National Cloud Accountant and Bookkeeping Service | 246 Godstone Road, Whyteleafe, Surrey, CR3 0EF | 0845 388 2298 | 01883 819 568 |

All posts in News

Coronavirus: Flexible furloughing framework

On Friday the Chancellor outlined a new flexible coronavirus job retention scheme (CJRS) to apply from 1 July, and tapered government support for employers from August onwards.

It was no surprise that financial support for employers will start to taper off, but it was a surprise that flexible furloughing will be introduced a month earlier than expected from 1 July.

Flexible furlough periods

This amounts to a new CJRS from 1 July, which requires no minimum furlough period. However, no new employees can be furloughed for the first time from July.

A furlough period for any employee who has not previously been furloughed will have to begin by 10 June in order for 21 days of furlough to be completed by the end of the old scheme on 30 June. It will not be acceptable for furlough to begin after that and extend into July to make a three-week furlough period, as the rules change on 1 July.

No minimum furlough

The financial support does not change for July, as the government continues to pay:

  • 80% wage support up to a £2,500 cap; plus
  • Employers’ NIC and 3% pension costs on furloughed hours.

Once the new rules are in place, employees can be furloughed for any length of time, even down to a few hours, and work the rest of the pay period, subject to the employer gaining their agreement in writing.

The challenge here is that the government is trying to develop rules and guidance that cover all types of contract. I predict problems in particular for workers on zero hours. How do you work out what the “normal hours” are for zero-hours workers?

Guidance under wraps

We won’t get the answers to such questions until 12 June, when the government promised to release more guidance. Presumably this delay is based on a concern that any guidance provided before 10 June might allow people to game the system. In my view, however, the vast majority of reputable businesses need that guidance now, not in a fortnight’s time.

We do know that the £2,500 cap will be pro-rated to the furloughed hours. For example, if the employee is working 40% of the month, the furlough cap is 60% of the monthly cap, so £1,500.

Claims deadline

Some employers have put off making any CJRS claims, particularly those with close to 100 employees on furlough. They may have done so in the hope that HMRC would allow spreadsheet uploads of employee details for smaller businesses, but there seems no prospect of that now.

Those reluctant employers need to make their CJRS claims now because no new employers (as well as employees) will be admitted to the new CJRS scheme from 1 July. The CJRS claim needs to be made in June and backdated to mid-March, given that was realistically the earliest furloughing date. An employer who has made already made a claim will be able to make their final claim for any period up to 30 June 2020 by 31 July, but it looks as if there would need to be two claims then, one for furlough periods up to 30 June and one for July.

It’s important to see 30 June as the end of the CJRS under the rules as provided for in the current legislation with a new scheme beginning from 1 July.

Numbers game

Under the “new” scheme from 1 July no CJRS claim can contain more employees than in any claim up to and including 30 June 2020.

This will be interesting given the outstanding technical problems payroll professionals are still having. Certain claims can’t be made without HMRC intervention because the validation to the February 2020 FPS doesn’t work where employees have been:

  • Transferred from another employer under TUPE into the PAYE scheme
  • Reinstated
  • Moved into the PAYE scheme after a restructure.

All of these situations are permissible, but the CJRS mechanism blocks the claim.

Hours and minimum wage

Another stumbling point in the new flexible CJRS is that any hours worked will need to be paid at or above the national minimum wage (NMW) rates, which increased by the highest ever amount from 1 April 2020. Given there have been lots of issues with employers misunderstanding the operation of salary sacrifice, and the fact that claims should have been based on post-sacrifice pay, it’s likely that salary sacrifice and the interaction with the NMW wage will cause trouble after 1 July.

It would be helpful if BEIS were to provide some FAQs on NMW and furloughing as soon as possible.

Reporting hours?

Under the new CJRS employers will need to report “hours worked” and “usual hours”. Is the choice of the word “report” crucial?  This implies that a report needs to be done through RTI as otherwise I would have expected the guidance to say “hours will need to be included in the claim details”.

