Member Blog

Wednesday, 08 April 2020

Government guidance was updated on 4 March to confirm that if you’re the director of your own company, you may benefit from the JRS in relation to salary, which is paid to you through PAYE. It remains however, that many such directors will often pay themselves comparatively little, preferring instead to withdraw profits via dividends, which can restrict its value for many. 

That aside, one other concern had been the requirement, as for any employee, that a director should, in consequence of being furloughed, no longer perform any duties for the company. How then, would this fit with the ongoing duties that a director owes to their company under the Companies Act and otherwise? 

HMRC have resolved this by stating, where directors still need to carry out particular duties to fulfil their statutory obligations, they can do so provided that they do no more than is deemed reasonably necessary for those purposes and they are no longer carrying out what is essentially their day job i.e., generating commercial revenue and undertaking services to or on behalf of the company. 

In order then to furlough a director, it will be necessary for the company (acting through its board of directors), and where it’s in compliance with the statutory duties of one or more of its salaried directors, to formally adopt this as a decision by the company, note it in the company records and communicate it in writing to the director(s) concerned. 

We consider that this decision should further make clear that the director is being furloughed in respect of their ongoing role as a director (rather than making reference to a separate employment, which may have further employment law implications), subject only to their being required to fulfil such statutory obligations as they owe to the company in the interim. 

Finally, recognising that some company directors may be paid only once a year in satisfaction of their annual salary, it would appear that such an amount as was paid to them in the 2019/20 tax year will form the basis for calculating their average monthly earnings, on which any Job Retention Scheme reimbursement may now be based. In that event, it will be necessary for them to make sure that they are at least paid an equal monthly amount against which a claim for reimbursement can be made. 

The above reflects our opinion based on information currently available and it should be recognised that HMRC have stated their right to retrospectively audit all aspects of a claim. As guidance continues to evolve, we further recommend checking for any updates when implementing any arrangements. 

For more information please get in touch with your usual MHA Larking Gowen contact or call 0330 024 0888 or email enquiry@larking-gowen.co.uk. 

You can find contact details on the Our People section of the MHA Larking Gowen website. 

John Weston 

The UK gambling industry is worth £14.4 billion per year. As more igaming companies seek to establish themselves in the market, the Gambling Commission has recently introduced a series of new rules and regulations that are designed to protect the players. In this article, we will look at some of the recent regulations and the future of the UK online gambling industry.

Stricter rules and regulations

The UK Gambling Commission (UKGC) is the authority that is responsible for the regulation of gambling in Great Britain. Established in 2005, the commission introduces new regulations and grants gambling licenses to companies that seek to offer their online gambling services in the UK. To receive and retain a license, betting companies need to follow the commission’s high standards and requirements. Failure to uphold these rules could result in significant fines or losing the license.

In the last few years, the UKGC has introduced several regulations to create a safer gambling environment for players. In 2019, the commission implemented stricter age verification. This means that online casinos are now required to verify their players before they are allowed to deposit and play, even in free mode. Furthermore, a credit card ban was introduced earlier this year. It is estimated that more than 800,000 players use their credit cards to deposit and gamble, and this ban will protect players who are at risk of developing gambling problems.

Future of the industry

There is no doubt that the UK Gambling Commission will put forward other regulations in the coming years. Some believe it will introduce a maximum betting limit on online casino games, such as the £2 limit that is currently in place on FOBTs. The commission has already put a ban on “feature buys”, which are slot machines where players can stake extra money to buy a bonus feature. However, a maximum betting limit has not yet been announced.

There are hundreds of licensed online casinos in the UK. And while the majority of them have no difficulty in implementing the UKGC’s new regulations, several companies are opting to withdraw from the UK market entirely. Several operators have received hefty fines for not following the Gambling Commission’s general rules in the past, and some companies may not be willing to take the risk that comes with operating a casino in the UK market. Furthermore, fewer companies may attempt to establish themselves in the market going forward. However, despite new regulations and stricter rules, the well-established igaming companies will still have good results in the coming years.

