Tax and COVID Update August 2020
Welcome to our Tax and COVID Update for August 2020. Things are returning to some sort of normal, but things will never be the same again. Here's what's happening:
Returning from Furlough
Bringing your employees back from furlough is not a straightforward process.
As furloughed employees begin to return to work, business owners and managers need to consider both the practical and emotional aspects of returning to “normal”. The impact of the Covid-19 pandemic has been unprecedented. After several weeks of lockdown and social distancing, some employees may be fearful of commuting or sharing an office space with other people. Others may be living with a vulnerable or high-risk individual.
Managers need to talk to their team members before they return to work
to understand their personal situation and to allay any concerns. The key to successfully returning furloughed employees to work is listening to them and communicating with them.
Action plans should be put in place before furloughed employees return to work. Employees should be engaged and the management team should involve them in creating plans to get everyone back up and running in the new normal. Return to work plans should include practical aspects such as how social distancing can continue to be observed as well as logistical and operational requirements.
Employers should also check any agreements they have with trade unions or employee representatives, to see if they need to enter into any formal consultation.
In some cases, employees may not want to return to work because they are worried about catching Coronavirus or perhaps they have issues around childcare etc.
If this happens, take the time to listen to the concerns of the particular employee(s) and take reasonable steps such as offering flexible working arrangements or agreeing some temporary leave if the individual(s) are unable to work for a period of time.
If the employee(s) still do not want to go back to work, they may be able to take some time off as holiday or unpaid leave, although the employer doesn’t have to agree to this. Guidance on how to manage this type of situation is freely available on www.acas.org.uk
Returning to work after furlough is going to be a sensitive time for everyone involved. Employees are likely to be nervous but if managers take the right steps and communicate regularly with their teams, things should go smoothly.
Changes to CJRS "furlough"Claims
Note that for the month of August the Government will continue to pay 80% of employees’ regular pay for hours that they are furloughed but will no longer pay the associated employer NICs and pension costs. The government support then reduces to 70% in September and 60% in October. Contact us if you need help with your claims.
More Details on Hospitality VAT Reduction
When the Chancellor announced a temporary cut in the rate of VAT for the hospitality sector and attractions in his Summer Statement on 8 July there were a number of areas that needed clarification. The reduction applies to supplies made between 15 July 2020 and 12 January 2021. HMRC have now set out more details of which supplies will attract the 5% temporary rate as well as the impact on invoicing, deposits and the flat rate scheme.
WHAT DOES THE 5% TEMPORARY VAT RATE APPLY TO?
The temporary 5% rate applies to the following supplies, but is not an exhaustive list:
- Catering, including hot takeaway food
- Accommodation in hotels, guest houses and similar places
- Tourist attractions such as theme parks, zoos, theatres and cinemas
Note that as far as catering is concerned, the 5% rate only applies to food and non-alcoholic drinks. The 20% rate continues to apply to alcoholic drinks.
Please contact us if you are unsure as to whether the 5% rate applies to any of your supplies.
VAT TREATMENT OF DEPOSITS
It is fairly common, particularly in the summer holidays, to pay a deposit when booking a hotel or self-catering accommodation but how should the deposit be accounted for?
HMRC have confirmed that the hotel has the option of charging VAT according to the ‘basic tax point’ (dates of the stay) rather than the ‘actual tax point’ (invoice/payment dates).
For example where the customer paid a non-refundable £300 deposit in February 2020 for a £1000 holiday in Cornwall in August, using the actual tax point, the hotel would account for 20% VAT on the deposit received in February 2020 and 5% on the balance payable after 15 July 2020. The hotel could choose to use the basic tax point rule which would mean that the 5% rate would apply to the entire cost of the stay and make an adjustment for the VAT already accounted for.
Please contact us if you need advice on dealing with the invoicing or accounting for such transactions.
Interaction with the VAT Flat Rate Scheme
Small businesses with turnover below £150,000 may join the VAT flat rate scheme which makes their VAT accounting much simpler as they merely pay HMRC a percentage of their VAT inclusive turnover.
