Lacking festive cheer
Christmas may be a time for giving, but businesses this year are on the receiving end of a sleighload of new rules. Santhie Goundar takes a look at what organisations should be aware of.
With the coronavirus crisis and Britain leaving the EU, 2020 has been a year of uncertainty for many businesses – and many will look further ahead than Christmas to the incoming legislative changes during 2021 and beyond. Businesses, especially smaller ones, should look to ensure they have a strategy in place to deal with this – and not get tied up.
The looming Brexit deadline of 31 December is on the minds of many. HMRC figures estimate there are 100,000 small businesses underneath the VAT registration threshold of £85,000 selling goods internationally. While most VAT and customs impacts have been ‘baked in’ with the Withdrawal Agreement, Richard Asquith, Avalara’s global indirect tax vice-president, says the current “big unknowns” are around tariff s, customs admin, and further VAT changes ahead.
VAT and e-commerce
Many of those changes will come into effect on 1 January 2021. Low-Value Consignment Relief, which relieves import VAT on consignments of goods valued at £15 or less, is being abolished in the UK on that date (the EU is withdrawing the relief on 1 July 2021). Instead, British businesses importing goods from outside the UK in consignments valued £135 or less will need to collect VAT at the point of sale, rather than from the point of importation.
Asquith says sellers “will now be responsible for calculating UK import VAT if they sell to a UK consumer [for those goods] – they’ll have to update their accounting system, and their check-in-check-out systems to do live import VAT calculations and tariff calculations,” and this could affect many smaller or newer e-commerce businesses.
Furthermore, he adds, the distance-selling threshold is ending on 1 January, so “businesses will need to register for VAT in the EU country they sell to, and start filling in VAT returns. Given that the UK will be out of the EU VAT regime, any goods to the EU will be subject for the first time to import VAT for that EU country, and vice versa. Much of this will affect e-commerce businesses, especially those who just started to go online this year – many of them could face a cashflow headache”.
Tax specialist Paul Aplin advises that businesses should fi nd good resources to keep up to date on Brexit, whether these resources are online or a trusted accountant – but says there is now a case for businesses to consider digital technology because “so much has now become impersonal through Covid, and technology’s got an advantage there”.
“In 2020 we’ve also seen a lot more financial transactions go online, with reduced use of cash and cash points. More people over the last six months have become used to doing business online. I think there’s now a natural momentum towards digital technology, and that’s because there’s a clear business case.”
Making Tax Digital and IR35
There are other reasons for businesses to digitalise rather than ignore e-commerce: July’s roadmap for Making Tax Digital (MTD). HMRC announced the extension of MTD for VAT to all VAT-registered businesses from April 2022, with income tax quarterly reporting applying from April 2023 for unincorporated businesses and landlords with total gross income above £10,000.
While Aplin does not believe that tax (or HMRC) should drive the uptake of business digitalisation, he advises: “Any accountant or business that isn’t currently using software in their business really ought to reflect now on whether they’ll have to in 2022 or 2023.”
But Sonali Parekh, policy director for the Federation of Small Businesses (FSB), says FSB members are most concerned about more immediate changes: the delayed off -payroll working rules, also known as IR35, which were postponed to 6 April 2021 due to the pandemic.
“The extensive challenge that businesses have faced over the last nine months is now defnitely weighing on business confidence and sentiment,” she says. “And the IR35 changes don’t support the operation of a flexible labour market. Some employers are more reluctant to take people onto payroll as employees, and took on more contractors as it gave them more flexibility. It’s not clear when and if consumer demand and GDP will get back to the levels they were before.”
With Covid continuing to make economic activity uncertain, Parekh warns any new lockdown could make consumer demand fall very sharply, especially if the hospitality and leisure industries are legally required to close again. “They would really struggle – many smaller businesses are hoping they’ll have a really strong Christmas to salvage something, but that’s looking less likely,” she says. However, she observed that “one of the issues that the coronavirus is really exposing, is that those small businesses best able to adapt already have a strong digital capability”.
Other regulations are being considered, such as an Economic Crime Levy to tackle money laundering. “The government… believes it is fair that those whose business activities are exposed to money laundering risk pay towards the costs associated with responding to and mitigating those risks,” explained the HM Treasury consultation, which closed in mid-October.
“We recognise [affected] firms already contribute through their compliance with the requirements in the Money Laundering Regulations… However, compliance and regulatory activity can never eliminate the risk created.”
The consultation set out plans for a mandatory levy, raising an additional £100m annually, with the first set of payments to be made in FY 2022/23. Other measures involve the use of plastic bags and packaging, with George Bull, RSM senior tax partner, noting the fee for single-use bags in England rises to 10p from April 2021. Small retailers are no longer exempt.
“The chancellor [also] announced plastic packaging with less than 30% recycled plastic would be subject to a new tax from April 2022,” Bull continued.
“With a maximum projected yield of £240m per year, and considerable administration costs for both HMRC and businesses, this doesn’t look like a money-winner for the Exchequer. It seems to be driven by public concern about the environment. However, businesses will fi nd themselves left with the administrative costs of providing HMRC with evidence of compliance.”
Business strategy in 2020 obviously went through an overhaul for the vast majority of small businesses, explains Parekh. “Such as: developing more of an online presence; shifting their business model from, for example, eat in, to take out; looking again at supply chains, and so on. There has been opportunity as well as challenge, and small businesses are agile.
Santhie Goundar is a freelance journalist