New probate fees to affect many estates

The government has revived plans to
raise probate fees in England and Wales.

A new, banded structure for probate
fees in England and Wales is to be introduced, according to a written
statement issued after the 2018 Budget.

The announcement comes despite the 2018
Budget barely mentioning inheritance tax (IHT). There was widespread
speculation about reforms to IHT after the Chancellor commissioned
the Office of Tax Simplification (OTS) to review the tax in January
2018. However, with the full findings of the OTS review yet to be
published, the only change to IHT announced in October was a small
adjustment to the legislation for the residence nil rate band –
this being such a complex piece of legislation, it had been wrongly
drafted.

New fee structure

The government made a very similar
proposal on probate fees in March 2017, and at
the time it was heavily criticised as being a stealth tax rather than
a simple fee adjustment. The argument was never resolved and the
issue was eventually lost in the legislative process around the last
General Election.

Since then, the
government has taken on board some of the original criticism and cut
the fees they were proposing, particularly for larger estates:

Value of estate

Old Proposal

New Legislation

Up
to £50,000

Nil

Nil

£50,001 –
£300,000

£300

£250

£300,001 –
£500,000

£1,000

£750

£500,001 –
£1,000,000

£4,000

£2,500

£1,000,000 –
£1,600,000

£8,000

£4,000

£1,600,001 –
£2,000,000

£12,000

£5,000

Over
£2,000,000

£20,000

£6,000

The current fees are £215 for
individual applications and £155 via a solicitor, with nothing
payable if the estate value is up to £5,000. Under the new banding,
there is a maximum effective charge for probate of 0.5% of the
estate, which is triggered at £50,000 (a £250 fee) and £500,000 (a
£2,500 fee).

The new fees are scheduled to come into
effect 21 days after the legislation is passed, and there is very
little that can be done to mitigate the impact. They are payable even
if the estate passes with no IHT liability, as is usually the case on
the first death of a married couple or civil partners, or if the
value of the estate is covered by the available nil rate and
residence nil rate bands.

If you would like help with a probate
application then please get in touch.


Rise in HMRC mediation cases

There has been a dramatic increase
in the amount of disputed tax collected by HMRC through mediation,
according to research by law firm RPC.

According to RPC, £40.8 million was
collected through mediation for the year ending 31 March 2018,
compared to £25.2 million for in 2016/17 – a 62% increase. RPC
also revealed that there were 455 successful uses of alternative
dispute resolution in 2017/18, which was up 23% on the previous year.

The increasing use of alternative
resolutions should be advantageous to both HMRC and taxpayers as it
means fewer cases have to go through expensive and time-consuming
legal processes. It also aligns with HMRC’s mission to increase tax
compliance generally and increase revenues for the Exchequer.

HMRC’s engagement with mediation
methods can offer several advantages to those caught in a tax
dispute:

It is true that the better option is to
ensure tax is paid correctly and on time. But if you are in dispute
with HRMC, and would like some advice on how mediation could help
you, please get in touch.


Time extended on entrepreneur’s relief

New restrictions added to
entrepreneur’s relief (ER) during the 2018 Budget have reduced
access to this valuable tax relief.

ER provides a reduced rate of capital
gains tax on disposal of shares – at 10% instead of 20% – for
individuals, provided they meet certain conditions. These conditions
need to be met throughout a qualifying period, reflecting ongoing
involvement with a business.

From 6 April 2019 the qualifying period
will increase from one to two years. This change means individuals
will have to demonstrate a longer ongoing involvement with a company
to claim the relief.

Specific new requirements on the
shareholding were also introduced. Effective from 29 October 2018, to
claim the relief an individual must have shares that:

These are in addition to the current
requirements to have at least 5% of the share capital of the company
and at least 5% of the voting rights. However, to balance this, from
April where outside investment dilutes a shareholding to less than
5%, relief on gains made up to that point will be protected.

Different rules apply to shares
acquired through an enterprise management incentive schemes, and
other qualifying conditions will apply.

The rules have been changed in response
to calls on the government to use the revenue lost to ER to help fund
the NHS. Instead of abolishing the relief entirely, the Chancellor
has adjusted the rules as he believes, “encouraging entrepreneurs
must be at the heart of our strategy”.

Get in touch if you are concerned about
how the new rules will affect your plans.