When the Government recently introduced the Coronavirus Business Interruption Loan Scheme (or CBILS) offering to guarantee 80% of loans made by banks, we hoped that this would make a real difference for desperate businesses looking to survive through this crisis. Although not a perfect solution, after all these loans will need to be repaid, they offer zero fees and the Government pays the first 12 months of interest, so they looked like a much-needed financial lifeline.

In practice, businesses have struggled to secure loans from CBILS, with only £90 million lent so far. The Treasury has reported that, out of 130,000 applications, only 1,000 have been granted. Certainly, the experience shared by my MHA Corporate Finance peers, in a conference call late last week, mirrored this frustration across the UK. In fairness to the banks, their credit teams are no doubt inundated with applications and their people are suffering from the effects of COVID-19 just like the rest of us. Nothing is easy in these unprecedented times.

The Government has stepped in and introduced some welcome changes  to help drive up the scheme usage.

The key changes:

• Previously businesses needed to have been turned down for commercial lending before they would qualify for CBILS. This led to some opportunistic lenders offering ‘commercial’ loans with extortionate fees and interest charges. So, this requirement has now been withdrawn
• For CBILS loans of up to £250,000 banks will now be prevented from asking business owners to provide any personal security. For loans of more than £250,000 banks may ask for personal guarantees, but it must exclude their home and must be limited to 20% of the balance after business assets have been used as security
• Previously the scheme was only available for businesses with turnover of up to £45 million. This has been extended now, and businesses with turnover of £45 million to £500 million are able to borrow up to £25 million. Further details of this scheme are expected to be released shortly

We hope that these refinements will make a meaningful impact on the usage of CBILS, but note that the banks, quite understandably, will still want to see all the information they ordinarily need to assess a loan application. The extent of this will depend on the size of the loan but, according to the British Business Bank, these requirements are likely to include:

• Management accounts
• Cashflow forecasts
• Business plan
• Historic accounts
• Details of assets

As part of the CBILS application process, the banks will need to establish the viability of each business by reviewing two key areas:

1. Was the business viable before COVID-19? This is a review of historic accounts and management information
2. Will the business survive in the short to medium term with the CBILS funding in place? This will involve cashflow forecasting multiple scenarios, along with supporting written assumptions, and possibly a business plan to back it up

If you need any help with any of the above, particularly the preparation of cash flows and accounting information, please don’t hesitate to get in touch with your usual MHA Larking-Gowen contact or send an email to enquiry@larking-gowen.co.uk.

You can find contact details are on the Our People section of our website.

James Lay

My experience of working with business owners and directors over the years (in good times as well as bad) has proved that a calm, well-structured approach to cash flow management has always provided the best chance of a successful outcome.

The process will help identify urgent short-term measures as well as enabling planning for the medium to long term security of the business. I see cash flow management as a tool to help you control your responses to current circumstances and an opportunity to review your business in detail to create strategies for the future. Different people will have different personal and business objectives and it’s vital that yours are taken into account in developing your response to the current situation.

Here are some straightforward things you should be looking at if you wish to continue to trade.

Have a plan and monitor progress

Create/update cash flow projections; these will be a critical tool

You may wish to prepare cash flows under different “what if” scenarios to help you plan

Many businesses will need to convert traditional monthly projections to a weekly or even daily basis

Focus on the cash-to-cash conversion cycle and reduction of working capital requirements

Ensure your financial records and reports are kept up to date so that you monitor profitability, overheads, stock levels, and debtors and creditors balances on a timely basis

Generate cash

• Government help: Take advantage of the business support offered by the Government. We’ve produced a summary of the current business support available here
• Trading opportunities: Can you adapt your business model to serve existing or new customers in a different way? We’ve seen some wide thinking initiatives by some of our clients. Consider alternative ways to generate an income stream
• Debtor management/customer relations
• Reduce stock
• Minimise work in progress
• Sell surplus fixed assets
• ‘Sale and lease back’ fixed assets
• Sell investments not held for trading purposes
• Obtain tax refunds/incentives
• Insurance claims

Coming soon

• Look out for our next blog which will cover:
• Saving cash
• Finance options
• Alternatives to trading

Need help?

