Articles

The British Chambers of Commerce (BCC) has revised its forecast for GDP growth in 2022, which is now expected to grow at half the rate as it did in 2021.

 GDP is now expected to grow in 2022 by 3.6%, revised down from 4.2% and compared to 7.5% growth in 2021.

 The downgrade largely reflects a deterioration in consumer confidence and weak business investment amid a cost of living crisis and rising inflation.

GDP growth will slow sharply again to 1.3% in 2023 before easing to 1.2% in 2024 due to limited activity following the cost-of-living squeeze, according to the BCC.

It also warned CPI inflation could peak at 8% in Q2 2022 and outpace wage growth – significantly higher than the Bank of England’s 6% forecast.

CPI inflation is now expected to fall back to the Bank of England’s 2% target in Q4 2024, over a year later than the previous forecast of Q2 2023.

Hannah Essex, co-executive director of the British Chambers of Commerce, said:

“Our downgraded projections for the UK economy highlight the critical challenges facing business communities and households against the backdrop of the growing uncertainty surrounding both the UK and global economy.

“Coming hot on the heels of two years of a pandemic-induced squeeze on cashflow and investment plans, it is clear the Government must do more to support UK business and the wider economy.”

Plan for the long term with us.

The Economic Affairs’ Finance Sub-Committee of the House of Lords has written to the Government, listing key recommendations on off-payroll working rules known as IR35.

IR35 legislation aims to prevent tax avoidance by workers who contract out their services through a personal limited company for tax purposes but enjoy the perks a regular employee would.

The Government changed how IR35 worked for the private sector for medium and large businesses in April 2021, putting the onus of determining a contractor’s employment status on the employer, rather than the contractor themselves.

But the extension has resulted in an increased use of “rogue” umbrella companies among workers, according to the Committee.

HMRC estimates 100,000 individuals were working through umbrella companies in 2007/08 compared to at least 500,000 in 2020/21.

The sub-committee said it was “very concerned” by the trend, as it increases the risk of workers becoming involved with umbrella companies operating tax avoidance schemes.

Lord Bridges of Headley, chair of the sub-committee, said:

“The whole point of the off-payroll reforms was to crack down on tax avoidance. Yet, as we warned the Government in our Sub-Committee’s report in 2020, it risks giving rise to a new wave of tax avoidance, as people — many of them on low incomes — end up in rogue umbrella companies.

“The Government must take action to protect workers from ‘rogue’ operators as a matter of urgency.”

The sub-committee also said the Government’s objective to achieve fairness between people cannot be restricted to tax in isolation but also apply to employment rights.

Headley said:

“The Government has said it is committed to fairness in the workplace. However, it is unfair for individuals to be treated as employees for tax purposes without having employment rights.

“Our Sub-Committee reiterates the call we made in our 2020 report for the Government to press ahead with implementing the proposals set out in the Taylor Review.”

Talk to us about IR35.

More than one million individuals completed their self-assessment tax return by the extended deadline at the end of February 2022.

HMRC estimates 11.3m of 12.2m of the taxpayers who had to file a self-assessment tax return for the 2020/21 tax year did so by 28 February 2022.

Individuals and trusts required to submit a self-assessment return must usually do so by the 31 January that comes after the tax year in question to avoid a fine.

However, HMRC announced in early January 2022 that no fines would be applied for tax returns that were filed past the typical deadline but were sent to them by 28 February 2022.

This essentially extended the self-assessment deadline by a month, which HMRC also did for individuals filing their 2019/20 self-assessment tax return in 2021.

Lucy Frazer, Financial Secretary to the Treasury, said:

“Today’s stats show how vital the extra month was in supporting the cashflows of more than a million self-employed people and businesses across the UK, helping to ensure their survival as we recover from the pandemic.”

Individuals who filed their return on time have until 1 April to pay their tax bill or set up a time to pay arrangement to avoid a financial penalty, although interest will still accrue from 1 February on any unpaid tax.

The time to pay service allows individuals and businesses to spread their payments of up to £30,000 in instalments.

Talk to us about your tax payment.

The Government has opened a public consultation into a new online sales tax (OST) to “rebalance” the taxation of online and in-store retail businesses.

The Treasury published its consultation on 25 February 2022, seeking answers from stakeholders on 40 questions about how an OST should work.

If implemented, the Government would use an OST to reduce the business rates of retailers with properties in England and put additional funds into the block grants of the devolved administrations.

Supporters of an OST say in-store retailers pay a disproportionate share of business rates, making brick-and-mortar businesses less competitive.

