Latest Updates in Accountant World for June 2020
We live in unique time. New rules of the world affects every side of our life and the biggest impact is closely connected to the finances. The government is trying to regulate new world situation and establish the rules that will support business stability.
In this post we are going through latest news that have affected financial world and will make significant impact on business owners.
COVID-19 delaying VAT repayments to businesses outside the EU
In its latest Revenue and Customs Brief, HMRC informs businesses established outside the EU of delays in processing and refunding VAT claims submitted under the Overseas Refund Scheme for the year 1 July 2018 to 30 June 2019. Such claims will have been submitted on or before 31 December 2019.
The brief confirms that the impact of coronavirus and changes HMRC has made to its operations, mean it is unable to meet its deadline of 30 June 2020 for some of these 2018–19 claims. It does, however, expect to make repayments by 30 September 2020.
If a business is unable to obtain the relevant certificate of status by 1 October 2020, HMRC requests that the overseas business or their agents contact HMRC in writing so that the case can be considered.
Crisis drives reliance on accounting tech
“Tools like task and workflow management have become incredibly important during this challenging time as they assist in defining processes so that practices can clearly see what’s going on,” Evan Jones, lead technology product manager at Wolters Kluwer Tax & Accounting UK, said via email.
In early 2019, a Sage report found that only 35 percent of accountants would call their firms ‘early adopters of technology,’ with the majority only buying what technology was essential. At the beginning of this year, many in the industry told Accountancy Age 2020 would be the period in which the industry pivoted to much wider tech reliance. The pandemic has substantially sped up that adoption, market participants now say.
This quick shift to remote working was necessary, but it exposed several security flaws. Accountancy firms have reported a rise in phishing attempts, with some capitalising on the increased correspondence HMRC sent out to agents and taxpayers.
Additionally, newer problems like ‘vhishing’ and ‘Zoom bombing’ appeared, complicated by staff no longer being protected by employee encryption software and VPNs.
BDO sued for £250m over ‘light-touch’ administration
The opening statement from the liquidators makes two principal allegations against BDO. Firstly, that “without making any independent inquiry, the FAs [BDO] improperly agreed with the Syndicate pre-appointment to conduct a “light touch” administration.”
And secondly, that the One Blackfriars site was sold for far less than it was worth. The site was sold to property developer, Berkeley Group for £77.4m before being valued by Berkeley at £232m 18 months after it was bought.
They argue that BDO acted as if the Syndicate of lenders were their “true” clients and that the sale of the site was carried out “within a tight time frame driven by the Syndicate’s internal redemption program”.
“The price accepted was just enough to see the Syndicate repaid,” court papers read.
When asked for comment, a BDO spokesperson said: “We properly discharged our duties as administrators and consider the claim to be speculative and without merit. We are defending the matter vigorously in court.”
The case is expected to last around six weeks.
EY’s Wirecard audit exposes potential fraud
After a series of audits by EY and a special audit by KPMG, nearly €1.9bn (£1.7bn) of cash has been found missing from the accounts of German payments firm Wirecard, EY audits have revealed.
The discovery was announced on June 18, and the company has since withdrawn its 2019 and preliminary Q1 2020 financial results, adding that previous annual reports may have been impacted.
In reference to the missing funds, two banks allegedly named in Wirecard’s financial documents, the Institutes Banco de Oro (BDO Unibank) and Bank of the Philippine Islands (BPI), issued statements saying that Wirecard is not a client of their respective banks.
“The international financial scandal used the names of two of the country’s biggest banks – BDO and BPI – in an attempt to cover the perpetrators’ track,” the governor of Bangko Sentral ng Pilipinas, Benjamin Diokno, said in a statement to journalists. He added that none of the missing funds ever entered the country’s financial system.
Neither of the banks currently face any losses connected to the situation, Diokno said in a Viber message cited by the Philippine government. However, Wirecard’s stocks have plunged and its credit rating was demoted to junk by Moody’s.
In late May, Wirecard’s chief financial officer, Alexander von Knoop, told Accountancy Age that he expected “no major deviations of these very intensively audited financial statements from the reported preliminary figures.”
Although EY caught the error, Dutch shareholder group VEB is pursuing compensation from the Big Four firm, saying: “EY has played a significant role in the whole Wirecard scandal, not only from its inability to detect the flaws in Wirecard’s escrow account in former years.”
