HM Revenue & Customs publishes further details of the Job Support Scheme

HM Revenue & Customs (HMRC) has published further details of the Job Support Scheme Open (JSS Open), announced by the Chancellor during his Winter Economy Statement in Parliament on 24 October and expanded upon in his later announcement in Parliament to support the new tiered COVID-19 approach.

The JSS Open is intended to support businesses facing reduced demand over the winter as a result of the Coronavirus crisis, helping to keep employees in ‘viable’ jobs on short-time working.

The scheme will launch on 1 November 2020 – the day after the Coronavirus Job Retention Scheme (CJRS) closes – and will run for six months until the end of April 2021.

It will be open to all SMEs, but will only be available to large businesses that can show that they have been adversely affected by the Coronavirus crisis through reduced revenues. Large businesses will be expected not to make capital distributions, including dividends or share buybacks, while using the JSS.

Employees claimed for through the JSS must have been on an employer’s PAYE payroll on 23 September 2020, meaning their employer must have included them on an RTI submission on or before that date.

They cannot be on notice of redundancy or be made redundant while in receipt of the JSS.

Employees must work at least 20 per cent of their usual hours and be paid in full for those hours by their employer.

The employer must also then pay for five per cent of the hours not worked, while the Government will make a subsidised payment equal to 61.67 per cent of the hours not worked – up to a cap of £1,541.75 a month.

Employees will then forego pay for the rest of the usual hours that they are not working. This means they will be paid at least 73 per cent of their usual wages, where they earn £3,125 a month or less, even if they are only working 20 per cent of their usual hours.

Employers will need to agree short-time working arrangements with staff affected and make any necessary changes to contracts of employment, with documents made available to HMRC on request.

HMRC says that it intends to notify employees directly with full details of the claims made in respect of them.

Alongside the JSS Open, the Government has announced the JSS Closed scheme for businesses legally required to close as a result of Coronavirus restrictions, which covers around two-thirds of an employee’s wage.

Link: Job Support Scheme Factsheet

Annual Investment Allowance – Time is running out

Since 1 January 2019, the Annual Investment Allowance (AIA) for capital allowances has been £1 million – helping businesses to invest tax efficiently.

However, from 1 January 2021, the AIA will fall back to just £200,000, reducing the amount of tax that can potentially be saved.

By using the AIA, businesses can claim against most qualifying plant and machinery expenditure allowing them to deduct the full value of the investment from their profits, thus reducing their tax bill.

That means if a business has any plans that involve significant capital expenditure, they should consider accelerating these claims in 2020 to take advantage of the higher allowance available this year.

Where a business has a 31 December year-end then they can take full advantage of the £1 million allowance this year, as only qualifying capital expenditure after the year-end will be subject to the AIA of £200,000.

However, for businesses whose year-end falls after 31 December 2020, the position is more complex as the AIA limit is determined by the amount of time within the accounting period that falls in the year 2020.

For example, if a business has a year-end on 31 March 2021, they will only be apportioned nine months of the old allowance and three months of the new allowance, which would result in them being able to claim up to £800,000 in AIA (£750,000 from 2020 and £50,000 from 2021).

Businesses can also take advantage of tax planning opportunities by entering into an unconditional contract on or before 31 December to purchase the qualifying expenditure, and benefit from the relief on offer this year.

Link: Claim capital allowances

Accounting for mobile phone use

During the last few months, to assist workers with working from home, many businesses have supplied a work mobile phone, but how should they account for this benefit?

Typically, the provision of equipment, such as a mobile, could be considered a benefit in kind for tax purposes, however, an employee can benefit from an employer-provided mobile phone without suffering a tax charge where certain conditions are met.

Under the rules, to avoid a tax charge via benefit in kind, the ownership must not be transferred to the employee, as the exemption applies only if the employer makes a mobile phone it owns available for use by the employee.

This exemption only covers the supply of a single mobile phone to each employee, the line rental and the cost of any private calls made on the phone, which are paid for by the employer.

Where the mobile phone (or sim card) is registered in a company name, all the costs can be claimed, with the proviso that ‘personal use’ must be ‘reasonable and not excessive’. Meanwhile, the phone itself counts as a company asset.

In some cases, a home-working employee may have been allowed to or decided to use their own personal device to make business calls.

