Accurate Record keeping is vital
Vice President, Rod Podger
Over the past eighteen months I’ve heard a wide variety of stories from business people, some in the hospitality and entertainment sectors have been devasted, others have scraped by whilst some have actually flourished. But wherever a business is on that spectrum, as the furlough and other support schemes appear to be drawing to an end and coronavirus loans and deferred tax repayments start to impact on current cashflows, there are fresh challenges ahead.
Many Bounce Back and Business Interruption loan repayments will start to fall due after the initial repayment holidays. When you add in deferred VAT and self-assessment payment plan instalments you are looking at significant increases in monthly outgoings and that may lead to cashflow issues especially for businesses just re-opening or still struggling to get back to normal trading levels.
Lenders and HMRC will generally be understanding if approached in advance or immediately there is a problem, but perhaps less so if you miss a couple of months of instalments before any contact is made.
Make sure you have the paperwork and the evidence you need to support any grants claimed.
It is quite likely HMRC will eventually review a fair proportion of all claims over the next few years, either on a random sample basis or where overall figures suggest any cause for concern. With taxpayers expected to self-declare and repay any incorrect claims in the first instance, any subsequent discovery of deliberately false or negligent claims may well meet an iron fist if discovered at a later date.
For the furlough scheme, it is important that employers have and retain records of staff furlough agreements and records of working/non-working hours where partial furlough claims have been made. For the self-employed grants, it is important to have notes of how the business was adversely affected at the time the grants were claimed. Supporting notes made at the time, or certainly before memories fade, will assist in supporting claims made should HMRC raise any query.
The self-employment support grants (SEISS) are perhaps the area of most concern in terms of grants claimed compared to final turnover levels for 2020/21 and beyond. With the claims criteria for the earliest grants being fairly subjective and perhaps the individual having worked hard to recoup lost earnings when they were able later in 2020, we are seeing many cases where normal income levels were maintained for the 2020/21 year as a whole with SEISS grants claimed increasing income to above average levels.
Such cases will perhaps provide fairly low hanging fruit for review by HMRC so it is especially important to have notes and any other relevant evidence to support claims made by having a record of individual circumstances at the time any claims were made.
In the vast majority of cases, grants will have been legitimately claimed. However, with vague criteria including phrases such as ‘adversely affected’ and ‘reasonable belief’ and various other sometimes unfathomable small print, it seems fair to say that many claimants will have received communications from HMRC telling them they were eligible to claim and so assumed they were entitled to do so, whatever their circumstances.
In cases where SEISS grants have increased income beyond normal levels, there may be abnormally high self-assessment payments falling due in January 2022. Also, for subcontractors used to having tax deducted at source under the construction industry scheme, there may be unexpected tax payments in January as the grants will not have been subject to any such deduction.
I’d strongly recommended that the self-employed attend to their 2021 accounts and tax returns to confirm their upcoming tax payments as soon as possible to avoid any nasty last-minute surprises in January.
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