As lockdown restrictions continue to ease across home and business life the levels of perplexity seem to increase.
The aim of our updates is to reduce that perplexity. Today, we have more clarity on the Flat Rate Scheme following on from the VAT changes. Also, reminders concerning the required information that needs to be given to any staff that may be flexi-furloughed and your option to defer your self-assessment payments.
New funding sources for business continue to appear both sides of the border, albeit more specific to certain industries or types of business. If you need help in applying for any funding please do get in touch.
VAT Cut – Flat Rate Update + Supplies that Straddle the New Rate
The changes to VAT announced in last week’s Summer statement come into effect today.
One area we do now have details of is the new flat rate percentages. If you are a small business operating in one of the relevant sectors affected and account for VAT via the Flat Rate Scheme, the latest information on what you need to pay can be found here on the HMRC website. In summary the flat rate reductions are:
|Type of business||Current VAT flat rate (%)|
|Catering services including restaurants and takeaways before 14 July 2020 and after 12 January 2021||12.5|
|Catering services including restaurants and takeaways after 15 July 2020||4.5|
|Hotel or accommodation before 14 July 2020 and after 12 January 2021||10.5|
|Hotel or accommodation after 15 July 2020||0|
|Pubs before 14 July 2020 and after 12 January 2021||6.5|
|Pubs after 15 July 2020||1|
We can also provide more details in relation to situations where a payment or deposit has been received before 15 July 2020, but the goods or services will be supplied after 15 July 2020. In this situation, the business can charge VAT at 5% on goods removed or services performed between 15 July 2020 and 12 January 2021.
Customers may expect the reduced VAT rate to apply to the deposit, but it is the decision of the business whether to amend the VAT rate. If a business chooses to amend the VAT rate and has already issued an invoice showing the 20% rate of VAT, this must be corrected by issuing a credit note and issuing a new invoice showing the 5% rate.
The purpose of the VAT reduction is to support businesses, but the contract that a business may have in place with their customer might require them to pass on any VAT savings to them. This could result in some negotiating to share any VAT savings. Ideally a VAT inclusive price will have been agreed up front so that the full saving can be retained by the business.
There does not appear to be any specific guidance in relation supplies made before 15 July 2020 and with the invoice being issued at a later date. Therefore, the basic tax point rules will apply.
- for goods, this is the date that the goods are sent or taken away by the customer or made available to the customer
- for services, this is the date that the service is performed or completed.
However, if an actual tax point is created this will override the basic tax point. This occurs when:
- if, before the basic tax point, the business issues a VAT invoice or receives payment for the goods or service. The tax point here is the date of the VAT invoice or the date when payment is received, whichever happens first
- if the business issues a VAT invoice up to 14 days after the basic tax point. The tax point in this case is the date the invoice is issued. Therefore, the new rate will apply if an invoice is issued on or after 15 July 2020 and the service or goods were supplied up to 14 days before 15 July 2020. Otherwise the standard rate of 20% will apply.
We do appreciate that this is not written in the most ‘easy to understand’ language, therefore if you require any clarification on this point please do contact us.
The following information should also help if you sell any of the services and supplies affected by the temporary VAT reduction.
Food and Drink
– eat in: all food and drink sales with the exception of alcoholic drinks benefit from the reduced VAT rate of 5%
– takeaway – hot food and non-alcoholic hot drinks will benefit from the reduced VAT rate of 5%. Be aware that confectionery and crisps remain standard rated when purchased to consume off the premises and full details are found in HMRC’s latest guidance.
Hotel & similar accommodation
The reduced 5% rate also applies to the charges made for:
- supplies of sleeping accommodation in a hotel or similar establishment
- certain supplies of holiday accommodation
- fees for caravan pitches and associated facilities
- fees for tent pitches or camping facilities
Full details are found in HMRC’s latest guidance.
Admission to attractions
Entry fees to many attractions may now be charged with VAT at 5%.
