Online fraud accounts for 40% of all crimes reported in England and Wales, with the majority of incidents happening online
Ofcom found that nine out of 10 adults in the UK think they have come across content connected with a scam and 25% admitted to losing money as a result. Many victims said it not only impacted their wallets but also their mental health.
As the online safety regulator, Ofcom has issued a revised Code of Practice to support the Online Safety Act that was passed last month.
The online safety rules ‘make it harder for fraudsters to operate online’ by making online service providers assess the risks of the user being harmed while using their platforms.
With the rate technology is advancing fraudsters are always adapting with the advancements, implementing social media and artificial intelligence (AI) to scam victims into sharing personal details, such as bank account details and addresses.
Under the new guidance, Ofcom has suggested measures for larger service providers that attract a greater level of risk, including the implementation of an automatic keyword search, employing an expert reporting system to contact regulators and law enforcement more easily, and installing a verification system for users.
They should also have to name an accountable person as a user, provide extensive training to content teams to recognise illegal activities, introduce a method of easy reporting for users and safety test recommended content.
The main attention is focused on protecting children against scams. Dame Melanie Dawes, Ofcom’s chief executive said: ‘Regulation is here, and we’re wasting no time in setting out how we expect tech firms to protect people from illegal harm online, while upholding freedom of expression. Children have told us about the dangers they face, and we’re determined to create a safer life online for young people in particular.’
Ofcom are planning on publishing a consultation on online fraud in January.
Michelle Donelan, science, innovation and technology secretary said: ‘Before the Bill became law, we worked with Ofcom to make sure they could act swiftly to tackle the most harmful illegal content first. By working with companies to set out how they can comply with these duties, the first of their kind anywhere in the world, the process of implementation starts today.’
HMRC will be scrapping paper VAT registrations and mandating online only sign-ups next week
The new rules will come into effect from 13 November as part of HMRC’s Making Tax Digital (MTD) strategy.
Taxpayers will have to register for VAT through the online VAT Registration Service using their Government Gateway account. However, some types of business will not be able to use the service as the online service still needs to be expanded to cover businesses joining the agricultural flat rate scheme, overseas partnerships and entities without a unique tax reference (UTR) number.
It is important to note that if a taxpayer has a particular exemption, they will have to contact HMRC by phone to request a paper form which will then be posted to them for completion. Paper applications take up to 40 days to process.
Taxpayers will have to ask for a VAT1 form to get online exemption by calling the VAT Helpline on 0300 200 3700 and ‘they will have to justify why they are unable to register online’, HMRC said.
While 95% of firms are already registering for VAT online, next week’s change could be daunting for the 5% that have not completed it this way before.
Mariana Príncipe, head of VAT compliance at Ryan, said: ‘There are three key advantages to digital-only VAT registrations that will benefit both HMRC and businesses, including faster turnarounds for VAT numbers as there should be less of a wait to get VAT numbers, a reduction in the amount of paperwork and it will be a more secure process.
‘VAT registration in the UK requires highly sensitive information, including the passport details of the legal representative and the trade register. This information could be intercepted if sent by post, and emails can also be hacked easily. By completing the registration through HMRC’s secure online portal, the risk of private information falling into the wrong hands is reduced significantly.’
The move is part of HMRC’s plan to move all tax transactions online to cut costs and reduce use of call centre advisers by 30% by the end of 2024.
HMRC told stakeholders: ‘Supporting our customers is a priority for us and online applications for VAT registrations aligns with our ambition to increase the use of digital channels.
‘For customers that are unable to access and use our digital channels, we’ll always provide a service to meet their needs. We continue to offer support through non digital channels such as via telephone, including our extra support service.’
With the push to digital filing and reduction in phone support, HMRC will have to invest heavily in existing IT systems to ensure they can be used for specialist services.
Príncipe added: ‘HMRC is making fantastic strides on its MTD strategy, especially compared to other European countries. In Spain, for example, to perform a VAT registration, it still requires an individual to book a meeting at a tax office and physically bring in the paperwork.
‘Coming up next, all eyes should be on the Form VAT652. This is the form that you have to complete if you are making a correction to your VAT return. At the moment, you can complete this form online or via a paper form, but I am sure it won’t be long before the paper option will be removed.’
