Spending Review 2021/22

The Chancellor, Rishi Sunak delivered the government's spending plans for the coming year to Parliament on 25 November 2020. The Spending Review usually covers 3 to 4 years but given the many unknowns as a result of the pandemic the review will only cover the period from April 2021 to April 2022.

The Chancellor said his immediate priority was to protect people’s lives and livelihoods as the country continues to battle the outbreak – allocating £55 billion to tackle the virus next year.

Plans were also announced for increased infrastructure spending with £100 billion of capital spending next year and a £4 billion Levelling Up Fund. As expected, it was also announced that there will be a public sector pay freeze with an exemption for the NHS and for public sector workers who earn below the median wage of £24,000.

The Chancellor also used the Spending Review to confirm that increased National Minimum Wage and National Living Wage rates will come into effect on 1 April 2021.

From 1 April 2021 the National Living Wage will increase by 19p to £8.72. This represents an increase of 2.2%. The National Living Wage currently applies to those aged 25 and over but from next April will be extended to 23 and 24 year olds for the first time. There will also be increases to the National Minimum Wage and other wage rates for younger people. The new rates mirror the recommendations made by the Low Pay Commission which have been accepted in full by the government.

Deciding length of CJRS claim period

The Coronavirus Job Retention Scheme (CJRS) commonly known as the furlough scheme was due to come to an end on 31 October 2020 but has now been extended until 31 March 2021. Effective from 1 November 2020, employees will receive up to 80% of their salary for hours not worked. There will be a review date of the CJRS in January 2021, which may see employers taking on an increased financial contribution if the economic and health outlook of the country show signs of improvement. 

It is important that employers are aware of the rules for deciding the length of any claim period. The claim period is made up of the days that you are claiming a grant. The start date of your first claim period is the date your first employee was furloughed.

Claim periods starting on or after 1 July 2020 must start and end within the same calendar month. All claim periods starting on or after 1 July 2020 must last at least seven days. You can make a claim for less than seven days if you are claiming for the first few days or the last few days in a month.  However, you can only claim for a period of fewer than seven days if the claim period includes either the first or last day of the calendar month, and you have already claimed for the same employee for the period immediately before.

Employers should ensure they include all of the employees they want to furlough for each claim period, as they will not be able to make another claim for the same period or one that overlaps the claim period.

Employers can claim before, during or after they process payroll as long as the claim is submitted by the relevant claim deadline. Claims from 1 November 2020 must generally be submitted within 14 calendar days following the end of the previous calendar month. Payments will be made within six working days after submission of a claim.

Proposed changes to CIS abuse rules

The Construction Industry Scheme (CIS) is a set of special rules for tax and National Insurance for those working in the construction industry. It was announced at Spring Budget 2020 that a consultation on measures to tackle abuse of the CIS would be launched.

Following the consultation and further meetings with those working in the sector four new changes to prevent CIS abuse are set to come into effect from 6 April 2021. 

  1. CIS set-off amendment power. The measure provides a power to allow HMRC to amend the CIS deduction amounts claimed by sub-contractors on their Real Time Information Employer Payment Summary returns.
  2. Cost of materials. The measure makes it clear that it is only where a sub-contractor directly incurs the cost of materials purchased to fulfil a construction contract, that the cost in question is not subject to deduction under the CIS.
  3. Deemed contractors. The measure changes the rules for determining which entities operating outside the construction sector need to operate the CIS.
  4. CIS registration penalty. The measure expands the scope of the penalty for supplying false information when applying for gross payment status (GPS) or payment under deduction within the CIS.

MTD for Corporation Tax consultation

HMRC has issued a new consultation to examine how the principles established for Making Tax Digital (MTD) could be implemented for those entities within the charge to Corporation Tax. The consultation is open for comment until 5 March 2021.

The regime MTD started in April 2019 for VAT purposes only. MTD for Income Tax is expected to be introduced from 6 April 2023.

