News

Check back here regularly to find out what's going on at South Eastern Business Services Limited.

13 SEPTEMBER 2023

It is a long time since I posted anything but there has been too much going on to collect a few thoughts and put them down. However, after examing how the new Corporation Tax rates actually work I have been moved to write as THE UK has now completely abandonned the principles of progressive taxation, both for Income tax and for Corporation tax and now has a taxing system that is deeply unfair, especially for those in middle income brackets caught by this.

Any claim to economic competence and fairness from the current government is fiscally speaking self evidently rubbish

Let me explain:

A basic principle of progressive taxation is that with increasing income tax rates increase. Seems fair enough and the way the UK presents its tax rates this would appear to be the case. But it isn't. To understand the unfairnaess now baked into the UK tax system you need to look at the effective marginal rates of taxation. That is to say the additional tax rate effectively paid for each additional pound of income.

INCOME TAX

Unfairness started to be baked in when the UK eliminated the tax free income tax allowance for those who earn more than £100,000 plus 2 times the personal tax allowance - so currently more than £125,140. For someone who earns £99,999 the marginal tax rate on the next £1 earned is 40%. But once they start to earn above £100,000 the next £25140 of income costs them an additional £15,084 in tax as their personal allowance is eroded away. This is a marginal rate of 60%. Then the weird bit kicks in. Once an earner earns £125,140, the next £1.00 of income only costs them an additional 45p in tax - a marginal rate of 45%. HOW CAN THIS BE FAIR?

A simple solution to ensure fairness of tax rates would be to phase the reduction of the personal allowance at £1 per £4 of income (rather than the current 1:2 Ratio), so phasing it out by £150,280 of income. Making the effective marginal rate 50% (from £100k up) and then moving the Additional rate band start point to that level and increasing the additional rate to 50%.  This would in effect give three effective tax bands lower at 20%, higher at 40% and 50% above £100,000 of income. (An alternative would be to spread the loss of allowance at a rate of £1 per £8 of income and leave the top rate at 45% from £200,560 - leaving an effective marginal rate of tax of 45% for income above £100k)

CORPORATION TAX

From April Corporation tax was increased to 25% for companies with profits of more than £250,000 with no increase for companies with profits of £50,000 or less (at 19%). In the band of £50,001 to £249,999.00 there is a sliding scale that applies increasing average tax rates (from 19% to 25% through the profit range £50k to £250k). On the face of it so far so reasonable. But it isn't.

Because the average rate of tax increases a company that earns say £60,000  is taxed at 20.25% and has this new higher rate of tax applied to all its profits. This means that the first £50k of profits now has a higher rate applied to it.

When you do the sums the marginal rate of Corporation tax for each extra pound of profits between £50k and £250k is in fact 26.5%. Again once profits are above £250k the marginal rate drops back to 25%. Again HOW IS THIS FAIR?

Again, the solution is mind blowingly simple. Tax Corporation Tax on a banded rate basis. That is to say tax the first £50k at 19%, the next £200k at 22.5% and anything above £250k at 25%. Progressive and Fair

11 JULY 2022 - HMRC FALSE ERROR ISSUE ON CT600A TAX RETURNS

A classic death spiral is currently in place with HMRC routinely rejecting CT600A's filed becaus the total tax calculated on participants loans is not a round sum figure! - unless it is fortuitoiusly a round sum amount (say 33.25% of £2000), it never will be. This is an appropriate error message for an input box but not for a claculation box. Right now HMRC are saying it is the software house's error, they are saying it is HMRC, who will blink first? meantime tax returns ar ebeing routinely rejected whilst the civil servants poiunt fingures, fail to understand the issue and will no doubt start fining people for failingto file returns on time! Hey ho - situation normal! 

July 2022 - CRIKEY ITS BEEN A WHILE , BUT WHAT HAS BEEN HAPPENING?