Where a phone contract is personal, i.e. not registered to the company, then there are two main ways to treat the expense:

  • Where a company pays for the bills and the phone, it is counted as a ‘benefit in kind’ and the costs have to be reported via the P11D form and there will be National Insurance contributions (NICs) to pay.
  • Where an employee pays for the phone and bills, deductions have to made on PAYE and Class 1 NICs on the value of the monthly contract, plus any personal calls that may add costs over the normal monthly tariff.

In both of these scenarios, VAT can only be claimed on the business costs.

Businesses should also consider the potential security risks of a person using their own devices, such as the accessibility of sensitive data by other persons, and should have an agreed policy on phone use, which could be part of a home working agreement.

Link: Expenses and benefits: mobile phones

Time to prepare (once again) for the VAT reverse charge

In just a few months, more than 150,000 businesses connected to the construction industry will have to make a fundamental change to how they manage their VAT affairs.

Although the world has been in lockdown, and with it, parts of the construction sector, the Government still intends to launch the VAT domestic reverse charge for specified types of construction work from 1 March 2021. This is the third launch date for the scheme, with two previous launches having been postponed.

The reverse charge is designed to prevent missing trader fraud, which is estimated to cause £100 million to be lost a year in VAT payments.

This fraud is most commonly found among sub-contractors who provide services to developers or large contractors working in the construction industry.

As a group, sub-contractors typically have minimal VAT costs to recover, with their workers’ wages representing their main outgoing, which is not subject to VAT.

However, they are required to charge VAT on the service of supplying their workers, which has led to some unscrupulous sub-contractors attempting to evade VAT by ‘going missing’.

They typically achieve this by not filing accounts and dissolving a company, only to reappear sometime later under a new company registration.

The reverse charge applies to business-to-business supplies in circumstances where both businesses are registered for VAT, there is an onward supply of construction and the parties are subject to the Construction Industry Scheme (CIS).

Under the VAT reverse charge, the responsibility of accounting for VAT falls on the recipient (other than the end-user) of construction services, or goods related to construction, instead of paying it to the supplier of the service, which may be a sub-contractor.

They can then recover the VAT, subject to the normal rules of recovery, as input tax. The amount would still be treated as input tax on the same VAT return and, assuming that it was using the services in making taxable supplies itself, it would be able to recover it in full.

The reverse charge does not apply where:

  • Services are supplied to the end-user, such as the property owner, or directly to a main contractor that sells a newly completed building to the customer;
  • The recipient makes onward supplies of those construction services to a connected company;
  • The supplier and recipient are landlord and tenant or vice versa; or
  • The supplies are zero-rated.

The reverse charge will only apply to the supply of specific construction services, details of these can be found by clicking here. The reverse charge will also apply both to labour and materials related to the services used.

To prepare for these changes, businesses should:

  • make sure their accounting systems and software can deal with the reverse charge
  • consider whether the change will impact their cash flow
  • make sure all staff who are responsible for VAT accounting are familiar with the reverse charge and how it works.

The rules surrounding the VAT reverse charge are nuanced and they may be applied differently depending on the nature of a business and its place within the supply chain, so you must seek help if you are unsure of your position after 1 March 2021.

Link: The VAT Reverse Charge

Is the Government considering a National Living Wage freeze?

New reports have suggested that the Treasury may be considering postponing a planned increase to the National Living Wage (NLW) rates next year.

Under plans outlined last December by then Chancellor, Sajid Javid, the legal minimum wage paid to workers over the age of 25 was due to rise by 6.2 per cent from £8.72 per hour to £9.21 per hour in April 2021.

However, the Sunday Telegraph has reported that ministers and officials have discussed applying an “emergency brake” to the NLW increase in response to the COVID-19 crisis and mounting unemployment.

The Telegraph reported that the current Chancellor, Rishi Sunak, could be due to announce such a change in a future Budget on advice from the Low Pay Commission, which believes that many organisations would not be able to afford the increase in wages for low earners.

Speaking in the Telegraph, Low Pay Commission Chair, Bryan Sanderson, said that it had listened to the views of employers and trade unions carefully, and was considering whether the emergency brake was required.

He said: “There are not many winners in today’s uncertain world. Our contribution to help steer a path through the complexity will be to provide a recommendation founded on rigorous research and competent analysis, which has the support of academics and both sides of industry.”

Although the Government is yet to confirm these claims, it is clear that the Chancellor will have to take action to limit the economic impact of COVID-19 and rising unemployment in his next Budget, which will not take place now until next year.

Link: National living wage could be frozen next year