) for income tax is now open for self-employed workers and landlords. The scheme becomes mandatory for accounting periods commencing on or after 6 April 2023, so those who join now will get ahead of the game.

The first phase of MTD for income tax will be mandatory if your taxable turnover from self-employment or income from property is above £10,000. If you want to be one of the early adopters in the pilot scheme, there are various conditions that you will need to meet.

Who can join?

You can only join if you are a sole trader with income from just one business, a landlord renting out UK property, or both. If you need to report income from other sources, such as employment, pensions, or capital gains, then you cannot currently join. The other conditions should not be a problem for most:

  • UK resident;
  • registered for self assessment, and
  • up to date with tax returns and payments.

Your accountant can sign you up if you make a request.

Digital records

To join the pilot, you will need to use software that is compatible with MTD for income tax. Be warned that only five fully compatible products covering both self-employment and property are currently listed by HMRC, although this includes two with free versions.

You’ll need to keep digital records of all your business income and expenses, starting from the beginning of the accounting period you sign up for, and send updates to HMRC. At the end of the period, you will submit a final declaration instead of a self-assessment tax return.

If you’re already using software to keep records, you should almost certainly wait for your provider to update their product to be compatible with MTD for income tax rather than switching providers just to join the pilot scheme. HMRC’s list of software compatible with MTD for income tax can be found here.

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What is an adequate retirement income?

Written by admin on . Posted in Property, Wealth, Wills & Probate. No Comments on What is an adequate retirement income?

A leading pension think tank has examined this question – but the findings aren’t straightforward.

Over the years, there has been much focus on the tax treatment of pensions and ways to encourage greater saving for retirement. Arguably, there has been less attention paid to the question of how much income you will need once work ceases.

The Pension Policy Institute (PPI) recently published a paper examining what an adequate retirement income means today in dollar terms. The paper notes that the last serious effort to address the issue was undertaken by the Pensions Commission nearly two decades ago, leading eventually to the introduction of automatic enrolment. The PPI makes the following points:

  • Individuals, employers, the state and society generally all have differing views on what constitutes adequacy. For example, the state view is set by the Guarantee Credit element of Pension Credit (£177.10 a week for a single person and £270.30 for a couple).
  • Changes to the pensions landscape since 2000 have altered the retirement picture both positively and negatively. For example, the new state pension is higher than its basic state pension predecessor, but state pension age has increased (to 66 for men and women) and will continue to increase.
  • The demands made on assets originally saved to provide a retirement income have increased, for example:
    • For some people, there is a widening gap between leaving work and receiving their state pension, a situation exacerbated by pandemic-prompted early retirements.
    • More often now debts, including mortgages, will be carried over into retirement.
    • The shrinking of home ownership will see more retirees having to pay rent; and
    • There may be a need to support other family members – the Bank of Mum and Dad may not be able to close at retirement.
  • The traditional emphasis on retirement income ignores the need to deal with ‘personal financial shocks’, which are better addressed by considering retirement capital.

The PPI says that many people make their retirement planning decisions ‘without support’. It goes on to warn that “As a result, many people struggle to make pensions and savings decisions which offer them the best chance of both achieving their aspirations for retirement and protecting themselves against future risk.” Don’t let that be you – talk to us about assessing what an adequate retirement income means for you and how it can be achieved.

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Leasehold shake-up on the horizon

Written by admin on . Posted in Law, Wealth. No Comments on Leasehold shake-up on the horizon

Ground rents for residential properties on long leases in England and Wales will soon be abolished, with further reform to follow. This first step in the government’s plan to reform leasehold law affects new leases. However, many homeowners will benefit immediately following a commitment made by two big players in the leasehold sector.

Government reforms

The Leasehold Reform (Ground Rent) Bill currently passing through parliament will remove ground rents for residential leasehold properties with leases of more than 21 years.

The next step, if the Government follows through with its intentions, will be to give leaseholders the right to extend a lease to a maximum term of 990 years, with no ground rent payable. This term is more than 10 times the current standard 90-year extension. An online calculator will be introduced to make it simpler for leaseholders to find out how much it will cost them to extend.

Persimmon and Aviva

The Competition and Markets Authority (CMA) has been investigating the leasehold sector, with doubling ground rent clauses of particular concern. Also, many homes that should ordinarily be sold as freehold have been mis-sold as leasehold. Crucial changes have recently been agreed by housebuilder Persimmon and insurance company Aviva (which buys leaseholds from housebuilders), including:

  • Aviva will remove leasehold clauses that double ground rent every 10 to 15 years, with leaseholders refunded for past increases.
  • Persimmon will grant leaseholders the chance to acquire the freehold of their property at a concessionary price (capped at £2,000), and refund homeowners who have already bought their freehold at a higher price.

As yet there is no date for the implementation of the new leasehold rules. The CMA is continuing its investigations into several other housebuilders and investors in freeholds. The Leasehold Reform (Ground Rent) Bill doesn’t help existing leaseholders, but the hope is that that the recent move by Persimmon and Aviva will send a clear signal without the need for costly court cases.

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IR35: The Question of Control

Written by admin on . Posted in IR35, Law, Tax. No Comments on IR35: The Question of Control

The off-payroll working (IR35) tests are still relevant despite the blanket approach often in place regarding contractors’ employment status. They must always be applied if you are contracting for a small organisation.

Two recent decisions in the Upper Tribunal closely examined the question of control.

In both cases, the Upper Tribunal upheld First-Tier Tribunal decisions, with one going the way of HMRC, and the other for the contractor. The court was prepared to look beyond the contract in question and consider the contractor’s wider business structure.

A win for HMRC

Robert Lee’s company was contracted to work for the Nationwide Building Society from 2007 until 2014. Even though Lee’s contract contained a substitution clause, the Upper Tribunal did not consider there to be a genuine right of substitution because the Nationwide valued Lee for his specialist expertise and familiarity with the work.

One way to strengthen contractor status is to make sure your substitution clause can be actioned. In the words of one commentator, “give your right of substitution clause teeth”.

The degree of control by the Nationwide was held to be significant, with Lee having to work when and where he was told. In addition, he was required to obtain approval for project plans and his performance was monitored.

The contractor comes out on top

Kaye Adams, via her company, presented a radio show for the BBC during the tax years 2015/16 and 2016/17.

Although there were factors indicating employee status, the Upper Tribunal found that the BBC did not have the level of control that would exist in an employment relationship. Despite some 50% to 70% of Adams’ income coming from the BBC contracts, the Upper Tribunal looked at the bigger picture of her career in the surrounding years when Adams generally acted as an independent freelance journalist.

Up to date HMRC guidance for contractors can be found on its website.

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