Welcome to BPU's Spring Newsletter 2021
In this issue:
- Latest COVID-19 Grants and Business Support Available
- Hot Topic - Making Use of Super-deduction
- Staff Update - Baby News and Another Qualified Chartered Accountant!
- Tax Director Martin Knight talks about IR35 - Overhauling the Off-payroll Rules
- BPU's IFA Ian Sinclair Offers Investment Advice for the New Financial Year
COVID-19 BUSINESS SUPPORT UPDATE & DEADLINES
Economic Resilience Fund (ERF) Opens Today
Welsh businesses in the hospitality and leisure sectors still affected by coronavirus restrictions will be able to claim cash grants in the next package of funding allocated by the Welsh Government.
This latest support package is to help those businesses, social enterprises and charitable organisations still affected by ongoing restrictions and forced to remain closed between 1st May 2021 and 30th June 2021.
Businesses that are eligible for the funding include:
- Nightclubs and late entertainment venues
- Events and conference venues not covered by the Welsh Government’s Cultural Recovery Fund (CRF)
- Hospitality and leisure businesses, including restaurants, pubs and cafes
- Wedding venues or events space accommodating less than 30 people
- Supply chain businesses, that generate 60% or more of its sales revenue from businesses in the above categories.
The fund is open to sole traders, partnerships and limited companies with an annual turnover exceeding £85K who employ at least one full time person through PAYE. The business must also have a minimum of 60% reduction in turnover compared to the same period in 2019 or similar period in 2020 for a new business established in the last 12 months.
Please note - those businesses with an annual turnover below £85K may still be eligible for funding and need to apply via their local authority.
Applications for the above fund will open today and close at 5pm on the 7th June. For full details on eligibility criteria and to apply please visit the Business Wales website .
Further Funding for Freelancers
The Welsh Government has announced a new round of funding for freelancers. The Freelancers Fund is now open for applications and will close on Tuesday 1st June at 5pm.
The grants will be delivered by local authorities and unlike previous applications this will not be on a first come, first served basis – all applications will be assessed for eligibility under various criteria.
Click here for more information on how to apply.
Residential Outdoor Education Sector Expression Of Interest Eligibility Checker
The Welsh Government has announced a £2 million fund to support the residential outdoor education sector in Wales. This fund will provide support to cover essential operating costs during the period June to September 2021. The fund is open to eligible centres based in Wales and the maximum grant will be capped at £45k per successful applicant.
Applications for funding are expected to be open in early June 2021, with a 3-week deadline for completion. However, Business Wales are asking organisations that may be eligible for support and wish to apply to complete a short expression of interest form. Organisations completing the form will then be notified directly when formal applications for funding are being invited. To express your interest please visit the Business Wales web page here.
£20 million SME Brexit Support Fund Open Until June
The UK government's £20 million Brexit support package to help SMEs with changes to trade rules within the EU will close for applications on 30th June 2021 or earlier if all funding is allocated before this date.
The SME Brexit Support Fund aims to help businesses prepare for the implementation of import controls which come into force from April and July.
Businesses who trade only with the EU and are therefore new to importing and exporting processes will be encouraged to apply for grants of up to £2,000 for each trader to pay for practical support, including training and professional advice, to ensure they can continue trading effectively.
Businesses must meet certain criteria, including having been established in the UK for at least 12 months, having fewer than 500 employees and no more than £100 million in turnover.
For help or advice on the support available for businesses please contact your usual BPU Adviser or contact:
Huw Palin, Director
BPU Staff News
BPU Graduate Qualifies as Chartered Accountant
BPU is pleased to announce that Alex Mitchell has qualified as a Chartered Accountant following completion of the BPU three year graduate training programme. The firm assists graduates to study and qualify as Chartered Accountants while they work.
The training programme has been running for over 16 years and BPU has continued to make a significant investment in it, as ex-graduates have worked their way up to the top level.
Alex has accepted a full time position at BPU as a Senior Accountant.
Director Andrew Miller of BPU Accountants said: “We are delighted Alex has now qualified and will continue working for the firm, we are proud to offer this type of training programme, one that I did myself 16 years ago.”