Currently within the FPS field 54, “the number of normal hours worked” has four choices or “not applicable”, which provides data used to validate tax credit claims. Is this the field that is being referred to, or is there a more significant change to RTI that has to be implemented in less than four weeks?

Given there are no new claimants to tax credits now and Universal Credit has no hours’ dependency, is this reporting requirement just for statistical monitoring, or part of a compliance strategy?

Winding down

Financial support will change from 1 August as follows:

  • August – 80% wage support up to £2,500, but no employer NIC or pension costs covered
  • September – 70% wage support up to £2,187.50, but no employer NIC or pension costs covered
  • October – 60% wage support up to £1,875, but no employer NIC or pension costs covered

It is important to note that the reduction in wage support doesn’t allow employers to change the employees’ terms and conditions to reduce pay to these new levels. Employees must still receive 80% of normal pay, so the employer will have to make up the difference.

Guidance sources

So far the only guidance we have is a short fact sheet and a brief summary that has been added to the main CJRS guidance pages. We will have to wait until 12 June to find out more.

Furlough Scheme and SEISS to be tapered off

The Chancellor has announced plans to end the eight-month coronavirus job retention scheme (CJRS) and self-employed income support scheme (SEISS), with taxpayers’ contributions gradually withdrawn from August

Admitting that the furlough scheme “cannot continue indefinitely”, the Chancellor Rishi Sunak outlined his plans during the Downing Street press briefing to reduce taxpayer contribution towards the furlough scheme, but with the flexibility to bring employees back part-time in July.

“I believe it is right, in the final phase of this eight-month scheme to ask employers to contribute, alongside the taxpayer, towards the wages of their staff,” said Sunak.

And in a surprising twist, the Chancellor also committed to extending the self-employed equivalent scheme for the same period, with applications for the slightly reduced second and final grant opening in August.

Furlough next steps

Recognising that businesses have been through an “incredibly difficult time”, the Chancellor started his speech by revealing how the slow introduction of the employers’ CJRS contribution will work.

At first, the Chancellor explained, employers will only have to cover national insurance and employer contributions, which he said accounts for 5% of total employment costs.

The main change comes into force from September when the government furlough contribution drops from 80% to 70%, with the employer having to pick up the 10%. Sunak reasoned that from this point, “employers will have had the opportunity to make any necessary changes to their workplaces and business practices”.

Then in October, the final stage of the furlough scheme, employers will have to pay 20%, with the government’s contribution shrinking to 60%. After this, the government contributions will finish and the scheme will come to an end.

Part-time furlough

Although employers will have to prepare for the inevitable end of the scheme, the Chancellor has listened to large and small businesses’ request for a more flexible furlough.

As Sunak announced earlier this month, a new element of furlough 2.0 is to enable workers to return part-time whilst still being under the scheme – and this aspect will arrive one month earlier than originally planned, from 1 July.

To illustrate how the scheme will work, Sunak used the example of how a furloughed worker could return for two days and would be paid as normal, while the government would cover the other three days.

However, Sunak added that the introduction of part-time furloughing means the scheme will have to close to new entrants from the end of June, as the flexible aspect is restricted to current furloughed workers. This gives employers only until 10 June to add any new employees to the scheme.

The accompanying government factsheet explains that further guidance on flexible furlough and how employers should calculate claims will be published on 12 June.

Surprise extension of the SEISS

Freelancers and self-employed workers who had urged the Chancellor to extend the SEISS in line with furlough scheme were handed a lifeline at the end of Sunak’s speech, with news of a final grant.

The self-employed scheme will open for applications in August, but with the grant reduced to 70% of their average monthly trading profits. As with the SEISS scheme, the money will be paid in a single instalment covering three months’ average monthly profits up to £6,570, down from the £7,500 cap of the first grant.

The government has not changed the eligibility criteria for the second grant. As with the first version, individuals will have to confirm that they’ve been adversely affected by Covid-19. However, a self-employed worker does not have to have claimed the first SEISS grant in order to be eligible for this final handout.