1 COVID - It has changed everything, people are working remotely , where-ever for who-ever, BUT, have they stopped to think about what that means for them and the people they work for in terms of tax?

• Tax residence is in most countries driven by where you are and how long for and for 95% of the time 183 days in a place means you are tax resident there
• even if you are not tax resident you may ne taxable where you are working on the income you are earning!
• and what about the folks you work for? they may well have PAYE (or equivalent) obligations where you live  and work, and may be taking tax from you wrongly where you used to live. They need to sort things out fast as the longer they are not compliant the worse the problem when the brown stuff eventually hits the whirly thing! 
• depending where you staretd out and where you ended up working the answers to the same questions may be very different and are usually affected by the double tax treaty in place (if tere is one) between the two countries involved

These issues have kept me busy for months now and doesn't look like its going to stop

2  PENAL TAX RATE INCREASES IN THE UK

National Insurance and Dividend tax rates increased by 1.25% on 6 April - a direct hit at those that earn their income through working either for someone else or for themselves (whether self employed or in their own company). Those who make a living from investment or "capital increase" (think hedgie types with Fund "carry") remain remarkably untouched - why would this be? And that is not all - next 6 April Corporation tax increase by 6% to 25%. Another stab at those who are genuinely creators of wealth! (hedgies still remarkably untouched). Not long before we are back to a top rate of tax of 83%, but I doubt we'll get the surtax on investment income of 15% of those far back socialist days, more likely Capital Gains tax will stay where it is leaving, once again the hedgie types remarkably untouched - unsurprisng really when people like Rees-Mogg make their money from this kind of structure!.

3  UNHEARD OF LEVELS OF PRICE INFLATION

Well, unheard of if you are young and inexperienced. RPI hit 13.1% last month - the last time it was at these levels was in 1980-81, which is admittedly 40+ years ago but not beyond living memory! These price shocks shocks occur, the world adapts and moves on. This may sound like heresy but a big component of current price hikes is fossil fuel energy becoming expensive, and maybe - from an environmental perspective - it should be. This should accelerate alternative energy technology and we'll be better off in the long run, but that doesn't stop it being painful right now!  If you run your own business maybe have a look at the tax breaks on electric cars  it could save you a lot on both the car purchase and on fuel! (though In the long term electric cars, I am convinced, will be replaced by hydrogen fuel cell vehicles fuelled by cheap hydrogen produced with spare offshore windfarm electricity use dto hydrolise sea water, any how lets see!

4 IR 35 REFORM

Are you and your clients learning to live with it and are you working properly as an independant business? Still a number of large users of Contractors have failed to get their heads round this and have succumbed to the HMRC campaign of mis-information, insisting that all work bought in is done by "employees". This is a lazy or deliberate misunderstanding of what the reforms actually do do, and it is principally about shifting where the risk sist in relation to the responsibility for liability in the event there being a disgusied employment.  

If any of the above issues affect you and you need assistance with them or their impacts - do get in touch and we can assess what can be done to help you.

UPDATE APRIL 2021 - COVID, IR35, BUDGET, LOAN CHARGE, DROP SHIPPING VAT and other matters

Does every day seem the same? Is nothing new happening, COVID has introduced a different rythym to working life, but it doesn't mean nothing has been changing, More people than ever will now at least in part work from home  / what does that mean in terms of the costs they incur to do so and recovery of those from their employer, or deduction in their tax returns - or a bit of both? Care is needed as from a tax perspective it is only the incremental costs that can be considered! IR35 - the much argued about refoorms came in at the beginning of the month but what , if anything has actually changed? The law about what is and what is not employment remains unchanged so if you were properly inependent an not a disguised employee on 5 april you still were on 6 April - unless you signed a new agreement making you an employee. The key issue is, and always has been the terms of the contract under which you work. The Budget has beenand gone and for this year at least was a non-event. We have been seeing "fishing" letters fom HMRC trying to get people who received loans rom a Employee Benefit Trust to eclare thse as "Disguised Income", if you had such loans but received them before 9 December 2010, you have nothing to declare! Drop Shipping and VAT - if yourr business is drop shipping into the UK or the EU the rules have to are going to change. The UK changed its rules with effect 1 January this year and the EU plans to adopt similar changes on the 1 July. You may need to register for VAT in an EU country if you have large volumes of sales to the EU, but the answer will depend on your company's specific circumstances. If you are worried about any of these matters please get in touch - we can assist!.