The temporary reduction in the rate of VAT from 20% to 5% reduces the flat rate percentages for affected businesses as set out below:
Catering services including restaurants and takeaways
15 July 20 to 12 Jan 2021: 4.5%
From 13 January 2021: 12.5%
Hotel or accommodation
15 July 20 to 12 Jan 2021: 0%
From 13 January 2021: 10.5%
15 July 20 to 12 Jan 2021: 1%
From 13 January 2021: 6.5%1
Note that to use the flat rate percentage for pubs the turnover must be predominantly “wet sales”.
Improving Your Sales Strategy
In today’s challenging trading environment, a good sales strategy is essential.
Talk to existing customers.
Your current customers are one of your best sources of information. Your existing client base can provide you with valuable feedback about what worked and didn’t work for them during the sales process. Similarly, current customers are an excellent source of additional revenue.
You’ve already converted them once. It’s easier to cross sell to an existing customer than it is a new one as you have already won their trust.
Seek feedback from customers who went elsewhere.
Take the time to ask those who went elsewhere for feedback. Ask them why they chose to go with another product or service provider and what you could do better. Any feedback they provide can help you to improve and refine your current sales process. In some cases, speaking to failed customers may give you a second chance to pitch to them for their next purchase.
Listen to your prospects.
This is straightforward but it is often overlooked. Before trying to sell to a client take the time to listen to them, to understand their needs, then offer them a solution. Train your sales team to actively listen and encourage them to ask the right questions in order to get more information from potential buyers.
The best sales teams are solution oriented – they focus on why a customer needs to buy a product or service and then help them to choose the right solution for their needs.
Understand the competition.
Take the time to understand your competitors, their offerings and their sales strategies. Ensure that your sales team know what sets your product or service apart so that they can handle objections from potential clients. Perhaps the products are similar but your firm offers better service, better back-up or more flexibility.
Encourage your sales team to ask existing clients for referrals. Your current clients are a great asset in that they can provide you with referral opportunities.
If you know that a particular client is happy with your product or service, ask them if they know anyone else who may be interested in your current offerings.
If a customer sends you a referral, make sure to get in touch to say thank you. If you successfully win a new piece of business, then go the extra mile and send a thank you gift to your client for the referral. Not only will they think your firm is great, they will probably tell some of their friends too!
Instagram Stories Functionality as a Marketing Tool
Today’s customers are making purchase decisions based on the story behind a particular brand. Instagram’s “Stories” functionality can allow you to harness this.
Instagram Stories allows you to post photos and videos in chronological order to tell a “story”. These posts do not appear in your regular collection of Instagram posts: instead, they disappear after a 24-hour period. This means that users don’t have to worry about over posting - they can share as many updates as they like throughout the day, without clogging their online follower’s news feeds.
Instagram is a useful tool for small and medium sized businesses. The app is free to use and provides an opportunity to showcase products and services in action. This can help your customers and potential future clients understand the value that your products or services offer. As customers are becoming increasingly engaged with the story behind a particular brand, Instagram can offer businesses an opportunity to share some behind the scenes insights with customers.
Instagram Stories also works with Shopify. This tool allows businesses to tag products in a post so that users can click to buy directly via Instagram.
Instagram Stories is designed to be used differently than standard Instagram posts. Regular Instagram posts are best used for product updates, company news, announcing something like an online sale, etc. Instagram Stories is better suited to real time “live” news updates from a business. For example, the build up towards a new product launch, culminating in the actual reveal of the new product/service can be streamed as a series of live updates using Instagram Stories. This can help boost engagement between your target audience and your brand.
Instagram Stories can also boost engagement by allowing firms to ask questions, run online competitions, publish a countdown to the launch of something new, etc. All of this activity can help to get people talking and encourage them to interact with your brand more consistently.
Creative businesses tend to be successful – just look at Google, Netflix or Amazon. So how do you cultivate creativity in your business?
You can’t force creativity, but the right environment will enable your team to work in new and innovative ways in order to generate imaginative solutions. Business is all about people. Hiring talented people is the first step in cultivating an innovative and creative business. Look for team members who understand your vision and align with your culture.
Having a team that shares one vision and works together will help the firm run smoothly. This doesn’t mean only hiring people who always agree with you - encourage different perspectives as this could generate creative new ideas.
