Till fraud

The scope of tax fraud seems to be taking on new forms according to a recent press release issued by HMRC.

The latest attempt involves the use of software to suppress sales recorded at point of sale. The systems even warrant a new acronym, ESS.

Electronic Sales Suppression (ESS)

Businesses involved in making, supplying or promoting ESS systems that help users hide or reduce the value of till sales, now face fines of up to £50,000 and criminal investigations. Users also face fines as HMRC increases efforts to target the tax evasion practice.

HMRC investigators hit the road

On 18 May 2022, thirty businesses were visited, including shops, takeaways and restaurants, across nine counties to tackle ESS and two men and a woman were arrested in Nottinghamshire as part of a criminal investigation into the alleged supply of ESS software.
The men, aged 43 and 58, were arrested along with a 56-year-old woman on suspicion of fraud offences and cheating the revenue.
A search warrant was executed by HMRC officers at three addresses and computers, digital devices and paperwork was seized. All three suspects have been released under investigation.

How does ESS work?

ESS users will either have access to specialist software or will configure their Electronic Point of Sale (EPOS) device in a specific way that allows them to consciously hide true sales and the resulting tax that is due.
Sales processed through the till give the impression they have been recorded as normal; however, the end of day report is deliberately manipulated behind the scenes to reduce reported takings.

Further information

New powers to tackle ESS were included in the Finance Act (2022) introduced in February this year.

HMRC recently visited businesses suspected of being associated with ESS practices in Derby, Nottingham, Alfreton, Ashbourne, Stoke, Chesterfield, Nuneaton, Warwick, Pershore, Leeds, Hull, Scarborough, Whitby, Cleethorpes, Canvey Island and Ashford.

Stamp Duty refund fraud

HMRC have noticed an increase in claims for Stamp Duty refunds that are incorrect

In fact, new homeowners are being warned about cold calls from rogue tax repayment agents advising them to make speculative Stamp Duty Land Tax (SDLT) refund claims, which could leave them with large tax bills.

Claims are failing HMRC checks

The warning comes after a recent spate of Stamp Duty refund claims to HMRC failed to meet specific criteria.

The agents have been known to call new property owners after finding them through Land Registry records and property search websites, promising money back on ‘unknowingly overpaid’ Stamp Duty.

Recent analysis undertaken by HMRC suggests that up to a third of claims for ‘multiple dwelling relief’ refunds were incorrect.

Homeowners’ risk

HMRC raise enquiries on these claims, but sometimes this is after the agent has taken their fee, leaving the homeowner to pick up the difference. Incorrect refund claims must be repaid with interest, with some claimants facing potential penalties.

What to do if you are approached

Anyone approached about a Stamp Duty refund claim should check with their original conveyancer, take independent professional advice and check HMRC’s guidance by searching ‘Stamp Duty Land Tax’ on GOV.UK. You can also contact the HMRC helpline on 0300 2003 510.

Examples of recent claims

In a recent example, a letter from a rogue agent suggested a homeowner may have overpaid £60,000 worth of Stamp Duty. The agent claimed the home could be designated as two properties, despite it clearly being one. This is not an isolated example – other cases include:

  • a claim that a bedroom could be a separate dwelling and in line for claiming ‘multiple dwellings relief’ because it had an en-suite and a built-in wardrobe which could be a kitchen if you added a microwave and a kettle,
  • an individual who claimed their house was not wholly residential because a paddock behind the garden was used occasionally to keep a neighbour’s horse – the agent advised that they were due lower stamp duty rates because the presence of the paddock made the transaction a mix of residential and non-residential property, which would incur a lower Stamp Duty payment
  • a new owner of a six-bedroom house claimed it was not a wholly residential property because a room above a detached garage was used as an office

 

HMRC are watching

HMRC has nine months to enquire into a claim and would look to recover the full tax, with interest, and penalties charged where appropriate from those found to be incorrect.

