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What is a ‘reasonable excuse’ for tax penalties?

Written by admin on . Posted in Capital Gains Tax, COVID-19, Income Tax, self-assessment, Self-Employed. No Comments on What is a ‘reasonable excuse’ for tax penalties?

Having a reasonable excuse can be a get-out-of-jail-free card if you are charged a tax penalty. However, there is no statutory definition of the term, and what might constitute a reasonable excuse for one person may not for another. With more individuals and businesses incurring tax penalties due to Covid-related disruptions, HMRC has recently updated its guidance.

The use of a reasonable excuse only removes the penalty – it does not absolve the taxpayer from the tax or any late-payment interest.

Covid-related disruptions

HMRC will usually accept the use of a reasonable excuse for a return or late payment because of the impact of Covid-19. As is always the case with reasonable excuse, the excuse must have existed on or before the date on which the obligation should have been met.

It is also essential that the failure to meet the conditions is rectified without unreasonable delay once the reasonable excuse ends.

For example, if a business is late submitting its quarterly VAT return because the person responsible had to isolate – this should be accepted as reasonable excuse provided the return is submitted as soon as possible after the person returns to work.

What doesn’t count

HMRC’s updated guidance provides some examples of what will not usually amount to a reasonable excuse:

  • Pressure of work;
  • Lack of information; and
  • Lack of a reminder from HMRC.

Lack of funds and reliance on a third party also do not normally count, although there are exceptions. For example, the First-Tier Tribunal held that a taxpayer had a reasonable excuse for the late payment of a capital gains tax liability because the sale proceeds had not been received.

Illness

Illness and domestic problems do not count as valid excuses unless very serious. HMRC expects suitable arrangements to be put in place if a person knows in advance that they will be in hospital or convalescing.

Similarly, the illness of a partner or a close relative will only be accepted as an excuse if the situation took up a great deal of time and resources.

HMRC guidance on what to do if you disagree with a tax decision – including reasonable excuse – can be found here.

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Don’t forget to include Covid-19 payments on self-assessment returns

Written by admin on . Posted in COVID-19, Income Tax, self-assessment. No Comments on Don’t forget to include Covid-19 payments on self-assessment returns

With the 2021 self-assessment tax return deadline on 31 January, HMRC has been busy reminding taxpayers to declare any Covid-19 grant payments they might have received. This is the first year they need to be included.

Most self-employed taxpayers will have received Self-Employment Income Support Scheme (SEISS) grants during the Covid-19 pandemic, and now must include the following related grants and payments in their tax returns:

  • Business support grants (from local authorities or devolved administrations);
  • Furlough payments;
  • Eat Out to Help Out;
  • Coronavirus statutory sick pay (SSP) rebates; and
  • Test and trace/self-isolation payments.

All grants are taxable.

Reporting

There is a separate entry on the self-assessment tax return to report SEISS grants. All other grants and payments should be shown in the “any other business income” box.

The tax-return process is a bit more complicated for partnerships; other grants and payments go on to the partnership tax return, with each partner’s respective SEISS grants included on their personal returns.

If you have already submitted your 2021 tax return and omitted any Covid-19 grants or payments, then amend the return as soon as possible.

Which SEISS grants?

The first three SEISS grants should be included in your tax return, with the fourth and fifth grants not due to be reported until next year. The payment windows for these three grants were:

Grant Payment window
First 13 May to 13 July 2020
Second 17 August to 19 October 2020
Third 29 November 2020 to 29 January 2021

If you cannot pay

If you are unable to pay your self-assessment tax bill in full by 31 January, you can use HMRC’s self-serve time to pay facility. This online payment plan lets a taxpayer create a bespoke monthly payment plan based on how much tax is owed and the length of time needed to pay.

The facility can only be used if the tax owed does not exceed £30,000, the 2021 tax return has already been filed, you are within 60 days of the 31 January payment deadline and the debt will be paid off within 12 months.

On owing tax that does not exceed £30,000, HMRC recently outlined that taxpayers will no longer be liable for late penalties if bills are paid in full, or set up a Time to Pay arrangement, by 1 April. In the same announcement, HMRC said taxpayers who cannot file their return by the 31 January deadline will not receive a late filing penalty if they file online by 28 February.

You will need to call the self-assessment helpline should you owe more than £30,000 or need longer to pay.

HMRC guidance on reporting Covid-19 grants and payments can be found here.

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New Covid-19 business support package

Written by admin on . Posted in Business Rates, COVID-19. No Comments on New Covid-19 business support package

A new support package has been announced to assist businesses impacted by the Covid-19 Omicron variant. Applications are open to the end of February, but many have said the measures don’t go far enough given the extensive losses suffered in the hospitality and leisure sectors over the festive period.

