Government tackles late payment to small firms

The Government has announced an overhaul of the Prompt Payment Code (PPC).

Under the new reforms, companies that have signed up to the PPC will be obliged to pay small businesses within 30 days – half the time outlined in the current Code.

Despite almost 3,000 companies signing the Code, poor payment practices are still rife, with many payments delayed well beyond the current 60-day target required for 95% of invoices. Currently, £23.4 billion worth of late invoices are owed to firms across Britain, impacting on businesses’ cash flow and ultimate survival.

To help tackle the problem, business owners, Finance Directors or CEOs will be required to take personal responsibility by signing the Code, acknowledging that suppliers can charge interest on late invoices under the Code and that breaches will be investigated. Those signed up to the Code will redouble their efforts to ensure payments are made on time and breaches will continue to be publicised by the Government in order to encourage compliance.

The move comes as the Government seeks to strengthen the powers of the Small Business Commissioner (SBC) to ensure larger companies pay their smaller partners on time. New powers proposed in a recently closed consultation include legally binding payment orders, launching investigations and levying fines.

If these new regulations are observed they will make “financial bullying” by larger firms less prevalent and help to improve the cashflow prospects of smaller suppliers as they grapple with COVID disruption and EU exit changes.

Rights to regenerate

We will soon have the rights to turn derelict buildings into homes and community assets. In a recent press release the Ministry of Housing said:

The public will be able to convert vacant plots of land and derelict buildings into new homes or community spaces, under plans announced 16 January 2021 by the Housing Secretary, Robert Jenrick MP.

The ‘Right to Regenerate’ proposals would make it easier to challenge councils and other public organisations to release land for redevelopment – helping communities make better use of public land and give a new lease of life to unloved buildings.

Underused public land could be sold to individuals or communities by default, unless there is a compelling reason the owner should hold onto it.

Under the proposals, public bodies would need to have clear plans for land in the near future, even if only a temporary use before later development – if the land is kept for too long without being used, they would be required to sell it.

These measures provide an opportunity for the public and local communities to redevelop and transform eyesores, taking control of unused local land or buildings and transforming them into something they want in their area.

This builds on the Government’s drive to encourage development on brownfield land and more beautiful buildings that are in line with local preferences.

The strengthened rights would also apply to unused publicly owned social housing and garages providing opportunities to transform the local housing stock.

Latest figures show there were over 25,000 vacant council owned homes and according to recent FOI data over 100,000 empty council-owned garages last year. The new process will be fast and simple, and the Secretary of State will act as an arbiter to ensure fairness and speedy outcomes in all cases.

Tax and duties for goods sent from abroad

Following the end of the Brexit transition period new rules regarding tax and duty apply to goods sent to the UK from the EU. These changes are to ensure that goods from EU and non-EU countries are treated in the same way and that UK businesses are not disadvantaged by competition from VAT free imports. 

For goods sold directly to customers in the UK from overseas with a value of £135 or less (which aligns with the threshold for customs duty liability) the point at which VAT is collected has moved from the point of importation to the point of sale. 

Online marketplaces that are involved in facilitating the sale are responsible for collecting and accounting for the VAT. Business to business sales not exceeding £135 in value will also be subject to the new rules, but VAT can be accounted for by way of the reverse charge process.

In addition, from 1 January 2021, low value consignment relief (LVCR), which was an import VAT exemption for goods valued at £15 or less, has been removed. 

Normal VAT and customs rules on consignments valued at more than £135 will apply on the import of goods into Great Britain from outside the UK or into Northern Ireland from outside the UK and EU.

There are different rules if you sell goods to Northern Ireland from the EU or move goods between Northern Ireland and the EU.

CJRS guidance on who can be furloughed

HMRC’s guidance on which employees can be placed on furlough using the Coronavirus Job Retention Scheme has been updated. The scheme will continue until at least 30 April 2021. 

The updated guidance includes new information about employees who are unable to work because they have caring responsibilities resulting from coronavirus (COVID-19). This guidance confirms that employers may furlough employees with caring responsibilities arising from COVID-19 who are unable to work or are working reduced hours.

The guidance for employers' states that your employee is eligible for the grant and can be furloughed, if they are unable to work, including from home or working reduced hours because they:

  • are clinically extremely vulnerable, or at the highest risk of severe illness from coronavirus and following public health guidance
  • have caring responsibilities resulting from coronavirus (COVID-19), such as caring for children who are at home as a result of school and childcare facilities closing, or caring for a vulnerable individual in their household

This guidance covers those who are unable to work due to childcare responsibilities following the closure of most schools across the UK. Whilst this guidance provides some useful clarification it should be noted that employers are still not compelled to furlough those that qualify.

Employees who are being furloughed for the above reasons can be fully or flexibly furloughed. If they are flexibly furloughed, they are not allowed to work any hours that are recorded as being on furlough. Please do not hesitate to call if you need any assistance with any of your furlough-related obligations.

New IPO search facility

The Intellectual Property Office (IPO) is the official UK government body responsible for intellectual property (IP) rights including patents, designs, trademarks and copyright. 

The IPO has launched a new service that allows users to search for the goods and services they intend to use their trade mark on before they apply.

Intellectual Property Offices worldwide use a trade mark classification system that groups together similar goods or services into 45 different classes. This is referred to as the Nice Classification.

While a member state of the EU, the IPO contributed to and shared a common classification system called TMClass. TMClass is a classification search tool provided by the EUIPO. With the transition period relating to the UK’s exit from the EU ending on 31 December 2020, a new UK specific database was required.

The search UK trade mark classes service is available from the GOV.UK website. 

