Manufacturers are calling for an emergency, pre-recess package of business support measures including extension of temporary tax reliefs to support companies from escalating costs
The call comes on the back of the Make UK/BDO Q2 Manufacturing Outlook survey which shows growth and orders slowing significantly, exports almost at a standstill and, investment falling as companies cut or postpone their plans in order to maintain cashflow.
According to Make UK, the seriousness of the situation and, the prospects for the next six months, means that industry cannot wait for the promised help in the autumn which the Chancellor made in the Spring Statement. It is calling for urgent actions before MPs go on their summer break.
Make UK has made a number of recommendations for measures government can introduce now to address rising business costs including the following:
- waive or reduce business rates for the next 12 months;
- implement VAT deferrals for larger businesses and waive completely for SMEs;
- temporarily freeze the Climate Change Levy and, if energy costs continue to rise, remove it completely;
- Review the efficacy of the business interruption loan schemes introduced during the pandemic and deploy a successor scheme by Q3;
- Extend the 130% super-deduction tax break, due to end in March 2023; and
- make the increase in the Annual Investment Allowance permanent.
In addition to immediate measures, Make UK also stressed that the government must move away from short-term, gesture politics. Instead, it must focus on demonstrating to business and, foreign investors, that it has the capacity to operate in a serious manner with a long-term strategy.
Stephen Phipson, chief executive of Make UK, said: ‘Whilst industry has recovered strongly over the last year we are clearly heading for very stormy waters in the face of eyewatering costs and a difficult international environment.
‘Clearly some of the factors impacting companies are global and cannot be contained by the UK government alone. However, given the rate at which companies are burning through their balance sheets just to survive, it must take immediate measures to help shield companies from the worst impact of escalating costs and help protect jobs.’
Richard Austin, head of manufacturing at BDO, added: ‘Manufacturers have shown their ability to overcome a wave of challenges over the last couple of years to remain competitive. The question is when fatigue will overcome resilience. The tipping point where the shorter term need to retain cash outweighs investment is starting to be reached and could have significant implications for future growth.
‘Rapidly rising input costs, ballooning energy bills and in some cases inflation-busting pay settlements have hit margins and frozen investment plans. There is now a strong case for government action to help UK manufacturers weather the immediate storm and incentivise investment for long-term growth.’
According to the survey, investment intentions dropped sharply from +27% in Q1 to just +5% as companies cut or postpone their plans in response to rapidly escalating costs.
Two thirds of companies (67.8%) said rising energy costs were causing major disruption, almost three quarters (71.9%) cited increased raw material costs posing a similar threat and, two thirds (66.8%) cited rising transport costs.
Manufacturers expect to continue to increase their UK and export prices substantially in the next quarter to +69% and 63% respectively, with both these figures dwarfing previous record levels in the survey’s 30-year history.
The government is reviewing the tax relief which allows employees to claim up to £125 a year if they work from home after it has cost the taxpayer £500m over the course of the pandemic
It has been reported that the Treasury and HMRC are looking into the relief and are planning to change the eligibility requirements and how much can be claimed from the scheme as the take-up has increased significantly over the last 12 months.
First reported in the Telegraph, an unnamed Treasury source said: ‘This is a tax relief that existed before Covid and it was there for legitimate reasons, but the take-up is now much higher, so it needs to be looked at.’
According to HMRC, since March 2020 the relief has cost the Exchequer around £348.6m however the true figure could possibly be closer to £500m as workers can backdate their claims for the past four years.
In 2020, the Office for Budget Responsibility estimated that the scheme’s cost to the taxpayer would rise 12-fold, from around £2m a year to £25m however, the scheme carries the potential to cost the taxpayer closer to £836.3m with this figure being calculated just from basic rate taxpayers.
In the 2020-21 tax year, 4.9m people successfully claimed the relief, and according to statistics from the Office for National Statistics (ONS) 13.4m people were working from home up to 16 January 2022 when the government lifted the work from home guidance.
The relief was introduced in 2003 to help home workers with gas, heating, internet, and other utility bills but this had to be proven by the employee in order to claim.
At the start of the pandemic when the work from home order was passed, the rules for the scheme were relaxed so that people no longer had to prove they worked from home regularly to claim. In addition, claimants were eligible for the full tax break meaning that working from home for just one day during the tax year was enough to claim the whole yearly sum.