There are so many things to consider under each of the headings above. In my experience, many clients have found it useful to work through each area with us, receiving the benefit of an ‘outside view’ to stimulate thinking, helping them to develop and implement practical strategies.

We’d be happy to help you in the same way. Please get in touch with me or your usual MHA Larking Gowen contact at enquiry@larking-gowen.co.uk.

You can find contact details on the Our People section of our website.

Lockdown means more time spent in our homes and our gardens, but whatever size garden (or windowbox) you have you can get involved (a great project to do with the children too)!

The Bee Saviour Behaviour card is one of the more original printing projects that we have been involved in. The team behind the project had the noble idea of encouraging people to carry a little card containing sugar syrup to revive exhausted bees. The idea proved popular and a crowdfunding campaign enabled the team to upscale their initial design and increase their production of the insect-reviving cards. 

How It Works

In their industrious search for nectar, bees can fly many miles from their hive. Sometimes a bee will run out of energy and land exhausted on the ground. A small drink of sweet nectar will soon have the bee back in the air, but if there are no flowers around then the exhausted bee may not be able to work up the energy to get back to the hive. 

An insect-loving good Samaritan can give a bee a dose of sugar syrup to set the insect up for the next stage of her journey. Fine if you are at home and the solution can be prepared in a teaspoon, but what if you see a distressed bee when you are out and about? This is where the Bee Saviour Behaviour card comes in. A section of the card can be peeled back to reveal the sugar syrup. Once the bee has been revived and buzzed off, the card can be resealed and popped back in a wallet or handbag.

Printing Expertise

We were contacted to provide the printing services for the latest iteration of the Bee Saviour card. We printed the backing card and two self-adhesive panels which reveal and reseal the card, one of which was foil backed.

Most importantly, we worked alongside the team at Saviour Bees advising on the simplification of the concept and working out a way of embossing the plastic card in the hexagon style. We also recommended a supplier who could produce these, the whole project was very collaborative.

We enjoyed being involved in this unusual project where our printing expertise was used to solve problems and produce an attractive functional item that is now in use internationally. People are sharing their pictures and videos of revived bees on social media under the hashtag #SaviourBees.

Thursday, 02 April 2020

Last week, Rishi Sunak announced that self-employed people in the UK will be able to claim support worth 80% of their average monthly profits, in an “unprecedented” move to cover the impact of Covid-19.

The bailout is broadly the same as that offered to employed workers and led to the Chancellor saying:

“It is now much harder to justify the inconsistent contributions between people of different employment statuses.

“If we all want to benefit equally from state support, we must all pay in equally in future.”

So, what does this mean?

In the press conference that followed, Mr Sunak was quick to deny any imminent changes, although his comment heavily suggests that a tax hike is coming for self-employed individuals. My own inclination would be that national insurance contributions (NIC) will be the focal point.

Here is an example to illustrate why NIC might be targeted.

In 2018/19, a self-employed individual with profits of £50,000 would have paid class 4 national insurance of £3,486. They would also be subject to class 2 national insurance of £153. This gives a total amount collected by the Government of £3,639.

An employee on a salary of £50,000 would have paid class 1 national insurance of £4,628. The employer would also have paid class 1 national insurance of £5,737. This gives a total amount collected by the Government of £10,365.

Mr Sunak refused to go into any more detail, and said,

“It’s just an observation that there’s currently an inconsistency in contributions between self-employed and employed.”

Given the sheer cost of the bailout measures introduced in this last week alone, you would expect the Government to be looking to recoup this expense from somewhere.  

As the Government is trying to reduce borrowing, then attempting to collect more tax seems a plausible way to cover these additional costs.

The previous Chancellor did attempt to increase Class 4 NICs, the main rate paid by self-employed people, to narrow the gap with contributions paid by employees. He quickly did a U-turn on this after facing severe backlash.