However, critics say an OST would be a misplaced tool to help high street businesses, as the convenience of online shopping may partly explain the struggles felt by in-store retailers.

Nevertheless, the Government has been focused on helping retailers with their business rates, having announced a range of relief in Autumn Budget 2021.

The Treasury did not flesh out any specific plans rates or thresholds, saying they must define the scope and design of an online tax first.

Mike Cherry, national chairman of the Federation of Small Businesses, said:

“Efforts to level up the tax playing field between corporates that mostly operate online, paying low business rates on out-of-town warehouses, and community small businesses, which are up against high rates on high streets, are to be encouraged.

“But the Government must avoid simply adding further cost pressures to small firms that have increased their online presence to keep the show on the road over lockdowns.”

John Cullinane, director of public policy at the Chartered Institute of Taxation welcomed the consultation “as opposed to simply going ahead with a new OST”.

But we would like the Government to be clearer about the objectives of the online sales tax,” he continued.

“Is the Government content that while evidence shows that business rates today are ultimately mostly borne by landlords, the online sales tax would be very largely borne by consumers in higher prices?”

Talk to us about business tax.

How termination payments are taxed.

We may only be three months into 2022 but plenty of big employers – both here in the UK and overseas – are making employees redundant for a myriad of reasons. 

OVO Energy is reportedly trying to control costs by cutting 1,700 jobs as gas market prices soar to record highs, Tesco is in the process of axing 1,600 jobs as part of a business remodel, and Peloton has also said it will cut about 2,800 jobs globally due to a drop in demand for its products.

In the three months to 30 November 2021, however, the UK’s redundancy rate was a record low following the end of the furlough scheme.

But the tide may now be turning and employers that are going through the same process as the likes of OVO, Tesco and Peloton should be aware of how termination payments work in 2022.

These payments are made to an employee in relation to the termination or loss of their employment, such as when you make members of staff redundant.

We’ll go through everything in layman’s terms to give you an idea of what to expect, but you might need our advice to calculate how individual packages should be paid and taxed.

Two types of termination payments

For tax purposes, there are two categories of pay that can be made after you terminate an employment contract.

The first is the general employment earnings that an employee would have received if they were still working in the notice period: outstanding salary/wages, payment in lieu of notice (PILON) if relevant, and any holiday pay for instance.

Much of this money is referred to as post-employment notice pay (PENP) and is always subject to income tax and National Insurance contributions (NICs).

Prior to 2018, there were exemptions which could appear to be rather arbitrary, coming down to how contracts were worded.

The second category is termination payments. These directly relate to the termination of employment, so they include things like compensation for loss of office.

How tax is applied

You might have a £30,000 tax-free figure in mind, and this broadly applies today. However, the rules changed in 2018 and more changes came into effect from April 2020, affecting what counts within the £30,000 allowance.

When you pay an employee you are making redundant a final termination sum, this is made up of these two categories of payment we have just outlined.

If all of the money is classed as PENP or other general earnings, such as benefits-in-kind – like keeping a company car – or accrued holiday pay, the cash value for it is all considered general earnings and taxed accordingly. No £30,000 tax exemption comes into play.

If only some of the final payment is PENP and other general earnings, then this part is taxed as general earnings.

But that leaves a further aspect of the payment which the £30,000 tax exemption can be applied against.

So, up to the next £30,000 of payment is tax-free for both PAYE and NICs purposes.

Costs about to increase

As has long been the case, any excess above this £30,000 would again become subject to income tax for the employee.

Until April 2020, that was the end of the tax liability on this part of the termination payment with no NICs liability arising. This remains the case for the employee.

Class 1A employers’ NICs are now payable on termination payments in excess of £30,000, making some redundancies far more expensive for the employer than previously. Class 1A NICs are currently due at 13.8%, rising to 15.05% from next month.

Unlike other class 1A NICs associated with taxable P11D benefits, which are payable once a year on 19 or 22 July following the tax year-end, this class 1A NICs liability will be collected through real-time information/PAYE at the time of the termination payment, resulting in additional cashflow pressure.

HMRC will usually charge late-payment interest and penalties if it is not paid promptly and correctly.

How the PENP calculation works

To calculate the PENP, the following statutory formula applies:

PENP = (monthly basic pay (BP) x unworked notice period (D)) divided by the number of days in the last pay period (P) less any payments or benefits in connection with the termination already taxed elsewhere (T).

Basic pay includes any amounts given up in salary sacrifice arrangements, but excludes benefits-in-kind, commissions and bonuses among other payments.

T includes the value of a contractual termination payment, such as a payment-in-lieu of notice (PILON), but does not include accrued holiday, termination bonuses or ‘golden handshakes’.