Tax Diary June/July 2022

1 June 2022 – Due date for corporation tax due for the year ended 31 August 2021.

19 June 2022 – PAYE and NIC deductions due for month ended 5 June 2022. (If you pay your tax electronically the due date is 22 June 2022).

19 June 2022 – Filing deadline for the CIS300 monthly return for the month ended 5 June 2022.

19 June 2022 – CIS tax deducted for the month ended 5 June 2022 is payable by today.

1 July 2022 – Due date for corporation tax due for the year ended 30 September 2021.

6 July 2022 – Complete and submit forms P11D return of benefits and expenses and P11D(b) return of Class 1A NICs.

19 July 2022 – Pay Class 1A NICs (by the 22 July 2022 if paid electronically).

19 July 2022 – PAYE and NIC deductions due for month ended 5 July 2022. (If you pay your tax electronically the due date is 22 July 2022).

19 July 2022 – Filing deadline for the CIS300 monthly return for the month ended 5 July 2022.

19 July 2022 – CIS tax deducted for the month ended 5 July 2022 is payable by today.

Advisory fuel rates

If you pay for the fuel used in your company car you are entitled to recover the cost of the fuel – for business journeys – based on agreed Advisory Fuel Rates (AFRs), from your employer.

If the agreement with your employer is that you pay for all the fuel costs and that none can be recovered from the employer, then you can claim for the recorded business miles at agreed AFR rates as an expense claim on your tax return or by calling HMRC.

The AFRs are updated quarterly to reflect changes in fuel prices. The rates from 1 March 2022 are:

You can use the previous rates for up to 1 month from the date the new rates apply:

Petrol

  • 1400cc or less 13p per mile
  • 1401cc to 2000cc 15p per mile
  • Over 2000cc 22p per mile

 

LPR

  • 1400cc or less 8p per mile
  • 1401cc to 2000cc 10p per mile
  • Over 2000cc 15p per mile

Diesel

  • 1600cc or less 11p per mile
  • 1601cc to 2000cc 13p per mile
  • Over 2000cc 16p per mile

These AFRs can also be used to calculate the value of private fuel costs if your employer does pay for your private fuel. It may be possible to reimburse your employer and avoid the Car Fuel Benefit charge.

Stock holding and inflation

If your business processes materials or assembles goods for sale it will need to keep a stock of items to ensure that future sales can be met.

Ideally, stock levels should be kept to a minimum such that hard won cash reserves are not tied up unnecessarily. You will need to manage stocks to cover current production needs and consider supply issues – how long will it take to replace stock.

Innovation can throw a spanner in the best laid stock management plans. You may be left with redundant stock.

When prices are falling – in deflationary times – you will not want to hold excess stocks that could be replaced by lower cost items.

Alternatively, when prices are rising – in inflationary times – the opposite applies. You might benefit from investing in increasing stocks if prices for materials are rising, subject to redundancy issues. For example, if lower cost alternatives enter the market, you may be left with redundant stock or suffer reductions in your profit margins.

Maintaining stock levels is a constant play-off between working capital and profitability. Unfortunately, external factors – currently, inflation and supply delays – are playing havoc with stock management.

If your business is required to hold significant levels of stock and you are unsure how best to maximise the effective use of resources, please call. We can help you consider your options.

Employing students in the summer break

If you employ students to manage your staff needs over the summer break period, you will need to add them to your payroll and apply PAYE and NIC rules.

 

Students should be advised that they will pay tax and NIC if:

  • they earn more than £1,048 a month on average, and
  • pay NIC if they earn more than £190 a week from 6 April 2022 to 5 July 2022 and more than £242 from 6 July 2022 to 5 April 2023.

 

Students can also apply for a possible tax refund if they work for part of a tax year.

Students who normally live and study in the UK but work abroad during the holidays will need to pay:

  • UK tax on anything they earn above their Personal Allowance, currently £12,570, and
  • National Insurance if they work for a UK employer.