The tax-free relief was also raised from £4 to £6 a week. Over a year, this adds up to £62.40 for basic rate payers and £124.80 for higher earners. It was due to finish in April 2021, but it was then extended for a further 12 months.
The increased uptake is most likely due to consumer experts raising awareness of the scheme, such as the founder of MoneySavingExpert Martin Lewis who has repeatedly encouraged the public to take advantage over the last two years.
In the last year, many MPs have come forward and criticised the relief stating that many people had actually saved money from working from home and that the Treasury needed to harness all the extra money it can.
On the tax relief, an HMRC spokesman said: ‘Tax relief for working from home is there to help people with the additional household costs of having to work from home. It has been a key form of government support for millions of workers during the pandemic.’
The Treasury has been contacted for comment.
Although the self assessment deadline is not until 31 January, there continues to be an increase of taxpayers choosing tax returns over turkey by using the festive period to submit their tax returns online
In fact, last year a huge 31,400 taxpayers submitted self assessment tax returns between 24-26 December; with 20,200 tax returns submitted on Christmas Eve, 2,700 submitted on Christmas Day and a further 8,500 filed on Boxing Day.
Roan Lavery, CEO and co-founder of FreeAgent, said: ‘Small business owners and self-employed people have been hit the hardest over the last 24 months with the impact of both Covid-19 and Brexit. There has also been a mental health impact on small business owners since the start of the pandemic with over half (51%) of small business owners polled saying they had experienced burnout since the start of the pandemic and over a third (35%) say they are working longer hours.’
Here we set out tips and advice on how to prepare your annual self assessment return.
Get online – if you are new to self assessment, register with HMRC and give yourself a few weeks to complete the process. HMRC revealed that more than 10.7 million customers completed a tax return by 31 January 2021, of those 96% were submitted online.
Gather your files – gather all your relevant information before you can file your tax return. Depending on your circumstances, this could include proof of self-employed income, a P60, P45 or a P11D. As a basic rule, you’ll need to show any money received or earned from pretty much anywhere – including wages from a job, income from a trust, and interest from your bank account (except an ISA). If you’re a limited company shareholder, you’ll also need to provide proof of any dividends received during the tax year. You don’t want to be gathering this paperwork at the last minute, so make sure this is all in order ahead of time.
Use resources online and get professional advice if you need to – make sure to consult HMRC’s website or get help from a professional accountant or tax adviser to make sure you understand all of the regulations in place specific to your business.
Make next year easy by keeping your accounts up to date – if you keep your accounts up to date all year, then this will help you to avoid having to rush to meet the deadline for filing your tax return. This way you can enjoy your festive break with nothing hanging over your head!
‘We all deserve a rest this holiday period, so make sure you get yourself prepared in order to enjoy turkey and not tax returns this Christmas Day,’ said Lavery.
In a welcome move for residential property owners, the Budget Red Book confirmed that the current 30-day capital gains tax (CGT) payment window will be extended to 60 days
From 27 October 2021 the deadline for residents to report and pay CGT after selling UK residential property will increase from 30 days after the completion date to 60 days.
For non-UK residents disposing of property in the UK, this deadline will also increase from 30 days to 60 days.
This will ensure that taxpayers have sufficient time to report and pay CGT, as recommended by the Office of Tax Simplification.
When mixed-use property is disposed of by UK residents, legislation will also clarify that the 60-day payment window will only apply to the residential element of the property gain.
Tim Walford-Fitzgerald, private client partner at accountancy firm HW Fisher said: ‘In the small print announced in the Budget, for those selling UK residential property the deadline to file a tax return will be extended from 30 days to 60 days from midnight tonight.
‘This is welcome news and it is positive to see that the Chancellor has recognised the reality of these transactions. To anyone selling a property and up against tight deadlines to receive registrations you can breathe easy.’
The launch of a social care levy from 2022 will see all taxpayers facing a 1.25% tax charge under government plans, while dividend tax will also rise
From next April the government will create a UK-wide, 1.25% health and social care levy on earned income, hypothecated in law to health and social care, with dividends rates increasing by the same amount. There will also be changes to the amount of savings people can retain when facing a move into care costs and a cap on total cost liability for anyone paying for care home accommodation and care.
The new tax is set to raise £12bn a year and marks a major departure from the Conservatives’ manifesto which committed to the triple lock on income tax, national insurance and VAT. An estimated £5.5bn of the levy will be allocated to social care, while the balance will be used for NHS funding to catch up with the backlog of operations after the pandemic.
