Author Archive: Muhammad Zia

National Living Wage and National Minimum Wage rates to increase from 1 April

The Government is pressing ahead with plans to increase the rates of the National Living Wage (NLW) and the National Minimum Wage (NMW) from 1 April 2021, while people aged 23 and 24 will be entitled to the National Living Wage for the first time.

The NLW will rise from £8.72 an hour to £8.91 an hour, the NMW for people aged over 21 will rise from £8.20 to £8.36, for those aged 18 to 20 it will increase from £6.45 to £6.56, while the under 18 rate will rise from £4.55 to £4.62. The rate for apprentices will rise from £4.15 to £4.30.

Employers who pay workers less than the minimum wage are required to pay back arrears to the worker and HMRC can also issue fines of up to 200 per cent of arrears (capped at £10,000 per worker).

HM Revenue & Customs (HMRC) also has the power to publicly name and shame the worst offenders as a deterrent to others.

Link: National Minimum Wage and National Living Wage rates

Business rates review report delayed

The Government has announced that the final report of its fundamental review of business rates will be delayed and will be published in the autumn.

It says that by then there should be greater clarity about the economic situation and the future of the public finances.

The review was announced by Rishi Sunak at his Budget a year ago and a call for evidence was published last July.

A summary of responses to this call for evidence is set to be published in an interim report on 23 March 2021.

Business rates have become a politically charged topic with online retailers generally paying much less in business rates than their high street counterparts do.

Online retailers have been able to continue trading throughout the pandemic while most high street retailers have been forced to close for months or weeks at a time.

To continue to support businesses, the Government announced in the 2021 Budget that it will continue to provide eligible retail, hospitality and leisure properties in England with 100 per cent business rates relief from 1 April 2021 to 30 June 2021.

This will be followed by 66 per cent business rates relief for the period from 1 July 2021 to 31 March 2022, capped at £2 million per business for properties that were required to be closed on 5 January 2021, or £105,000 per business for other eligible properties.

This means that 750,000 retail, hospitality and leisure properties in England will continue to pay no business rates for a further three months from 1 April 2021, with the vast majority of eligible businesses receiving 75 per cent relief across the year.

Link: Business Rates Review Update

Vaccine rollout prompts SME optimism about prospects for 2021

New research has found that SMEs across the UK are feeling increasingly optimistic about their prospects for the rest of 2021, after the success of the vaccine rollout.

The Barclaycard Payments Barometer research found that SMEs expect to grow their revenues by an average of eight per cent.

London SMEs, meanwhile, expect to see revenues grow by an average of 11 per cent in 2021.

Amongst other findings, 42 per cent of SMEs believe that the current lockdown will be the last and 49 per cent expect restrictions to end in June.

Rob Cameron, CEO at Barclaycard Payments, said: “While the world may be returning to some form of normal this year, small businesses have realised the benefits of flexible working and digital skills, with many already looking at what improvements they can take forward into 2021.”

Kate Hardcastle MBE, an independent expert, said: “SMEs have had to show a great deal of resilience and entrepreneurism to survive what has been an unprecedented time, and indeed many have shown great ingenuity and creativity.

“Finding new ways to work, and maximising the opportunity with new technology has enabled some businesses to build greater engagement with customers. There is certainly cautiousness about the months and even years ahead, and there is no trivialising the tenacity that will be required, yet as more organisations find better working practice along the way for stakeholders, customers and local-entrepreneurism – this could also symbolise a significant turning point for many businesses.”

Link: Cautious optimism sees SMEs rally for recovery as Barometer reveals 8.1 per cent expected growth in 2021

Keep your supply chain strong with three top tips

With manufacturing slowing and anxiety growing, reinforcing your supply chain post-Brexit has never been more important.

Many different factors can affect a supply chain, not least the complications created by the new customs and trade arrangements.

Here are our three top tips to keeping your business moving post-Brexit and beyond.

Know your business inside out

If you export or import goods to or from anywhere in the world, you already know how much has changed over the past three months.

From new customs and shipping procedures to workplace and visa changes, staying “in the know” is the key to ensuring a strong supply chain.

To support your learning, consider investing in specialist training, attending webinars, and subscribing to helpful, sector-specific newsletters to keep in the loop.