In practice, if you are already planning to tax the employee PILON and the value of the PENP is less than this or the same, there might be nothing else to tax.

If this is not the case, you will need to consider what other payments are being made to the employee and their tax treatment, including whether it would fall within the £30,000 exemption. This is best illustrated through an example.

Example

Bruce is notified on 15 February 2022 of your intention to make him redundant, and his last day is agreed as 28 February.

Bruce’s contract states he should receive three months’ notice. D is therefore 76 days as his contractual notice period goes up to 15 May 2022.

Bruce earns £60,000 a year in basic salary, so his monthly ‘BP’ amount will be £5,000. And his last pay period was the full month of January which was 31 days – the ‘P’. However, since D is not a whole number of months, 30.42 should be used as P.

Bruce will not be paid in lieu of notice, but you have instead agreed to pay him £24,000 as an ex-gratia lump sum, plus £10,000 for loss of notice and £2,000 in accrued holiday pay.

In total, he will receive £36,000. In order to work out how much he should be taxed on this amount, the statutory formula to work out the PENP needs to be followed.

Applying the formula gives Bruce a PENP figure of £12,491. As he has not been made any taxable payments in lieu of notice, T is zero and nothing is deducted from this figure.

The full PENP of £12,491 is therefore taxable as earnings. The £2,000 from accrued holiday pay also remains fully taxable as earnings.

The balance of £21,509 is treated as the ex-gratia payment and it is not subject to any tax as it is under £30,000.

If the numbers were different and the outstanding ex-gratia payment had been, say, £40,000, then further income tax would have been due on the excess above £30,000.

You would be liable for an additional 13.8% (15.05% from 6 April 2022) in class 1A NICs on the £10,000 excess.

Long-term planning

With the UK economy experiencing turbulence due to the effects of the pandemic and Brexit, many employers are facing difficult decisions to control costs.

The cost-of-living crisis caused by a cocktail of rising inflation and soaring energy prices also means it might be very harsh to consider cutting staff at this time.

And then there’s the 1.25% increase to all NICs rates kicking in from April 2022, which has to be factored into the equation to make redundancies this year.

That said, if you think there is a negative outlook for your business in 2022/23, it would be wise to explore your options now around making redundancies.

The pay and tax calculations involved with termination payments are complex, but we can help you with managing costs within your business.

Speak to us about termination payments.

March 2022

Changes to reform multiple dwellings relief and how stamp duty land tax is calculated on purchases of mixed-use properties could be in the pipeline.

A 12-week consultation closed last month, after HMRC sought feedback on proposals to crack down on abuse by restricting homeowners from obtaining the relief.

Multiple dwellings relief is available when at least two dwellings are purchased in a single transaction, or as part of a series of linked transactions between the same vendor and purchaser.

The buyer can choose to apply the rate of stamp duty land tax determined by the average value of the dwellings, rather than the combined value of the purchase.

This enables the buyer to benefit from multiple nil-rate and lower percentage bandings, significantly reducing their stamp duty land tax liability.

HMRC could restrict the relief so it can only be claimed if all properties are, or a single property is, bought for a qualifying business use.

Alternatively, the tax authority could introduce a subsidiary dwelling rule to prevent smaller subsidiary dwellings, such as a ‘granny annex’, from qualifying for the relief due to their size or value.

The other option was for the relief to only apply to purchases which include three or more dwellings, meaning a lot of properties could fall outside of scope for the relief.

Mixed-use properties are those which consist of both residential and non-residential uses, such as a flat above a shop or pub. Purchases of these properties are subject to stamp duty land tax at the non-residential rates.

These rates offer lower stamp duty land tax bands and are not subject to any surcharge, leading HMRC to believe some purchasers have gained from including token amounts of non-residential property within residential purchases.

To close this loophole, either a new apportionment basis or a new threshold, so that more than 50% of the purchase must include non-residential property to qualify as mixed-use, could kick in.

Talk to us about property taxes.

March 2022

More than two million people missed a self-assessment tax return deadline on 31 January 2022, according to HMRC. 

The tax authority said more than 10.2 million returns were filed ahead of the original deadline, leaving 2.3 million still to file.

Late-filers had until 28 February 2022 to file their 2020/21 tax returns online before being fined, due to pressures ensuing from the pandemic.

However, interest on outstanding tax bills is accruing at 3% and HMRC’s late-filing penalties regime kicks in as usual from 1 March 2022.

Late-paying taxpayers have until 1 April 2022 to pay their tax bills in full, or set up a time-to-pay arrangement.