Directors trying to dissolve their own companies to avoid paying debts and tax bills have seen a threefold increase in objections by creditors in the past two years
The number of objections to company strike offs at Companies House was 590,063 in 2022/23, more than double the figure just two years ago when there were 203,613 rejections in 2020/21. In the last year alone there has been a 30% increase to 452,209 in 2021/22, found analysis by Price Bailey.
This shows the spike in companies requesting dissolution when they have unpaid tax bills or bounce back loans issued during the pandemic, which means they are not eligible to stop trading.
The number of strike off applications has barely changed over the past year, and increased by just 18% over the last two years, from 280,086 in 2020/21 to 330,644 in 2022/23, indicating that a much higher proportion of strike off applications are from company directors with outstanding debts.
Directors should only apply to have their companies struck off the register if they have no outstanding liabilities, such as unpaid taxes owed to HMRC, Covid-related loans or money owed to staff or suppliers.
Directors who try to have their companies dissolved without settling their debts are risking severe penalties and criminal sanctions.
William Wilson, partner at Price Bailey, said: ‘These are essentially insolvencies by the back door. A company must be solvent with no outstanding debts for the voluntary strike off process to go smoothly.
‘The surge in creditors objecting to strike offs means that directors are trying to close their companies down and walk away from unpaid debts.
‘Directors are taking huge risks by going down this path. In many cases these companies will have received bounce back loans, which may have been misused to finance the day-to-day living of directors.
‘Directors could be personally liable for the bounce back loan if misconduct is proved. HMRC can also shift liability for tax debts onto directors if they don’t adhere to their legal responsibilities.’
The rising amount of fraud from bounce back loans means that company directors are likely to be scrutinised much more closely.
He added: ‘The government has been clamping down on misconduct by directors in receipt of bounce back loans, including against directors who dissolve companies without paying off the loans. If any evidence of fraud or misconduct emerges directors can be disqualified for up to 15 years or face a prison sentence.’
Price Bailey warned that directors who pay the objecting creditor and resume the strike off process would be guilty of making a preference payment if other creditors are unpaid, which would also be a serious breach of their legal responsibilities.
William added: ‘Directors who pay a creditor in preference to others may face sanctions for wrongful or fraudulent trading. Directors could then face personal liability for company debts, disqualification or even prosecution.’
A director whose attempt to dissolve their company has been blocked should undertake a formal insolvency process known as a creditors’ voluntary liquidation (CVL). During a CVL an insolvency practitioner will be appointed. Any assets in the company will be liquidated and distributed to outstanding creditors on a proportional basis and remaining debts written off.
Wilson added: ‘A CVL will likely be the best option for most of these companies. It ensures that creditors are dealt with equitably, legal obligations fully met and, crucially, directors cannot be held personally liable for any debts for which they have not provided personal guarantees.’
The government is going ahead with plans to tighten up the accounts filing framework for small companies with mandatory profit and loss figures but has not set out implementation timetable
Under the new rules in the Economic Crime and Corporate Transparency Act 2023, small companies will be required to file a profit and loss account and directors’ report. This will ensure that key information such as turnover is available on the public register. Companies will no longer be able to file abridged accounts.
A spokesperson at the Department for Business & Trade told Accountancy Daily: ‘We have not set out a timetable for implementation of the new rules but any changes will not affect accounts due from 1 January 2024. We need to allow time for Companies House to update their systems. We will be confirming more details about the filing changes in due course.’
‘Requiring more information to be filed will reduce the risk of deliberate misuse of minimal disclosure options to hide money laundering and other fraudulent activity. Ensuring all companies report sufficient information to determine a company’s size and eligibility to file under size specific regimes will improve the value and reliability of the information,’ the government said.
Rather than detailing the filing obligations for small companies andicro-entities in the same section of Companies Act 2006, the Economic Crime and Corporate Transparency Act 2023 splits the requirements into two sections, which aims to make the filing requirements clearer for companies to understand. The new legilsation covers sections 53 to 58 [from page 47 onwards].