If you need specialist advice then it may be worth seeking professional advice from an accountant, such as ourselves.

Identify weak links in the supply chain

Think of the supply chain like a carefully assembled set of dominoes; if the domino behind you falls, will you fall too?

Protect your business by carrying out a comprehensive audit of the supply chain, identifying the ‘weak links’, which could disrupt the flow of goods and making the necessary improvements.

For example, can you diversity the supply chain by sourcing commonly traded commodities from multiple suppliers? Can you stock up on hard to obtain materials in anticipation of future disruption? Or can you find a new supplier based in the regional market you are dealing with?

Prepare for any eventuality

If you knew that Brexit and the coronavirus pandemic would strike again, how would you prepare differently?

By identifying how and where things went wrong, you will be much better equipped to deal with future crises.

For example, if your business struggled with the transportation and movement of goods, could a pre-approved, alternative provider come to the rescue?

While potentially more expensive, alternative hauliers could prevent your business from grinding to a halt.

If stock was your issue, it might be wise to invest in a buffer should the flow of goods suddenly stop. Yes, your cash flow will take a hit, but slower continuous trading is much better than no trading at all.

If recent events have taught us anything, it’s that it pays to be prepared for anything.

For help and advice with related matters, please get in touch with our expert Brexit advisory team today.

Budget 2021

In the year since the Chancellor, Rishi Sunak, delivered his first Budget to a packed Commons chamber in March 2020, more than 135,000 people in the UK have died from Coronavirus, there have been three national lockdowns, the economy has shrunk by 9.9 per cent and Coronavirus support measures have cost around £280 billion.

As a result, Government borrowing – the budget deficit – is expected to rise from a forecasted £55 billion to about £355 billion by the end of 2020-21. Meanwhile, national debt is already approaching 100 per cent of GDP at £2.1 trillion and could rise to 120 per cent of GDP during the first half of the decade according to the Office for Budget Responsibility (OBR).

The widely respected Institute for Fiscal Studies (IFS) warned late last year that around £40 billion of tax rises will be needed by the middle of the decade to keep borrowing down to £80 billion a year and debt down to 100 per cent of GDP, prompting intense speculation that they could come as soon as this Budget.

With the Conservatives having committed in their 2019 General Election Manifesto not to raise the rates of Income Tax, National Insurance or VAT, much of the speculation about possible tax rises was focused on Capital Gains Tax (CGT) and Corporation Tax.

At the same time, the Budget came against the background of a growing sense of cautious optimism. More than 20 million people have now been vaccinated against Coronavirus and, just over a week ago, the Prime Minister set out the Government’s roadmap out of lockdown.

In announcing the roadmap out of lockdown, the Prime Minister – echoed by various ministers over the intervening days – all but confirmed the Chancellor would announce further Coronavirus support for businesses and the self-employed at the Budget.

Then, at 10pm the night before the Budget, several major news organisations reported the same details of how the various Coronavirus support measures would be extended, leaving little doubt about what the Chancellor would say on the subject.

The question, then, as Mr Sunak rose to the dispatch box in a virtually deserted Commons chamber, was whether he would increase any taxes immediately or hold off until a later date.

 

Economic outlook

The Chancellor began by noting the way that the Coronavirus pandemic has fundamentally altered our way of life and summarising the Government’s response to the crisis.

After promising to do whatever it takes to support people through the crisis, he said: “It’s going to take this country and the whole world a long time to recover”.

Turning to the economic outlook, the Chancellor said that the OBR is now expecting a swifter and more sustained recovery than it had expected in November, with the economy now expected to return to its pre-Covid level by the middle of next year – six months earlier than forecast.

However, he said that in five years’ time, the economy will still be three per cent smaller than it would have been, had it not been for the pandemic.

He said that growth this year is forecast to be four per cent, rising to 7.3 per cent in 2022, followed by growth of 1.7 per cent, 1.6 per cent and 1.7 per cent in the subsequent years.

Coronavirus support measures

Turning to the Government’s Coronavirus support measures, the Chancellor confirmed, as had been trailed, that the furlough scheme – the Coronavirus Job Retention Scheme (CJRS) – would be extended to the end of September 2021, continuing to pay furloughed workers 80 per cent of their usual wages, capped at £2,500 a month.