“We have strong links with local Universities and other establishments which means we can attract the very brightest and best new trainees who prefer to gain experience here working with local and varied businesses.”
“Taking on new graduates every year shows our commitment to building a solid team; through investing in our people we continue to help develop the accountants of the future.”
Alex who joined BPU in 2017 following graduating with a First in Accounting from Swansea University said: “BPU attracted me as it was a growing business that provides many other services not just accountancy. They offer an excellent training programme for staff so I am constantly learning and updated on tax changes, VAT, grants as well as topical changes with regards to The Budget, Brexit or sector specific.
He added: “I am very proud to be working at a leading firm as a graduate and now qualified.”
BPU continues to invest in its graduates under its graduate recruitment scheme and is currently looking to recruit another two graduates this year.
BPU Baby News
Congratulations to our Accounts Senior Aminah and her husband Zyaad following the arrival of a beautiful baby boy named Zakariyya. Brother to Alesha, Zakariyya was born on Saturday 13th March weighing 8lb 12oz . Both mum and baby are doing well. Well done Aminah - we can't wait to meet him and hopefully see you soon – even if just by zoom!
Martin Knight - BPU Director
IR35 Overhauling the Off-Payroll Rules
From 6 April 2021, new tax rules were introduced for individuals who provide their personal services via an ‘intermediary’ to a medium or large business. An intermediary may be another individual, a partnership, an unincorporated association or a company. The most common structure is a worker providing their services via their own company (PSC), which is the term used to summarise the rules which will apply to all intermediaries.
Similar rules were introduced in 2017 for public sector organisations receiving services from PSCs.
The effect of the new rules, if they apply to you, will mean:
- the medium or large business (or an agency paying the PSC) will calculate a ‘deemed payment’ based on the fees the PSC has charged for the services of the individual
- generally, the entity that pays the PSC for the services must first deduct PAYE and employee National Insurance contributions (NICs) as if the deemed payment is a salary paid to an employee
- the paying entity will have to pay to HMRC not only the PAYE and NICs deducted from the deemed payment but also employer NICs on the deemed payment
- the net amount received by the PSC can be passed on to the individual without paying any further PAYE and NICs.
The practical effect of these rules is that you will no longer benefit from the potential tax advantages of receiving such income via your own company.
There may also be pressure from businesses to renegotiate contracts due to their increased cost of employer NICs.The new tax rules apply to amounts paid from 6 April 2021 and so may affect current contracts.
What is a medium or large business?
The legislation uses an existing statutory definition within the Companies Act of a ‘small company’ to exempt small businesses from the new rules. Therefore the rules will exempt businesses meeting any two of these criteria: a turnover of £10.2 million or less; having £5.1 million on the balance sheet or less; having 50 or fewer employees. If the business receiving the work of the individual is not a company, it is only the turnover test that will apply.
The business must respond within 45 days if you ask for information on size. It is important to be clear on the size of the business to whom you are providing your services at the outset, so you know who is responsible for making the status decision and paying tax, and where liability lies if there is an error.
There is no change if you provide services to a small business. Even after the changes were introduced from 6 April 2021, you remain responsible for deciding if IR35 rules apply to contracts you have in such cases.
Who will decide if the rules apply?
The medium or large business will decide. The business needs to form an opinion as to whether, if the personal services of the individual were provided under a contract directly between the individual and themselves, the individual would be regarded as an employee of the business. This is the same kind of employment status test based on case law that businesses and agencies have to consider when they hire staff directly.
It is a matter of judgement whether the nature of and manner in which the services provided point to employment or self-employment. HMRC has a Check Employment Status Service tool (CEST) to help businesses decide the status of individuals providing personal services to them.
The link to the Employment Status Service tool is www.gov.uk/guidance/check-employment-status-for-tax.
The Status Determination Statement (SDS)
The SDS is a new part of the status determination procedure. If the business to whom you are providing services decides your engagement amounts to employment, it should provide you with an SDS, setting out its employment status decision, and giving the reasons underpinning it.
If you are part of a longer labour supply chain, the business should also pass the SDS information to the next entity it deals with, and so on, so that the information flows along the chain as required. There is no hard and fast rule about how the SDS is issued, but it should be in a format that you can ‘receive or access’.