SMEs boost on apprenticeship levy

The government has halved the
apprenticeship levy for small businesses, from 10% to 5%, with a view
to increasing uptake of the scheme.

This means that the government will pay
95% of training and assessment costs for any apprentices taken on by
SMEs. Whilst a date for implementation has yet to be announced, the
move is designed to make the underutilised scheme more attractive to
employers and help address the skills shortage in the UK workforce.

The number of new apprenticeships
dropped by 26% from 2016/17 to 2017/18. Worse, reports suggest that
as many as one-fifth of firms paying the apprentice levy, including
35% of SMEs, do so as a tax write-off and have no plans to actually
train apprentices. The levy industry bodies believe the levy is
poorly understood by many SMEs.

First introduced on 6 April 2017, the
levy was meant to encourage workplace training through a 0.5% tax on
larger employers. As well as paying the levy, businesses with 50 or
more staff also have to release apprentices for one day a week of
off-site training.

Alongside this, the government will
enable larger levy-paying employers to transfer up to 25% of their
funds – increased from 10% – to pay for apprenticeship training
in their supply chains.

If you do choose to take on an
apprentice, you must provide them with a training opportunity that
lasts at least 12 months and employ them in a real job that helps
them attain the knowledge and skills needed to pass their assessment.

Apprentices must also receive the same
benefits as other employees and are paid for their time spent
training or studying off-site. However, their minimum wages are set
much lower, at £3.90 per hour for 2018/19.

If you are considering taking on an
apprentice and would like some advice on the levy, please get in
touch.


VAT change coming for construction industry

A new VAT reverse charge will apply
to construction or building related services from October 2019.

Under the new rules, a VAT-registered
company purchasing certain construction services will be responsible
for accounting the VAT to HMRC, rather than the supplier. The reverse
charge includes goods where the goods are supplied with the specific
services.

The new measures are being introduced
to reduce VAT fraud and evasion by placing the responsibility for VAT
on the customer. HMRC believe that some small VAT-registered
suppliers are charging VAT to their customers, but not then paying
the VAT on to HMRC.

The reverse charge mechanism won’t
apply in certain circumstances, for instance:

Instead, the normal VAT accounting
rules will apply to these supplies.

If you are concerned the new reverse
charge mechanism will make your VAT administration more complicated,
we can advise you on how best to handle it.


The Budget: an end to austerity?

The 2018 Budget – delivered on a
Monday for the first time since 1962 – produced a number of
surprises, not least some high-profile ‘giveaways’.

Announcements in the Budget included:

However, Mr Hammond’s generosity was
not all it appeared. For instance, the personal allowance and higher
rate threshold will both be frozen in 2020/21, while the business
rates reduction and higher AIA will only last for two years. The
Chancellor also kept many tax thresholds and allowances unchanged.

A good example of the impact of frozen
thresholds is the personal allowance that will continue to be tapered
from an income level of £100,000. This threshold has applied since
April 2010, and it creates high marginal rates for some taxpayers.
Combined with the increase in the personal allowance, for income
between the taper threshold of £100,000 and the starting point for
additional rate tax of £150,000:

By far the largest element of spending
announced in the Budget was for the NHS. Investment is £7.35bn out
of a total £15.09bn in 2019/20, rising to £27.61bn out of a total
£30.56bn in 2023/24. With such large amounts to secure for the
health service, the Chancellor has limited scope to reduce personal
tax in the medium term.

If you would like to discuss the impact
of the Budget on your finances, please get in touch.

Tax laws are subject to change.

The Financial Conduct Authority does
not regulate tax advice.


Making Tax Digital deadline deferred for certain businesses

The Making Tax Digital (MTD) for VAT
deadline has been extended until October 2019 for certain businesses.
Around 3.5% of mandated customers are affected, including VAT
divisions and groups, trusts, unincorporated not-for-profit
organisations and traders based overseas.

The later deadline was announced in
response to concerns raised by businesses participating in the VAT
pilot scheme. This will give affected businesses with more complex
arrangements more time to prepare for their filing deadline.

The original deadline of 1 April 2019
still applies to most businesses with a taxable turnover above the
registration threshold. From next year any business filing under VAT
will need to provide quarterly VAT filings to HMRC and also record
transactions digitally as well.

The MTD system does not change any of
the filing requirements for VAT, so the same information will still
need to be supplied to HMRC. However, organisations will need to use
accounting software that allows them to file returns digitally. You
can use spreadsheet software but you will need ‘bridging software’
to submit records to HMRC.