The self-employed income support scheme has so far supported 2.3m people with claims worth £6.8bn. The first grant is still open for applications but self-employed workers have until 13 July to apply.

Community Reaction

The revised furlough scheme’s finer detail is a daunting prospect. Some of these calculations are going to be horrendous especially where salary periods don’t match up nicely with the calendar month.

Blick Rotherberg’s Nimesh Shah raised concern on the possible impact of flexible furlough. “The government needs to be wary of more workers being placed on furlough, which will increase the cost of the scheme,” he said. “There will be a natural hit on productivity if workers are being unnecessarily placed on furlough because businesses want to take advantage of the flexible furlough arrangements.”

Stakeholders lined up to praise the government’s support. Mike Cherry, the national chair of the Federation of Small Business, called both schemes “a true lifeline for all those protected by them”.

Adam Marshall, the director general of the British Chambers of Commerce, said: “The gradual reduction in furlough contributions from the Treasury will give businesses additional time to rebuild their income streams and cash flows.”

And Derek Cribb, CEO of IPSE said the SEISS extension was an “overwhelming relief to self-employed people”.

The story so far

First announced in March, the furlough scheme has supported more than 8m jobs and was slated to initially last for “at least three months”. However, the Chancellor extended the scheme until October as the UK gradually eases the lockdown and attempts to adjust to some form of normality.

The Chancellor promised the changes would come before 31 May, but as the month fast approached June, people were anxious to hear the news so they could prepare.

Coronavirus Statutory Sick Pay Rebate Scheme Is Ready

The portal for claiming under the SSP rebate scheme will open on 26 May. Ian Holloway sets out how you should prepare to submit claims on behalf of your clients.  

We have been waiting for this rebate scheme to launch since these announcements were made in March 2020:

  • On 3 March the Prime Minister said in the House of Commons that COVID-19 related SSP would payable from the first qualifying day rather than after three waiting days (a three day wait still applies for employees who are absent with illnesses not related to Covid-19). A press release confirmed this the following day.
  • On 11 March Chancellor Rishi Sunak confirmed in his Budget 2020 that the reimbursement of SSP would only be for employers with fewer than 250 employees.

Guidance and legislation

We have been inundated with SSP legislation in recent months, mainly concerning eligibility for paying SSP where an individual is self-isolating or shielding.

On 19 May 2020, HMRC issued updated guidance letting us know that the reclaim scheme will be called the Coronavirus Statutory Sick Pay Rebate Scheme (CSSPRS). There are two more important pieces of legislation to refer to:

  1. The Statutory Sick Pay (Coronavirus) (Funding of Employers’ Liabilities) Regulations 2020
  2. The Statutory Sick Pay (Coronavirus) (Funding of Employers’ Liabilities) (Northern Ireland) Regulations 2020

These come into force on 26 May 2020, the same day as the SSP reclaims portal opens.

The guidance and the legislation advise that an employer has to be eligible in two regards:

  • It must have fewer than 250 employees on 28 February 2020. This applies to all the PAYE schemes operated by the employer so we have to consider any connected employers, just as we do for the employment allowance
  • The employer was not ‘in difficulty’ on 31 December 2019

The definition of ‘in difficulty’ for this purpose is found in various communications from the EU Commission on the guidelines on the agreed UK state aid support scheme for small and medium-sized enterprises (SMEs).

This reference to EU law relates to the fact that the CSSPRS is being operated under the temporary EU framework granting state aid to small and medium-sized employers. Importantly, the amount of state aid received under all such support schemes must not exceed the following limits for these trade sectors:

  • €120,000 – aquaculture and fisheries
  • €100,000 – agriculture
  • €800,000 – anything else.


Regardless of who will be making the claim under the CSSPRS, you will need to ascertain whether the size criteria is met (fewer than 250 employees on 28 February 2020) and whether the business would be judged to be ‘in difficulty’ on 31 December 2019.

What periods can a claim cover?