WHAT HAPPENED? (update 30/10/2020)

Since my last news item the world has changed - probably forever - Things have been busier then ever with clients needing support on the Covid Job Retention Scheme and its replacement, and encouragingly for the economy at least a flurry of new start-ups.

Some VAT and Tax on Account payments are deferred until early next year, IR35 reforms were put on hold at the last minute - But it does look certain that these will now come in next April.  This is not a reason to panic.  If you are genuinely a contractor now, you will still be one next April.  HMRC just want you to think that you aren't. The key to this is having the right agreements in place with your client(s) that clearly show that you are an independent business.

We have been dealing with IR35 issues for years and can help you understand and prepare for the reforms - give us a ring to discuss.

Latest updates (March 2020):

I have been neglecting the News items for a while whilst helping clients deal with the election outcome, assessing what to do about the upcoming changes to IR35, assessing the impact of the budget (fiscally not much, but in terms of fiscal loosening (to address the self inflicted panic damage of the response to the Coronavirus and the desire to buy off the new found Tory party clients in Labours rather crumbly "Red Wall" with roads, railways and various new building projects) quite a change in approach at least - Keynes must be smiling down on Boris et al - who'd have have thought it? I separate out my comments below:

IR35

The results of the Government review were duly published at the end of February and to the surprise of only those who retained a faint hope that the whole thing would go away, confirmed that the reforms would be implemented on 6 April 2020. All sorts of Companies that use freelance contraactors that operate through their own Limited liability Companies are routinely getting their response to these changes wrong:

The changes do two things only:

they change in a number of circumstances who is responsible for assessing whether IR35 applies or not to an engagement

they introduce a degree of debt transfer in a supply chain where the supply is a supply of labour

The final version of the legislation making these changes has not yet been published - due 19 March.

HMRC guidance continues to be misguiding and relies on a number of misnomers, one of which is that the CEST too for determining employment status is fit for purpose - it is not!

If you use contractors you do need to consider what you need to do, you do need to consider what the law says with respect to IR35 and what your new responsibilities may be. BUT remember what HMRC tells you isn't necessarily what the law says, it is quite often their own interpretation of the law and sometimes it is simply what they would like the law to say (and doesn't).

The message here is take proper independent professional advice from people who are expert in these matters

The Northern Lights case

 A recently decided case - won by HMRC - which in itself is of interest - but the message from this as a contractor or a user of Contractors is, if you dont want your contract caught by IR35, take proper care not to make the overall arrangement akin to employment. This case was decided on a cumulative picture of a whole series of facts which undermined the independence of the Contractor and meant that the three key tests of employment were deemed to be met, that furthermore, the contractor  was not considered to be carrying sufficient commercial risk to be consider dto nbe in business on his own account and that he was "part and parcel" of the client organisation. One of the most important elements of the decision was that the contractors right of substitution was considered to be sufficiently fettered by the client to be in reality non-effective.

The Budget (Spring 2020)

From a purely tax perspective almost a complete non-event.

3 things of potential note:

1  NI threshold for employees increased from £8,632 to £9,500 - whooppee!

2  Entrepreneurs relief lifetime allowance reduced from £10m to £1m

3  Pension allowances amended. Loss of allowance starts in at £200,000 salary, up from £110,000 whilst the loss of relief tapers down now to £4,000 (down from £10,000)

If you  think these changes effect you and you want to undertsand how - give us a call.