The reduced rate applies to entrance to:
- shows, theatres, circuses, fairs, amusement parks, concerts, museums, zoos, cinemas, exhibitions, similar cultural events and facilities.
One exception is admission to sporting events which remain standard rated.
Organisations currently able to exempt admission fees under the cultural exemption rules will continue to exempt their supplies.
Full details are found in HMRC’s latest guidance.
Flexi-Furlough – informing employees
As you will be aware the Coronavirus Job Retention Scheme (CJRS) entered its second phase on 1 July 2020 and runs until 31 October 2020, when the scheme ends. A key element of this second phase was the introduction of ‘Flexible Furloughing’ which allows businesses to bring back furloughed employees to work on a part-time basis.
Details of the second phase can be found here on our website.
We wanted to remind you that, in order to bring employees back from full furlough to flexible furlough, you must advise them in writing of your intention and outlining the details of their furlough arrangements. To assist, you may find this ACAS template letter helpful. Two copies must be printed and signed by yourself and your employee. You keep one copy and your employee will keep the other.
Self-Assessment Tax Payments Deferral
Just a reminder that self-assessment tax payments due on 31 July 2020 can be deferred to 31 January 2021 with no interest charge or penalty if you are finding it difficult to pay due to the impact of coronavirus.
The deferment is automatically being given by HMRC if no payment is made in July 2020.
You should have received a statement from HMRC, which shows the amount of the July instalment and that it is not now becoming due until 31 January 2021.
Please be aware that the total amount payable on 31 January 2021 will include your second payment on account for 2019/20, any balancing amount due for 2019/20 and your first payment on account for 2020/21.
If your statement includes any amount that was overdue for payment before the July 2020 payment on account, this still has to be paid. To avoid accruing late payment interest and penalties please make sure any overdue amounts are paid immediately. If you are unable to make payment of any amounts overdue, please ring HMRC on 0300 200 3822 in order to put a payment plan in place.
Funding for High Growth Companies (Scotland only)
The Scottish Government has announced the provision of a £38 million support package for high growth companies. The new funding, which will be managed by Scottish Enterprise, will consist of:
- £3m worth of grants up to £50k, plus advisor support, for start-ups identified as having significant growth potential
- a further £10m for the existing Scottish Investment Bank co-investment funds. More details can be found here on the Scottish Enterprise website
- a £25m Early Stage Growth Challenge Fund, which will allow businesses to apply on a competitive basis for a mixture of investment and grant funding up to £300,000
More details on the Early Stage Growth Fund can be found on the Scottish Enterprise website. This is not a first come first served fund. It is a competitive funding process with applications open for a short period from 20 July 2020 until 31 July 2020. Only the most highly graded applications will receive funding.
Applications will be judged on their perceived benefit to Scotland’s economic recovery. The funding will be part convertible loan, with an element of grant attached. The grant element will not need to be repaid. But the convertible loan, along with any accrued interest, will either need to be paid or converted into equity.
Applications will be assessed on their clarity and quality of the application form and supporting documents. We would therefore recommend reading the guidance notes carefully. GWA partners regularly advise funding and business deals such as this and would be happy to assist to ensure any application is as robust as possible.
Kick-starting Tourism Package (England only)
Further assistance for businesses in tourist areas has been announced. The Kick-starting Tourism Package is being managed through the network of Local Growth Hubs (LEPs).
Small businesses in tourist destinations in England may be eligible. Grants of between £1,000 and £5,000 will be offered to help businesses access specialist professional advice, eg human resources, accountants, legal, financial, IT/digital. The money can also be used for purchasing minor equipment to adapt or adopt new technology in order to continue delivering business activities or to diversify.
Full details are not yet available and we will update you once we have more information. In the meantime, the webpage of the North East Growth Hub is worth checking as it outlines all the support available in the region.
We are here to help and all the Partners and the GWA team can be found at our usual email addresses and phone numbers. We are always happy to provide guidance and clarification to help you access support as quickly as possible. Also, to look to the future to ensure your business and personal finances remain as positive and productive as possible.
Information correct as of 15 July 2020