An SSP rebate can be claimed by eligible employers for the first 14 days per employee in these circumstances:

  • absence through COVID-19 related sickness or self-isolation starting on or after 13 March 2020
  • absence through COVID-19 related shielding, following public health advice and where the employee is in receipt of a letter from the GP or the NHS, for periods starting on and after 16 April 2020.

How to claim

The online reclaims portal will open on 26 May 2020, just after the Bank Holiday weekend. Like the CJRS, the service will be accessed via a government gateway user ID. Tax agents will be able to make claims on behalf of their clients.

Information requirements

The updated guidance is clear that the following information will be needed:

  • The employer PAYE scheme reference number
  • A contact name and telephone phone number
  • UK bank or building society account number, sort code, and name of the acount, for Bacs payments
  • The total amount of COVID-19 SSP paid for the claim period
  • The number of employees being claimed for
  • The start date and end date of the claim period

Each claim can cover multiple employees, and there is no indication that each employee will have to be identified individually in the claim by saying their NI number.


The updated HMRC guidance is less clear that the following declarations will need to be made (this is quoted in the legislation):

  • A declaration that the employer was not in difficulty on 31 December 2019
  • A declaration confirming the amount claimed will not result in the amount of state aid received making them exceed the allowable cap for their sector
  • A declaration the information stated in the claim is true and accurate

Read the guidance

We strongly urge employers and tax agents to read the HMRC guidance in full, as this is HMRC’s interpretation of the legislation.  Employers are particularly advised to read the parts about:

  • records to keep
  • time limits for claiming

Note the danger of double claims, HMRC warns employers: ‘You can claim back from both the coronavirus job retention scheme and the coronavirus statutory sick pay rebate scheme for the same employee, but not for the same period of time for that employee.’

Plus, don’t forget two things:

  1. The SSP rate changed on 6 April 2020 (from £94.25 to £95.85 per week), therefore, claims may be at different rates.
  2. The 28-week maximum SSP rule has not changed. SSP cannot exceed 28 weeks in any period of incapacity for work (PIW) or series of linked PIWs. Check that SSP was payable in the first place and does not exceed the maximum number of weeks payable.

Tax Helpline to Support Businesses Affected by Coronavirus

HMRC has a set up a phone helpline to support businesses and self-employed people concerned about not being able to pay their tax due to coronavirus (COVID-19)

The helpline allows any business or self-employed individual who is concerned about paying their tax due to coronavirus to get practical help and advice. Up to 2,000 experienced call handlers are available to support businesses and individuals when needed.

If you run a business or are self-employed and are concerned about paying your tax due to coronavirus, you can call HMRC’s helpline for help and advice: 0800 024 1222.

For those who are unable to pay due to coronavirus, HMRC will discuss your specific circumstances to explore:

  • agreeing an instalment arrangement
  • suspending debt collection proceedings
  • cancelling penalties and interest where you have administrative difficulties contacting or paying HMRC immediately

The helpline number is 0800 024 1222 – and is an addition to other HMRC phone contact numbers.

Opening hours are Monday to Friday 8am to 4pm. The helpline will not be available on Bank Holidays.

Chancellor Continues Furlough Scheme Until October

Chancellor Rishi Sunak told the Houses of Commons he is extending the job retention scheme supporting furloughed employees until the end of October at 80% rate. The new guidance also includes greater flexibility of part-time work.

Despite reports that the Chancellor was set to lower the furlough salary payment level to 60%, Sunak decided against cutting back on the current 80% rate on salaries up to £2,500.

However, much to the chagrin of the self-employed, the Chancellor did not mention an extension to the self-employed income support scheme, which is now open for claims.

‘Greater flexibilty’

The current terms of the furlough scheme will remain unchanged until the end of July, but from August onwards, Sunak said it will allow greater flexibility to phase furloughed employees back to work.

While the finer details have yet to emerge, the Chancellor said this “greater flexibility” would enable employers currently using the scheme to bring workers back part-time. Employers who choose to do this will be asked to pay a percentage towards the salaries of their furloughed staff, which will replace the government’s contribution.

