In June 2020, the Government announced that it was making funding available to customs intermediaries and businesses to help increase their capacity to make customs declarations. Broadly, businesses need to prepare ahead of new procedures coming into play in 2021 following the end of the UK’s EU withdrawal transition period.
As well as injecting a substantial amount of cash to support businesses with recruitment, training and supplying IT equipment to handle customs declarations, the Government is also changing rules which will remove the financial liability from intermediaries operating on behalf of their clients, and will also allow parcel operators to continue declaring multiple consignments in a single customs declaration.
In August, to help accelerate further growth of the customs intermediary sector and help meet the increased demand it will see from traders at the end of the transition period, the Government confirmed that the next phase of the customs grant scheme is now open for application.
Who can apply?
To qualify for a grant a business must:
- have been established in the UK for at least 12 months before the submission of the application and when the grant is paid; and
- not have previously failed to meet its tax obligations.
In addition, the businesses must meet one of the following descriptions:
- complete or intend to complete customs declarations on behalf of clients;
- be an importer or exporter and complete or intend to complete declarations internally for their own good
- be an organisation which recruits, trains and places apprentices in businesses to undertake customs declarations.
The grant can cover salary costs for new or redeployed staff, up to a limit of £12,000 per person and £3,000 for recruitment costs for new employees. This will help them to recruit new staff and train them up ahead of July 2021, when all traders moving goods will have to make declarations.
In relation to training, the grant can provide businesses with up to 100% of the actual costs of externally-provided training for employees, up to a limit of £1,500 for each employee on the course. It will also cover the cost of internal training, up to a limit of £250 for each employee on the course.
The grant for IT covers expenses for increasing capacity or productivity for customs declarations, customs software, set-up costs, and related hardware.
There is a state aid restriction, which applies a cap on total grants received in the last three years at 200,000 euros (which is the maximum amount of state aid available).
The business will receive the funding for the cost of recruitment then 50% of the eligible salary costs once the grant offer is issued. The remaining 50% of salary costs will be paid when details of the new employee’s contract have been submitted along with a copy of their first pay slip.
Evidence of expenditure on IT improvements or training will need to be submitted within two months of receiving a grant offer letter. The grant will then be paid directly to the business within 30 days.
For tax purposes, the treatment of the grant will need to be matched to the expense and offset accordingly.
If the business has spent more on capital expenditure (like IT equipment) than is covered by the grant, capital allowances can be claimed on the amount not covered by the grant.
Eligible businesses should consider applying for a grant as soon as possible. Funding will be allocated on a first-come-first-serviced. Applications must be made by 3 June 2021, although the scheme, which is being administered by PricewaterhouseCoopers (PwC) on behalf of HMRC, will close earlier if all funding is allocated before that date.
Employees, can you claim tax relief for expenses of working from home?
The Covid-19 pandemic has meant that more employees worked from home than ever before. This trend looks set to continue following the Government’s latest advice to continue to work from home where you can do so. Further, many business plan to embrace flexible working beyond the end of the pandemic, allowing employees to work from home some or all of the time where their job allows this.
However, while working from home may save the cost of the commute, there are expenses associated with working from home. Is the employee able to claim tax relief where these are not met by the employer?
Additional household expenses
As a result of working from home, an employee will incur the cost of additional household expenses, such as additional electricity and gas costs, additional cleaning costs, and such like. During the Covid-19 pandemic, HMRC confirmed that employees are able to claim a deduction for additional household expenses attributable to working from home of £6 per week without supporting evidence. Where the actual additional costs are more than £6 per week, tax relief can be claimed for the full amount, as long as the employee can substantiate the claim. For example, this could be done by comparing bills prior to working from home with those during the working at home period.
Employees may have needed to buy office equipment, such as a computer and a printer, to enable them to work from home. Where these costs are not reimbursed by the employer, HMRC have confirmed that employee can claim a tax deduction for the actual expenditure incurred, as long as it was incurred ‘wholly, exclusively and necessarily’ in the performance of the duties of the employment.
To claim relief for other expenses employees will need to pass the general test that the expense was incurred ‘wholly, necessarily and exclusively’ in the performance of the duties of the employment. Care must be taken to distinguish between expenditure which puts the employee in the position to do their job as opposed to being incurred in the performance of it. Childcare, for example, would fall into the former category.