Will Mr Sunak attempt the same thing? – It certainly looks that way and, as always, we’ll keep you up to date as and when announcements are made.

Need help?

If you have any questions about national insurance or any other of the Chancellor’s announcements, please don’t hesitate to speak to your usual MHA Larking Gowen contact or email us at enquiry@larking-gowen.co.uk

You can find contact details on the Our People page of our website. 

Jordan Brown

Monday, 30 March 2020

Government guidance suggests that if you’re the director of your own company you may benefit from the Job Retention Scheme (JRS) in relation to salary which is paid to you through PAYE. However, many such directors will often pay themselves comparatively little, preferring instead to withdraw profits via dividends, which restricts its value.

Nevertheless, in focusing on the salary element of a director’s income, and the ability to claim under the JRS, there are other questions as to entitlement. This is primarily because it’s a condition of the Job Retention Scheme that a director, like any other employee, is ‘furloughed’ such that they no longer perform any duties for the company.

This appears problematic, given the ongoing duties that a director owes to the company under the Companies Act and otherwise. They may, in that role, find that they have to continue undertaking some tasks, even if only administrative.

However, in our view, this should not preclude a JRS claim, to the extent that the salary relates to a genuinely separate employment role. If it does, it may be worth considering furloughing that role and documenting it as such in accordance with guidance. We would, however, counsel that you should also take employment law advice in relation to a director’s written or implied service agreement given the wider implications of its existence, including entitlements to national minimum wage and pensions auto enrolment, and that this could have longer term impact beyond the period of any furlough.

Can you furlough a director for the purposes of the JRS otherwise than when a formal service agreement exists?

HMRC guidance to date doesn’t make the differentiation we have made, therefore it remains to be seen. If a claim is contemplated, it would still be wise to document an agreement between the director and the company for which the director has ceased to perform any duties, and to document that they have been furloughed.

To the extent that the company has more than one director, it’s perhaps also easier to evidence that in furloughing one director that others remain to carry out any ongoing tasks.

Ultimately, however, whether HMRC will accept a claim by a single director or all the directors that they have been effectively furloughed will depend on the detailed rules of the Job Retention Scheme and their interpretation of them, all of which is still evolving.

We recognise that directors who do currently draw a wage from their company, and want to consider a claim under the JRS, may wish to proceed on the basis that they are no longer able to carry out their day-to-day role due to the curtailment of business. If so, we advise that they make full disclosure to HMRC of their circumstances when doing so and bear in mind that HMRC have stated their right to retrospectively audit all aspects of a claim.

The above reflects our opinion based on information currently available. HMRC have, however, said that guidance will be updated as the JRS is further developed, and in line with any further government announcements. To that extent, we recommend that when implementing any arrangements, you check for any updates.

For more information please get in touch with your usual MHA Larking Gowen contact or call 0330 024 0888 or email enquiry@larking-gowen.co.uk.

You can find contact details on the Our People section of the MHA Larking Gowen website.

John Weston

Wednesday, 01 April 2020

The COVID-19 pandemic has caused great unrest through the global economy and caused radical fluctuations in the value of business and other assets. Many taxpayers will own assets which have fallen in value, such as stocks and shares, and are now wondering how to react, if at all. Although this is primarily a personal financial matter, the tax consequences could be an important factor in this decision.

Do you own failed investments of negligible value?

During the period in which you’ve owned assets that have become worth ‘next to nothing’, you may be able to make a ‘negligible value claim’ to HMRC, which allows you to realise a loss on the assets, which can be offset against other gains made in the year to reduce your capital gains tax liability.

Have you realised capital gains in the 2019/20 tax year?

If you’ve realised gains in this tax year such that you will pay capital gains tax, it may be possible to mitigate this tax charge or eliminate it entirely by making further capital disposals in the tax year (before 6 April 2020) that will make a loss. Although selling assets at a loss is not inherently attractive, there may be some appeal in avoiding a charge to capital gains tax.

Any actions taken in this regard should be taken on a commercial basis, and we encourage anybody making significant decisions about their personal financial situation to take advice from a suitably qualified investment adviser or independent financial adviser.