What can you do if you disagree with the business deducting PAYE and NICs?
The business must take ‘reasonable care’ in coming to its conclusion. If it doesn’t, the statement is not a valid SDS. HMRC guidance states: ‘What is necessary for each client to discharge that responsibility must be viewed in the light of their abilities, experience and circumstances.’ More will be expected of a large multi-national company, for example, than a smaller business.
If you disagree with the decision you can use the tool to see if you obtain a different conclusion. If you obtain a result which confirms self-employment you can discuss the results with the business or you can contact us to discuss the matter. Even if you obtain an employment result, this does not necessarily mean the result is correct. CEST has come in for criticism over the years, and has been refreshed to support the new regime.
HMRC has been working with stakeholders to enhance the service and guidance on the use of CEST but many commentators consider that the law on status is too complicated for a yes/no checklist to provide the right answer in all cases.
SDS dispute process
You have a statutory right to make a representation to the medium or large business where you believe that the conclusion mentioned in the SDS is incorrect. Written disagreement is prudent: give details of the SDS you disagree with, explain why you disagree, and keep a record of proceedings. The medium or large business has 45 days, from when the representation is received, to review the decision and either confirm that the decision and explain why they have done so or alternatively, withdraw it and provide a new one, with confirmation of the date it is valid from.
What is the tax effect on you if the new rules apply?
The important point to appreciate is that you will be treated in tax terms as an employee of the entity that pays the PSC for your services. So if a contract ends during the 2021/22 tax year, the paying entity should send you a P45 showing the total deemed payment and deductions for PAYE and NICs. If the contract extends over the 2021/22 tax year, the paying entity should issue a P60 to you showing the total payment and deductions in the 2021/22 tax year.
You will need to show the amounts on the P45 or P60 as an employment on the employment pages of your 2021/22 self assessment tax return.
The amounts of income tax recorded as paid by you on the P45 or P60 may well not be the correct amount of income tax payable by you. Please look at the first part of the example below which illustrates how PAYE and NICs are deducted from the deemed payment by the paying entity.
The other important point to appreciate is that it is your company which is receiving the amounts from the paying entity. How can you extract such income tax efficiently? The legislation has special rules to allow you to do so.
What procedures does your PSC need to follow if deemed payments are received?
The PSC will deduct the amount of the payment it receives, as well as the PAYE/employee NICs costs incurred, from its taxable income, so it will not be taxed twice. Please see the second part of the example below which illustrates the procedures your PSC will take in passing the net deemed payment to you.
What if your company has other contracts hiring out your personal services?
Nothing is expected to change in respect of contracts your company has with small private sector clients. The possible application of IR35 needs to be considered but there is no change in the law regarding IR35. If contracts are not caught by IR35, we will help you decide on an appropriate profit extraction strategy for the profit from these contracts.
Example of operation of the off-payroll rules
Derek provides personal services to a large business via his personal services company, Derek Ltd. The business considers the off-payroll working legislation applies. The contract will end on 30 September 2021.
In 2021/22, Derek Ltd invoices the business £4,000 a month. There is no VAT and no expenses in the invoices.
The business would treat each of the monthly payments as deemed payments. Derek will need to provide the business with his National Insurance Number, address, date of birth and P45 if appropriate in order that they can set him up on their payroll.
As Derek has a ‘primary employment’ with his PSC, the services he provides to the business are treated as a ‘secondary employment’. The authority would initially operate tax code BR which means income tax is deducted at basic rate. Employee NICs would be deducted at normal rates on £4,000 a month.
Employer NICs would be payable by the business on the deemed payment of £4,000.
The business will report and pay PAYE and NICs to HMRC. In due course, HMRC may issue the authority with a tax code to use against future payments made to Derek Ltd.
When the contract ends on 30 September 2021, the business should send to Derek a P45 showing the total deemed payment and deductions for PAYE and NICs.
If the contract extends beyond the 2021/22 tax year, the business should issue a P60 to Derek showing the total payment and deductions in the 2021/22 tax year.
