To tax multinational companies on business transactions completed in the UK, our government introduced the Digital Services Tax (DST) April 2020.

The US response was to threaten to levy tariffs. However, a compromise has been reached that will see the introduction of a global system that will ensure multinationals do pay their fair share of tax in the countries where they do business.

This new global system will be introduced in 2023.

On 8 October 2021, OECD-led discussions resulted in 136 countries agreeing a plan for a new system (known as Pillar One), whilst countries will also operate a minimum 15% corporation tax rate (known as Pillar Two).

As part of this agreement the US will not levy tariffs in response to the UK’s DST. The UK will also keep the revenue raised from the DST until the Pillar One reforms become operational. The DST credit agreement outlines that once Pillar One is in effect, firms will be able use the difference between what they have paid in DST from January 2022, and what they would have paid if Pillar One had been in effect instead, as credit against their future corporation tax bill.

This means that the UK will not lose out on tax revenue in the transition period, as for each business, the UK either retains the amount raised that Pillar One would have delivered if it had been in place originally, or the total revenue from our DST.

The DST will then be removed in favour of the global solution, which was always the UK’s intention.

Details in a recent press release confirm:

• The agreement signed is between the US, UK, France, Italy, Austria, and Spain.
• Under Pillar One of the OECD agreements, the largest and most profitable multinationals will be required to pay tax in the countries where they operate – and not just where they have their headquarters.
• The rules would apply to global firms with at least a 10% profit margin – and would see 25% of any profit above the 10% margin reallocated and then subjected to tax in the countries they operate. Pillar 1 will be implemented through a Multilateral Convention (MLC) with this aiming to come into effect in 2023.

Under Pillar Two, the G7 also agreed to implement a 15% global minimum corporation tax, aiming to become effective from 2023. This will be operated on a country-by-country basis, creating a more level playing field for UK firms and cracking down on tax avoidance.

We are all due a little rest and recuperation. The last eighteen months have been challenging and stressful. If, big if, COVID infection is contained this winter, perhaps we could start to consider celebrating with and family and friends during the Christmas break.

And why not fund a “business” related event that will have the support of the taxman?

If you are careful with your budgeting, you can enjoy a staff party without increasing your tax or National Insurance payments. Here’s what you need to consider:

What's exempt?

You might not have to report anything to HMRC or pay tax and National Insurance. To be exempt, the party or similar social function must meet all the following criteria:

• The cost must be £150 or less per head.
• The event must be an annual event, such as a Christmas party or summer barbecue.
• The event must be open to all your employees.

If your business has more than one location, an annual event that’s open to all your staff based at one location still counts as exempt. You can also have separate parties for different departments if all your employees can attend one of them.

If the combined cost of the events is no more than £150 per head, they are still exempt. You do have to report how much social functions and parties are worth to each employee if they are a part of a formal salary sacrifice arrangement.

A few additional considerations

• The cost of the function includes VAT and the cost of transport and/or overnight accommodation if these are provided to enable employees to attend. Divide the total cost of each function by the total number of people (including non-employees) who attend to arrive at the cost per head.
• The figure of £150 is not an allowance. For functions that are outside the scope of the exemption directors and employees are chargeable on the full cost per head, not just the excess over £150, in respect of: themselves and any members of their family and household who attend as guests.
• If the employer provides two or more annual parties or functions, no charge arises in respect of the party, or parties, where the cost(s) per head do not exceed £150 in aggregate. Where there is more than one annual function potentially within the exemption, HMRC do not expect employers to keep a cumulative record, employee by employee, of functions attended. But for each function the cost per head should be calculated. The cost per head of subsequent functions should be added. If the total cost per head goes over £150 then whichever functions best utilise the £150 are exempt, the others taxable.

If you need help organising your annual celebration in the most tax effective way, please call.

Although it sounds like a culinary dish – a cabbage compote (?) – cabotage is defined as the transport of goods or passengers between two places in the same country by a transport operator from another country.

Its present relevance is a rule that restricts hauliers from the EU who can only make two cabotage trips within seven days.

