There has been much commentary in recent months reminding tax payers who claim tax credits to file their renewals application before the 31 July deadline. But apparently, many applications have been made incorrectly, and as a result, claimants are not collecting the full amount to which they are entitled.

According to a recent announcement by HMRC, many parents do not realise that they need to deduct any statutory parental pay from their salary when renewing tax credits.

In more detail, HMRC advise:

Thousands of parents could be at risk of missing out on hundreds of pounds from their tax credits by accidently reporting their income incorrectly.

HMRC is urging parents to check their income to avoid potentially missing out on an average of £495 a year. Many tax credits claimants who receive statutory maternity pay do not realise that some of this pay should be deducted from their gross pay when their tax credits awards are calculated.

As well as maternity pay, parents can deduct any payments they have received for statutory paternity, shared parental or adoption pay up to a value of £100 a week.

HMRC estimates that parents who did not deduct their statutory maternity pay from their income could have been entitled to on average an extra £495 across the year. Around 35,000 people could potentially be missing out. A full list of what can be deducted is available on GOV.UK.

This is a welcome contribution by HMRC. Hopefully, the advent of digitised accounting by the tax office will mean that, in the future, these sorts of errors will be adjusted automatically. One can only hope…

One of the first things a budding entrepreneur considers is what to call their business.

If you intend to incorporate your business as a limited company, the registration process will filter out unacceptable names and names that are too similar to a company already registered at Companies House. However, this registration process can create situations where an existing company thinks that the name you have registered is too close to their own and may challenge you to change your company name.

If you set up as a sole trader there is no official registry of business names, but you must still be wary of using certain expressions.

In certain circumstances you can write to a particular organisation or government department to get clearance to use a restricted name or phrase in a name.

For example, you should avoid, or seek to permission to use, the use of the words: association, bank, British, charity, England, government, Her Majesty, institute, King, mutual, NHS, patent, police, Post Office, Queen, registrar or regulator, society, Trade Union, trust, tribunal, and University.

This list is by no means complete. There is a fairly comprehensive list of names and expressions to avoid on the GOV.UK website at https://www.gov.uk/government/publications/incorporation-and-names/annex-a-sensitive-words-and-expressions-or-words-that-could-imply-a-connection-with-government.

If you need advice we can help. We have advised numerous businesses on how best to set up and run a new business. Please call to arrange an initial consultation.

Although we strive to be non-political in this blog, it would seem that there is an increasing likelihood that when we leave the EU March next year the present free movement of goods will no longer apply. And so, putting aside our reaction to this possibility, what should we be doing to prepare for this so-called “Hard Brexit”?

A fair proportion of the raw materials used in our manufacturing processes and the food we eat come from EU suppliers. It is unrealistic to expect UK businesses to increase stocks in anticipation of disrupted supply lines and increased prices after Brexit. In the case of perishable foodstuffs this is patently impossible. Perhaps we could lobby EU suppliers of manufacturing and finished goods to set up warehousing facilities in the UK, otherwise we may be forced to seek suppliers from outside the EU.

Without the harmonisation of VAT for cross-border transactions businesses that buy goods from the EU will be faced with higher VAT charges. Eventually, these higher charges can be reclaimed in the normal way but there will be an initial cash flow hit as goods are paid for (including VAT) before the input VAT is reclaimed on a quarterly VAT return. HMRC may help with this issue by introducing a self-accounting for import VAT scheme similar to the present scheme for imports from EU countries. Businesses affected would be advised to at least quantify the likely cash flow downside and if significant, plan for additional funding to cover the deficit.

Retailers will have a tough time if they buy perishable goods from the EU. Without frictionless passage of goods across the Channel, delays could cause all sorts of issues. If warehousing in the UK is not possible, it is difficult to see how we could maintain our supplies and keep the larger supermarkets stocked.

We have less than nine months to prepare, and wherever your business sits in relation to trading with the EU you should by now be making contingency plans to cope with the likely Brexit effects. We are certainly working with and supporting our clients in this way. If you need help with this process, please call. 

Drivers face disqualification from driving if they accumulate 12 or more penalty points for driving offences. The resulting ban can last from 4 to possibly 11 years depending on the gravity of the offence.

HMRC seem to think that this point based system is a good idea and they now intend to include draft clauses to the forthcoming Finance Bill that will introduce a points system covering the late filing of tax returns.

In their notes attached to the draft clauses HMRC say:

The government wishes to encourage compliance with regular return submission obligations but does not want to punish taxpayers who make occasional mistakes. The new late submission penalty regime, announced at Autumn Budget 2018, is designed to be proportionate, penalising only the small minority who persistently fall foul of the rules. Consistent compliance will be encouraged by the opportunity to clear penalty points without incurring a penalty charge. A stronger deterrent is provided in cases where behaviour is shown to be deliberate, and also by other compliance tools. The new regime is designed to be applicable to as many taxes with regular filing obligations as possible to provide a clear, transparent and consistent approach for taxpayers and HMRC.

The new points-based penalty regime will only apply to returns (including Making Tax Digital regular updates) with a regular filing frequency, for example monthly, quarterly or annually. It will not apply to occasional returns (for example a return required for a one-off transaction).

HMRC are unlikely to be suggesting, as with driving penalties, that if you collect enough points you will be banned from paying tax, but the liability to penalties will remain until a predetermined period of time has elapsed.

Continuing the theme from last week’s blog post, we have listed details of a forthcoming change to the taxation of companies that were disclosed in the draft clauses published last week for the forthcoming budget. The change outlined expands the rights of HMRC to demand a security deposit from “at risk” tax payers.

In their draft notes HMRC say:

HMRC can require some businesses to provide a security, in the form of cash or a performance bond, where this is considered necessary to protect the revenue. Securities may be required where a taxpayer has a poor compliance record and in “phoenix” type cases where a business accrues a tax debt, goes into liquidation or administration and the person responsible for the operation of the business sets up again, with the risk of running up further tax debts. 

HMRC already has powers to require security in relation to some areas of business tax, including VAT and PAYE. However, there is no similar provision in respect of corporation tax liabilities or deductions made by contractors on account of their subcontractors’ income tax under the construction industry scheme. The government intends to extend the existing securities regime to these areas to address these gaps in the coverage of the regime and strengthen HMRC’s ability to deal effectively with potential defaulters

Security deposits are normally requested when a company is liquidated owing monies to HMRC, and the directors then re-establish the trade in a new company, perhaps using assets purchased from the old firm’s liquidator – a so-called “phoenix arrangement”.

From Newco’s point of view, being required to lodge a hefty deposit with HMRC could be terminal if funding is not available. However, recent First Tier Tribunal cases have supported appeals from taxpayers when they can demonstrate that the owners of Newco were not directly responsible for any mis-management of Oldco. If you receive a request for a security deposit an appeal may be appropriate.