Although no businesses were legally required to close when the move to Plan B was announced in December, the use of face masks was extended, Covid-19 passes required for some venues and people encouraged to work from home. Combined with advice to limit socialising, these measures led to dramatic falls in the number of people going to pubs, restaurants and shows.

Business grants

Around 200,000 businesses in the hospitality and leisure sectors in England, such as restaurants, hotels and pubs, are eligible for one-off grants of up to £6,000 on a per-property basis. Businesses must be solvent to qualify. The amount of grant is dependent on the property’s rateable value.

 

Rateable value Amount of grant
Up to £15,000 £2,700
£15,001 to £51,000 £4,000
Over £51,000 £6,000

The scheme will close for applications on 28 February, with payments made by 31 March at the latest.

Grants may well be paid automatically, but you should keep an eye on your local authority’s website just in case you need to register to apply. The Chancellor has so far refused to bring back any form of furlough, and – based on previous experience – grants may not be paid to businesses for several weeks.

Extra funding has been made available to the devolved administrations so they can provide similar support.

Some £100 million of discretionary funding has also been provided for English local authorities to support other businesses, such as those who supply the hospitality and leisure sectors, so keep checking your local authority’s website to see what may be on offer as some may allocate funding on a first-come-first-served basis. Additional funding is available to support theatres, museums and orchestras.

Guidance on the new local authority business grants can be found here.

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Temporary changes to sickness absence rules…………

Written by admin on . Posted in COVID-19, Employment Law. No Comments on Temporary changes to sickness absence rules…………

The government has introduced temporary sickness absence rules, effective 10 December 2021 until January 26th 2022.

The new rules provide an exemption the provision of proof of sickness until 28 days of being off work. Guidance for employees, employers and line managers.

The new rules are introduced to provide relief from GPs having to provide fit notes during the period so they can concentrate on working on the Covid booster programme.

For further information on this, click here

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Universal Credit eligibility expands to higher rate taxpayers

Written by admin on . Posted in COVID-19, Income Tax, self-assessment, Self-Employed, Tax. No Comments on Universal Credit eligibility expands to higher rate taxpayers

Autumn Budget reforms have created a surprising clash of benefits and income tax.

The Covid-19 pandemic was the first time many people utilised Universal Credit (UC) for the first time – between February and May 2020, the number of households claiming UC rose by 1.7 million to 4.2 million. In March 2020, the UC standard allowance was temporarily increased by the equivalent of £1,000 a year, but in October 2021, that extra payment came to an end. In its place, the Budget contained announcements of two UC improvements that are now in effect:

  • All working elements were increased by £500 a year, meaning that an extra £500 of net income can be earned before any clawback of UC started; and
  • The rate of clawback was reduced from 63% to 55%. As a result, if an extra £100 of net income is received and this leads to a reduction in UC payments, the loss of UC will be £55 rather than the previous £63.

So what?

The Institute for Fiscal Studies (IFS) has looked at this question and produced a surprising answer. The lower taper rate, applying to a higher starting point, now means that it is possible for higher rate taxpayers to be eligible for UC, a situation that once only applied in Scotland, where the higher rate threshold is £6,608 lower than in the rest of the UK.

One example the IFS gave is that a single earner couple with two children and monthly rent of £750 could have earnings of up to £58,900 a year in 2020/21 before losing all their UC entitlement – £9,600 more than before the Budget announcement. Not only is that ceiling well into the higher rate tax band, it is also above the £50,000 level at which the notorious High Income Child Benefit Tax Charge begins to take effect.

There are many assumptions underlying that IFS calculation, not the least of which is that the couple are not disqualified from any UC entitlement by having savings of above £16,000. In practice, the IFS calculates that 26% of all families will be entitled to UC, a proportion that rises to 84% for lone parents.

The interaction of the tapering of UC, higher rate tax and child benefit tax is complex. If you think you might be caught by that trio, make sure you understand the ramifications – you might find an extra £100 of gross earnings are worth less than £10 net.

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‘No jab, no job?’ and other workplace challenges

Written by admin on . Posted in COVID-19, Employment Law. No Comments on ‘No jab, no job?’ and other workplace challenges

Now that more employees have been returning to the workplace, employers face several potentially challenging issues. Vaccination is one of the most problematic – businesses may wish to insist on employees being vaccinated, but there is concern that such policies could leave employers open to a legal claim of unfair dismissal or discrimination.

Reluctance to return

If workers feel they are not able to return to the workplace, this cannot be treated as a redundancy situation because the employee’s job still exists. Where an employee has been successfully working from home, it will be quite difficult for the employer to then reject a request to make home or flexible working permanent. Developing a clear and sustainable hybrid working model, where suitable for the position, may be the sensible way forward.