The total amount invoiced by Derek Ltd and recorded as gross deemed payments by the business is £24,000 (6 X £4,000).
Assuming the tax code BR does not get adjusted the net deemed payments total (the figures below are based on rates and allowances for 2020/21):
| Amount invoiced
| Less: PAYE - £24,000 at 20%
| Less: Employee NIC
| 6 x monthly NICs of £384.96
| Total net deemed payments
If VAT has been charged by Derek Ltd, the business would pay Derek Ltd £16,890.24 plus the VAT charged on £24,000.
The business will also need to pay employer NICs. The monthly amounts due will be £450.98 which totals £2,705.88.
Effect in Derek Ltd
The company will get relief from corporation tax for the VAT exclusive amount of the invoices ie £24,000.
Procedure if Derek Ltd pays Derek the net deemed payment through the payroll
Any amount of income paid to Derek up to £16,890.24 will have already been subject to deduction of PAYE and NICs. HMRC guidance is that the payment should be recorded on a Full Payment Submission as non-taxable income.
Procedure if Derek Ltd pays Derek the net deemed payment as dividend
Alternatively, Derek can receive a dividend up to £16,890.24. This will not be reported as a dividend on his self assessment return.
Effect for Derek
Derek would be treated as having received the net deemed payment from the company in the 2021/22 tax year irrespective of whether he has received it as salary or dividend (or even if he has not received it from his company).
On his 2021/22 self assessment return he will record the information supplied to him from the business:
Employment income £24,000
PAYE deducted £4,800
There may be a tax repayment due to Derek if he has not utilised his personal tax allowance against other income. Alternatively, income received from the medium or large business may attract a higher rate tax liability, if Derek has other taxable income.
This is a complex matter and we would be happy to discuss all of the above in detail and confirm how these changes will be relevant to you. Please contact:
Martin Knight, Director
Making use of the Super-deduction
The super-deduction is a £25 billion tax break that is intended to spur business investment, aid post-pandemic economic recovery and give a boost to the UK's productivity levels. It was announced by Chancellor Rishi Sunak in this year's Budget as 130% first-year relief on assets. The super-deduction is described by some as the largest tax cut in UK history and by the Chancellor himself as 'bold and unprecedented'.
For two years from April 2021, companies' investments in plant and machinery will qualify for a 130% capital allowance deduction, providing 25p off company tax bills for every £1 of qualifying spending on plant and machinery.
Here we take a look at the super-deduction: what are the terms and conditions? How does it sit alongside the usual rules on capital allowances, and are there any pitfalls?
Who is eligible for the super-deduction?
It is important to note that the super-deduction is not available to every business. It is targeted at companies, not unincorporated businesses. These will have to continue to look to the Annual Investment Allowance (AIA), with its temporarily extended higher £1 million limit, for major capital spending up to 31 December 2021.
How does it work?
It works by giving first-year tax relief in the form of capital allowances for expenditure incurred between 1 April 2021 and 31 March 2023. For assets that would normally qualify for 18% main rate writing down allowances, the super-deduction gives first-year relief of 130%. Assets normally qualifying for 6% special rate writing down allowances (such as integral features in buildings, like lifts and long-life assets) can qualify for a first-year allowance of 50%. But this 50% allowance is likely to be relevant only to companies that have used their AIA. Unlike the AIA, there is no cap on eligible expenditure. The rate of the deduction will be apportioned for a business making eligible expenditure in an accounting period straddling 1 April 2023.
What are the exclusions?
Plant or machinery must be new, not used or second hand. Expenditure incurred on contracts entered into before the Budget on 3 March 2021 does not qualify. The general exclusions that are in existing legislation relating to first-year allowances apply. For example, expenditure on cars and assets for leasing are excluded – the latter point meaning that commercial landlords may benefit less than the initial publicity of the proposals might have led them to expect.
Assets purchased with a view to leasing to third parties do not qualify for the new super-deduction or special rate first-year allowance for capital allowances purposes.
Leased assets make up a significant proportion of plant and machinery used in trading activities and their exclusion would reduce the impact that these temporary allowances have on incentivising commercial investment and growth.