Germany’s financial regulator, BaFin, opened a market manipulation probe open against Wirecard in early June.
Support for the self-employed: where are we now?
The most notable recent announcement was on May 29, when the chancellor confirmed that the SEISS would be extended.
A second grant payment will be made to eligible individuals in August 2020 in respect of the months of June, July and August. The Government have made it clear that this will be the final extension of the scheme, and that no further payments are to be expected.
The second grant payment will be slightly less generous than the first, and will be worth:
up to 70 percent of average monthly trading profits,
for a period of three months,
capped at an overall maximum of £6,570.
The online claims portal for the second, and final, grant payable in August is not yet available. We understand that this will operate along the same lines as that for the first round.
The deadline for filing the 2020/21 self-assessment return is not until January 31, 2022, meaning that recipients will not have to pay tax on SEISS grants for some time. Whilst this is likely to be welcome news, recipients will need to remember to budget to pay tax on their SEISS grants as well as their ordinary business income.
It’s not yet clear where the grant will be reported on the self-assessment return, but we expect this to be clarified in due course.
To pay or not to pay, what are the options for your upcoming tax bill?
To help businesses and self-employed workers manage their cash flow during the pandemic, HMRC are deferring VAT payments that become due between 20 March and 30 June 2020.
In addition, the second self-assessment payment on account for the tax year 2019/20 due on 31 July can be deferred until January 31, 2021. No interest or penalties will arise and deferral is automatic with no applications required.
Businesses and self-employed workers who are in financial distress and owe outstanding tax can also apply for a‘Time to Pay’arrangement. This provides a pre-agreed, time-limited deferral period to pay what you owe HMRC.
Remember that the deferred amount will become due at the same time as your January self-assessment tax liability (January 31, 2021), leaving you with a larger bill than usual. This could bring unexpected cash flow challenges in the new year at a time when you will be hoping your practice is in recovery following previous lost momentum.
To avoid increased costs in the future, you can still choose to pay your tax bill now as you normally would. In fact, HMRC are encouraging businesses and self-employed workers to behave as ‘good citizens’ and pay the tax they owe on time thereby helping the Government. In doing so, you could be helping yourself in the long-term.
If you do choose to make the payment, you may wish to spread the cost over the remaining months of the year in order to retain working capital in your business.
In a world that has become increasingly unpredictable, gaining better predictability over your monthly expenditure will enable you to navigate current and future challenges with a clear perspective and a degree of peace of mind.
Changes to VAT rules for online retailers to boost Exchequer’s revenue
Leaked documentsseen by the Financial Times show that HMRC is planning to end VAT exemption for UK sales of overseas goods, on January 2021.
“The long-term benefit of establishing that parity and contributing towards closing the tax gap is that it will benefit the wider economy, and therefore, the UK public at large,” he adds.
HMRC’s measures could raise significant revenue for the Exchequer, particularly as the UK government debt has skyrocketed due to support provided to businesses and households during the pandemic.
Another report released by Edge Ascential, also seen by Accountancy Age, revealed that UK e-commerce sales predictions for 2020 rose from £73.6bn to £78.9bn due to the increase of online shopping caused by lockdown. In 2019, online sales sat at £66.3bn.
Current economic circumstances have pushed new VAT rules to become an “essential step to be considered,” says Harper, when tackling tax evasion for e-commerce giants.
“These businesses that are trading outside the UK or traders that are based outside the EU selling goods online to customers in the UK, they should be charging VAT if those goods are already in the UK at the point of sale,” he adds. “They’re claiming that they’re not. But the issue is that many of these organisations have fulfilment houses, so the goods are already in the UK at the point at which they’re sold. Arguably, that means they can charge.”
While the new VAT rules would reduce tax evasion, Harper says they would also “level the playing field for small businesses, whether they are physical or online businesses,” meaning that UK businesses paying the added value tax would no longer face unfair competition.
Despite welcoming the new VAT rules, Harper says the deadline set by HMRC will be very difficult to meet.
Stay informed with Albatross Accounting team. We are are Accountants, Tax Advisers and Business consultants in London. We specialise in working with Small to Medium sized businesses.
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