CBI warns of rocky road despite July economic growth

The Confederation of British Industry (CBI) has warned that the UK economy still faces a ‘rocky road back to normality’ despite GDP growth in July.

The UK economy grew by 6.6% in July but remains far below pre-pandemic levels, according to the latest figures from the Office for National Statistics (ONS).

Hairdressers, pubs and restaurants contributed to the economic growth after businesses were allowed to reopen in July. It is the third month in a row that the economy has expanded.

However, the ONS warned that the UK has still only recovered just over half of the lost output caused by the coronavirus (COVID-19).

Commenting on the data, Rain Newton-Smith, Chief Economist at the CBI, said: ‘As more businesses were able to open their doors, the economy grew further in July. But economic growth lost some steam on the previous month, illustrating the continued uncertainty over the shape of an economic recovery ahead.

‘The prospect of a second wave is restraining consumer and business confidence, and firms continue to face cashflow difficulties. With government support schemes coming to an end and renewed uncertainty over Brexit, clearly the road back to ‘normal’ is going to be a rocky one.’

Lockdown grants welcome but more support needed, say business groups

The government’s announcement of new cash grants for businesses affected by local lockdowns has been welcomed by business groups, including the Confederation of British Industry (CBI) and the Federation of Small Businesses (FSB).

Businesses in England that are required to shut because of a local lockdown will now be able to claim up to £1,500 per property every three weeks. However, both the CBI and the Association of Independent Professionals and the Self-Employed (IPSE) have warned that more targeted help is still required.

Annie Gascoyne, Director of Economic Policy at the CBI, said: ‘New direct cash grants will certainly help small businesses if their area falls under new restrictions to protect public health. But the impact of COVID-19 is still hurting businesses, so the government will need to look at more targeted support in the autumn. That needs to include a successor to the furlough scheme and allowing businesses to defer VAT payments from July to September.’

Andy Chamberlain, Director of Policy at IPSE, commented: ‘We welcome the fact the government is supporting businesses affected by local lockdowns. However, although this will help some self-employed people with business premises, it will leave the great majority out in the cold.’

Meanwhile, the FSB said the grants are ‘much-needed additional financial lifelines’ for businesses most affected by COVID-19. Mike Cherry, National Chairman of the FSB, said: ‘Though a lot of firms have now been able to reopen, thousands are still impacted by local lockdowns.

‘We look forward to working together with local government to make sure there is a straightforward claims process for all firms affected.’ 

IoD urges government to extend coronavirus insolvency measures

The Institute of Directors (IoD) has called for the government to extend emergency coronavirus (COVID-19) insolvency measures to prevent company collapses and job losses.

Directors have a duty to cease trading if their company is facing insolvency, and could face financial or legal liabilities if they seek finance instead. In June, the government introduced emergency COVID-19 legislation to suspend the threat of liability for such ‘wrongful trading’.

This protection expires on 30 September. However, the IoD is warning that failure to extend the measure could lead to ‘entirely preventable company collapses’. The business group is calling for the government to extend the measure until the end of 2020 to aid the economic recovery and to help safeguard jobs.

‘The recovery has begun, but businesses are not out of the woods yet,’ said Roger Barker, Director of Policy and Corporate Governance at the IoD.

‘The government has rightly supported business survival, and emergency legislation in June was an important step. The need for this support has only intensified as we enter the next stage of the recovery. Firms trying to adjust will face steep costs and limited revenues.’

DEADLINE TO REPORT THE DISGUISED REMUNERATION LOAN CHARGE – 30 SEPTEMBER 2020

If any of your current or former employees have outstanding disguised remuneration loans that are subject to the Loan Charge, the deadline to report the details of their loans is approaching. These loans must be reported to HMRC by 30 September 2020 using the online form on GOV.UK, as well as within the 2018-2019 tax return.
Anyone who wants to spread their outstanding disguised remuneration loan balances evenly across the 2018-2019, 2019-2020 and 2020-2021 tax years will need to do so by 30 September 2020, using the same online form on GOV.UK.