In an announcement by the Department of Transport issued 14th October, there is a proposal to extend cabotage to foreign transport operators that would allow them to make unlimited journeys for two weeks before returning home.

Could it be yet another attempt to ease the present supply issues?

The announcement goes on to say:

“Thousands more HGV deliveries could be made each month in the UK under government plans to help bolster the country’s supply chains by temporarily extending so-called ‘cabotage’ rights.

Subject to a one-week consultation, the temporary measures would come into force towards the end of this year for up to six months, helping secure supply chains in the medium term alongside the wider package of measures government has put in place to address the shortage of drivers more broadly.

The relaxation would apply to all types of goods but is likely to be particularly beneficial to food supply chains and goods that come via ports, by ensuring lorries from abroad coming into the UK are used more efficiently, helping to tackle the temporary global supply chain pressures brought on by the pandemic and the global economy rebounding.

It comes as the government continues to address the current global shortage of HGV drivers which is affecting countries around the world and builds on the raft of measures that have already been announced to support the sector, including boosting testing capacity, and streamlining the licence process.”

This is good news for UK businesses that are supplied from the EU. Fingers crossed that it is introduced in time for Christmas…

The temporary reduced rate of VAT (5%), introduced to assist qualifying hospitality trades disrupted by COVID lockdown measures, was increased to 12.5% from 1 October 2021. Based on present information, from 31 March 2022, this 12.5% rate will revert to the 20% standard rate.

This reduction in VAT applied to the sales of hospitality trades will have allowed VAT registered traders to retain more of their turnover subject to VAT if no change was made to their selling prices.

If no change in selling prices

For example, for every £10,000 of income received and subject to VAT at 20%, hospitality traders would retain £8,333.

During the period up to 30 September 2021, when the rate of VAT on hospitality trades was reduced to 5%, for every £10,000 of income received hospitality traders would retain £9,524.

Since 1 October 2021, for every £10,000 of income received including VAT at the 12.5% rate that now applies, for every £10,000 of income received hospitality traders will retain £8,889.

And from 31 March 2022, its back to square one. Turnover will revert to a 20% VAT charge.

If traders have passed on VAT reductions to customers

If traders have decided that it was more beneficial to pass on VAT savings to their customers the reduction in VAT would have allowed them to drop their prices as follows – all figures based on a selling price of £100 before VAT was added:

• Selling price at 20% VAT – £120
• Selling price at 5% VAT – £105
• Selling price at 12.5% VAT – £112.50

And, of course, traders can pass on some of the VAT reductions to customers and retain the difference.

What is clear, is that this support for the hospitality industry is being phased out. Much now will depend on how effective government is in keeping the downside disruption of COVID to a minimum. Otherwise, the Chancellor may have to dig-deep to find other ways to support this significant industry sector.

Practical considerations

As turnover from 1 October is subject to a 12.5% rate of VAT, affected traders will need to add a 12.5% rate to their accounting software and use this new rate for the period 1 October 2021 to 31 March 2022. The 12.5% is a new rate of VAT and accordingly will not be included as a choice in most accounts software.

If you are unsure how to do this please call, we can help

At present, self-employed traders (sole traders and partnerships) are taxed for each tax year on profits for the accounting period ending in that tax year.

Therefore, if a trader’s accounting year end is 31 December, their assessment for 2021-22 will be based on adjusted profits for the year ending 31 December 2021. Which means that actual profits earned from January to March 2022 will not be assessed until the following tax year, 2022-23.

While profits are rising, the existing system means that tax collection on a proportion of profits is delayed by one year. And consequently, if profits are falling, tax payable may be higher than if profits had been assessed on an actual basis.

Based on current information being released by HMRC, it would seem that they now want all self-employed persons to be taxed on actual profits earned in a tax year. If this change is followed through it would prepare traders for the shake-up of income tax assessment to a quarterly, digital upload from April 2024. It would mean that all self-employed year ends would change to 31 March.