If students work for a foreign employer, they do not need to pay National Insurance in the UK, but may have to pay contributions in the country they are working in.

Holiday lets – occupancy and benefits

There are a number of tax incentives if you own and let a furnished holiday lets property (FHL). They include:

 

  • Claiming Capital Gains Tax reliefs for traders (Business Asset Rollover Relief, Business Asset Disposal Relief, relief for gifts of business assets and relief for loans to traders),
  • Entitlement to claim capital allowance deductions for items such as furniture, equipment and fixtures, and
  • Profits earned from holiday lets count as earnings for pension purposes.

 

You will need to account for your holiday lets properties separately from any other rental properties and you will need to comply with the various FHL rules. They include:

 

  • The property must be in the UK or in the European Economic Area (EEA) – the EEA includes Iceland, Liechtenstein and Norway;
  • The property must be furnished. This means that there must be sufficient furniture provided for normal occupation and your visitors must be entitled to use the furniture provided;
  • The property must be commercially let (you must intend to make a profit). If you let the property out of season to cover costs, but did not make a profit, the letting will still be treated as commercial;
  • All your FHLs in the UK are taxed as a single UK FHL business and all FHLs in other EEA states are taxed as a single EEA FHL business. You will need to keep separate records for each FHL business because the losses from one FHL business cannot be used against profits of the other.

There are also strict rules on occupancy. To secure the FHL tax benefits you will need to let your FHL for a certain, minimum number of days each year. The occupancy rules, set on a tax year basis, are:

 

  • Your property must be available for letting as furnished holiday accommodation letting for at least 210 days in the year.
  • You must let the property commercially as furnished holiday accommodation to the public for at least 105 days in the year.

Do not count any days when you let the property to friends or relatives at zero or reduced rates as this is not a commercial let.

Do not count longer-term lets of more than 31 days, unless the 31 days is exceeded because something unforeseen happens. For example, if the holidaymaker either: falls ill or has an accident and cannot leave on time or has to extend their holiday due to a delayed flight.

If you do not let your property for at least 105 days, you have two options (known as elections) that can help you reach the occupancy threshold.

As you can see, there are a few hoops to climb through to achieve FHL status, but the tax rewards for doing so are significant.

Sunak steps up

Long-awaited government support to help consumers meet the unprecedented increases in energy costs was announced by the Chancellor this week.

 

His measures have been widely appreciated, but will he need to return with more largesse to meet even more prices increases in oil, gas and electricity prices in the autumn?

What has he offered consumers?

A brief summary of the measures announced are:

  • A doubling of the previously announced Energy Bills Support Scheme to £400. Energy suppliers will deliver this support over a six-month period starting October 2022. Recognising consumer concerns, this support will no longer be recovered (treated as a loan) but will be provided as a non-repayable grant.
  • A £650 one-off cost of living payment for those on means tested benefits. This will be paid by the DWP in two instalments, the first in July 2022 the second in the autumn.
  • A one-off £300 additional payment to pensioners paid on top of their Winter Fuel Payment.
  • A one-off £150 Disability Cost of Living Payment.
  • Additional £500m of funding to the Household Support Fund. This funding will be made available to Local Authorities to target support to those in need to meet rising food, energy and water bills.

 

How will this be paid for?

The overall cost of the above support initiatives is estimated to be £15bn. £5bn of this will be raised by a short-term Energy Profits Levy of 25% on the oil and gas industry. The electricity generation sector will also be asked to contribute but their position will not be disclosed until later this year.

 

No mention was made by the Chancellor of how the other £10bn will be funded.

 

Tax-free

The notes released by government make it clear that the grants offered in this package will not be taxed. Additionally, the means-tested cost of living payment of £650 will not count towards the benefit cap and will not have any impact on existing benefit awards.

 

Too little, too late?