Businesses are becoming more focused on diversity and this can really help to drive creativity. People from different backgrounds may have experience that allows them to come up with new and innovative solutions. The most creative businesses know this, and put together teams of people with different capabilities, backgrounds and interests in order to encourage different approaches to problem solving. In order to become more creative, your business should celebrate new ideas, encourage different approaches and try thinking outside the box.
Creative businesses tend to have a more flexible approach to work. Some of the most successful businesses have moved away from the traditional 9-5 working day and allow employees to work whenever suits them best. After all, some people are night owls and others are early risers.
Allowing staff to choose to work when they are well rested and performing at their best can only be a good thing. If you show your team that you trust them to work flexibly, they are more likely to feel empowered and this tends to drive employees to perform at a higher level.
Finally, make sure you encourage your people to take regular time off. Nobody can work at 100% all the time. Worn down workaholics don’t produce high quality, creative ideas. Communicate with your people and convey how important it is to get some rest and have time off throughout the year. Make it non-negotiable. Giving your people time to switch off completely will help them to be more creative when they return. After all, some of the best ideas are generated away from work, when thinking about something else entirely.
Second Home Buyers and Buy-to-Let Landlords welcome Stamp Duty Land Tax Cut
Although the temporary increase in the Stamp Duty Land Tax (SDLT) threshold to £500,000 was aimed at those buying their main residence, it also benefits those buying a second or subsequent property where there is a 3% supplementary charge. Thus, the rate of SDLT on a second home costing up to £500,000 is now 3%. Previously, the rate was 3% up to £125,000, then 5% up to £250,000 and then 8% up to £825,000. So the SDLT on a second home costing £400,000 is now £12,000 compared to £22,000 if the purchase had completed before 8 July 2020.
Note that there are different thresholds and rates of Land and Buildings Transaction Tax for properties located in Scotland and Wales.
Reporting Property Gains within 30 Days
Since 6 April 2020 where UK residential property is disposed of, the resulting capital gain needs to be reported and the capital gains tax paid within 30 days of completion of the disposal. There have been a number of teething problems with the new online reporting system and HMRC stated that there would be no penalties imposed for late returns, provided the returns were submitted by 31 July 2020. Taxpayers need to obtain a Government Gateway account and apply for a CGT or property reference number to report disposals, although they can authorise their accountant to report the disposals on their behalf.
Currently only the first disposal may be reported using the online reporting system with any subsequent disposals being reported using a paper return. We have been told that the new system will be fully functional shortly.
Rumours of Capital Gains Tax Increases
There has been a lot of speculation in the Press that the Chancellor may introduce radical changes to capital gains tax to start to repay the substantial Government borrowings to support businesses and employees affected by the coronavirus pandemic.
It has been suggested that the current £12,300 CGT annual exemption will be reduced and the rates aligned with the rates of income tax. It has also been suggested that the capital gains uplift on death may be abolished following recommendations by the Office of Tax Simplification and the House of Commons Treasury Select Committee.
The Treasury Committee has recently launched a new inquiry called ‘Tax after coronavirus’. That inquiry will consider different ways of raising taxes, in particular a thorough review of UK tax reliefs which has also been recommended by the Public Accounts Committee.
The Chancellor has also hinted that there may be radical changes to the way that the self-employed and directors of family companies may be taxed in future.
High Income Child Benefit Charges not valid
A recent tax tribunal has ruled against HMRC who were seeking to raise tax assessments for the High Income Child Benefit Charge (HICBC) for earlier years that had not been reported to HMRC.
HICBC is a special tax charge that applies where one member of a couple in receipt of child benefit receives income in excess of £50,000 a year. The charge is 1% of the child benefit received for every £100 of income in excess of £50,000 such that where income exceeds £60,000 the child benefit is fully taxed.
The problem is that many taxpayers whose income is taxed under PAYE do not receive a self-assessment tax return and may not be aware of the tax charge.
The taxpayer in this particular case fell into that category but reported and paid the tax when prompted by HMRC. He was then assessed to tax on the child benefit for the three previous years but the court found that HMRC did not have the power to issue those assessments.
If you are asking yourself:
“Why not me?
“Why not now?”
The answer is “no reason whatsoever”, so, talk to me and let’s change your business for the better.
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