These arrangements spread the cost of repaying tax bills of up to £30,000 into manageable monthly instalments, usually over a period of up to 12 months.

A 5% late-payment penalty will be charged if tax is not paid or a payment plan has not been set up by midnight on 1 April 2022.

Myrtle Lloyd, director-general for customer services at HMRC, said:

“I’d like to thank the millions of customers and agents who sent us their tax returns and paid in time for January’s deadline.

“Customers can set up a monthly payment plan online if they’re worried about paying their tax bill.”

More than 10.2m people filed their 2020/21 tax returns on time, down from 10.7m last year.

Contact us about any aspect of self-assessment.

March 2022

The Treasury is being urged to consider a late U-turn on introducing the National Insurance contributions (NICs) increase next month to boost apprenticeships. 

All NICs rates will increase by 1.25% from April 2022 to help fund the development of the new health-and-social-care levy, which kicks in from April 2023.

The Federation of Small Businesses (FSB) wants ministers to ditch increasing the so-called ‘jobs tax’ to help recover lost apprenticeship numbers.

The FSB claimed apprenticeship starts fell from just under 500,000 a year in 2016/17, before the introduction of the apprenticeship levy, to under 325,000 in 2020/21.

To address this downward trend, the FSB wants the Treasury to remove all employer NICs costs for apprentices, plus cancelling the planned increases to NICs and dividend taxation to free up funds for recruitment and training.

It also would like the apprentice payment, which was worth £3,000 to employers that hired apprentices, to be reinstated after the scheme closed on 31 January 2022.

Mike Cherry, chairman at the FSB, said:

“By looking again at its approach to NICs, the Government can make a real difference here – directly, by bringing down the immediate costs of taking an apprentice on, and indirectly, by freeing up more funds for recruitment and training at a moment when cash reserves are depleted.

“Small businesses disproportionately hire young people and those from disadvantaged groups when they create apprenticeships, so a targeted reintroduction of the hiring incentive that existed over lockdowns makes sense in the context of the levelling-up agenda.”

However, the Government has no intention to renege on its promise after a spokesperson said Chancellor Rishi Sunak is “fully committed” to increase NICs and dividends tax.

Despite being written into law, this could yet change amid growing concerns over rising energy prices and the cost-of-living crisis engulfing many households.

Contact us to discuss managing costs. 

March 2022

Film-makers and video-game developers will be among the creative firms that can benefit from a new £50 million pot. 

The Department for Culture, Media and Sport (DCMS) has announced a multi-year UK global screen fund will open soon.

That will provide £21m towards promoting UK films globally over the next three years, following a successful trial run over the last 12 months.

In addition, the creative scale-up programme offers £18m of new funding to help creative firms grow outside of London.

A further £8m has been earmarked via the UK games fund to offer £25,000 grants to entrepreneurial, startup developers to support business development.

DCMS said, on average, domestic-based creative industries are growing almost two times faster than other sectors of the UK economy.

Nadine Dorries, culture secretary, said:

“The creative industries in the UK are truly world-class and this will provide them with the tools they need to expand and provide even more jobs.”

Caroline Norbury, chief executive at Creative UK, added:

“This funding rightly recognises the power of our sector and the vital importance of investing in creativity to drive growth and innovation across the UK.”

The Government intends the funding to help “drive economic growth around the UK” as part of its wider levelling-up initiative.

Speak to us about your business growth plans. 

March 2022

HMRC waives penalties again for late self-assessment

Anyone who missed last month’s self-assessment deadline has until 28 February 2022 to file their tax returns online before being fined. 

HMRC said last month that fines would not be enforced on taxpayers who missed the 2020/21 deadline at midnight on 31 January 2022.

The tax authority said COVID-19 had piled added pressure on individuals and tax advisers to beat the original deadline for online submissions.

It is the second successive tax year that such a decision has been taken on self-assessment penalties, due to the pandemic.

Anyone who could not pay their tax bill by 31 January 2022 has until 1 April 2022 to either pay their liability in full, or set up a time-to-pay arrangement.

A 5% late-payment penalty will be charged if tax is not paid or a payment plan has not been set up by midnight on 1 April 2022.

Interest, however, continues to accrue at 2.75% on any outstanding liabilities from 1 February 2022 onwards.

Angela MacDonald, deputy chief executive at HMRC, said:

“We know the pressures individuals and businesses are again facing this year, due to the impacts of COVID-19.

“Waiving penalties for one month gives self-assessment taxpayers extra time to meet their obligations.”

The late-filing penalties (daily penalties from three, six and 12 months) will operate as usual from 1 March 2022.

Get in touch to discuss self-assessment.

February 2022