The latest timetable for MTD is as
below. With many dates left to be confirmed, and deadlines moving as
close as six months before, it would be sensible to monitor
developments, and how they may affect your organisation.


Budget boost for business investment?

The 2018 Budget delivered
opportunities for businesses, intended to support and encourage them
to invest.

One of the key developments confirmed
by the Chancellor – but originally announced in previous Budgets –
is that corporation tax will fall to 17% from 2020. This new low rate
will make incorporation more attractive for smaller businesses and
reduce the tax burden for companies of all sizes.

Along with the cut in headline rate,
the Chancellor also announced some specific measures around business
investment.

Capital allowances

The annual investment allowance (AIA)
will increase from £200,000 to £1,000,000 for all qualifying
investments in plant and machinery. The increased allowance only
applies on investments between 1 January 2019 and 31 December 2020.

The AIA allows a company to deduct the
full value of an investment from profits before tax, and can be
claimed against items that you keep to use in your business,
including cars,
costs of demolishing plant and machinery, parts of a building
considered integral, known as ‘integral features’, some fixtures,
e.g. fitted kitchens or bathroom suites, and alterations to a
building to install other plant and machinery – although note this
doesn’t include repairs

Alongside this, a new structures and
buildings allowance has been introduced which has been set at 2% on
construction or conversion costs over 50 years, where all the
contracts for physical construction works were entered into from 29
October 2018.

It’s not all good news, however, as
the government has also reduced the special rate reduction from 8% to
6%, affecting qualifying plant and machinery assets.

If you are planning any investments for
your business, get in touch to discuss what tax-efficient options are
available to you.


Can the Chancellor save the high street?

Business rates will be cut by one
third for small retailers as part of the government’s drive to
revitalise the UK’s high streets, as announced in the 2018 Budget.

Most retail business with a rateable
value of less than £51,000 will see their business rates cut by 33%
for two years from April 2019. Whilst the relief is time-limited it
should affect around 90% of retail properties and provide some much
needed relief around the uncertain period during which the UK is due
to leave the EU.

Certain specific reliefs were also
announced, including a 100% business rate relief for public
lavatories – delivered with a barrage of associated puns from Mr
Hammond – and an extension of the £1,500 discount for local
newspapers.

The targeted relief for small
businesses was accompanied by a spending pledge from the Chancellor
of £675 million for a sustainable transformation of British high
streets. Some of this money will be spent on a High Streets Task
Force to support local leadership, and funding to strengthen
community assets, including the restoration of historic buildings on
high streets.

The ‘Amazon tax’

Mr Hammond made considerable use of his
announcement of a digital services tax – whether or not
international legislation will follow in suit – ahead of his
statement to parliament.

The details, which, emerged on the day,
are for a 2% tax on revenue derived from UK users for certain
business activities, such as search engines, social media platforms
and online marketplaces. The tax will also only apply to groups that
generate global revenues over £500 million a year.

The idea is to capture revenue
generated by large tech companies such as Google and Amazon, which
pay relatively little tax in the UK.

If you are running a retail business
and would like to discuss your rates, and other tax planning
opportunities, please get in touch.


Smaller firms benefit from Budget business detail

The details released after the 2018
Budget statement revealed a range of new restrictions for businesses.
However, they have been structured to reduce the impact on smaller
businesses.

Off-payroll working and IR35

One measure announced was the expected
extension of the off-payroll working rules, known as IR35, to the
private sector. This has now been pushed to April 2020. The change
will place responsibility for taxation of off payroll workers with
the organisation offering the engagement.

This change has already been brought
into effect in the public sector, despite ongoing uncertainty about
how the rules should be applied – with even HMRC settling IR35
cases outside employment tribunals. The complex rules, uncertain
results from HMRC’s CEST employment status tool and large costs for
mistakes, may discourage some companies from using off-payroll
workers.

Fortunately, small organisations are to
be exempt, although exactly how the government will define a small
organisation in this context remains to be seen.

Restricting reliefs and allowances

Small organisations will escape a new
restriction from April 2020 as the government will withdraw the
employment allowance (EA) from employers with national insurance
contributions (NICs) bills of £100,000 or over. The EA allows
employers to claim up to £3,000 of class 1 NICs every year.

