VAT: ‘Deal or No Deal’ – Brexit

These are uncertain times but if the UK leaves the European Union without a deal, we will no longer be able to enjoy the free movement of goods that membership of the Single Market allows.  The supply of services may also be affected.

These are the key things you need to be aware of should a ‘no deal’ Brexit occur with some helpful links through to the Government’s website:

Then there are various complex areas where additional action may be needed, these include:   

Goods

  • Low value consignment relief
  • Distance selling
  • Call off stock
  • Buying and selling a new means o
  • f transport
  • Movement of own goods
  • Export and import requirements
  • Use of customs warehouses
  • Entry Summary Declarations
  • Common Transit Convention

Services

  • Broadcasting, telecommunications & e-services (BTE) and the mini one stop shop (MOSS)
  • Use and enjoyment provisions
  • Travel services
  • Financial services and specified supplies
  • Restaurant and catering services provided on board transport
  • Business to consumer freight transport
  • Reverse charge services
  • Goods sent for processing and repair
  • Express courier services

Other considerations

  • EC Sales Lists
  • Intrastat
  • Fiscal representatives
  • Invoicing

 

If you would like any advice on any of the information above, please get in touch with our VAT manager Alison Brown, on 01254 679131 or email alison.brown@pmm.co.uk.

 

David Gorton reviews Chancellor’s 2019 Spring Statement announcement

Considering what happened last night, it came as no surprise that Philip Hammond avoided any major tax changes or spending announcements in today’s Spring Statement.

The advocate of a ‘soft Brexit’ certainly delivered a ‘soft Spring Statement’. That’s no criticism of him though as the dire uncertainty of Brexit has cast – and will continue to cast – a shadow over the economy for the foreseeable future. Only when we know for sure what’s going to happen in terms of a deal can he move forward with potential spending increases in public services, cutting taxes and reducing the deficit. In reality, his hands are tied and he is faced with the unknown; the only certainty seems to be that a no deal Brexit will prolong economic weakness.

He skirted around the complexities of the announcement this morning of customs rates in the event of No Deal – there are lots of losers and not many UK winners from these plans and there really isn’t time for anyone to prepare.

Moving on…It was interesting (but not exactly a surprise) that the Chancellor decided to skim over the Office for Budget Responsibility’s decision to mark down its growth forecast for 2019 from 1.6% to 1.2%. His approach was instead to focus on some of the UK economy’s strengths; most notably inflation being below the Bank of England’s 2% target. This has meant a 3.4% rise in real wages last year which, in turn, he claimed as evidence of a robust labour market. The employment rate stands at 75.8% but the OBR’s predictions are that this will continue to grow at only a modest rate over the next five years. In reality, no-one really knows and until Brexit is sorted that will continue to be the status-quo. His rhetoric around businesses needing to do more on productivity once again sounded vaguely familiar.

On a positive note, Mr Hammond was able to shout about the improved forecasts by the OBR for the public finances – thanks mainly to strong income tax receipts, its prediction for the government’s future debt interest payments and recent consumer spending. However, it’s a pity business investment wasn’t in that mix.

The biggest immediate tax change for business is the implementation of Making Tax Digital for VAT on 1 April.  The real cost for most businesses in complying with the MTD requirements is proving to be considerably in excess of the optimistic figures bandied around by Government when it was first announced.  There are also still a significant number of businesses who have not yet got their MTD arrangements in place.

My key takeaway and observation from the Spring Statement can be summed up in one sentence: The UK faces yet more uncertainty and the government’s priority needs to be on negotiating an exit deal that works for its people, businesses and the economy.

The impact of Brexit on statutory audits

Many people have been apologising for mentioning the ‘B’ word recently. I’m apologising for not apologising.

On the topic of Brexit, there are some important considerations for PM+M as auditors that you should be aware of as well as, critically, information you should know about as a business owner.

One of PM+M’s values is Quality and we pride ourselves on providing a high quality audit every time. Therefore, we want to let you know about how these factors might impact your company/group’s audit.

We need to understand your business

We are required, in line with our professional auditing rules, to understand your business. This will therefore include the potential impact on your business and your accounts of any potential Brexit-related risk factors. These might be economic, regulatory or industry specific. For example, considering existing supply chains, lead times on stock deliveries and possible additional duties.