However, unlike the scheme as it currently operates, he said employers will have to contribute 10 per cent of a furloughed worker’s wages in July and 20 per cent in August and September.

Moving to support for self-employed individuals, the Chancellor said that 600,000 newly self-employed people would be eligible for the fourth round of the Self-Employment Income Support Scheme (SEISS) as people who have submitted a 2019-20 Self-Assessment tax return will now be eligible.

The fourth round of the scheme will once again provide grants worth up to 80 per cent of trading profits, capped at £7,500. Applications will open in late April.

He then announced a fifth grant worth three months of average profits. This will continue to pay grants at 80 per cent of usual trading profits capped at £7,500 for people whose turnover has fallen by 30 per cent, but it will reduce to 30 per cent of usual trading profits capped at £2,850 for people whose turnover has fallen by less than that.

The Chancellor also announced the extension of the £20 a week uplift to Universal Credit for people who have lost their jobs for the next six months.

Moving to direct support for businesses, he announced the launch of the Recovery Loan Scheme from 6 April this year to replace the Government’s existing Coronavirus loan schemes. The Recovery Loan Scheme will allow any business of any size to apply for a loan of between £25,000 and £10 million backed by an 80 per cent Government guarantee.

He said that new Restart Grants will also be launched in April, making one-off payments of up to £6,000 per premises for non-essential retail businesses and up to £18,000 for businesses in the hospitality sector and others that are reopening later.

The Chancellor confirmed that the current 100 per cent business rates relief for eligible retail, hospitality and leisure businesses will continue for three months to 30 June 2021. There will then be a 66 per cent reduction in business rates for these businesses until 31 March 2022, capped at £2 million for businesses required to close on 5 January 2021 and capped at £105,000 for other businesses.

Staying with the hospitality sector, he said that the VAT reduction from 20 per cent to five per cent on many goods and services in the hospitality and leisure sectors will now be extended from 31 March 2021 to 30 September 2021. It will then move to an interim rate of 12.5 per cent until it reverts to 20 per cent in April 2022.

The Chancellor also said that the Government will double incentive payments for employers in all sectors to take on apprentices to £3,000.

Moving to the housing sector and the property market, the Chancellor said the £500,000 Stamp Duty Land Tax (SDLT) nil-rate band will remain in place for a further three months until 30 June 2021. It will then fall to £250,000 – twice its normal rate – until the end of September.

He then moved on to announce a new mortgage guarantee scheme, beginning in April 2021. The scheme will offer a Government guarantee to lending offering 95 per cent mortgages on homes worth up to £600,000.

The Chancellor said that the measures set out in the Budget amount to a further £65 billion of Coronavirus support, bringing the total since the start of the crisis to £407 billion.

Personal tax measures

The Chancellor said that the cost of Coronavirus support and the impact of the economic downturn on tax receipts meant that borrowing would reach £355 billion this year and £234 billion next year.

Reiterating his commitment to sustainable public finances, he said it was necessary to take steps to get the public finances back on track.

The Chancellor said that the Income Tax Personal Allowance and Higher Rate Threshold (HRT) will increase in line with the consumer prices index in April 2021 but will then remain at this level until April 2026, cancelling planned increases in line with inflation.

He said that thresholds for Inheritance Tax, the pensions Lifetime Allowance and the Annual Exempt Amount for CGT will remain at their current levels until April 2026.

Business tax measures

Moving to business tax measures, the Chancellor confirmed the widely expected increase in Corporation Tax from 19 per cent to 25 per cent, which will come into effect from April 2023.

However, he also announced a new Small Profits Rate of Corporation Tax for small businesses with profits below £50,000 of 19 per cent, meaning they will see no increase. Businesses with profits of between £50,000 and £250,000 will see a tapered rate, while those with profits of more than £250,000 will pay the full 25 per cent rate.

The Chancellor moved on to say that the Government will extend the trading loss carry-back rule temporarily from one to three years. Loss-making unincorporated businesses and those that are not part of a corporate group will be entitled to relief for up to £2 million of losses in 2020-21 and 2021-22.