Aside from the effects on HMRC’s switch to a Making Tax Digital reporting for income tax purposes, any move to change from assessments being based on accounts’ years ending in a tax year (say the year to 31 December) to results actually made in a tax year (trading years ending 31 March) would involve a process of transition that could have unexpected changes to tax bills in the year the transition is undertaken. Bills for affected taxpayers could increase or decrease.

As HMRC have announced that their MTD for income tax change will start April 2024, we can expect more on a possible change to an actual basis quite soon.

A recent HMRC press release confirmed that sole traders and buy-to-let property businesses (but not incorporated businesses) will have an extra year to prepare for the digitalisation of Income Tax.

Recognising the challenges faced by many UK businesses and their representatives as the country emerges from the pandemic, and having listened to stakeholder feedback, the government will introduce Making Tax Digital (MTD) for Income Tax Self-Assessment (ITSA) a year later than planned, in the tax year beginning in April 2024.

A later start for MTD for ITSA gives those required to join more time to prepare and for HMRC to deliver a robust service, with additional time for customer testing in the pilot.

We also suspect that the delay will give HMRC’s under pressure staff more time to make the necessary changes to their IT systems and fully beta test their MTD ITSA processes.

Making Tax Digital for Income Tax will be mandated for sole traders and landlords with a business income over £10,000 per annum in the tax year beginning in April 2024.

General partnerships will not be required to join MTD for ITSA until the tax year beginning in April 2025, while the date other types of partnerships will be required to join will be confirmed in the future.

In March 2021, the government announced a new, fairer system of penalties for the late filing and late payment of tax for ITSA. The new penalty system for those who are mandated for MTD for ITSA will now come into effect in the tax year beginning in April 2024, and in the tax year beginning in April 2025 for all other ITSA taxpayers.

This major change in the taxation of affected sole traders and landlords is thus deferred for a further twelve months.

However, we recommend that all mandated business owners and landlords who presently record their accounting details manually or on rudimentary spreadsheets, give urgent attention to adopting an approved digital accounts software that will be fit for purpose when the new implementation date arrives, April 2024.

We can help. Call now so we can assist with the choice and implementation of suitable software. As well as providing you with the means to comply with the new MTD ITSA requirements, using an appropriate accounts software package will also provide you with access to real-time data, information that can only help as we steer a path through present challenges.

The UK Government has announced that further measures will be put in place to help ease supply chain pressures as spikes in demand for fuel create a panic buying hysteria.

This added pressure to already stretched supply chains is a further blow to affected businesses across the UK.

The Government has announced the new measures in a bid to help ease issues currently affecting petrol stations across the UK, including the placement of a team of military drivers to improve delivery of fuel to out of stock petrol retailers.

Last week saw motorists across the UK panic-buy fuel after BP and Esso warned that their stations were experiencing a shortage of petrol and diesel deliveries due to the shortage of HGV drivers.

Despite efforts made by the UK Government to assure the public that there was no reason for concern or panic buying, cars descended in their thousands to petrol stations across the country to fill up their vehicles despite the Government’s advice.

Business Secretary Kwasi Kwarteng said:

“The UK continues to have strong supplies of fuel; however, we are aware of the supply chain issues at fuel station forecourts and are taking steps to ease these as a matter of priority.”

Transport Secretary, Grant Shapps, has authorised an extension to ADR driver licenses, which allow drivers to transport goods, such as fuel. This will aim to provide immediate relief to the shortage of HGV drivers, by allowing affected drivers to maximise their available capacity instead of being taken out of circulation for refresher training purposes.

It doesn’t stop with fuel, however. As a result of many EU drivers returning to their home countries due to COVID-19 and Brexit, a stock and supply shortage crisis has emerged in the UK, with an estimated shortfall of 100,000 drivers, according to the Road Haulage Association (RHA). Meanwhile, the existing workforce is rapidly ageing. The industry body is warning that about a third of the UK’s 380,000 drivers may retire within the next five years.

Last week, the Government announced a further package of measures to help ease supply chain pressures, including an introduction of short-term visas for HGV drivers, increasing HGV testing and establishing bootcamps to train up to 3,000 more people to become HGV drivers, providing more flexibility for the industry.