Going concern status

As a director, you are required to review the going concern status of your business by considering forecast financial performance and the ability of your business to meet its liabilities for the foreseeable future. Depending on the industry in which you operate, there may be significant factors arising from Brexit which could impact your financial results and stability of your business, and you should ensure you consider these.

As your auditors, we will review these considerations and it may be appropriate to include additional wording in your directors’ report, strategic report and/or accounting policies to explain the considerations and assumptions made. Equally, as well as potential risks that your business may need to face, there may be significant opportunities. Where your accounts are required to include a strategic report, this should be a balanced view of what is going on in your business, how risks are being managed and how opportunities are being sought.

More thinking required

Additional work may be required around certain accounting areas, including:

  • the impairment of assets
  • whether long-term contracts will remain profitable
  • requirement for restructuring provisions.

Impact on group audits and exemptions

Since 2012, an exemption from statutory audit has been available for qualifying UK businesses whereby its parent company provides a guarantee of the liabilities of the subsidiary company, under the law of an EEA state.

Post Brexit, subject to change in UK law in the Companies Act, this will only be available to subsidiaries of UK parent companies. The impact of this will be that numerous UK companies will now be required to complete a statutory audit in the UK.

In summary, there remains significant uncertainty as to how Brexit will impact our businesses, PM+M included. Being resilient and open to discussion around risks and opportunities will be critical to continuing to run a successful business.

If you have any queries around how Brexit might impact your financial reporting, forecasting or the financial management of your business, please contact Helen Clayton on 0161 641 8684 or email helen.clayton@pmm.co.uk.

Being true to yourself – Helen Clayton’s thoughts on International Women’s Day

As it is International Women’s Day, I thought I should follow up on an article I wrote a couple of years ago. That article was about finding balance in my life as a working mum and recognising that my balance isn’t the same balance that another working mum might have found or indeed be looking for.

We’re all different and that’s exactly what makes life fun, allows us all to achieve and be successful in whatever way we choose.

Since writing that article, that balance that I talked about has been tipped here and there.  Everyday life, the stuff you can’t plan for – it all arrives and needs dealing with, which is fine.  Life cannot be perfect.

In that time however, what I have come to realise that being true to yourself is critical.  I write this still as a working mum, as someone that has renovated their whole house over the course of the last nine months and as someone who is now a very proud part owner of my business. As much as today is about celebrating women across the globe, I absolutely recognise that being true to yourself isn’t about being a female – it applies to us all.

What does being true to me mean though?

To put on what some might call my ‘selfish hat’ (I prefer a self-love hat), I make time for me.  I need time out, I need time to do my ‘stuff’.  I find this provides far more mental and physical stability than anything else.  Really, it’s just looking after myself far better than I ever did.  Building resilience in myself, as well as helping those around me to do the same, moves us towards being more robust individuals. We should all treat the past as learning experiences, nothing more.

Time

Time is a funny thing.  The saying that time ‘flies by’ seems to become more prevalent the older we get.  Yet it doesn’t at all! It moves at the same rate that it always has and always will.  I’m currently learning how to use my time more effectively for this to make my life more enjoyable and, increasingly, to create more memories.

Purpose

I’ve also worked out what my sense of purpose is.  As business owners, the word ‘purpose’ is cropping up more and more.  What is the purpose of PM+M?  We thrive by helping our clients succeed.

I also have a personal purpose – my reason for being is to leave this life with a huge sense of pride and with a fantastic legacy across everything I get chance to influence and be a part of. I don’t like to put in half an effort – what’s the point? Creating the memories is a huge part of this purpose.

To conclude, I believe that personal development in the world we live in is vital.  Self-reflection, listening and adapting are great to have in your tool belt – man or woman.

Legal insight: Is your firm due a spring clean?

PM+M partner Helen Clayton takes a look at how the legal sector can look towards the future to ensure more productivity.

Springtime is a period of growth – new shoots, bulbs showing off their colour and beauty, baby lambs finding their feet.

What does this period look like in a law firm though? Is there appetite for new life and a spring clean or are will it be a case of “let’s do things like we did last year plus a bit more effort here and there (maybe)”?

The financial picture and the out turn for the remainder of the financial year will hopefully have more certainty and firms will be looking to set next year’s budgets. Discussions around recruitment and overheads might be taking place alongside more strategic discussions. Questions may be being raised such as:

  • where is this firm heading?
  • who and where is our target market?
  • who and where is our succession?
  • are we structured appropriately for the future?
  • should we venture into new services?
  • do we want to grow or do we want to refocus our efforts?
  • what does Brexit mean to us and our clients?