Although it was originally floated as an increase in national insurance contributions (NICs), it will now be ringfenced purely for health and social care costs. The levy will be paid by businesses and individuals, including the self employed, from April 20222, and this will be extended in April 2023 to workers who continue to work after state pension age. Legislation will be passed to ensure that the charge is an independent tax, discrete from NICs and it will take a year for HMRC to update its systems to accommodate the levy as a separate charge, as opposed to a NICs’ increase on payslips.
This means that people earning £24,000, less than the average wage, would pay an additional £260 a year for the levy, which will be clearly indicated as the social levy on pay slips. Anyone earning less than £9,680 will not have to pay the levy.
A typical higher rate taxpayer earning £67,100 will contribute £715. Additional rate taxpayers make up just 2% of individuals affected but will contribute nearly 20% of the revenue raised from individuals.
The dividend tax, which will see the current rate of 7.5% rise to 8.75%, and is expected to raise an estimated £600m; this will be legislated in the next Finance Bill. The government said that additional and higher rate taxpayers are expected to contribute over 70% of the revenue from this increase in 2022-23.
In a speech in parliament, the prime minister Boris Johnson said: ‘We will fix the long-term problems of health and social care. From next April we will create a health and social care levy of 1.25% and the dividend rate will rise by the same amount with the levy going to social care across the whole of the UK.’
He added: ‘We need reform and change, we need to build back better. When Covid started, 30,000 beds in hospitals were used by people waiting for care home beds. Governments have ducked this problem for decades. There can be no more dither and delay, and we cannot rely on insurance as the premiums would be too high.’
Johnson said the plan to create a specific levy as opposed to raising income tax, for example, was to ensure that the charge was spread across individuals and businesses.
‘Our new levy will share the cost between individuals and businesses, and everyone will contribute according to their means, including those above state pension age, so those who earn more those who earn more will pay more,’ said Johnson.
‘Income tax is not paid by businesses so the whole burden would rest on individuals. The new levy will fall on businesses and individuals. And the highest earners will pay the majority.
‘And because we are also increasing dividends tax rates we will be asking better-off business owners and investors to make a fair contribution too.’
He stressed that the highest earning 14% will pay around half the revenues, no-one earning less than £9,568 will pay the levy, and the majority of small businesses will be exempt, with 40 per cent of all businesses paying nothing at all.
This will raise an estimated £12bn a year, with money from the levy going directly to health and social care across the whole of the UK.
Existing NICs reliefs to support employers will apply to the Levy. Companies employing apprentices under the age of 25, all people under the age of 21, veterans and employers in freeports will not pay the levy for these employees as long as their yearly gross earnings are less than £50,270, or £25,000 for new freeport employees.
James Ross, partner at law firm McDermott Will & Emery, said: ‘As far as individuals are concerned, the government has made some attempt to address the inequities of increased taxation on earned income by increasing the rate of tax on dividends (in order to reduce the benefits of routing income through service companies).
‘This, however, introduces asymmetries elsewhere in the tax system. The top rate of tax on dividends will increase to 39.35% – nearly twice the 20% top rate of tax on capital gain. Individuals who hold material shareholdings in trading or investment companies will have clear incentives to try and structure their returns as capital gains rather than dividend income.’
Care cost cap
There will also be wide-ranging changes to the costs paid by people facing residential care. The PM set out plans for a limit on what people can be expected to pay. From April 2023, no-one starting care will have to pay more than £86,000 towards their care.
Currently, anyone in England with assets over £23,250 must pay for their care in full.
The savings limit will also be increased to £20,000 from the current £14,000, which means that they will not have to make any contribution to care costs.
Meanwhile anyone with assets between £20,000 and £100,000 will be eligible for some means-tested support. This new upper capital limit of £100,000 is more than four times the current limit. However, if a person’s total assets are over £100,000, full fees must be paid.
The supporting document primarily sets out ongoing issues with NHS backlogs and plans to address this, but also gives brief details on how the new asset limits will work.
When these reforms are implemented, around 150,000 people will directly benefit at any one point in time.
A white paper on integrated health and social care will be released later this year setting out more detailed plans.
HMRC launched 278 civil investigations into suspected tax evasion during the first 10 months of the Covid-19 pandemic.