Safeguarding

Over the last 18 months most businesses have already invested in safeguarding measures for employees – from additional sanitising precautions to barriers in the workplace between desks and workstations. As more people return, additional measures may be required, including testing.

There is no reason why an employer cannot implement a policy requiring regular Covid-19 testing as a condition for workplace attendance. This could be achieved by:

  • the employer buying tests and setting up workplace testing;
  • paying an approved provider; or
  • asking employees to arrange their own testing.

Employers should draw up a clear plan on how positive test results are to be managed. Other issues to iron out may be around how testing will apply to everyone attending the workplace, such as visitors, or only employees.

 Vaccination policy

Insisting on employees being vaccinated as a condition of workplace attendance is a more contentious issue, especially if it’s just one or two employees who are opposed to immunisation. UK employment rights mean that employers are expected to tread carefully.

Although there is no legal reason why an employer cannot adopt a full vaccination policy, this is a risky approach to take. Along with potential legal claims, it could also mean the resignation of key personnel. A more practical approach is for employers to encourage employees to get vaccinated support this by offering time off during working hours to do so and where possible discuss concerns. Homeworking might be the easiest way to deal with the issue of an employee who does not wish to be vaccinated and handling their colleagues’ expectations.

The employment service ACAS has produced a guide to workplace testing for Covid-19.

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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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Repaying Furlough Grants

Written by admin on . Posted in Budget, COVID-19, Employment Tax, Tax. No Comments on Repaying Furlough Grants

The government reports that 3,000 businesses have voluntarily repaid over £760 million of furlough grants received under the Coronavirus Job Retention Scheme (CJRS) where the reality of the impact of the pandemic was not as bad as first anticipated.  For those less forthcoming, the government is targeting fraudulent claims.

The March Budget unveiled a new task force to find those who have exploited the various Covid-19 support schemes, including the CJRS. With over £100 million invested, this represents one of the largest responses to a fraud risk by HMRC. The task force will have around 1,000 investigators.

Fraudulent activity

There has been no specific requirement for a business to demonstrate they have been financially impacted by the pandemic to claim under the CJRS. HMRC guidance simply says employees can be furloughed where a business cannot maintain its workforce because operations have been affected by Covid-19.

The new task force is therefore likely to focus on businesses who have:

  • furloughed more people than actually employed, or used inflated wage figures;
  • claimed for workers who continued doing their jobs;
  • not passed the grants on as wages to furloughed employees; or
  • abused the flexible working arrangements.

Given that each CJRS claim provides the opportunity to repay any amounts previously overclaimed, HMRC is likely to consider incorrect claims as deliberate and concealed. This means a penalty of up to 100% of the grant.

Repaying furlough grants

Even if CJRS rules have been complied with, voluntarily repaying a grant where it is not needed creates the right impression for your business.

Regardless of whether repayment is voluntary or because of an overclaim, repayment is normally done with a correction on the next claim. If an overclaim is corrected, no penalty is incurred provided HMRC is notified within 90 days of when the grant was received. You can find out about paying back CJRS grants here.

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The Clock’s Ticking: Covid VAT deferral – new payment scheme

Written by admin on . Posted in COVID-19, Tax, VAT. No Comments on The Clock’s Ticking: Covid VAT deferral – new payment scheme

Businesses that deferred VAT payments due between 20 March and 30 June 2020, and cannot afford to pay by 31 March 2021, have the option of joining a new scheme allowing them to pay the deferred VAT over a longer period. The VAT deferral new payment scheme opened on 23 February and will close on 21 June 2021.

The scheme lets a business pay any outstanding deferred VAT in equal instalments without incurring interest or penalties. The number of instalments can be between two and 11, depending on when a business joins the scheme.

Instalment options

To benefit from the maximum 11 instalments, a business needs to join the scheme by 19 March 2021. For later joining dates:

Join by Maximum instalments
21 April 10
19 May 9
21 June 8

 

Of course, fewer instalments than the maximum can be selected. The first instalment is payable at the time of joining, with a direct debit set up required for subsequent payments. All instalments must be paid by 31 March 2022.

How to join

A business has to opt in to the new scheme. This is done using the business’ Government Gateway account, and one will need to be created if not already set up. Before joining, a business must:

  • Be up to date with its VAT returns;
  • Correct errors on VAT returns as soon as possible;
  • Make sure they know how much VAT was originally deferred, and how much is still outstanding;
  • Decide on the number of instalments to pay; and
  • Be able to make the first instalment.

 

Because of the direct debit requirement, the new scheme cannot be set up by an agent. If a business is unable to use the online service or pay by direct debit, then they should contact the COVID-19 helpline on 0800 024 1222. The starting point to join the VAT deferral payment scheme can be found here.

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