If you have any queries, or would like to discuss your personal tax situation, please get in touch with your usual MHA Larking Gowen contact in the first instance or at enquiry@larking-gowen.co.uk.

You can find contact details on the Our People section of the MHA Larking Gowen website.

Cindy Chaplin

Wednesday, 25 March 2020

If COVID 19 has affected your company and you need more time to file your accounts at Companies House, you can apply for an extension.

Accounts are usually due for filing nine months after the year end. If you can still meet the deadline, you should.

However, if it becomes apparent that it will not be possible to file on time due to your company being affected by COVID 19 you can make an application to Companies House for an immediate three month extension.   

• The extension is not automatic and must be applied for;
• A three month extension will be granted (but please see below if you have already extended or shortened your year end);
• It must be applied for before the normal filing deadline; and
• The application is made online.

You only need your company number to apply.

Companies House have confirmed that companies that have already extended their filing deadline, or shortened their accounting reference period may be ineligible for an extension.

Further information, including a link to the online application, is available from gov.uk.

If you have any queries, or would like to discuss your requirements for the next step, please get in touch with your usual MHA Larking-Gowen contact in the first instance or at enquiry@larking-gowen.co.uk.

Chris Yeates

Thursday, 26 March 2020

HMRC have issued new guidance on how the coronavirus will impact on the Statutory Residence Test (SRT). 

The number of days an individual stays in the UK, is one of the factors determining whether or not they are UK resident in a tax year. 

There’s been concern that some people might have to spend extra days in the UK due to the virus and as a result, inadvertently become UK tax resident and incur an unexpected tax bill.  

HMRC accepts that the epidemic is affecting people’s ability to move freely to and from the UK and has announced that the following circumstances may be viewed as ‘exceptional’ and will be ignored for the purposes of the various counts of their presence in the UK for the SRT: 

• You are quarantined or advised by a health professional or public health guidance to self-isolate in the UK
• You are officially advised by the Government not to travel from the UK
• You cannot leave the UK as a result of the closure of international borders
• You are asked by your employer to return to the UK temporarily, as a result of the virus 

However, the 60-day annual limit set out in the statutory residence test still applies, and HMRC say they will consider the facts of each individual case before deciding to disregard days spent in the UK due to exceptional circumstances. 

HMRC have reminded taxpayers that this new guidance may change at short notice as situations change, so keep an eye on our website for updates or contact us via enquiry@larking-gowen.co.uk 

Alex Coghill 

Thursday, 26 March 2020

With the current pandemic impacting on cash flows, this is a timely reminder to all businesses that a tax relief exists that could really help you in these challenging times. It rewards innovation and has the potential to provide a valuable source of revenue to help maintain and shape your business.

Research and Development (R&D) tax credit is a government incentive designed to reward UK companies for investing in innovation. In order to qualify, a company must be subject to UK corporation tax and involved in R&D and incurring costs on these projects.

By way of a of a background, in the last tax year, 21,865 small and medium-sized enterprises (SMEs) made a claim for R&D tax relief, and the average amount of tax relief obtained was over £60,000. To clarify for R&D purposes, an SME is a company which has fewer than 500 staff, less than €100 million turnover and less than €86 million in gross assets. (Larger companies who exceed the above limits can still claim R&D relief but at a reduced rate).

Whilst based on our experience the number of businesses claiming R&D relief is on the up, there’s still work to be done in spreading awareness of this valuable relief; now more so than ever.

The scope for identifying R&D is huge – in fact it exists in every single sector and you should know that, even if your project was last year, a company has two years from the end of its accounting period to submit a claim for qualifying spend identified during that period. Therefore, returns already submitted without an R&D claim can be amended.

Has this sparked your interest? Read on…

What is R&D?

One of the biggest misconceptions is that R&D tax incentives are only for those who carry out scientific research in a laboratory.

HMRC’s definition of R&D doesn’t really help: to quote, ‘Research and development … takes place when a project seeks to achieve an advance in science or technology … through the resolution of scientific or technological uncertainty.’