What employers should do to report the Loan Charge
We published an article in the April 2020 Employer Bulletin to let employers know about the changes that were made to the Loan Charge rules. We also explained what employers must do if they have not yet reported and accounted for the Loan Charge, or if they need to change the information that they have submitted already.

Refunding voluntary payments made in disguised remuneration settlements
As a result of the recommendations in the Independent Loan Charge Review, certain voluntary payments (‘voluntary restitution’) made as part of a disguised remuneration settlement with HMRC can be refunded.
The voluntary payments that can be refunded are those made on or after 16 March 2016, in relation to loans made in unprotected years. An unprotected year is one where we didn’t take action to protect the year, for example, by opening an enquiry.
We have published guidance about which voluntary payments can be refunded and how the scheme works.

We can Help
Anyone subject to the Loan Charge who thinks they may have difficulties paying
what they owe should contact us. We want to help people to pay what they owe
by working with them to agree on an affordable payment plan.

Up to £3.5 billion in furlough payments fraudulent, HMRC finds

HMRC has revealed that almost £3.5 billion in Coronavirus Job Retention Scheme (CJRS) payments have been claimed fraudulently or paid out in error.

HMRC told the Public Accounts Committee (PAC) that it estimates that between 5% and 10% of CJRS funds have been provided in error. According to the PAC, in 2019 £30 billion in tax was lost as a result of taxpayer error and fraud.

HMRC said it intends to target individuals who made fraudulent CJRS claims, rather than penalise employers who made legitimate mistakes in compiling their claims.

Commenting on the issue, Jim Harra, Chief Executive of HMRC, said: ‘We have made an assumption for the purposes of our planning that the error and fraud rate in this scheme could be between 5% and 10%. That will range from deliberate fraud through to error.

‘Although we will expect employers to check their claims and repay any excess amount, what we will be focusing on is tackling abuse and fraud.’

FSB urges government to provide Brexit transition vouchers

The Federation of Small Businesses (FSB) has urged the government to provide small businesses with Brexit transition vouchers as the latest round of withdrawal talks commences.

The business group called for government Brexit negotiators to agree a small business-friendly deal ‘swiftly’. It said that currently the draft terms of the EU deal don’t contain a dedicated small business chapter outlining how the deal will benefit firms of all sizes.

The FSB said that the government needs to step in with ‘substantial financial support’ to assist with Brexit transition preparations, given that small firms have been ‘flat out’ managing coronavirus-linked disruption for the past six months.

Commenting on the matter, Mike Cherry, National Chairman of the FSB, said: ‘The transition period will soon be at an end but the small firms that make up 99% of our business community still have no clear sense of what they’ll be transitioning to.

‘The economy is in a very different place today compared to the last time we were told to prepare for a no-deal outcome. Small firms don’t have the time or money to get across new bureaucracy or stockpile.’

Treasury publishes consultation on VAT refund scheme

The Treasury has published a consultation on reforms to the VAT refund rules.

Under the current VAT rules, government departments, devolved administrations, the NHS and Highways England are eligible for VAT refunds under Section 41 of the VAT Act 1994.

However, unlike commercial organisations, public sector organisations do not carry out business activities and therefore cannot reclaim VAT incurred on the goods and services they purchase.

The Treasury believes that VAT could act as a barrier to using more efficient and effective means of delivering a desired policy outcome. Section 41 was introduced to remove VAT from being a factor in decision making and enables the public sector to focus on making procurement choices that reflect true value for money for the Exchequer.

The Treasury is seeking to extend the scope of Section 41 to permit full refunds of the VAT incurred on all goods and services incurred during the course of non-business activities for those organisations currently falling within the scope of the Section.

The consultation closes on 19 November 2020 and the policy paper can be found here.

Tax hike for freelancers would be unjust, claims IPSE

Chancellor Rishi Sunak’s plan to raise the national insurance contributions (NICs) paid by self-employed workers would be unjust, the Association of Independent Professionals and the Self-Employed (IPSE) has claimed.