From April 2019 new restrictions will
also apply to entrepreneurs’ relief. The minimum period during
which qualifying conditions must be met will be extended from twelve
to twenty-four months. Also, from 29 October 2018, shareholders
claiming entrepreneurs’ relief must be entitled to at least 5% of
the distributable profits and net assets of a company, in addition to
the current requirements on share capital and voting rights. The
relief will still apply if a shareholding is diluted below 5% by
fund-raising events after April 2019.

The costs of employees

The national living wage will increase
4.9% from April 2019, with the national living wage (NLW) for
employees aged 25 and over will rise to £8.21.

Whilst salary costs will increase,
there is some good news for small employers with apprentices. The
co-investment rate for apprenticeship training will be cut from 10%
to 5% as part of a drive to encourage employers to take on young
staff for training.

The impact of these changes, which
aren’t headline material, could be significant. Please get in touch
if you would like to discuss how they affect you.

Trick or treat? The
Chancellor calls the 2018 Budget for late October

The 2018 Budget has been set for
Monday 29 October, setting a deadline for speculation and proposals.
Mr Hammond, however, has indicated that he won’t end the long spell
of austerity measures, despite improving public finances.

Proposals raised by think tanks and
professional bodies include overhauls of income and inheritance tax,
‘pension tax relief simplification’, and scrapping entrepreneur’s
relief to help fund NHS costs.

But every proposal is overshadowed by
Brexit, and the uncertainty of what will happen on 29 March 2019.

What’s coming?

Alongside measures announced in the
draft Finance Bill, the following areas could see change:

The NHS – The NHS
Foundations’s ten-year plan will not be published in time for the
Budget, so the Chancellor could be limited to general spending
priorities. Mr Hammond said a digital services tax or ‘Google tax’
is coming – with or without European allies. This income could be
dedicated to the NHS.

Inheritance tax (IHT) – The
IHT review from the Office of Tax Simplification (OTS) may be
published ahead of the Budget. It was tasked to look at making IHT
less complex, focusing especially on trusts, administrative issues
and business and agricultural property reliefs. Calls for a complete
overhaul in favour of a ‘lifetime receipts’, ‘property’ or
‘wealth tax’ seem unlikely from a Conservative government.

Stamp duty – After introducing
new reliefs for first-time buyers, focus has shifted to ‘last time’
buyers, with calls to incentivise older homeowners to downsize. The
Prime Minister has also indicated that an additional 1-3% duty could
be levied on foreign property buyers to help control rising house
prices and tackle homelessness.

Business – Business rates are
due to increase next year, with business groups calling for action.
The Chancellor’s conference speech outlined changes to the
apprenticeship levy to help build training and skills for SMEs, and
appeared to boost commitment to the business sector.

The environment – We are
likely to see a dedicated plastics packaging tax. Initial reports
indicated the costs would be borne by manufacturers rather than
consumers. However, we may also see an increase to the plastic bag
levy from 5p to 10p and roll out to all shops, not just firms with
over 250 employees.

In this most turbulent of times, facing
pressure from many groups, perhaps the only clear thing is that Mr
Hammond has an unusually tricky balancing act to pull off.

HMRC caught out on IR35 and holiday pay

HMRC has suffered an embarrassing
setback after one of its contractors launched a claim for unpaid
holiday pay, relating to work covered under the off-payroll working
rules, also known as the IR35 rules.

At the end of 2016, HMRC employed a
marketing consultant, who was required to go onto an agency payroll.
The consultant wasn’t given a choice about this, because HMRC ran
the engagement through their CEST employment status tool – HMRC
abide by any decision issued by this tool. The contractor had to
accept the terms if she wanted to continue working with HMRC, and
that meant she was subject to salary deductions, including employer’s
national insurance.

However, while HMRC considered the
consultant as employed for IR35 purposes, it didn’t grant her
employment rights that she would have had as an employee. The
consultant claimed she was effectively an agency worker, which meant
she was entitled to holiday pay and entitlement in line with other
HMRC employees.

The case didn’t quite make it to the
employment tribunal, as HMRC agreed to settle by paying £4,200 to
the contractor on the morning it was due to start. This does mean
that no precedent has been set, but the case serves as further
example that contractors inside the IR35 rules should receive
employment rights.