Under the new rules, amendments to the small companies filing requirements require the preparation of annual accounts in accordance with section 396 CA 2006.
In future, small companies will be required to file a profit and loss account, and directors’ report. This will ensure that key information such as turnover is available on the public register at Companies House. A company is defined as small if it meets two of the following criteria: turnover of less than £10.2m, £5.1m or less on balance sheet and 50 employees or fewer.
Micro-entities with turnover of less than £632,000, balance sheet of £316,000 and 10 employees or under, will be required to prepare annual accounts in accordance with the requirements of section 396 CA 2006, which requires the preparation of a profit and loss account. They will not have to produce a directors’ report.
There will no longer be an option for micro companies to prepare abridged accounts.
The government said ‘the amendments will make the filing requirements easier to understand, reduce fraud and error, and improve transparency’.
Directors who use the audit exemption rules, including dormant companies, will have to file an exemption statement, identifying the exemption being relied on and to confirm that the company qualifies for the exemption.
This additional statement is intended to act as a deterrent to criminal activity and to provide additional enforcement evidence.
The new rules are also meant to crack down on abuse of dormant company rules.
Evidence from law enforcement agencies shows that some companies file dormant company accounts and claim the dormant audit exemption, despite their bank accounts clearly showing that the company does not meet the definition of a dormant company. The additional statement is intended to act as a deterrent and help Companies House address such offences in the future.
The government plans to make further changes to reporting rules in a future amendment to the Act, including mandating digital filing, full tagging of financial information in iXBRL format, and a reduction of the number of times a company can shorten its Accounting Reference Period.
There has been a sharp annual rise in the number of company insolvencies in September 2023 to 1,967, 17% higher than the same month last year
The worst hit sectors were construction, manufacturing and retail industries, reflecting the impact of higher interest rates and a sharp drop in residential house building.
In total, 395 construction related businesses went bust, followed by 380 catering and hospitality businesses and 352 companies involved in the motor trade, including repairs and forecourts.
However, the total number of business collapses was down 15.2% on August’s total of 2,319.
The company insolvencies consisted of 255 compulsory liquidations, 1,576 creditors’ voluntary liquidations (CVLs), 125 administrations and 11 company voluntary arrangements (CVAs).
Nicky Fisher, president of R3, the UK’s insolvency and restructuring trade body, said: ‘September 2023’s corporate insolvency figures are the highest we’ve seen for this month in four years as a combination of economic issues, director fatigue and the post-Covid insolvency lag see more firms turn to corporate insolvency processes to resolve their financial issues.
‘The fact that all forms of corporate insolvency process have risen year-on-year, with the exception of CVAs which have held steady, shows that businesses are struggling on all sides and from all ends of the supply chain.
‘It’s clear that the challenging trading climate is taking its toll on businesses. Firms are operating in a climate where people are cutting back their spending on non-essential items, while at the same time the costs of operating a business remain high – and will only increase as the weather gets colder and the cost of borrow and servicing existing debts get more expensive.
‘Our message to company directors is simple: if you’re worried about your business, seek advice. It’s a hard conversation to have, let alone start, but you’ll have more options open to you and more time to take a decision if you have it when your worries are new, rather than when they’ve spiralled.’
The latest GDP figures showed that the economy grew by 0.2% in August with warnings the UK could enter recession later this year. The insolvency figures highlighted weakness in construction and retail sectors.
Mark Supperstone, managing partner at ReSolve, said: ‘UK businesses are finding the current economic conditions challenging and it is expected that this is likely to continue in the near future with the construction, manufacturing and retail industries particularly struggling.
‘In regard to the construction industry, there is some alarm at the PMI figures released this week which signalled the largest drop-in housebuilding activity since April 2009 – aside from the pandemic shutdown.
‘However, there are green shoots emerging with the number of insolvencies being 15% lower in September compared to August as well as interest rates potentially looking like they might be set to stabilise. As we have seen over the years, construction is highly susceptible to market changes and is often ‘first in, first out’ of a downturn.’
Any buinsesses facing financial challenges should seek advice as soon as possible, warns Chris Tate, restructuring partner at Azets.