The government will also ask employers to share the costs of paying people’s salaries and more details about the extension will follow by the end of May.

With the original end of June cut-off creeping closer, employers were looking to the Chancellor today for clarity on the furlough scheme before the 45-day redundancy consultancy period kicked in.

“Our Coronavirus Job Retention Scheme has protected millions of jobs and businesses across the UK during the outbreak – and I’ve been clear that I want to avoid a cliff edge and get people back to work in a measured way,” said Sunak.

The government is exploring ways to support furloughed workers to use the period to learn new skills or partake in additional training, he added.

Aligns with government’s ‘plan to rebuild’

The extension of the furlough scheme until October follows the Prime Minister’s preliminary sketch of a gradual roadmap to ease the lock down and restart businesses. The October date for the end of the furlough scheme aligns with step three in the government’s plans to open the remaining businesses and premises in the hospitality and leisure sectors that were shut during the lock down.

Since HMRC opened the job retention scheme portal on 20 April, 7.5m jobs have been furloughed and 935,000 employers have used the scheme. The total claimed so far stands at £10.1bn.

These statistics were accompanied by figures showing the take up of its other coronavirus schemes. These included 268,000 Bounce Back Loans worth £8.3bn, 35,919 loans through the CBIL scheme worth over £6.1bn, and 59 loans worth £359m through the Coronavirus Large Business Interruption Loan Scheme.

But as Heather Self noted, the Chancellor may need to contemplate revisit these schemes. Sectors such as hospitality and leisure are unlikely to fully reopen by the end of July and may need to contemplate redundancies.

“Additional support beyond the furlough scheme will be needed for a long time – whether loans such as the CBIL scheme, or grants, or incentives such as an increase in the Employment Allowance to encourage employers to maintain their staff levels, or even take on new employees,” she said.

Furlough Scheme and Holiday Pay Explained

Furlough pay is a new type of paid statutory leave which has been introduced very quickly without any time to consider the employment law implications.

It’s to their credit that HMRC published any information around holiday entitlement as part of the CJRS guidance, as this is strictly the remit of the Business, Energy and Industrial Strategy (BEIS) department. However, we had to wait until the 13 May for BEIS to produce guidance on both holiday entitlement and holiday pay during the pandemic.

Territorial coverage

As employment law is a devolved matter to Northern Ireland, the guidance published by BEIS only applies in Great Britain.

Holiday entitlement

The worker’s contract continues whilst under furlough, so their annual leave entitlement continues to accrue, as it does during any period of statutory leave whether that be sickness or family-related. If employers wish to reduce holiday entitlement below the 5.6 week legal minimum this needs to be done as an amendment to the worker’s contract.

Requesting or changing holiday

Both workers and employers can request to take holiday during a period of furlough. As long as they give double the notice to the period of time they wish to take as annual leave, this should be acceptable.

Conversely, if the employer or worker wishes to cancel or move leave, the notice required is the length of the leave entitlement. Thus, to cancel a week’s leave the notice must be given such that it expires the day before the first day the holiday was due. With the agreement of both parties these notice requirements can be reduced.

Taking annual leave does not break a period of furlough. The legal risk of an employer forcing workers to take holiday during furlough is that the purpose of annual leave is to be able to rest during time away from the workplace, which could be argued is severely restricted during the lock down.

Given that the CJRS has now been extended to 31 October many employers will have no choice but to insist on some leave being used during this time.

Bank holidays

These are not additional or special days in respect to the 5.6 weeks holiday entitlement, they are just days that are part of annual leave when an employer potentially requires workers to take annual leave as the business is not operational. Given that many businesses aren’t currently fully operational it’s up to the employer to decide whether the bank holidays that have fallen so far in April and May need to be assumed to have been taken as part of the worker’s annual leave entitlement.

The workers should be paid for those days’ holiday taken during furlough just as they would be for any other period of annual leave. If workers are unusually required to work on bank holidays the standard notice periods apply.