The government is still considering
whether to extend the IR35 rules to the private sector – currently
they only apply to public sector engagements. Many people across
private industry are hoping this won’t be included in the
forthcoming Budget.

With HMRC tripping up on its own rules,
what is certain is more clarity is required.

Brief victory on VATMOSS for microbusinesses

A successful campaign by
micro-business owners has seen the EU introduce a new minimum
threshold for the VATMOSS rules. But with legislation due to take
effect in January 2019 at risk from a no-deal Brexit, the success
could be short-lived.

Under the EU rules on place of supply,
VAT is charged on any sales of digital products to a non-business
customer in the EU – in the country the customer is in. There is no
minimum threshold, which means even the most casual trader is
affected.

However, after a grassroots campaign by
sole traders and micro-businesses, the EU announced a minimum
turnover threshold of €10,000, and some simplification measures for
businesses turning over €10,001–€100,000. The new measures
will save digital traders with low profits from paying VAT on their
digital sales.

The rules will take effect in UK law
from 1 January 2019. However, with the Brexit date set for 29 March
2019, and the prospect of no deal with the EU, this could be very
short-lived in effect.

VAT MOSS

The rules were introduced to close a
loophole used by multinational businesses to avoid VAT, by
registering their revenue in a low-tax country such as Luxembourg.
Whilst large businesses could cope with the new requirements, this
created a real administrative burden for smaller affected sellers now
expected to pay VAT to tax authorities across the EU.

HMRC responded to the new rules by
setting up a VAT Mini One-Stop Shop (VAT MOSS). This system allows
traders to pay VAT for digital sales to the EU direct to HMRC, rather
than register for VAT in each relevant EU country.

However, according to HMRC’s ‘VAT
guidance on a no deal Brexit’, if the UK leaves without a deal with
the EU, “businesses will no longer be able to use the UK’s Mini
One Stop Shop (MOSS) portal to report and pay VAT on sales of digital
services to consumers in the EU. Businesses that want to continue to
use the MOSS system will need to register for the VAT MOSS non-Union
scheme in an EU Member State.”

If you are selling digital products to
the EU and would like advice on how to deal with Brexit, please get
in touch.


Class 2 NICs here to stay

The Chancellor has changed his mind
– again – on National Insurance Contributions (NICs) for the
self-employed. The Treasury has revealed that Class 2 NICs will
remain for at least the rest of this Parliament.

The Treasury’s justification was
that, without Class 2 NICs, “A significant number of self-employed
individuals on the lowest profits would have seen the voluntary
payment they make to maintain access to the state pension rise
substantially.”

This means that over three million
people will continue to pay the tax, providing more revenue for the
Chancellor at a time that he certainly needs it. However, as many as
300,000 self-employed people earning less than the Small Profits
Threshold (£6,032 a year) could have seen their NIC payments rise
from £2.95 a week to £14.65 a week.

Mr Hammond originally proposed a reform
of National Insurance Contributions (NICs) for the self-employed in
his March 2017 Budget. The 2017 proposal was to increase the main
rate of Class 4, from 9% to 10% in 2018/19 and again to 11% in
2019/20, bringing it closer to the employee rate of 12%.

The idea lasted less than a week before
it was buried under a welter of backbench criticism and The Sun
newspaper’s campaign. Some months later, the Treasury quietly
announced that the end of Class 2 NICs would be deferred a year. Now
they could survive until 2022, based on the current deadline for the
next General Election.

The decision, announced well ahead of
the Budget in October, is a reminder of the financial and political
constraints faced by the Chancellor.


The importance of a shareholder agreement for your new business

When incorporating a new business,
it can be easy to focus on immediate concerns of making some money.
However, it is also really important to take the opportunity to
create a shareholders’ agreement.

A shareholder agreement is a legal
document that sets out the rights, responsibilities, liabilities and
obligations of the shareholders. Importantly, where the articles of
association are filed at Companies House, a shareholders’ agreement
is private.

You can use a shareholders’ agreement
for a range of purposes such as:

Dispute resolution – Your
agreement can set out clear processes for resolving disputes between
shareholders. As well as having clear dispute processes, the
agreement could even force an obstructive shareholder to sell their
shares in certain circumstances.

Share transfers – If a
shareholder dies, or simply wants to sell their stake in the
business, the agreement can set out what happens. For instance, you
could give the business the opportunity to buy the shares back,
rather than be forced to sell them to a third party, or provide for
free transfer to family members inheriting a share in the business.