The consultation provides some additional information on the planned rollout of MTD for Corporation Tax. Following the end of the consultation, the government will continue to refine the MTD for Corporation Tax requirements by working collaboratively with stakeholders and will then provide entities with an opportunity to take part in a pilot.

This was based on the success of testing the MTD for VAT service and allowed HMRC to identify issues based on real people’s experiences of the service. HMRC initially introduced a limited, small-scale pilot for MTD for Income Tax, before building in additional functionality and scaling up the numbers of eligible participants and expects to follow a similar pattern for MTD for Corporation Tax.

The pilot will present HMRC with opportunities to check the proposed design of the system and learn lessons. The consultation states that the proposed date to commence the voluntary pilot for MTD for Corporation Tax is April 2024, with mandation to follow from 2026 at the earliest.

Register for Northern Ireland Trader Support Service

The Northern Ireland Trader Support Service was launched on 28 September 2020 to support businesses moving goods under the Northern Ireland Protocol from 1 January 2021 after the Brexit transition period comes to an end. There will be changes in moving goods between Great Britain and Northern Ireland whether or not a Free Trade Deal is reached.

These changes will affect those moving goods between Great Britain and Northern Ireland or bringing goods into Northern Ireland from outside the UK. Under the Northern Ireland Protocol, all Northern Ireland businesses will continue to have unfettered access to the whole UK market.

Since the service was launched more than 7,000 businesses have signed up. A new contact centre has also been launched to support businesses over the phone with the registration process.

The Trader Support Service:

  • provides a free end-to-end support package to manage import and safety and security declarations on behalf of traders removing the need to purchase specialist software.
  • saves traders significant time in completing declarations.
  • reduces traders’ declaration costs as the service is free-to-use.

Businesses who sign up for the service will receive full guidance and support on the next steps to take ahead of 1 January 2021, including online training sessions and webinars.

Beware tax deadline scammers

Fraudsters are continuing to target taxpayers with scam emails in advance of the 31 January deadline for submission of Self-Assessment returns.  In fact, over the last year, HMRC received more than 846,000 reports about suspicious HMRC contact. 

A number of these scams purport to tell taxpayers they are due a tax rebate or tax refund from HMRC and ask for bank or credit card details in order to send the refund. The fraudsters use various means to try and scam people including making contact by phone calls, texts or emails. In fact, fraudsters have been known to threaten victims with arrest or imprisonment if a bogus tax bill is not paid immediately.

HMRC’s dedicated Customer Protection team to identify and close down scams but is advising customers to recognise the signs to avoid becoming victims themselves. For example, genuine organisations like HMRC and banks will never contact customers asking for their PIN, password or bank details.

If you think you have received a suspicious call or email claiming to be from HMRC you are asked to forward the details to phishing@hmrc.gov.uk and texts to 60599. If you have suffered financial loss you should contact Action Fraud on 0300 123 2040 or use their online fraud reporting tool.

Reasonable excuses for making a late furlough claim

HMRC’s guidance on making claims through the Coronavirus Job Retention Scheme was updated on 19 November 2020. The updated guidance now includes various examples of what is meant by a ‘reasonable excuse’ for employers that submit furlough claims after the stated deadline. Claims for the periods from 1 July 2020 to 31 October 2020 must be submitted no later than 30 November 2020.

From 1 November 2020, claims must be submitted by 11.59pm 14 calendar days after the end of the previous calendar month. If a claim deadline falls on the weekend or a bank holiday then claims should be submitted on the next working day. For example, the claim deadline for furlough days during November must be submitted by 14 December 2020. 

HMRC may accept a claim made after the deadline if you had a reasonable excuse for failing to make a claim in time.