Holiday pay

Any holiday entitlement that is taken, for bank holidays or any other days, must be paid based on the holiday pay regulations which changed on 6 April 2020. It is therefore important to distinguish between periods of leave taken up to 5 April 2020 and subsequently.

Prior to 6 April 2020, pay during annual leave for those with variable pay, was based on the pay in the 12 weeks prior to the holiday. From 6 April 2020 (in Great Britain but not Northern Ireland) pay over the 52 weeks prior to the holiday must be considered. For workers with less than 52 weeks’ service, the maximum number of weeks of paid employment prior to the holiday date is considered.

As was the case with the 12 week averaging rule, any weeks in which there are no working hours are excluded from the pay calculation. It therefore seems entirely reasonable, although has not been spelled out in guidance, that any furlough weeks are excluded when calculating average pay.

It’s highly likely, as there have been long periods of furlough now, that many employers will be counting back further to establish a maximum number of 52 worked weeks to include in the average. The legislation provides that an employer does not have to go back further than 104 weeks prior to the holiday week to establish the average pay.

The first four weeks of annual leave must be paid based on ‘normal remuneration’ and case law over recent years has defined that as pay ‘intrinsically linked to the performance of the duties’ so includes regular payments even to salaried staff of items such as commission, bonuses and overtime. The final 1.6 weeks, and any additional contractual leave, needs to be paid based on the ‘value of week’s pay’ which does not necessarily have to include more than basic pay.

Whatever an employer chooses to include in the components used to calculate holiday pay during furlough, the worker is entitled to the full amount of ‘normal remuneration’ or the ‘value of week’s pay’. However, the CJRS claim can only be for a maximum of 80% up to the £2,500 cap. Any amounts over and above this will have to be fully employer funded.

If an employer cannot afford to fund the top up for holiday pay it would be reasonable to refuse a request to take holiday at this time. As the working time regulations have been amended (in Northern Ireland too) annual leave can now be carried forward over the next two leave years. Salary in lieu of holiday is not permitted in any circumstances other than termination of employment.

Budget 2020: Chancellor unveils £30bn coronavirus package

Image result for chancellor rishi sunak

Chancellor Rishi Sunak has unveiled a £30bn package to help the economy get through the coronavirus outbreak.

He is abolishing business rates for many firms in England, extending sick pay and boosting NHS funding.

He warned of a significant but temporary disruption to the UK economy but vowed: “We will get through this together.”

The Bank of England announced an emergency cut in interest rates just ahead of the Budget on Wednesday.

Mr Sunak, who was promoted to chancellor just four weeks ago after Sajid Javid quit the government, has had to hastily re-write the government’s financial plans to deal with coronavirus.

The measures put in place to mitigate the effect of the coronavirus outbreak include:

  • Statutory sick pay for “all those who are advised to self-isolate” even if they have not displayed symptoms
  • Business rates for shops, cinemas, restaurants and music venues in England with a rateable value below £51,000 suspended for a year.
  • A £500m “hardship fund” to be given to local authorities to help vulnerable people in their areas
  • “Fiscal loosening” of £18bn to support the economy this year, taking the total fiscal stimulus to £30bn
  • A “temporary coronavirus business interruption loan scheme” for banks to offer loans of up to £1.2m to support small and medium-sized businesses
  • The government will meet costs for businesses with fewer than 250 employees of providing statutory sick pay to those off work “due to coronavirus”
  • Those on in-work benefits who get ill will be able to “claim from day one instead of day eight”.

The number of coronavirus cases in the UK reached 456 on Wednesday, with a sixth person confirmed to have died after contracting the virus.

The chancellor said that without accounting for the impact of coronavirus, the Office for Budget Responsibility has forecast growth of 1.1% in 2020, 1.8% in 2021 and then 1.5%, 1.3%, and 1.4% in the following years.

New Formations

Image result for new business formations

New figures show that the number of companies formed in the UK reached record levels in 2019.

Across the UK there were 690,763 companies formed last year, up from the previous record of 669,855 set in 2018.