Relief is also denied for dual purpose expenditure, such as an office chair which enables the employee to be comfortable while working, as this fails the ‘exclusively’ part of the test.
Where the conditions for tax relief are met, a deduction can be claimed on form P87 (available on the Gov.uk website) or, where the employee completes a tax return, on the employment pages of the return.
The National Insurance employment allowance enables eligible employers to reduce the amount of employer’s National Insurance that they pay over to HMRC. The allowance, which is set at £4,000 for 2020/21, is available to most employers whose Class 1 National Insurance liability was less than £100,000 in 2019/20, with some notable exceptions, including companies where the sole employee is also a director.
The employment allowance must be claimed, but this can be done at any point in the tax year. There is no obligation to claim the allowance from the start of the tax year.
The allowance is set against employer’s Class 1 National Insurance until it is used up. It cannot be used against Class 1A or Class 1B liabilities, or to reduce the amount of National Insurance payable by employees.
Employment allowance and the CJRS
The Coronavirus Job Retention Scheme (CJRS) enabled employers to place employees on furlough and claim a grant from the Government to pay them furlough pay of 80% of their wages (capped at £2,500 per month) while on furlough.
Payments made to furloughed employees are liable for tax and Class 1 National Insurance as for usual payments of wages and salary. For pay periods up to an including 31 July 2020, employers were able to claim the associated employer’s National Insurance on grant payments, to the extent that it was not covered by the employment allowance.
This meant that if an employer had claimed the employment allowance from the start of the tax year, they would not be able to reclaim the associated National Insurance on grant payments until the employment allowance had been used up. By contrast, employers who delayed claiming the employment allowance could reclaim the employer’s National Insurance on grant payments from the Government under the CJRS and use the employment allowance against their secondary liability once the reclaim option came to an end. This was a beneficial strategy and one that HMRC have not raised objections to.
Remember to claim
If the employment allowance was not claimed at the start of the tax year to make the most of the CJRS, and has still not been claimed, eligible employers should now look to claim the allowance so that they can benefit from it.
The allowance must be claimed each year – claims do not roll forward automatically. HMRC guidance confirms that claims can be made ‘at any time in the tax year’.
Claims can be made via the payroll software.
If the claim is made late in the tax year and the full amount of the available employment allowance (set at the lower of £4,000 and your employer Class 1 National Insurance liability for the year) is not used, any unclaimed allowance at the end of the year to pay any tax (including VAT and corporation tax) or National Insurance that you owe. Where no tax is paid, the employer can ask HMRC for a refund. Employers can check their HMRC online account to see how much of their employment allowance for the year they have used.
Where the employment allowance has not been claimed for previous years, claims can be made retrospectively for the previous four tax years.
The annual investment allowance (AIA) was increased from its usual level of £200,000 to £1 million for the two-year period from 1 January 2019 to 31 December 2020. As this period draws to a close, it may be prudent to review planned capital expenditure, particularly where this has been put on hold due to the Covid-19 pandemic. The AIA will revert to £200,000 from 6 April 2021.
What is the AIA?
The AIA is a capital allowance which provides for 100% relief for qualifying expenditure up to the available AIA in the period in which the expenditure was incurred. However, the allowance does not have to be claimed – writing down allowances can be claimed instead for some or all of the expenditure. Once the AIA has been used, relief for any further expenditure is given in the form of writing down allowances.
Incur expenditure in 2020 rather than 2021
The AIA for an accounting period depends on when the period falls. If the period falls wholly within the two-year period from 1 January 2019 to 31 December 2021, the allowance is £1 million. This is proportionately reduced where the accounting period is less than 12 months.
So, where a company prepares accounts to 31 December each year, it will have an AIA of £1 million for the year to 31 December 2020 and an AIA of £200,000 for the year 31 December 2021.
Consequently, if the company is planning to incur qualifying capital expenditure of more than £200,000, it would be beneficial from a tax perspective to incur the expenditure in 2020 rather than 2021 to maximise the immediate relief against profits.