A snapshot of the legal industry

Despite several firms closing their doors in recent years, a perhaps surprising number of new firms are being opened. Last year, there were still almost 10,500 firms in England and Wales, and as a result the industry continues to witness fierce competition.

A significant number of these law firms are sole practitioners. To get in to the heady heights of the top 200 firms, a turnover of more than £10 million is required.

The generational gaps are widening; no longer is partnership or ownership seen as the end goal. Priorities have changed with lives outside of work having more focus for many.

And of course, regulation continues to increase for legal practices, placing a stronger and more intense focus on compliance than ever before.

So how does a law firm survive and thrive with all this being thrown at them?

Being prepared for change and being adaptable must be a high priority for firms to survive.

Opportunities should be grabbed with both hands to get ahead of competitors. To take advantage of opportunities at the right time means that firms should have the following:

  • robust financial management and working capital
  • a strong and open relationship with funders, with regular dialogue
  • systems that provide certainty around quality, minimising risk and being able to support an upturn in workload
  • support teams providing administrative tasks that, again, can cope with an upturn in workload as well as teams in IT, HR and marketing that are up to speed and understand the direction of the firm
  • an understanding of the marketplace and the client base
  • a strong culture
  • a purpose

If a leadership team is not looking at all of these aspects on a regular basis, I don’t perceive the firm can be fit for purpose for the long term. It certainly won’t look attractive to potential succession from outside of the firm, lenders will be nervous about the lack of leadership and mixed messages will be being received internally.

The leadership should be challenging themselves to be accountable. Tone from the top is critical and that tone has to be consistent.

A spring in the leadership’s step (in the right direction) can never be a bad thing.

HMRC move the goal post with partner expenses

HMRC have made a significant change to their guidance manuals recently regarding partner and members of LLPs expenses.

It had been a long standing principle, with HMRC approval, that business expenses incurred by partners (separate from the partnership itself) are tax deductible in arriving at the partners taxable profit share. For example,  partners incurring home office expenses; this would typically not be borne by the partnership but the partner incurring the cost would be capable of claiming a tax deduction. The deduction was claimed via the partnership tax return, it did not matter that the expense had not gone through the partnership accounts.

This meant that as long as the expense was “wholly and exclusively”  incurred for the purposes of the partnership business, a tax deduction was available regardless of whether it was the partner or the partnership that had incurred the expense. This was a practical way of dealing with partner expenses.

The Office of Tax Simplification, in the past, had suggested to improve the ability for partners to claim business expenses which they had incurred personally, that they should be able to make the claim on their own personal tax  return and not the partnership return. This would have been a welcome change for partners but has not been introduced.

HMRC have now updated their guidance note at  BIM82080  and have made the job of claiming partner expenses more difficult. The new guidance states   “To be allowable as a deduction for tax purposes, the expense has to be an expense incurred (typically, paid) by the partnership. If the partnership does not bring the expense into the accounts, then it is not an allowable deduction.”

If this new guidance goes unchallenged, it will require partnerships and LLPs to bring into account partner expenses into their accounts. This will require deducting the partners expenses in the partnership accounts and making an equal and opposite adjustment to the partner’s profit share to achieve the same net tax position as in previous years. Whilst the main impact of these changes is administrative, this will  clearly have a time and  cost impact for businesses. For example, a change in profit share to accommodate the tax relief for partner expenses, could require an update to the partnership agreement!

If you are likely to be impacted by these changes, please contact Jonathan Cunningham (Jonathan.cunningham@pmm.co.uk) or Helen Clayton (Helen.Clayton@pmm.co.uk).

Jill Morris, director of PM+M’s Run My Business division, cuts through the confusion of Making Tax Digital for VAT.

What is Making Tax Digital?

Making Tax Digital (‘MTD’) is an attempt to do exactly what its name suggests. Businesses will have to keep electronic records of their accounts (using HMRC MTD approved software) and file their tax information digitally.HMRC claims it wants to make tax administration more effective, more efficient and simpler.  In practice, it means that business and taxpayers will need to start using accounting software to digitally submit the returns instead of completing their VAT returns by typing numbers into the existing online HMRC portal.

When does MTD for VAT come into force?