The 278 civil investigations, which were opened between 1 April 2020 and 31 January 2021, were otherwise known as Code of Practice 9 enquiries (COP9).
These are opened into the affairs of taxpayers who are suspected of committing serious tax fraud. This includes deliberately paying less tax than is due, overclaiming tax reliefs or misclaiming government grants.
Under a COP9 enquiry, HMRC has the right to seek recovery of tax, interest and penalties for as far back as 20 years. Despite these far-reaching investigatory powers, many will see this as a far preferable alternative to a criminal investigation.
Taxpayers will be required to provide details of the amount of tax they have evaded which saves HMRC from using its resources to investigate such matters. HMRC sees Cop9 enquiries as a much quicker and less costly process than having to enter criminal proceedings.
It is expected that HMRC may use the COP9 tool to encourage more suspected furlough fraudsters to come forward. ‘HMRC is throwing taxpayers a lifeline by issuing these COP9 enquiries. It’s an opportunity for those who know that there are serious misgivings within their tax affairs to bring this to light and avoid the possibility of a substantial prison sentence.
‘HMRC’s offer of a COP9 deal doesn’t last forever, so tax evaders who receive an offer shouldn’t ignore it. If they do spurn the approach from HMRC then they could find themselves facing a full-blown criminal prosecution.’
Dependent on the severity of the tax evasion that has been engaged in, the financial penalties imposed under the COP9 investigations can be up to 200% of the tax HRMC believes is owed.
If the individual chooses to fully cooperate with the investigation they will receive immunity from criminal prosecution. Taxpayers can also avoid the possibility of prison by requesting to make a disclosure and voluntary entering into a COP9 agreement with HMRC. This is known as a contractual disclosure facility (CDF). ‘Given the severity of the financial penalties under COP9 enquiries, including the possibility of being publicly named and shamed, they are most definitely not an amnesty nor an easy route out.
‘However, taxpayers who have deliberately misrepresented their affairs are likely to have a more favourable outcome if they fully cooperate with HMRC and own up to committing tax fraud.’
The UK government has confirmed that its plastic packaging tax (PPT) will come into force on 1 April 2022.
The PPT will be charged at a rate of £200 per metric ton of chargeable plastic packaging components of a single specification.
It will apply to plastic packaging components manufactured in or imported into the UK.
Plastics covered by the tax include bioplastics, including biodegradable, compostable and oxo-degradable plastics.
The tax will not be chargeable on plastic packaging which has 30% or more recycled plastic content, or where the packaging is made of multiple materials of which plastic is not proportionately the heaviest when measured by weight.
This includes importers of packaging which already contain goods, such as plastic bottles filled with drinks and where the imported packaging already contains other goods as the tax only applies to the plastic packaging itself.
The introduction of the plastic packaging tax is designed to encourage the use of recycled rather than new plastic within plastic packaging and will in turn stimulate increased levels of recycling and collection of plastic waste, diverting it away from landfill or incineration.
Internet link: GOV.UK
HMRC is sending out about 2.5 million annual renewal packs to claimants of tax credits over the next six weeks
It is important for taxpayers to check their details in the renewal pack and report any change in circumstances to HMRC.
The deadline for taxpayers to renew their tax credits is 31 July 2021. If the packs are not received by 4 June, claimants will have to contact HMRC.
HMRC recognises that many tax credit claimants will have been affected by the pandemic and may have earned less money than in previous years. It is important that they check the details contained in their annual renewal pack are correct, including income details.
Renewing online is quick and easy. Customers can log into gov.uk to check on the progress of their renewal, be reassured it is being processed and know when they will hear back from HMRC. Claimants can also use the HMRC app on their smartphone to:
• renew their tax credits;
• check their tax credits payments schedule; and
• find out how much they have earned for the year.
Tax credits help working families with targeted financial support, so it is important that people do not miss out on money they are entitled to.
If there is a change in circumstances that could affect their tax credits claims, these must be reported to HMRC. Circumstances that could affect tax credits payments include changes to:
• living arrangements;
• working hours; or
• income (increase or decrease).
Claimants do not need to report any temporary falls in their working hours as a result of coronavirus. They will be treated as if they are working their normal hours until the Coronavirus Job Retention Scheme closes.
Criminals can take advantage of tax credits renewals to text, email or phone taxpayers offering ‘rebates’ or threatening them with arrest if they do not pay bogus tax owed. Many scams mimic government messages to look authentic.