For many working families already stretched by rising prices, there is little in the Chancellor’s announcements that will ease their current cash flow problems as the majority of the assistance announced will commence in the autumn.

It remains uncertain if the Chancellor will need to return to Parliament in short measure to extend his assistance to this wider community.

Heat Pump Scheme

Many households are considering their options to reduce their energy costs in light of the recent price hikes in the cost of electricity and gas.

 

Aside from breaking into long sealed chimney breasts and burning the furniture, realistic options have been extended in recent weeks by the introduction of a government grant of £5,000 to replace fossil fuel boilers with efficient, low-carbon heat pumps.

Grants available in England and Wales

Homeowners across England and Wales can now benefit from the grants to fit clean heating systems when they come to replace their oil and gas boilers. This includes clean heating systems installed from 1 April this year.

Heat pumps are now much cheaper and more competitively priced against gas and oil boilers than ever before and thanks to these grants, it will be significantly cheaper for consumers to install a heat pump whilst improving the energy efficiency of their homes, reducing their energy bills and cutting emissions in the long-term.

Spin-off for British manufacturers

The scheme will also help kick-start the British heat pump manufacturing industry, helping government and industry to achieve the aim of bringing down the cost of the technology to ensure they are no more expensive to buy and run for consumers than fossil fuel boilers by 2030 when more households will be looking to make the switch.

With the market for electric heat pumps set to rapidly expand in Europe over the coming years, there is also a huge export opportunity for British firms in research and development, production, supply chain and installation over the next decade, creating well-paid jobs across the country.

How the scheme works

Scheme funding will be available through a simple application procedure that installers carry out on behalf of property owners, with the up-front funding taken off their quote.

The grants are in addition to the 5-year long 0% rate of VAT on the installation of heat pumps and biomass boilers, announced as part of a package of measures to help ease the cost of living.

The scheme has a committed budget of £450 million over 3 years from 2022-2025, with an annual budget allocation of £150 million and property owners will be able to get:

  • £5,000 off the cost and installation of an air source heat pump
  • £5,000 off the cost and installation of a biomass boiler
  • £6,000 off the cost and installation of a ground source heat pump

As well as not having to use expensive fossil fuels, heat pumps are also more efficient to run, able to deliver more than three units of heat for every unit of energy input, while traditional gas and oil boilers deliver less that one unit of heat per unit of energy.

Commercial risk

Setting up and running your own business is a risky undertaking. What happens if sales reduce or disappear, and you are left with unpaid costs or loans and no cashflow?

 

The experience of recent COVID lockdown challenges – aside from the risk to personal health – has resulted in business closures at an unprecedented rate.

 

So how can businesses manage these risks?

Business structure

Sole traders and partnerships (aside from LLPs – see note below) have no limitation of liability. If creditors (including banks) cannot recover unpaid debts from net business assets, then they can pursue claims against the personal assets of the sole trader or individual partners. This can include a family home.

 

One way to avoid this risk is to set-up or convert the business structure. There are two ways to do this.

 

Limited Liability Partnerships (LLPs)

It is possible to retain a self-employed status by converting a sole-trader or ordinary business partnership into an LLP structure. This would protect active partners from any claim against their personal assets in the event that the business became insolvent.

 

Limited company (Ltd)

The other option is to fully incorporate a self-employed business by transferring the business to a Ltd structure.

 

Unless directors offer creditors, a personal guarantee or can be proved to be acting fraudulently, the company’s creditors would only have access to business not personal assets.

 

Insurance

Self-employed and incorporated business can also insure against certain risks. They are risks associated with theft, damage to assets or claims against the business for losses experienced by third-parties.

Care should be taken if a self-employed person or partnership (not an LLP) relies on insurance to cover these risks.

Underwriters of insurance companies have a history of challenging claims based on the exclusions set out in policy small print.

 

Planning is your best option

Please contact us if you feel exposed to commercial risks and want to consider your options.