Officially on 1st April. There is a stagger depending on the business quarter end date. This is when affected businesses will no longer be able to keep manual records. After that date, digital records must be maintained in software or spreadsheets which can connect to HMRC via an Application Programming Interface (API).

Who will be affected?

All VAT-registered businesses and organisations with a taxable turnover above the VAT threshold of £85,000 per annum.

Are there any exemptions?

In the main, no. HMRC’s online VAT return will remain available only to businesses and organisations that are not within the scope of MTD for VAT. So, just those which complete a VAT return but have taxable turnover below £85,000.00 per year. However, the only exception to this is a small minority of VAT-registered businesses and organisations with more complex requirements. These include trusts, ‘not for profit’ organisations that are not set up as a company, VAT groups, VAT divisions, traders who are based overseas, annual accounting scheme users and any organisation that makes payments on account. Those which fall into any of these categories have a six month deferral until October 2019.

What do businesses need to do to be ready for MTD for VAT?

Firstly, take time to understand the facts and what MTD actually means for you. It’s a huge change and one that can’t be avoided. On a more practical level, speak to your accountant or carefully research the types of compatible software products that use HMRC’s API platform. There are a lot on the market – some better than others.  It will also take time to learn how to use so don’t leave it until the last minute.

What are the implications of not being compliant?

If your business is affected by MTD for VAT and you don’t use compatible software then you simply won’t be able to submit your returns and pay what is owed. If that happens, HMRC will consider your business to have defaulted on its VAT bill. When a   business fails to pay its VAT, it enters into a 12-month period called a ‘surcharge period’. During which time, it will be charged an additional fee on top of its VAT bill based on its annual turnover and past default history. If it still fails to pay VAT, its account will go into arrears and HMRC will take steps to recoup the monies – often through the courts.

PM+M can offer a wide range of services and support to help you become MTD compliant (including reviewing your current VAT procedures, guiding you towards a suitable solution, assisting with quarterly submissions to HMRC and even providing training for your team). Get in touch with our specialist MTD team to find out more by emailing MTD@pmm.co.uk or by calling 01254 679131.

RBS Business Banking Switch – are you affected?

If you are a Royal Bank of Scotland customer, and your business has an annual turnover of less than £25 million, then you may be eligible for incentives to switch your banking to another provider.

Overview

For many years the provision of business current accounts and credit for SMEs has been dominated in the UK by the incumbent ‘big four’ banks (HSBC, Lloyds, Barclays and RBS) who together hold around 85% market share.

As a condition of the government providing financial support to Royal Bank of Scotland (RBS) in 2008, the state-owned bank is now preparing to hand over £6 billion in customer deposits and £4.2 billion in loans to challenger banks, known as the ‘business banking switch scheme’.

The government hopes this will increase competition within the banking sector and provide customers with far greater choice.

However, many business owners are still in the dark about the scheme, here we explain what the new incentive means for SMEs.

What is the business banking switch?

This is an incentivised switching scheme for challenger banks to pick up some of the RBS customer base.

Originally known as the ‘incentivised switching scheme’, it is now better known as at the ‘business banking switch’. Banking Competition Remedies Ltd (BCR) is the organisation tasked with overseeing the implementation of the scheme, independent of RBS and the UK Government.

There is £225 million worth of funding available to challenger banks in the form of dowries to encourage the switch of eligible customers.

The dowries range in size from £750 – £50,000 depending on the customer’s business turnover. Challenger banks will determine how to apply the dowries for the benefit of the eligible RBS customers through preferential offers and incentives.

Eligibility

The scheme is open to eligible RBS SME banking customers. All eligible customers should have already been contacted by RBS. To participate, your turnover must be £25 million or less, and you may not be allowed to apply if your business is in financial difficulty. Those seeking to participate in the scheme will need to be registered on the RBS microsite and will be provided with a unique reference to confirm eligibility.

Who are the challenger banks?

Eleven banks have been approved to join the scheme, including:

  • Arbuthnot Latham
  • CYBG
  • Co-Operative Bank
  • Hampden & Co
  • Metro Bank
  • Monzo
  • Nationwide Building Society
  • Santander
  • Starling Bank
  • Handelsbanken
  • TSB

When is it happening?

BCR has confirmed that the business banking switch will launch via a dedicated switching website on 25 February 2019, but applicants can register their interest now via the RBS microsite.

Should you switch?

As with any big business decision, it’s always better to seek professional advice. Although some of the offers may seem too good to miss, it’s important to consider what your bank can offer you in the long-term.