Of the 613,316 formations in England, 222,468 were in London. A total of 33,843 companies were formed in Scotland, 18,635 in Wales and 8,657 in Northern Ireland. Each of the nations of the UK saw an increase in new companies formed compared to 2018 although there were big local variations.


Although the number of new companies continued to rise, so did dissolutions of existing businesses. While UK company formations increased 3.1% between 2018 and 2019, dissolutions rose 5.8% in the same period, with a record 533,680 companies dissolved in 2019. It means that for every 100 new companies formed in the year, about 77 existing companies are closed. Naturally, many businesses will fail or not even get off the ground. However, the rising rate of dissolutions is a cause for concern and highlights the role accountants can play in offering solid business advice alongside supporting their clients to fulfil their statutory obligations.


The total number of UK companies now stands at 4,471,008, up 3.8% in a year.

This represents a 27% increase over five years, from 3,513,186 at the end of 2014. In every country of the UK and every county of England there are now more companies in existence than before. London continues to dominate the UK company population. Over 25% of active companies, a total of 1,204,778, have a registered office address in the capital.

Total companies 2019 league table

1st London                          1,204,778

2nd Greater Manchester    189,867

3rd West Midlands              173,134

4th Essex                                128,433

5th West Yorkshire               123,678

Edinburgh                                52,839

Cardiff                                       25,351

Belfast                                       17,982

This information is drawn from the annual Inform Direct Review of Company Formations, which includes a detailed regional analysis of companies formed and closed. You can read the report at

Revised Brexit deal: changes and risks

Image result for brexit deal

What are the tax and customs implications of new Withdrawal Agreement and non-binding post-Brexit Political Declaration? Richard Asquith (Avalara) reviews. 

On 17 October, the metaphoric white smoke plumed from the Brexit negotiations as a new deal materialised. There were no changes to many of the big-ticket issues in the binding Withdrawal Agreement (WA) and non-binding post-Brexit Political Declaration (PD). This included no movement on the exit bill and citizen’s rights.

However, the small number of clause changes to the thrice-rejected Theresa May WA belied a massive UK shift on Northern Ireland and future trade relations:

  • The 2021 backstop EU customs union (CU) insurance policy was removed from the WA.
  • It was replaced by a dual Northern Ireland customs, VAT and regulatory status from 2021. After this date, there will effectively be a border for these regimes between Great Britain (GB) and Northern Ireland (NI) in the Irish Sea.
  • The DUP veto proposal on the NI measures was removed in favour of a ‘mutual consent’ simple majority vote at the NI National Assembly every four years.
  • The transition period to 31 December 2020 remains, and the UK will continue to apply EU law until then. But it may now result in a new December 2020 Brexit no-deal cliff edge if no free trade agreement (FTA) on the future UK/EU relations is completed. In this case, the GB (not NI) will revert to WTO terms with the EU. There is an option to extend the transition period out to the end of 2022. But the UK must apply for this by 1 July 2020.
  • There was a ‘kicking of the can down the road’ for the ‘level playing field’ provisions, including workers’ rights and state aid competition. They were shifted from the binding WA to the non-binding, aspirational PD. The level playing field issues will now be negotiated after Brexit in a future FTA.

Next steps: risk of a further postponement as no-deal prospects dwindle

The UK parliament must now ratify the WA and PD by 31 October to secure an orderly Brexit as planned. Ratification by the EU includes a consent motion by the EU Parliament, and final approval by the Council of the EU. Many hazards lie ahead for this strategy following the 19 October triggering of the ‘Benn Act’ request, sustained by the ‘Letwin amendment’, to the EU for a further Brexit extension. If the Bill does not pass or is subject to major parliamentary amendments requiring EU agreement, and there is a third delay to Brexit, then a general election or second referendum loom.

The changes and new burdens for business and HMRC

Below is a summary of the main changes in the new Brexit proposal. There are many risks and open-ended questions associated with them, including:

  • businesses facing the loss of frictionless trade;
  • traders having to track and comply with a NI dual customs and VAT regime;
  • HMRC being tasked with designing and implementing the NI systems within 14 months;
  • companies having to follow proof-of-origin rules for NI-destined deliveries; and
  • last but by no mean least, the prospect of a new no-deal Brexit, this time on 31 December 2020, embedded in the revised WA if no agreement on a new FTA is reached within the next year.