VAT Reverse charge for construction sector

A further reminder that new VAT rules for building contractors and sub-contractors will come into effect from 1 March 2021. The new rules were originally expected to commence from 1 October 2019, but an initial 12 month delay was announced. The start date was then delayed for a further 5 months until 1 March 2021 due to the impact of the coronavirus pandemic.

The new rules will make the supply of most construction services between construction or building businesses subject to the domestic reverse charge. The reverse charge will only apply to supplies of specified construction services to other businesses in the construction sector.

This means that from 1 March 2021, sub-contractors will no longer add VAT to their supplies to most building customers, instead, contractors will be obliged to pay the deemed output VAT on behalf of their registered sub-contractor suppliers. This is known as the Domestic Reverse Charge. However, there is no loss of cashflow as the deemed output VAT can be deducted as input VAT subject to any existing restrictions; in this way the two entries on VAT returns cancel each other out.

This change will mean you that contractors will have to alter the way that supplies from sub-contractors are treated by their accounting software.

HMRC’s guidance states that, for invoices issued for specified supplies that become liable to the reverse charge, the VAT treatment for invoices with a tax point:

  • before 1 March 2021 – the normal VAT rules will apply, and VAT registered subcontractors should charge VAT at the appropriate rate on supplies
  • on or after 1 March 2021 – the domestic reverse charge will apply.

Tax on an inherited private pension

Private pensions can be an efficient way to pass on wealth, but it is important to consider what, if any, tax will be payable on an inherited private pension. The person who died will usually have nominated the recipient by telling their pension provider that they should inherit any monies left in their pension pot. If the nominated person can’t be found or has since died, the pension provider may make payments to someone else instead.

In general, if you inherit a private pension and the owner of the pension fund died before the age of 75, the benefits left in a private pension can be paid as a lump sum or as drawdown income with no tax to pay. If the deceased passed away after the age of 75 the pension will be taxed at your marginal Income Tax rate, so 20% if you are a basic rate taxpayer or 40% if you are in the higher tax bracket and 45% if you pay tax at the top rate. The rates may differ if you are a Scottish taxpayer.

There are restrictions on pensions from a defined benefit pot (usually workplace pensions) whereby the pension can usually only be paid to a dependant of the person who died, for example a husband, wife, civil partner or child under 23. This rule can sometimes be changed if the pension fund allows, but the inheritance will be taxed at up to 55% as an unauthorised payment.

The rules on inheriting a pension are complex and depend on what type it is and how old the holder was when they died. For example, you may also have to pay tax if the pension pot owner was under 75 but had pension savings worth more than £1,073,100 (the lifetime allowance) when they died. There are also important time limits that must be followed.

Have you paid your Data Protection Fee?

The Information Commissioner's Office (ICO) is the independent regulatory office in charge of upholding information rights in the interest of the public. Under the Data Protection Act 2018, all organisations that process personal information must register with the ICO. 

By law, every organisation or sole trader who processes personal information needs to pay a data protection fee to the ICO, unless they benefit from a very limited exemption. There are currently more than half a million fee payers

The cost of the data protection fee depends on the size and turnover of the business / organisation. There are three tiers of fee ranging from £40 to £2,900, but for most businesses / organisations it will be either £40 or £60. Some organisations only pay £40 regardless of their size and turnover. These are charities and small occupational pension schemes.

Payment can be made by direct debit, credit or debit card, cheque or BACS. The ICO sends an email reminder six weeks before the annual fee expires. 

Rogue employers named and shamed for failing to pay minimum wage

139 employers, including some of the UK’s biggest household names, have been named and shamed in a government press release for failing to pay £6.7 million to over 95,000 workers in breach of the national minimum wage (NMW) legislation.

This is the first time in over two years that the government has named and shamed employers for failing to pay the NMW, as the naming and shaming scheme was paused in 2018 so that an evaluation into its effectiveness could be carried out. The scheme has now resumed but one key change is that the press release includes a new educational bulletin which sets out the most common reasons for NMW underpayment among employers in this naming round, together with a summary of NMW guidance on paying workers.

The press release highlights that one of the main causes of NMW breaches was workers being made to cover work costs, which would take their pay below the NMW, such as paying for uniforms, training, meals or parking fees. In addition, some employers failed to raise workers’ pay after they had a birthday which should have moved them into a different NMW bracket. Two other common reasons for underpayment were failing to pay the correct rate to apprentices and failing to pay workers for working time, such as for additional work before and after their shifts or rounding clock-in time to the nearest hour.

All the employers named in the press release have now paid back their workers and were also forced to pay financial penalties.

IHT Main Residence Nil Rate Band

The Inheritance Tax residence nil-rate band (RNRB) is a transferable allowance for married couples and civil partners (per person) when their main residence is passed down to a direct descendent such as children or grandchildren after their death. 

The RNRB came into effect on 6 April 2017 and was introduced in stages. The allowance increased to the present maximum level of £175,000 from 6 April 2020. Going forward, the allowance is set to increase in line with the Consumer Price Index. The allowance is available to the deceased person’s children or grandchildren. Any unused portion of the RNRB can be transferred to a surviving spouse or partner. The RNRB is on top of the existing £325,000 Inheritance Tax nil-rate band.

The allowance is available to the deceased person's children or grandchildren. Taken together with the current Inheritance Tax limit of £325,000 this means that married couples and civil partners can pass on property worth up to £1 million free of Inheritance Tax to their direct descendants. 

There is a tapering of the RNRB for estates worth more than £2 million even where the family home is left to direct descendants. The additional threshold will be reduced by £1 for every £2 that the estate is worth more than the £2 million taper threshold. This can result in the full amount of the RNRB being tapered away.