Reserved matters – Whilst
shareholders may not be involved in the day-to-day running of the
business, it might be appropriate for them to be decision-makers on
more significant matters. An agreement could require shareholders to
approve major changes, such as issuing more shares or amending the
articles of association.

Restricting competition – With
startups sometimes operating in small pools, you might want to place
restrictions on shareholders from starting competing businesses
during the sensitive first years.

Protecting minority shareholders –
Once in place, a shareholders’ agreement can only be changed if
all the shareholders agree. So, setting the right rules early on can
help you protect the interests of all investors from the first steps.

Selling a company – On the
other side, your agreement could include ‘drag along’ rights,
which allow a majority shareholder to force minority shareholders to
accept an offer to buy all the shares in a company. Whilst you can’t
reduce their share of the proceeds, you could stop a reluctant
individual from stopping a sale.

With so much to do at the start of a
business’s life, it can be easy to overlook the shareholders’
agreement. But as the above shows, getting it right from the outset
can save a great deal of trouble down the line.

Requirement to correct deadline looms as HMRC details penalties

HMRC has
issued updated guidance to the requirement to correct (RTC) rules for
offshore liabilities and non-compliance, with the 30 September
deadline rapidly approaching.

Offshore
financial centres and tax avoidance are a perennial topic in the
news, and there has been a shift in wider public perception following
the revelations in the Panama and Paradise Papers. The RTC rules are
designed to allow people to disclose their undeclared offshore tax
liabilities – for income tax, capital gains tax or inheritance tax
– to HMRC, as part of their efforts to combat tax evasion.

HMRC will
investigate any disclosures and take appropriate action, which will
include collecting any payments due, as tax, interest or penalties.

While it may not
seem tempting to put yourself forward for a potentially expensive
assessment such as this, HMRC has confirmed the sanctions for those
who fail to correct. The standard penalty for non-disclosure under
the RTC is set at a hefty 200% of the tax liability.

It will be
possible to reduce this penalty by voluntary disclosure, providing
access to records and helping HMRC with its investigation. However,
the penalty can only be reduced to a minimum of 100% of the tax
liability, and to do that an individual must provide information
about anyone who encouraged, assisted or facilitated the
non-compliance.

Disclosures made
by midnight on 30 September 2018 will avoid the penalties, provided
they are made using the Worldwide Disclosure Facility, submitting a
return amending inaccuracies or by telling an HMRC officer during an
enquiry. And the disclosure process then needs to be fully completed
within 90 days.

With such harsh
penalties being introduced, and a culture of whistleblowing to be
encouraged, the incentive is there to get any disclosure in ahead of
the deadline.

Fuel rates go green for electric mileage

Businesses can pay mileage for
company electric car drivers from 1 September, following the
introduction of a new Advisory Electric Rate (AER).

The AER has been set at 4p per mile for
100% electric cars, which introduces greater incentives to use
zero-emissions vehicles for the first time. HMRC hasn’t considered
electricity as a fuel until this update, so the change represents a
fundamental shift in how fleets will be taxed, giving another reason
for companies to move to greener options.

The advisory fuel rates are used by
businesses when reimbursing employees for any business mileage and
are also the amount employees must repay for any private travel. The
rates, including the AER, are applied free of tax and national
insurance, which makes them a tax-efficient option.

Employers can choose to pay a higher
rate of mileage, but proof of higher electricity costs will have to
be provided for this to be tax deductible. If the extra cost can’t
be demonstrated, any excess will be treated as taxable profit and
national insurance will have to be paid.

The petrol and diesel rates have also
been updated, with increases for smaller petrol engines and mid-sized
diesel engines. Hybrid cars continue to be treated as either petrol
or diesel vehicles, depending on their engine.

The UK is facing ongoing issues with
reducing air pollution and emissions levels, especially in city
centres, so the new fuel rate could provide enticement for businesses
to switch to electric vehicles. With charging infrastructure growing
more established throughout the country, electric cars will only
become more commonplace.

Wide-reaching changes proposed to gender pay gap reporting
requirements

Gender pay gap reporting
requirements should be extended to organisations with 50 or more
employees from April 2020, according to the Business, Energy and
Industrial Strategy Committee.