Periods spanning 31 December 2020
Where the accounting period spans 31 December 2020, transitional rules apply to work out the AIA for the period. This is found by applying the formula:
(x/12 x £1,000,000) + (y/12 x £200,000)
- x is the number of months in the accounting period prior to 1 January 2021; and
- y is the number of months in the accounting period after 31 December 2020.
Therefore, if a company prepares its accounts for the year to 31 March 2021, the AIA for that year is £800,000 ((9/12 x £1,000,000) + (3/12 x £200,000)).
However, the transitional rules have a sting in the tail – a cap applies to expenditure incurred in that part of the accounting period falling on or after 1 January 2021.
The cap is found by applying the formula:
y/12 x £200,000
- y is the number of months in the accounting period after 31 December 2020.
This means that where the accounting period is the year to 31 March 2021, the cap is £50,000 (3/12 x £200,000). The cap operates to limit the AIA for expenditure incurred in the period 1 January 2021 to 31 March 2021 to £50,000, even if the expenditure for the year is with the AIA of £800,000.
Thus, to prevent the cap biting and to obtain maximum benefit from the AIA for the year, the bulk of the expenditure should be incurred in 2020 rather than 2021. This can catch the unwary.
At the start of lockdown, the Government announced a number of measures to help businesses weather the pandemic. One of those measures was the option for VAT-registered businesses to defer VAT payments that fell due between 20 March 2020 and 30 June 2020. This window meant payment of VAT for the following quarters could be deferred:
- quarter to 29 February 2020 – due by 7 April 2020;
- quarter to 31 March 2020 – due by 7 May 2020; and
- quarter 30 April 2020 – due by 7 June 2020.
However, businesses opting to defer payments were still required to file their VAT returns on time.
VAT due after 30 June 2020
Normal service is resumed in respect of VAT which falls due after 30 June 2020. This must be paid in full and on time. Consequently, VAT for the quarter to 31 May 2020 must be paid by 7 July 2020, even if the trader has yet to pay their VAT for the quarter to 29 February 2020. This applies to successive VAT quarters too.
Set up canceled direct debits
Where VAT is normally paid by direct debit but the direct debit was canceled to enable the trader to take advantage of the deferral option, the direct debit needs to be set up again so that payments can be taken automatically. If this has not yet been done, payments will need to be triggered manually to ensure that VAT reaches HMRC on time until the direct debit is back up and running.
Paying VAT that has been deferred
Deferred VAT remains due – the measure simply provides a longer payment window; it does not cancel the liability. VAT that fell due in the period from 20 March 2020 to 30 June 2020 was originally due to be paid in full by 31 March 2021.
However, in delivering his Winter Economy Plan on 24 September 2020, the Chancellor, Rishi Sunak, announced that instead, he will allow businesses to spread the repayment of deferred VAT over 11 smaller repayments during 2020/21, with no interest to pay.
Struggling to pay?
Businesses in certain sectors, such as hospitality and leisure, are still not able to operate normally. Where, despite the longer repayment period, a business thinks that it may struggle to repay its deferred VAT, it should contact HMRC to set up a time to pay agreement, which can spread the repayments over a longer period. This should be done before the first payment becomes due.
The ACQ5 annual awards program recognizes organizations that have achieved beyond exceptional commercial success in their designated area of expertise. Since 2005, the ACQ has acknowledged organizations worldwide, celebrating their achievements, milestones and innovations through their annual award programs.
The award is only presented to professional sector organizations that have demonstrated quality and excellence in their respective fields, as well as those that have consistently made generous contributions to their local economic growth in the last 5 years.
Each year, ACQ5 seeks the help of world-renowned industry leaders, exemplary teams, influential professionals and esteemed organizations – all of which represent the pinnacle of best practices and achievements in their respective disciplines.
Guided by the results of the polls, individuals and organizations that have had the most influence and impact within their industry over the last 5 years are duly honored. And, before handpicking winners, ACQ5 studies the nominations made by voters very closely and acknowledges that all the organizations or individuals that were nominated are leading forces in their sectors.
At Not Just Bookkeeping, we happen to be among the few organizations recognized for their performance and quality services – an honor and privilege that we are proud to have. Earlier this year, we won the Best Practice Operator of the Year (Accounting Services) award at the ACQ5 Country Awards 2020.
Moreover, we’d also like to give a special thanks to all our supporters and particularly to our respective ACQ5 Members!