The Construction Plant Hire Association estimates that the UK's plant hire industry is worth £4 billion per annum. Meanwhile, the Construction Equipment Association estimates that between 60% and 65% of all construction equipment sold in the UK goes into plant hire.
However, at a time when some businesses can ill-afford to make large capital expenditures, leasing or short-term hire are particularly attractive routes to acquiring newer and more productive plant and machinery. For others, these options make good business sense because the assets will only be used for limited periods or need to be updated regularly.
Good record-keeping is essential
Rules on what happens when the assets are disposed of make the picture more complex. Disposal proceeds will be treated as a taxable balancing charge. So, companies that dispose of the assets before the end of the regime could find that it ends up costing more in tax than the super-deduction originally saved them. It will be important to keep records of assets on which the super-deduction is claimed so they can be correctly treated on sale.
Whether the super-deduction significantly benefits your company will depend on the forecast level of capital expenditure, the type of asset, financing method and your expected corporation tax rate.
This is complex area, and the right decision for your business will be unique to your firm. Please contact us for further advice.
Martin Knight, Director
BPU's Independent Financial Advisor Ian Sinclair talks about investments, interest rates and the best options available to you for the financial year ahead.
I recently took a phone call from a friend who had sold a property and was holding the cash in his bank savings account. He had just received his February statement showing that his £240,000 deposit had earned him just £1.84 interest. Quickly hitting the calculator buttons showed his interest rate was just 0.01% per year. Sadly, this is not uncommon with many deposit accounts paying interest well below the rate of inflation.
My friend has no plans to spend this money and no plans to purchase another property. I pointed out to him that while the Bank of England base rate is 0.1% and the government’s inflation forecast is 1.5% per year raising to 1.8% in 2022, he needs to be mindful that leaving the cash on deposit for the long term will mean that his spending power in the future will diminish as the cost of goods and services increases. This simple chart shows the impact that inflation could have over 20 years.
Holding ‘Cash’ tends in practice to take the form of building society or bank deposits, National Savings and Cash ISAs. Capital security is the primary benefit. A little interest is paid which may be drawn as income - and generally, the value of your capital dwindles over time as it is eroded by inflation.
But as you can see, holding a significant proportion of your savings in cash is not good for you over the longer-term.
‘Investing’ then takes another form. It might involve stocks and shares - and those can cover all kinds of geographical or business sectors. It might involve (towards the lower end of the risk spectrum) fixed-interest stocks or government bonds. It might, at times, involve some exposure to property or even ‘alternative investments’. The point is, that these things are designed to provide you with a ‘return’ on your capital over the medium to long term, which is above and beyond anything you might have received by way of interest on cash.
This represents the classic dynamic between ‘risk’ and ‘return’.
The risk-averse individual, favouring capital security above all else, accepts that he or she will receive a negligible return. That is the price you pay for such security.
Alternatively, the longer-term investor, perhaps seeking to build up an adequate pension fund for retirement, will understand that if he stays in cash, he is unlikely to achieve his goals. Such an individual accepts that some capital fluctuation is the price you pay to achieve an acceptable return on investments.
The trick is to get the balance right!
BPU Financial Solutions Ltd was established in 2012 and we have helped many clients like my friend, to invest monies via a wide range of investment, retirement and inheritance tax planning solutions using independently sourced solutions to diversify risk and maximise returns.
Our main objectives are to help our clients to protect their assets, increase their wealth and pay less tax now and in the future. Here at BPU Financial Solutions Ltd and BPU Chartered Accountants, we can bring “joined up thinking” to Financial Planning and Tax Planning in one solution.
We offer a range of services including:
- Savings and Investments (Onshore & Offshore) - click hereto view our Guide to Investing
- Pensions (Personal and Group schemes)
- Partnership, Director and Employee Benefits
- Personal and Business Protection (Life & Healthcare)
- Estate and Inheritance Tax planning
- Trust Advice
You will find a good variety of investment information in the Your Money section on our website but if you think you could benefit from personalised independent financial advice about your savings and investments, please get in touch with me.
Ian Sinclair DipPFS
Independent Financial Adviser
BPU Financial Solutions Ltd
T: 02920 734100