Coronavirus actions

The budget promised all sorts of support for businesses who suffer as a result of actions taken to deal with Corona virus, ranging from Govt funding of Statutory Sick Pay for 14 days through to loan schemes for businesses in trouble. Excuse the old cynic in me but most of the economic damage is self-inflicted over-reaction. Look at the Governments own annual report of the impact of flu on this country. In the 5 years to the end of the 2018-19 flu season the number of deaths arising from the flu in the UK was ..... 10, 20, 500, 2000?  Nope, it was, in round thousands 86,000. Yep an average of 17,200 a year every year for the last 5 years! Again - just being cynical here - this whole "crisis" suits Boris and the populist government he leads because it diverts attention from the chronic mess they are making of handling negotoations with the EU on the UK's exit from the EU. A massive diversionary tactic.  This in itself detracts from the need for peope to take sensible precautions and to protect the genuinely vulnerable, many of whom are already in care homes or hospitals. Any - enough soap box stuff, and back to some more prosaic issues:

Can you operate your business differently to adapt to the way the Government is mishandling the economic reponse?

Think about Facetime/ whatsapp/ even that old fashioned Skype as an alternate means of meeting people.

Are the restrictions really damaging your business? Consider what mitigations you can make. Look at your insurance cover - will this give you any relief? Can you quickly shift focus to an on-line approach to your business? Does this mess actually give you new business opportunities?

1 March 2020:  SEBSL becomes Institute of Chartered Accountants in England & Wales Member Firm

More on the Election! If you can take it! 6-12-19

The people who want to run this country continue to demonstrate a woeful undertsanding of economics, business and the country's taxation system.  This is true of all of them whatever stripe they are, but Mr MacDonnell excelled himself when talking about massive increases in dividend taxation. This is a mind set that says that there is a vast swathe of people who have huge amounts of unearned income and should be taxed to the hilt - forgetting that:

• dividends have already been taxed before they are paid out
• a huge number of the self-employed (those who work through their own companies) receive dividends rather than salaries and that these dividends have suffered tax at source
• these same self-employed are not - on the whole -  those who are massively wealthy 
• most peoples' non state pensions rely on dividend income
• Whacking up dividend tax will reduce returns on investments and instantly increase defined benefit pension fund deficits across the country

This is economic literacy on a level with that that says its a great idea to remove this country from the world's largest trading block and expect an improvement to its economic performance!

IR35 has now enetered the arena as a political football with every major party saying that they'll "review" its introduction, hoping to win votes from the self-employed sector, however "review" in political parlance usually means have a look and then confirm that what it is that HMRC are up to will be done.  Don't build up your hopes - these changes to IR35 remain almost certain to be introduced.

Simply and cynically put - in this election in particular - believe anything that a politician promises you at your peril!

Plan on the basis that the worst will happen - you will be prepared, and if perchance a promise is stuck to - you will at least have the chance of a pleasant surprise at some point in the future.

GDPR - Are you compliant?

Are you compliant? Think it doesn't apply to you? Think again - you almost certainly hold Personal Data either in your computer or in a paper file.  You have e-mail addresses and phone numbers (ie Personal Data) of people that you contact at suppliers and clients to allow you to operate your business day to day. If you have staff you hold lots of personal data to enable you to pay them.  Do you know what you are supposed to be doing to ensure that you don't get a swingeing fine from the Information Commissioners Office? We can help you understand the obligations , the risks and the steps to take to get up to speed (fines can be either 2% of your Turnover, or 4% of your turnover or €10m or €20m respectively whichever is the GREATER in each case - depending on the rule that has been broken. This means that if your business turns over £10m, and you commit a minor breach the limit of the fine is either 2% of turnover (ie £200,000) or €10m (which is bigger- so you could be out of business quickly if hit with a maximum fine.