If someone contacts a taxpayer claiming to be from HMRC, asks for bank or other personal details, threatens arrest or demands that they transfer money, it might be a scam. Check GOV.UK for HMRC’s scams checklist.
A number of reports have indicated that the Chancellor wants to raise taxes in the upcoming Budget to deal with the mounting costs of Covid-19.
Among the suggestions rumoured is a rise in corporation tax from 19% to as high as 23%, which would raise almost £14bn a year for the Treasury, while only affecting those businesses who have received profits during the difficulties of the last year.
The Chancellor has disclosed that he thinks a corporation tax rate of up to 23% is reasonable given that the OECD’s average rate for developed nations is 23.5%.
The questions then for many businesses, who are still yet to recover from the impact of Covid-19, is whether a corporation tax rate rise is on the horizon?
We are still very much in the depths of the national lockdown, with many businesses having taken out additional borrowings under CBILS and the Bounce Back Loan Scheme.
Any increase in the corporation tax rate is going to be a difficult sell at present, especially when businesses are still reeling from the combined pressures of the pandemic and Brexit.
When announcing the Budget date last year, the Chancellor insisted that his speech would focus on measures to protect jobs and businesses. A sudden hike in corporation tax would seem to go against this pledge.
Of course, the counter argument is that such a tax would only affect profitable businesses. Unfortunately, such an argument misses the point that many companies will need time to recover from recent economic shocks and may be saddled with new debt, despite reporting a profit.
In fact, many economists have said that the actual impact of the current pandemic will not truly be felt until the country is in recovery and the current levels of government support are reduced or removed entirely.
Raising rates by up to 4%, as has been suggested, could entirely scupper the recovery of some businesses and for those with greater profits, it will reduce their ability to invest in new equipment, infrastructure and people, at a time when they are likely to need it the most.
Additional corporation tax bills will also reduce a company’s ability to pay dividends. For many businesses, this will reduce their ability to seek outside investment from shareholders, who may be less willing to invest their money into a business with a lower chance of returning dividend payments.
The Chancellor must also consider, that for many owner-managed businesses, government support for company directors has been scant.
Typically, owner-managers have extracted a low salary under PAYE and higher dividends, to ensure that their remuneration was tax efficient. Unfortunately, this meant that they were unable to take advantage of furlough payments in any meaningful way, and their personal income has been put under a lot of pressure.
The Chancellor has been under pressure from various groups of MPs, including the powerful cross-party Public Accounts Committee, to clarify how he intends to help the significant group of individuals who have effectively been excluded from government support to date.
Any increase in corporation tax is likely to be poorly received by SME businesses, who may have returned to profit but are in a pretty fragile state.
Following Brexit, the UK also has an opportunity to ensure that its economy, labour market and tax system, is attractive for external investment and job creation on the world stage.
Low corporate tax rates are one means of attracting inward investment, and a sudden increase in corporation tax is likely to do little to settle post-Brexit nerves among the international business community.
Whilst pandemic support measures undoubtedly need to be paid for, we are still some way from emerging from the economic shock caused by the pandemic. If a corporation tax increase is needed, many have speculated that it would be far better delayed until an economic recovery is well underway.
A rise in corporation tax is just one of a number of speculative measures that the Chancellor is believed to be considering at this time.
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In a new consultation HMRC has confirmed that Making Tax Digital for corporation tax (MTD for CT) will not be implemented until 2026 ‘at the earliest’.
The consultation considers how the principles created for MTD could be established for companies within the charge to CT. It outlines the potential design of the MTD for CT system and provides companies with information in regard to what may be required of them following the introduction of MTD for CT.
HMRC is seeking feedback on the plans from companies and agents.
Commenting on the consultation, Tina Riches, Chair of the joint Association of Taxation Technicians (ATT) and Chartered Institute of Taxation (CIOT) Digitalisation and Agent Services Committee, said:
‘We are disappointed that the consultation presupposes that most entities within the charge to CT should be within the scope of MTD before the costs and benefits arising to different parts of the population have been established.
‘If a key purpose of MTD is to encourage taxpayers to become digital then it is not necessary to extend it to CT, as a large proportion of companies are VAT registered and so already in MTD for VAT, or using digital records anyway.’
The consultation runs from 12 November 2020 to 5 March 2021.
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