Understandably, confusion exists because it’s not always easy to relate real projects to the terminology.

What the definition really means is that, if a business isn’t sure whether a project is scientifically or technologically possible, or they don’t know how to achieve it in practice, it could be carrying out R&D. It’s clear that R&D can be found widely in various everyday activities dealing with manufacturing, engineering, software development, as well as the more commonly thought of areas such as the pharmaceutical and scientific sectors.

The definition is deliberately broad so that it can be applied to any industry, not just laboratory-based ones and, as an added bonus, the R&D project doesn’t need to have been successful to qualify for enhanced relief.

Why is the relief so beneficial?

Now for the interesting bit … for every £100 spent on R&D, the deduction from the company’s taxable profit is £230! (Yes, you read this correctly).

And if your company has made a loss for the year, then the full R&D credit of £230 can be surrendered for a repayment at a rate of 14.5%, ie. cash in the bank of £33.35 for every £100 spent.

Furthermore, these rules remained unchanged in the recent Budget!  

What costs qualify for relief?

Broadly, as long as a cost has a link to the R&D project being undertaken, then it will be a qualify for the purposes of the tax relief.

This includes:

• Staffing costs, including wages and salaries, employers’ National Insurance and employer pension contributions
• Consumable materials used up in the R&D process
• Utilities, including water, fuel and power
• Externally provided workers and subcontractor costs (claimable at 65%)
• Software costs

To qualify, a company must not have received any state aid towards the costs of the R&D project, if so this is likely to compromise any R&D claim. If you receive a grant to fund a project, you can still obtain tax relief, just at the reduced large company rate.

Conclusion

As a form of innovation funding R&D tax credits can be transformative. At MHA Larking Gowen we are focused on helping innovative companies realise the full potential of these valuable tax incentives.

Now more than ever there is a need to work together to ensure optimum benefit and our specialist tax team with its experience of both appraising R&D projects and submitting successful claims to HMRC is here to help you.

To find out more, email enquiry@larking-gowen.co.uk

Sarra Mattin

‘Cash is king!’  

However profitable you are, without access to cash (either physical or in an online account), you won’t be able to pay your bills and your business will be in trouble. 

Luckily the Government is helping businesses to keep hold of their cash by allowing them to defer tax and VAT payments.  

Income Tax  

If you pay the majority of your tax via self-assessment, then usually you make two payments each year to pay off the previous year’s tax bill; one by 31 January (when your tax return is due) and one by 31 July. 

The Chancellor has announced there will be no payment due by July this tax year. This allows more time to pay your tax bill. No application is required, and no penalties or interest will be charged in the deferral period. 

VAT 

All businesses are now able to defer their VAT payments for three months. This deferral will apply to VAT due in the period from now until 30 June and any accumulated deferral won’t need to be paid to HMRC until the end of the 2020/21 tax year. This deferral is automatic and no application is required. 

If your VAT liability is usually paid by direct debit, you’ll need to cancel the direct debit mandate temporarily to make sure no monies are taken once the return is submitted. 

Other taxes or payments not covered above 

Where taxes are due and not covered by the deferments outlined above, it’s still possible to contact HMRC to negotiate a time to pay arrangement. 

Typically, this will involve explaining to HMRC why the business can’t pay the tax due on time and outlining a plan to clear the debt in the shortest possible time, without the need for HMRC to use other means (think bailiffs or High Court petitions). 

HMRC may ask the business to exhaust other means of finance before requesting a time to pay arrangement (such as the loan guarantee schemes outlined by the Government).  However, there is also a desire on HMRC’s part to avoid putting organisations out of business in these difficult times. 

Many more measures have been announced to help businesses survive this troubling period and the MHA Larking Gowen team has published details of these on our dedicated web page link  If you need support with grant applications, accessing loan funding or cash flow modelling, please do get in touch. 

Please speak to your usual MHA Larking Gowen contact or email enquiry@larking-gowen.co.uk 

Jordan Brown