Those that are part of a corporate group will have caps on either £200,000 or £2 million across the group in each year.

He also announced a two-year temporary Capital Allowances Super Deduction of 130 per cent for main rate assets such as plant and machinery as well as a 50 per cent First Year Allowance for special rate assets.

Meanwhile, he said that the current VAT registration threshold of £85,000 will remain in place for a further two years from April 2022.

Turning back to the hospitality sector, the Chancellor announced that planned increases in the duties of spirits, wine and beer would be cancelled.

He also once again froze fuel duty.

The Chancellor also confirmed reviews of Research and Development Tax Reliefs and Enterprise Management Incentives.

Public spending

Moving to spending announcements, the Chancellor confirmed the launch of the UK Infrastructure Bank, based in Leeds, which will support investment in public and private infrastructure projects.

He said there would be an additional £1.6 billion to support the vaccine roll-out, £1 billion in local funding for towns, and a £375 million Future Fund: Breakthrough for highly innovative companies.

Again returning to the hospitality sector, he announced the launch of a £150 million Community Ownership Fund for communities to invest in assets such as pubs, theatres, shops or sports clubs.

Finally, he announced the locations of eight Freeports, subject to simpler planning rules, infrastructure grants and lower taxes. They will be at East Midlands Airport, Felixstowe and Harwich, Humber, Liverpool City Region, Plymouth, Solent, Thames and Teeside.

Conclusion

Although most of the key Coronavirus business support measures had been revealed in advance of the Budget, the Chancellor confirmed that taxes will rise in the coming years, as had been widely expected.

As ever, what the Budget means for individuals and businesses will become clearer as more details of the specific policies are announced in the coming days and weeks.

It seems clear, however, that businesses and individuals are about to start meeting the costs of the Government’s Coronavirus support measures.

Link: Budget 2021

EU VAT One-Stop-Shop to launch in July 2021

The European Commission, in response to the challenges created by the Coronavirus pandemic, has decided to postpone its new European VAT rules for business-to-consumer (B2C) transactions until 1 July 2021.

These new rules are part of the EU’s new e-commerce package and will look to introduce a VAT One-Stop-Shop (OSS) for B2C sales.

Originally due to come into force on 1 January 2021, the main aim of this package is to simplify VAT obligations for companies carrying out cross-border sales of goods and services (mainly online) to consumers. This will ensure that VAT on is paid correctly to the Member State in which the supply takes place

The current rules

Under the current EU rules, businesses from outside of the EU are typically required to register in each of the various Member States to which they supply goods or services to report and pay EU VAT at various rates on their sales.

Businesses offering B2C digital services can already use the Mini One-Stop-Shop (MOSS) to declare the VAT due on their supplies in a single quarterly VAT return, by only registering in one EU Member State.

However, no such declarative system is available to those selling physical goods, which means that imported goods from non-EU countries with a value above €22 (£15) must register for VAT in each EU member state and make the necessary declarations.

The new rules

From 1 July 2021, the EU will create a similar One-Stop-Shop (OSS) for B2C suppliers of all services and goods, which will remove the requirement for a business to have multiple VAT registrations and reporting obligations in the EU.

At the same time, the distance sales threshold will be abolished and replaced with a common threshold of €10,000 (£8,600) throughout the EU up to which B2C EU cross-border supplies remain subject to the VAT rules of the Member State of dispatch, and above which supplies become subject to the VAT rules of the Member State of destination.

Under this new system, a single report scheme covering sales of imported goods to EU consumers up to a value of €150 (£135) and for which a VAT exemption upon import, will apply if the trader declares and pays the VAT at the time of the sale using the Import One-Stop-Shop (IOSS).

The new package of legislation from the EU will also open the possibility of paying import VAT on customs declarations via a simplified monthly payment.

Who do the new rules affect?

The new rules will affect suppliers outside the EU as follows:

Suppliers of services to EU consumers – Various VAT rates currently apply to the sale of their services depending on the nature of the supply and the place of residence of the clients or customers.

However, from 1 July 2021 businesses could use the OSS to lighten their reporting obligations. The choice of the EU Member State where they could register for the OSS will depend on where they and their customers are established or based.

Sellers of goods to EU consumers – These businesses will see changes to their reporting obligations and potentially their profits.