The General Election! (and IR35 Reforms)

What did a general election ever do for me?  This one coming up on 12th December has delayed the budget and has created a further level of uncertainty about he reforms to IR35. However it seems certain that the changes will be made.

The emphasis will be on end client detrmination of IR35 status.  If you are a Contractor and are not sure what your clients are up to with respect to IR35 you should be getting your head around whatthe reforms mean for you, whether your contracts are robust and whether you can properly demonstrate to your client that you are fully independent. This will be in large part driven by the nature of your contracts with your clients, but also by a range of other things that determine whether you are employed or independent. Don't wait until April for your clients to surpise you by issuing you a notice that IR35 applies to you. Take steps now to check your status and demonstrate it fully to your clients. We can help you do this. 

IR35 - LOOKING FORWARD TO NOVEMBER

If the Government (of whatever make-up) ever gets its collective head out of its BREXIT *rse*ole we may see them coming back to the everyday business of getting things done. This is slated to include IR35 reform for the Private sector in April 2020. Are you a contractor? do you use contractors? Do you understand what may be coming down the track and the impact this may have on you? You need the right agreement and the right way of working (in either case) to ensure that you are not caught by IR35. Understanding, planning and change management can all help to stop the reforms creating a tax problem for you. We can help - give us a ring to discuss. 

MAKING TAX DIGITAL - VAT - "ARE WE NEARLY THERE YET?"

HMRC have spent a fortune on this and as of April 1 evryone who is regstered for VAT is supposed to report using MAking TAx Digital (MTD) compliant software. This is beginning to bite now as in reality for most people the first return under these new arrangements is for the Mar- June quarter - due 7 August 2019.

Are you ready?

Do you need help?

This is actually straightforward and very simple - it can be sorted at a very low cost.  (It is difiicult to see how HMRC can get value for the nigh on £1bn they are said to have spent on this.  People who have always done their VAT returns responsibly (which is the vast majority) will not be paying any more VAT - it is either an exercise in futility or a first step in a cunning plan to gain access to your data! - not that I am paranoid but I do think they are out to get us!)  

DO NOT LET YOUR ACCOUNTING SOFTWARE PROVIDER SELL YOU EXPENSIVE UPDATES OR NEW MODULES - YOU DO NOT NEED THEM!

We have seen software houses quoting £1,200 to upgrade accounting software - we won't mention names here but you may have been on the receiving end of soemthing similar - but this is profiteering - we can get you sorted out for much less than this with an HMRC approved solution. Ring us to discuss.

March 2019 Loan Charge

If you have given your staff loans in the past under and Employee Benefit Scheme, if those loans are still oustanding at 31 March 2019 they will be treated as income  at that date and PAYE and NI will be due.

REPORTING REQUIREMENTS: We still don't know exactly what theses are but beneficiaries of Employee Benefit Scheme loans will have to report - by October 2019 what has happened to the loans that they received - have they paid them back, were they written off, or were they taxed at 31 March 2019 under the Loan Charge Rules - but see below about HMRC being a threat to the rule of law!

4th  DECEMBER 2018 -  HMRC A THREAT TO THE RULE OF LAW!!

The House of Lords Economic Affairs Commitee publish a damning report which suggests that recently acquired powers of HMRC and HMRC's unfair treatment of tax payers is undermining the rule of law.  If you stop to think about it this is pretty scary, as it is suggesting that HMRC has ceased to respect the basic principals of a society governed by the rule of law and is behaving above and beyond those principles. If an arm of Government starts behaving as if the law does not apply to them it is a step on a very slippery slope where the rights of the individual are trampled on by the state. Sounds melodramatic I know but their Lordships would not say something like this lightly, and the fact of them doing so suggest something is seriously wrong. Remember - take advise when dealing with HMRC, they regularly get things wrong, and they are inceasingly unfair in their treatment of taxpayers - their lordships have just said so!