‘The current economic environment is likely to have an ongoing impact on profitability, so businesses owners must continue to look at their pricing structures, reduce overheads wherever possible, forecast well in advance and be alert to changing conditions in their market,’ Tate advised.
‘The best way to ensure a rescue solution rather than insolvency is to seek advice at the first sign of distress. With robust financial planning, a timely restructuring plan can help businesses safeguard against liquidation, protect jobs, and ensure long-term survival.’
HMRC has amended guidance on the tax treatment of electric charging of company cars and vans at residential properties
The costs of charging are now treated as a tax-free benefit, whereas in the past HMRC said that where an employer reimburses their employee for the cost of charging a company-owned, wholly electric car that is available for private use, the reimbursement was taxable as earnings.
HMRC has now changed this position and has updated the EIM23900 manual to reflect their revised interpretation regarding home charging of electric company cars.
Section 239 ITEPA 2003 provides an exemption on payments and benefits provided in connection with company cars and vans. This legislative provision therefore exempts aspects such as vehicle repairs, insurance, and road tax.
HMRC previously maintained that the reimbursement of costs in relation to charging a company car or van at a residential property was not caught by this exemption.
‘Following a review of our position, HMRC now accepts reimbursing part of a domestic energy bill, which is used to charge a company car or van, will fall within the exemption provided by section 239 ITEPA 2003,’ HMRC confirmed.
This means that no separate charge to tax under the benefits code will arise where an employer reimburses the employee for the cost of electricity to charge their company car or van at home.
The exemption will however only apply providing it can be demonstrated that the electricity was used to charge the company car or van.
Employers will need to make sure that any reimbursement made towards the cost of electricity relates solely to the charging of their company car or van.
For the first time in over a year, the Bank of England has maintained the current interest rate at 5.25%
The decision to hold the base rate comes after the minimal drop in inflation to 6.7%. The monetary policy committee voted by a majority of 5–4 to maintain bank rate at 5.25%. Four members wanted to increase the interest rate by 0.25%, to 5.5%.
This means that HMRC interest rates will remain at 7.75% until at least November when the Bank meets again.
The Bank also indicated that it expects inflation to return to the 2% target in the medium term, but unlike last month’s report, did not put a timeframe on its earlier estimate of Q2 2025.
‘Monetary policy will need to be sufficiently restrictive for sufficiently long to return inflation to the 2% target sustainably in the medium term,’ the Bank noted. ‘Further tightening in monetary policy would be required if there were evidence of more persistent inflationary pressures.’
CPI inflation is expected to fall significantly further in the near term, reflecting lower annual energy inflation, despite the renewed upward pressure from oil prices, and further declines in food and core goods price inflation, the Bank said. Services price inflation, however, is projected to remain elevated in the near term, with some potential month-to-month volatility.
Nigel Green, chief executive of deVere Group, the financial advisory and asset management firm, said: ‘The central bank policymakers should go further and commit to stopping the hiking agenda, rather than just pausing it.
‘The battle against inflation is gradually being won. Further stifling economic growth by resuming rate rises next time around will lead to yet more decline in investment, entrepreneurial activity, development, innovation – and therefore jobs and a decline in overall economic well-being.
‘As such, this is now the time for the BoE to stop – not pause – interest rate hikes.
‘The time lag for monetary policies is notoriously long. It typically takes about two years for the full effect of rate hikes to filter fully into the economy – and this is where we are.’
The impact of soaring interest rates has had a punitive impact on businesses exposed to high borrowing.
Nils Kuhlwein, partner at Kearney, said: ‘While the effect of rising interest rates on UK plc is well-known, closely watched, and priced into future risks, successive base rate jumps over recent years have turned the screw on these companies.
‘Recent Kearney research into companies which are unable to meet interest obligations through operating profit – known as ‘zombie companies’ – shows that if struggling UK companies were forced to refinance at twice the interest rate they enjoy currently, the share of this ‘walking debt’ amongst UK business would increase by almost 10%.
‘Given that many of these companies currently see rates as low as 2-3% on some debt, this is hardly unreachable.’