Where a seller is a small business selling less than €10,000 (£8,600) per annum of goods and services to consumers in other Member States, they will be able to charge domestic VAT and report their sales below this threshold in their regular domestic VAT return.

If they are a B2C seller dispatching their goods from a single EU Member State, they will no longer be required to register for foreign VAT or complete multiple VAT filings in the EU Member States where they are selling their goods. Instead, they can opt to file a quarterly return under the OSS alongside their regular domestic VAT return.

Importantly non-EU sellers, including the UK (post-Brexit) can use the OSS to register as a “non-Union” taxpayer with the tax authority of the EU Member States of their choice, except where they already have fixed establishments in the EU.

This means that they could file quarterly returns under the OSS and only file a regular domestic VAT return in just one EU Member State where they are registered, instead of across multiple states under the current rules.

In some EU member states, online marketplaces, such as Amazon, are deemed the supplier of the goods, which may mean that some online sellers could de-register for VAT in certain EU Member States if they only sell via these marketplaces, as it will be the responsibility of the marketplace to collect the VAT at the time of the sale.

Steps to consider

Here are some important steps that you may need to consider under the OSS:

VAT Compliance – The OSS should reduce compliance costs by allowing businesses to use a single VAT return and registration in just one EU member state. In some cases, it may be necessary to appoint an intermediary or fiscal representative in a member state, who will report the sales on behalf of the seller and account for the VAT.

Procedures – Sellers must update their procedures and systems to recognise the VAT status of their clients, the countries of import, dispatch and/or arrival and capture the VAT rates applicable – be aware that there are more than 80 different EU VAT rates.

Trading via online marketplaces – If you trade via an online marketplace, like eBay or Amazon, you should review your contracts with these organisations to ensure that VAT accounting responsibilities are clearly defined.

Pricing – Goods might be subject to the VAT rate of the Member State of destination of the goods, whereas up until now, it might only be the case when national thresholds are exceeded, which means that the sale price or the seller’s margin will vary. With low consignment relief due to be abolished, VAT will be due on those sales at the rate applicable in all EU countries of sale. This will also impact the price and margin of the products.

Businesses must prepare now for these changes in July to ensure they are ready to implement the OSS, should they choose to use this simplified VAT system. If you need advice on what these rules mean for you and your business, please contact us.

Commodity codes, explained

If you move goods to or from anywhere in the world, you will need to use a commodity code to classify your consignment. Here’s what you need to know.

What is a commodity code?

The UK now uses a standardised set of codes, borrowed from the World Trade Organisation (WTO) “Harmonised System”, to classify goods.

These are known as commodity codes.

Commodity codes can contain up to 14 numbers, with each number representing the type of good being transported.

For example, any goods relating to vehicles (other than railway or tramway rolling stock, and parts and accessories thereof) will come under code “87”.

If that vehicle is a non-motorised bicycle, its code would be “87 12”, as “12” is the commodity code for “Bicycles and other cycles (including delivery tricycles), not motorised”.

The next set of numbers would relate to the type of bicycle, and so on and so forth (see below).

EU and WTO rules

Some products have longer commodity codes than others, depending on what the product is, the materials used, the production method, where it comes from, and where it is going.

The UK uses the standard six-digit format adopted from the World Trade Organisation (WTO) for goods shipped anywhere outside of the EU.

Goods shipped to the EU, however, may need additional classification. This will include two additional digits relating to the Combined Nomenclature (CN) heading and up to six additional digits relating to the Integrated Tariff of the European Communities (TARIC) subheading.

You can use the UK Global Online Tariff: look up commodity codes tool to find your commodity code.

If you’re having problems classifying your goods, get in touch with our expert team for support.

Why do I need a commodity code?

Every customs declaration made in or out of the UK requires a commodity code, as it is used to determine the rate of duty and import VAT which should be paid, if the duty is suspended, whether you need a licence to move the goods, or if your goods are covered by agricultural policy, anti-dumping duties, or tariff quotas.

If you use the wrong commodity code, you may pay the wrong import duty and your goods could be seized at the border.

Get expert advice today

For help and advice classifying your goods, please get in touch with our expert Brexit advisory team.