If you are an eligible RBS customer and would like to talk about the business banking switch, please contact Tim Mills on 01254 679131, or via email at tim.mills@pmm.co.uk.

Employers must change the way they administer payslips to their workforce

From 6 April 2019, new legislation will alter how UK employers provide payslips to their workforce.

Under this new regulation, employers will have to deliver itemised payslips to all workers on their payroll, not just those classified as ‘employees’. Current legislation does not require payslips to be issued to contractors, freelancers, and other types of ‘non-employee’ workers, but this situation will change in April of this year, with obvious implications for payroll departments.

Greater transparency

The new legislation aims to ensure more workers are paid fairly and accurately in industries across the UK. Similarly, those workers will be able to react faster when they are paid incorrectly and become more aware of their rights.

Variable-time employees

Under current provisions, payslips should include details of:

  • The employee’s gross salary/wages
  • Deductions (e.g. tax and NI)
  • Net salary/wage amount received

Under the new legislation, payslips must also include information about the number of paid hours an employee has worked, but only in situations where “the amount of wages or salary varies by reference to time worked”. In these variable contexts, payslips should show hours worked either as:

  • A single, combined amount; or
  • An itemised list of hours worked for different rates of pay

Including this information on payslips means that variable-time employees will not only find it easier to reconcile their pay with their hours worked but will also be able to establish whether they are being paid the national minimum wage by their employers.

Adjusting your payroll

With the April deadline fast approaching, employers should act now to adjust their payroll setups to facilitate the provision of payslips to all workers. As an employer, this means reviewing the infrastructure of your payroll system and ensuring:

  • There is integration between other parts of your organisation (such as HR)
  • That the payroll is not only adjusted, but also able to collect the information required by the new regulations and the payslip format is able to present it
  • Payslips are provided to employees in printed, written or electronic format, delivered on or before the employee’s payday

How we can help

At PM+M, our payroll team will make sure your employees are being paid for the time they work, and your payroll and payslip process is meeting the new requirements, so that you avoid fines and maintain best practice for your employees.

For more information about our payroll services, please contact Julie Mason on 01254 679131 or via email at julie.mason@pmm.co.uk.

Introducing Jon Connor: Our new R&D tax specialist

Research and Development (R&D) tax incentives have been around now for quite some time, but are you making the most of them? According to our newly appointed R&D Tax Credits Manager, Jon Connor, these benefits could give you “a competitive edge”.

Uncovering innovation from within a business can often be complex. It may be buried within different areas of your organisation or even outsourced. Whether you’re a recruitment agency designing a new app or a manufacturer developing new production techniques, innovation can come in all shapes and sizes, and is very rarely bound by industry.

However, around nine out of ten eligible SMEs fail to claim for R&D tax relief, indicating that the hidden value of innovation is not known.

“Companies are missing out on valuable R&D tax credits to the tune of thousands of pounds,” says Jon. “Generally speaking, I find it’s the businesses you typically wouldn’t associate with R&D that are overlooking relief.”

“The very term “R&D” often deters many firms from applying,” Jon explains. “Innovation doesn’t always take place in laboratories with scientists in white coats. On numerous occasions I’ve had business owners tell me “we don’t really do R&D”, often perceiving the scope of qualifying activities to be much narrower.”

If you are developing new products, processes or services there is a strong chance that you are eligible for R&D tax relief. The relief allows a company to deduct an extra 130% of qualifying costs from its yearly profit (as well as the normal 100% deduction) to create a total 230% deduction. Qualifying expenditure can include costs spent on employees, software, transformed / consumed materials and subcontractors.

Here at PM+M have helped clients all over the UK recoup over £3m in R&D tax credits in total. In turn, this has enabled business-owners to reinvest in innovation, future-proof their companies and, most importantly, invest in growth initiatives.

Jon says: “If you’re unsure as whether you could qualify for tax relief, it is absolutely worth having a ten-minute phone call with us. The potential outcomes of making a claim could revolutionise your business and help you achieve your financial goals.”

We can help you to identify eligible R&D projects (historic, current and future), highlight expenditure incurred on qualifying activities, optimise the amount of relief available, draft supporting documentation to HMRC and offer support in defending your claim in the event of HMRC raising queries.

Please do not hesitate to get in touch with Jon to discuss your situation and understand whether or not you may be eligible.