HMRC has revised interest rates with late payment bills charged 7.75% from 22 August, the highest rate since 2001
The late payment and repayment interest rates follow the rise in the Bank of England base rate to 5.25% on 3 August and are applied to the main taxes and duties that HMRC currently charges and pays interest. The rates will rise to:
- late payment interest rate — 7.75% from 22 August 2023
- repayment interest rate — 4.25% from 22 August 2023
This means that the late payment interest rate will increase by 0.25% to 7.75% from 22 August. The last rate increase was on 11 July. Rates were last this high in August 2007.
Late payment interest is payable on late tax bills covering income tax, National Insurance contributions, capital gain tax, corporation tax pay and file, stamp duty land tax, stamp duty and stamp duty reserve tax. The corporation tax pay and file rate also increases to 7.75%.
Repayment interest will also be increased from the current 4% rate to 4.25%.
Corporation tax self assessment interest rates relating to interest charged on underpaid quarterly instalment payments rises to 6.25% from 6% for the earlier date of 14 August.
With late payment interest now 2.5% above the Bank of England base rate, HMRC continues to pay lower interest to taxpayers affected by overpayments of tax at 4.25%, up from 4%.
The interest paid on overpaid quarterly instalment payments and on early payments of corporation tax not due by instalments rises to 5% from 4.75% from 14 August.
The UK private rental sector has lost approximately 400,000 rental homes since 2016, as landlords face increasing costs and higher mortgage rates
According to a report by CBRE, changes to policy in the past decade have increased the amount of tax payable on both purchasing a buy-to-let property and its rental income, leaving many landlords leaving the market due to growing cost pressures.
This has resulted in the loss of approximately 400,000 rental homes in the past seven years, aligned with the additional rate of stamp duty for second properties, which increased the upfront cost of buying a rental property.
On top of this, the rise of the Bank of England’s base rate, which started in 2022 and has gone from 0.25% to 5.25%, has ultimately led to higher mortgage costs.
CBRE has warned that if the trend continues, the UK will lose almost 10% of its private rented households by the end of 2023.
Scott Cabot, head of residential research at CBRE, said: ‘Changes to policy in the past decade have increased the amount of tax payable on both purchasing a buy-to-let property and its rental income and ultimately have reduced the viability of a buy-to-let investment.
‘More recently this has been compounded by high inflation which has driven a rapid rise in interest rates and increased other costs associated with owning and managing a property.
‘Higher mortgage costs could mean that buy-to-let borrowers may start to struggle to meet banks’ lending criteria. As interest rates rise and mortgage rates increase, the rent needed to satisfy these conditions moves in tandem.’
Landlords who plan to incorporate their portfolios as limited companies, which can offer no charges on capital gains tax (CGT) or stamp duty land tax (SDLT) at the time of transfer, must beware of the strict eligibility rules and unintended consequences.
According to Rick Schofield, a tax expert at accountancy firm Azets, scores of portfolio landlords are incorporating their property portfolio through incorporation relief.
Owning property through a limited company offers a series of tax benefits, with profits and gains being subject to 19% corporation tax rather than income tax at up to 45% or CGT of 28%.
For example, a landlord with five rental properties at a total value of £1m, purchased for a total of £800,000, could save £56,000 on CGT alone.
In Q1 2023, over six in 10 landlords planning to buy a new rental property said they would do so within a limited company structure, according to research by Paragon Bank, a specialist buy-to-let lender.
This followed a 5% increase compared to Q4 last year and a year-on-year rise of 12% to make a return to the high reported in Q2 2022. Landlords who intend to buy as an individual has fallen by 5% since last year, now standing at 24%.
Schofield said: ‘The first thing a landlord should consider when thinking about incorporating is whether they need their rental income to live off. Individuals can’t benefit from incorporation relief, but in a limited company structure, the company pays tax.
‘If you then need the cash, you must take it by way of dividend and you pay tax again. Where a landlord is building a portfolio and doesn’t need the cash immediately, incorporating as a limited company makes absolute sense, but it isn’t straightforward and there are lots of ways to get it wrong.
‘To qualify for incorporation relief on CGT, the limited company needs to be a commercial business. This typically requires five or more properties that the landlord has owned for at least two years and can evidence managing agent hours and activities – for example, collecting rent, managing repairs, and vetting tenants.