Early this year there was much media
coverage as large organisations with 250 or more employees were
required to publish information about their gender pay and bonus
gaps, along with information on who receives bonuses and salary
distribution by gender. Proposals to reduce that level to just 50
employees would mean a significant increase in the number of
organisations having to report their data.

The Committee made a number of other
recommendations, including counting partners in any calculations to
provide a more holistic view of remuneration. The calculations do not
currently include partner pay as they take a share of profits instead
of a salary. With partners likely to be amongst the most highly-paid
people in an organisation, this could alter some reports
significantly.

The Committee proposed calculating
bonuses on a pro rata basis and requiring more information on
full-time and part-time salaries. Both of these could be distorting
the data with, for instance, directors receiving large bonuses whilst
working fewer hours, or lower-paid employees in part-time roles.

Organisations should also be required
to publish an explanation of their pay gap, along with an action plan
to close it and updates in future years. The data is publicly
available, so media outlets are already providing analysis and
commentary of the results, but a new requirement such as this would
shift the focus to employers. After a few years of reporting, this
could lead to serious reputational risks for organisations not being
seen to change.

The next reporting deadline is April
2019, so there won’t be any changes during this period. However,
with such wide-reaching proposals, and the Committee also talking
about new requirements around disability and ethnicity, employers may
have to face up to a more transparent future.

Damping the ashes: Government seeks new controls for phoenixing

The government has announced new
powers for the Insolvency Service to pursue company directors who
recklessly push companies into administration or liquidation.

The announcement came shortly after
Wonga, the payday lender, went into administration following an
influx of compensation claims from customers.

Despite the inevitable barrage of jokes
– What’s wrong with Wonga, did they lend themselves a tenner? –
the Insolvency Service were still left with an administration that
includes 200,000 customers owing over £400 million in short-term
loans. These customers have been advised to keep paying their loans
as their debts will be sold as part of the company’s administration
process.

The proposed powers would allow the
Insolvency Service to punish directors who drive companies into
administration to escape debt obligations, pension deficits and other
liabilities with fines and/or disqualifications. The government also
wants to crack down on the practice of ‘phoenixing’ – where a
company is dissolved, leaving the directors free to start trading
again under a new name.

Whilst the majority of companies fail
without any wrongdoing on the part of the directors, who should be
able to try new business ventures in the future, some dissolve
businesses deliberately to avoid paying debts. In certain cases, new
businesses are transferring their trade to a new company, to continue
trading straight away newly free of debt, and it is these people the
government is targeting.

With 2018 having seen many high-profile
company failures, including Carillion, Toys ‘R’ Us, House of
Fraser and Maplin, and the BHS failure still in recent memory, the
new rules may be a welcome development. Of course, the most important
thing is to avoid going into administration in the first place, so if
you would like help getting your company’s finances in order,
please get in touch.

News on no deal Brexit for VAT

It has been confirmed that the UK
VAT system for domestic transactions will continue in the event of
the UK leaving the EU with no deal in March 2019.

The government has published a guidance
note which confirms some details of what will happen in the event of
a ‘no deal’ Brexit. The note confirms that VAT for UK domestic
transactions will remain unchanged, but businesses will have to treat
imports from EU countries like current third, non-EU countries, which
could mean changes to IT systems and reporting processes.

An important, and welcome,
clarification is that importers will be able to account for import
VAT on their VAT return rather than having to pay up front. This
prevents a situation where importers would have been forced to pay
VAT before having a chance to sell their goods. Interestingly, this
new system will also apply to imports from non-EU countries.

For exporters selling to the EU, a no
deal situation would mean distance selling arrangements would no
longer apply. This would allow UK businesses to zero rate sales of
goods to EU customers. Exporters will also no longer need to complete
an EC sales list, but will need to retain evidence of goods leaving
the UK. Import duties for EU countries may be due at the border,
applied on an individual basis.

The current place of supply rules will
remain in place, meaning businesses selling digital products to
non-business customers in the EU will still need to pay the VAT due
in the relevant member state. However, business won’t be able to
use the UK’s Mini One-Stop Shop (MOSS) portal. Instead, businesses
will have to register for the VAT MOSS non-Union scheme in an EU
Member state – and they can only register after the UK leaves the
EU.

The guidance note has been broadly
welcomed for providing clarity on the effects of a no deal Brexit. We
will be available to help your business prepare and adapt for
whatever Brexit will bring as more details are decided.