BUDGET OCT 2018

HMRC succesfully continue ther attacks on those who are self-employed through their own Companies. IR35 will be reformed for those working in the Private sector with effect in April 2020.  That gives businesses that use independent contractors time to prepare for the changes and undertsand the potential risks and how to manage them.  These rules will, apparently, only apply to companies over a certain size, but as yet we do not know what the rules are going to be.   

MAKING TAX DIGITAL (!) - APRIL 2019 - What are you doing about this?

The Regulations with respect to Making Tax Digital were introduced a while ago without any real fanfare or significant comment. However, it was done and this "goes live" in April next year. For the smaller business that has managed its affairs correctly using manual accounting records or spreadsheet based accounting systems this is just an additional administrative burden and probably additional cost for no benefit to the business, simply so HMRC can extend its intrusion into the records a business keeps (call me cynical, but really, why do they think a small business can support the kind of burdens they are imposing!). Supposedly, spreadsheet based record keeping is acceptable and "bridging" software will be available to enable small businesses to comply. None is obviously available yet but don't panic! - its coming (so is Father Christmas).

Supposedly HMRC are going to allow 12 months for "things to bed in" before they start insisting that, in the first instance, VAT returns, are reported "digitally".

Be that as it may, the issue is that these requirements are nearly upon us. If your VAT return period aligns with the quarter ends you only have three more to do (September, December and March 2019) before these rules apply.

Have you thought about this? Do you know how you are going to deal with it? Do you want to discuss this as a preliminary to putting together a plan as to how to address the problem? Give us a call!   

MARCH 2018  - TAX YEAR COMING TO AN END

Are you making the most of the tax opportunities available to you in this tax year?

Dividends received of upto £5,000 per person are free of additional tax - has you company paid you this much yet in dividends this year? Next year this allowance drops to £2,000

Personal Pensions - have you contributed the maximum that you can tax free? This varies from £40,000 to £10,000, (it could be more if you have not used all of previous years' allowances. Counter- intuitively the more you earn the less your allowance might be!

ISA's - have you maxed out on what you can put into ISAs this year? 

If you are not sure what you or your company needs to do by 5 April, call us, we can give you some guidance.

FIRST UNEXPLAINED WEATH ORDERS OBTAINED: 28 February 2018

Provisions of the Criminal Finances Act begin to bite with Orders placed with respect to two Properties in and Near London (both valued at about £11m each). The owner has to prove that the properties were acquired with money from legitimate sources or the properties will be seized!  This is media worthy "News", but has your business carried out a risk assessment to ensure that it has a defence with respect to any potential claim of failing to prevent tax evasion?  This is an offence introduced by the Act and every company has obligations under the Act. We can help you with this, as well as risk assessments and policy and procedure responses to The Bribery Act 2010.

THE AUTUMN BUDGET  - IR35 Reforms: - date 22 November 2017

The Big Budget News, if you can call it that, is that the IR35 Reforms introduced on 1 April 2017, are not being rolled out to the private sector - Yet!.  Its seems ineveitable that this will happen, but the Government is undertaking further consultation. This could now happen in April 2019. Are you prepared? Are your contracts with your sub-contractors bullet proof? Do your processes match up to your contracts? Do you know what the risks are? Talk to us, we can help you understand the issues and make sure you and your contractors are not at risk.

CRIMINAL FINANCES ACT 2017:- date 1 October 2017

The Act is now in force. If you have a Company that Company can now be prosecuted for failing to prevent facilitation of tax evasion by its staff or by its advisors. There are basic protections you can put in place.  The minimum is to carry out a risk assessment, and document what you have done.  We can help you do this.

IR35 REFORM: - date 6 April 2017

Reform of IR35 takes effect today: Any company using sub-contractors to deliver work to the public sector is now at risk of being held responsible for deduction of PAYE and payment of Employers NI in relation to payments made to those sub-contractors. We can help you assess the risk and take steps to prevent this happening. Contact us for an initial discussion.