According to reports, the Chancellor is considering bringing the 9% Class 4 NICs rate paid by the self-employed into line with the 12% rate for employees. It is one of the ways the Treasury is reported to be looking at raising revenue after spending billions on its coronavirus (COVID-19) support packages.

When Mr Sunak announced the Self-employment Income Support Scheme (SEISS) in March, he warned: ‘If we all want to benefit from state support, we must all pay equally in the future.’

IPSE has argued that making the 1.5 million self-employed pay for support they did not get would be unfair. It also said that given the slump in the number of self-employed individuals it would also be uneconomical to squeeze these workers further.

Andy Chamberlain, Director of Policy at IPSE, said: ‘The last few months have financially hammered the self-employed, with over two-thirds seeing a drop in demand for their work. Government support was some help – to a proportion of the self-employed.

‘More noticeable, though, was the 1.5 million who fell through the gaps, leaving many financially devastated. The idea that this 1.5 million should now suffer a drastic tax hike to pay for support they never got is unjust, uneconomical – and unbelievable. If the government is really considering this, it must stop now.’

Beat the Budget – what to expect

The next Budget is due Autumn 2020, late October or early November, although this may be postponed until Spring 2021 if we have a further spike in coronavirus infections.

There has been the usual speculation that taxes will be increased in the forthcoming Budget to pay for COVID grants and support. Leaving aside the economic arguments for and against, what planning adjustments can we make now?

An overview

– Corporation tax. It has been rumoured that corporation tax will be increased from the present 19% to 24%. If implemented this will be a significant increase.

– Income tax. No reported changes to income tax but be watchful for regional variations as Scotland and Wales now set their own income tax rates and tax bandings.

– Capital Gains Tax. There is a rumour that the Chancellor is considering aligning CGT rates with income tax rates. If enacted, this could potentially double tax payable on capital gains.

Pensions tax relief. Speculation that income tax relief – especially for higher rate income tax payers – will be reduced for pension contributions has been rife for a number of years. Perhaps the imperative to pay for COVID largesse may see action in this area in the upcoming Budget.

Strategies to beat the possible Budget changes

The following strategies could be considered:

Advance income streams. If you can organise workflow to advance the billing and completion of billable projects and supplies before 31 March 2021 – assuming CT rates do not increase until 1 April 2021 – then any profits created by these supplies will be taxed at the lower rate.

Defer capital expenditure. As with the previous tactic, if you can defer capital expenditure on new plant, vehicles or other equipment then it makes sense to incur these costs after 1 April 2021, when you can write off up to 100% of allowable costs and reduce CT liabilities at the higher rate.

– Review pension contributions 2020-21. If tax relief is to be reduced following a Budget announcement it may make sense to maximise relief for 2020-21. Speak to your financial adviser or pensions adviser to discuss your options.

Planning is imperative

Basing tax planning decisions on speculative announcements, especially as these may be motivated by political considerations, is clearly unwise unless there are compelling reasons for doing so.

Ideally, any changes you might consider should make commercial sense as well as hedging your bets on possible future tax increases.


We all have unique business and personal financial circumstances, and these must be considered before undertaking any tax saving strategy. We therefore advise readers to call so that we can consider your options. Do not act on any matters discussed in this article without calling for advice.

End of VAT payment deferrals period

To provide government support during the early stages and peak of the COVID-19 pandemic, HMRC gave businesses the option to defer VAT payments if they were unable to pay on time. They could do this without incurring late payment interest or penalties.

Under the scheme, payment of VAT due between 20 March and 30 June could be
deferred until 31 March 2021. VAT deferred through the scheme can be paid through ad hoc payments and overpayments ahead of the deadline if preferred, so long as full payment is made by that date.

As planned, the scheme came to an end on 30 June. Businesses now need to set up any cancelled direct debits in time for payment of their next VAT return. Further information can be found on GOV.UK’s website here: https://bit.ly/2Zobl2D

Alternatively, visit our dedicated COVID page, found here: https://bit.ly/2F1vHHH