‘SDLT is more complex and there is a divergence of opinion around eligibility. Usually, landlords need to incorporate as a limited liability partnership, which then needs to conduct the business for a period of time. This is a grey area, and while most stamp duty lawyers accept two years, landlords must seek appropriate tax advice’
Claiming tax relief for research and development is set to get harder as HMRC seeks to clamp down on the estimated £1.13bn of fraud and error in claims
From 8 August 2023, all businesses – or their R&D advisers – will have to fill in an Additional Information Form before they submit their company’s corporation tax return when submitting claims for R&D tax relief. There is a new HMRC online portal to submit claims.
The new process is designed to allow HMRC to quickly assess the validity of the claim.
Importantly, it will give the tax authority details of the R&D agent used by the business. This is to enable HMRC to assess the likely level of expertise involved in preparing the claim.
BDO warned that HMRC will use the data from this report to risk profile claims by size of claim and by business sector.
The new rules are also designed to address high levels of fraud and error in R&D claims where an estimated 17% of claims are fraudulent, HMRC reported in July. This was significantly higher than HMRC’s previously published estimate of 3.6%.
Carrie Rutland, innovation incentives partner at BDO said: ‘For the many businesses that are genuinely carrying out groundbreaking R&D, the changes being introduced may seem overly bureaucratic, particularly for large groups submitting multiple claims. However, given the high estimated levels of error and fraud associated with R&D claims, it’s no great surprise that HMRC is keen to clamp down on non-compliance.
‘Businesses involved in R&D will need to ensure they are clearly demonstrating their qualifying activities to HMRC. Failure to do so may mean they run the risk of an HMRC enquiry. The department has recently added 300 new officers to its R&D team which suggests it’s getting serious about stamping out error and fraud.’
Andrew Tall, corporate tax partner at accountancy firm HW Fisher, explained what needs to be included in the additional information form and how businesses can improve their chances of making a successful claim.
‘The additional information form requires extra measurements, thorough checks, and meticulous record keeping. Given the extra amount of information that firms will need to submit, we recommend that firms start preparing for their claim as far in advance as possible to allow themselves enough time to gather all the documents needed, and to avoid any costly, timely mistakes.’
The new requirements will be challenging for SMEs who do not usually need to provide this level of detail.
Stephanie Hurst, director at Monahans, said: ‘Many smaller enterprises who prepare their own R&D claims may not currently submit the level of information required by the additional information form, so these businesses are likely to be significantly impacted by the introduction of the new requirements.
‘It isn’t always cost effective for very small businesses to engage with an R&D adviser and quite often they will be preparing and submitting their own claims. Whilst they can continue to do this, we expect smaller businesses to be heavily impacted by the new requirements and the level of detail that will need to accompany their claims.’
What needs to be included in the additional information form?
Each additional information form will need to be signed by a named senior officer of the claimant company and must contain detailed information on the R&D project – including the name of the agent who has advised the company on compiling the claim.
The form must also include a breakdown of the costs across categories, the number of R&D projects carried out and describe some or all of the projects depending on the number of projects being submitted.
• for 1-3 projects, companies need to describe all the projects that are being submitted to the claim.
• for 4-10 projects, they need to describe sufficient projects to cover 50% or more of the qualifying expenditure with a minimum of three projects described.
• for more than 10 projects, they need to describe sufficient projects to cover 50% or more of the qualifying expenditure with a minimum of three projects described. If this would require details of more than 10 projects, then only 10 need be described.
Plan to merge separate R&D reliefs
The latest requirements are a prelude to further reforms to the UK R&D regime. Last month, the government unveiled draft legislation which proposes to merge the two current schemes – the Research and Development Expenditure Credit (RDEC) and the small or medium enterprises (SME) R&D relief.
The aim of the single R&D relief scheme is to achieve tax simplification, including having a single set of qualifying rules as well as control the overall cost to the Exchequer.
Rutland added: ‘Further reforms to merge the two current schemes into one from April 2024 may be the right approach, but there is a danger of going ‘too far too fast’. This could create more uncertainty and result in the UK becoming less attractive to inward investors.’