Nick Forsyth looks at the potential problems as we (hopefully) approach the end of the pandemic
With the vaccination programme showing some light at the end of the tunnel, we might see some normality returning to our lives and work patterns as the summer approaches autumn. Many of us will breathe a sigh of relief that this nightmare has ended but for some, it may just be the start of another wave of issues. The Chancellor has been extremely supportive with the various grants that he has announced but there have been statements regarding the repayment of incorrect claims if businesses cannot demonstrate that they have suffered at the hands of the pandemic.
As an example, the Self Employed Income Support Scheme (SEISS) required that sole traders and partners were able to demonstrate that their business continued to be affected by the coronavirus pandemic after the 14 July 2020. If this was not the case, then the second and subsequent claims should not have been made.
It might therefore be that in the first lockdown, a business was closed for a period entitling the proprietor to make a claim for SEISS. If things perked up then the second claim might be disqualified whilst the third and fourth might be successful as the virus was more prevalent in Essex last autumn and into the New Year. We are aware that many businesses continued to take this money and as we weren’t able to get involved, the conversation about eligibility is unlikely to have taken place.
It won’t happen to me…
Some have taken the view that “how will they find out” or “why will they come after me” in the hope that there are bigger fish to fry but the problem now put in front of them is that we – as the taxation advisor – are required to complete boxes on the tax return to show the value of legitimate claims and also the value of claims that should not have been made. This is the same form that includes the business accounts and if the numbers appear similar or better than the year before, we are sure that an algorithm will be incorporated into HM Revenue & Customs (HMRC) software to throw up an enquiry into the tax affairs.
Our job is therefore to talk to you about the accounts having done a little extra work to identify trends within the figures such as lower levels of activity or amendments to costs so that we can build with you an argument in defence of any probe from HMRC. It’s important that we do this and discuss our findings with you as HMRC have announced the penalty regime that will apply if incorrectly claimed grants are not returned by 31 January 2022. This can be up to 100% of the sum received if the failure is treated as deliberate and concealed which is when HMRC consider you knew you shouldn’t be taking the money in the first place.
To qualify for SEISS, you needed to have an intention to trade on, the business needed to be adversely affected by coronavirus and for the third and fourth grants the business needed to show sales reduced in the qualifying period and a significant reduction in trading profits over at least on whole basis period (set of accounts).
This may not have been properly understood and with you making the claims you may have potentially walked into a minefield.
If you did not know you were not entitled to your grant when you received it, HMRC will only charge you a penalty for failing to tell them if you have not repaid the first, second or third grants by 31 January 2022 and the fourth grant by 31 January 2023. Clearly they may seek to suggest that you did know you were unentitled in an effort to secure a penalty and so our work is to build up a robust argument to defend your position if it is possible to do so.
The new corporation tax CT600 form is also including boxes relating to claims made for Coronavirus Job Retention Scheme (CJRS), setting out total claims made of which a value is correctly claimed and a value not. Again, the underlying nature of the figures will be a starting point for HMRC to question the validity of your claims and so an algorithm will be at work when your numbers are submitted.
We were forced to furlough some of our staff during the initial lockdown because the level of work for those staff dropped off. That produced lower sales in the last two months of our previous year end which has been made up in our current year through returns to work and additional time worked.
But had our year end been December rather than June, would this have looked out of place? It is my opinion that our claim was legitimate but with a different year end, we might have required further analysis to back up our claim just in case we fall foul of the algorithm. Again our work when preparing the accounts will require some focus on looking at these points so that if problems arise, we have our robust defence.
We are all aware of anecdotal evidence of businesses claiming full furlough for all staff yet still trading at pre-covid levels and most of us agree that these should be hit hard. The trouble is that these businesses are likely to fold as soon as a letter is received and so they will not be returning the money. If my suspicion on this point is proved to be correct, then to recover money HMRC will be looking at attacking better quality businesses. Therefore it will be important to have all of our ducks in a row sooner rather than later.
If you have concerns about the claims you have made either under SEISS or CJRS please contact your Lambert Chapman contact partner on 01376 326266 who will be happy to discuss your concerns.
The views expressed in this article are the personal views of the Author and other professionals may express different views. They may not be the views of Lambert Chapman LLP. The material in the article cannot and should not be considered as exhaustive. Professional advice should be sought in connection with any of the issues contained in the article and the implementation of any actions.