HMRC’s list of example excuses is as follows:

  • your partner or another close relative died shortly before the claim deadline
  • you had an unexpected stay in hospital that prevented you from dealing with your claim
  • you had a serious or life-threatening illness, including Coronavirus related illnesses, which prevented you from making your claim (and no one else could claim for you)
  • a period of self-isolation prevented you from making your claim (and no one else could make the claim for you)
  • your computer or software failed just before or while you were preparing your online claim
  • service issues with HMRC online services prevented you from making your claim
  • a fire, flood or theft prevented you from making your claim
  • postal delays that you could not have predicted prevented you from making your claim
  • delays related to a disability you have prevented you from making your claim
  • a HMRC error prevented you from making your claim

Please do not hesitate to call if you need any assistance with your furlough-related obligations.

Tax Diary December 2020/January 2021

1 December 2020 – Due date for Corporation Tax payable for the year ended 28 February 2020.

19 December 2020 – PAYE and NIC deductions due for month ended 5 December 2020. (If you pay your tax electronically the due date is 22 December 2020)

19 December 2020 – Filing deadline for the CIS300 monthly return for the month ended 5 December 2020. 

19 December 2020 – CIS tax deducted for the month ended 5 December 2020 is payable by today.

30 December 2020 – Deadline for filing 2019-20 self-assessment tax returns online to include a claim for under payments to be collected via tax code in 2021-22.

1 January 2021 – Due date for Corporation Tax due for the year ended 31 March 2020.

19 January 2021 – PAYE and NIC deductions due for month ended 5 January 2021. (If you pay your tax electronically the due date is 22 January 2021)

19 January 2021 – Filing deadline for the CIS300 monthly return for the month ended 5 January 2021. 

19 January 2021 – CIS tax deducted for the month ended 5 January 2021 is payable by today.

31 January 2021 – Last day to file 2019-20 self-assessment tax returns online.

31 January 2021 – Balance of self-assessment tax owing for 2019-20 due to be settled on or before today unless you have elected to extend this deadline by formal agreement with HMRC. Also due is any first payment on account for 2020-21.

Trading with businesses in Northern Ireland?

More than 7,000 businesses have now signed up to the new Trader Support Service (TSS), which will support traders moving goods under the Northern Ireland Protocol from 1 January 2021.

Recently, registrations to the TSS have increased by around 50%, but with fewer than 50 days to go until the end of the Brexit transition period, more traders are being urged to register now and take advantage of the scheme’s wide-ranging package of customs support and guidance.

The TSS launched on 28 September, providing a free-to-use digital platform to help businesses and traders of all sizes navigate the upcoming changes to the way goods move.

The comprehensive service will complete digital processes on behalf of all businesses moving goods into Northern Ireland under the Northern Ireland Protocol and is backed by up to £200 million in funding.

As part of the Government’s investment in the TSS, a new contact centre went live on 2 November, creating 150 jobs in Northern Ireland. The contact centre is now available to support traders over the phone with the registration process.

The TSS, which is already providing guidance and training to help businesses prepare for 1 January, will:

  • enable traders to complete declarations without needing to purchase specialist software
  • save traders significant time in completing declarations
  • reduce traders’ declaration costs as the service is free-to-use

Traders who sign up before 23 November will also be automatically issued a unique identifying number that will be required from January to move goods to or from Northern Ireland. Those who register later may need to apply separately to be issued with this number.

Why compound interest is important

Many of us are building a pension fund, a portfolio of shares or deposits with our bank or building society.

Most of these investment options reward us for our participation by offering income (usually in the form of interest or dividends) or by demonstrating capital growth (share prices increasing).

Accordingly, there are three components to our investments: the capital sum we invest, any growth in the value of the capital sum invested or rewards (interest or dividends) paid by banks or companies in which we hold shares.

What we do with these rewards, particularly interest and dividends, is key to the speed with which our investments grow.

The reason for this is the impact of compound interest.

If the average return on your investments is say 3%, paid as dividends or interest, if you withdraw these payments your investments will maintain their capital value and over time inflation may reduce the purchasing power of this capital value as the value of money decreases.

Whereas, if you reinvest rewards, future returns will compound, and you are more likely to counter the effects of inflation.

Over short term periods these effects are small, but over longer periods the impact of compounding can be dramatic.