Removing the backstop

Theresa May’s backstop clause agreed with the EU sought to avoid physical checks at the NI border. This envisaged a transition period until 31 December 2020, when the UK would remain within the CU whilst a new FTA was negotiated. If no deal could be found which prevented border checks, then the UK would have remained within the CU until a mutually acceptable border solution could be found. This was viewed by Leave supporters as the worst of all post-Brexit worlds: trapping the UK within the EU without a voice on the rules and thwarting it from negotiating FTA deals around the world.

The UK government has now secured the removal of the backstop to be replaced by a new status for Northern Ireland.

Northern Ireland’s dual customs, VAT and regulatory status

The new protocol proposes that NI will have an innovative economic status for customs, VAT and regulation of goods to avoid any physical border with Ireland. NI will remain within the rest of the UK (Great Britain, ‘GB’, which excludes NI) for these rules. However, NI will also administer the EU rules on behalf of the EU for goods passing between NI and Ireland.

The details across the three areas are as follows.


  • NI will remain within the UK customs union.
  • However, it will apply the EU customs code on goods entering from outside of the EU (including the UK) to Ireland. This involves NI entry ports officials administering EU customs processes and tariff collections.
  • The default position would be that goods coming into NI from GB will be liable to EU tariffs.
  • Only if it can be demonstrated that the final customer for the goods is resident in NI will the goods be subject to UK tariffs.
  • If EU tariffs are collected at the NI ports, but the goods eventually are sold to a NI customer, then the importer would be able to apply for a tariff refund on any difference. This would ensure NI businesses would be able to enjoy the benefits of future lower tariff rates agreed by the UK with other countries.
  • Duties collected will be remitted to the EU.
  • Goods shipped between Ireland and Northern Ireland would pay no tariffs at the border, and there would be no customs checks.
  • Certain goods destined for Ireland will be exempted entirely from EU tariffs if they are determined as low risk. A new Joint Committee will be responsible for determining which goods are entitled to this status.
  • Import and export declarations will be required on all goods moving between GB and NI to support the above procedures.
  • Personal goods will be exempted from tariffs.
  • Questions on state-aid limits to the UK, effectively subsidising businesses by settling EU duties, will need to be addressed and resolved.

VAT and excise:

  • NI will remain part of the UK VAT and excise areas.
  • However, it will continue to be subject to the EU VAT Directive, including the rulings of the CJEU, for goods passing from outside the EU, including GB, to Ireland. This includes collecting import VAT at the NI ports on affected goods. This VAT will not be remitted to the EU.
  • Goods moving from Northern Ireland to Ireland will still be considered as intra-community supplies, and therefore not subject to import VAT. Businesses responsible for the intra-community supply will be required to complete current intrastat and EC sales (for goods) filings.
  • The UK may decide to align reduced VAT rates and exemptions applicable in NI with those of Ireland. The aim is to prevent distortions of markets across the border. A key area will be tourism services where Ireland has a 13% reduced VAT rate.
  • However, NI could not benefit from any GB exemptions or reduced rates introduced, e.g. VAT on women’s sanitary products or on heating fuel.
  • Businesses will face complex VAT and excise rate tracking requirements.
  • The NI VAT measure does not apply to services. However, many industrial supplies include a service support element. This will provide a complex burden on businesses to understand the services-only component of their supplies so as to apply UK VAT rules and rates.

Single market regulatory alignment:

  • NI will remain within the EU single market to avoid the need for product standard and safety checks on the border with Ireland.
  • NI goods will maintain regulatory alignment with the EU. This will be on the basis of a ‘limited set of rules’ on goods, agricultural supplies, food and manufactured products. Services are excluded.
  • Goods moving from between GB and NI would face regulatory checks by UK officials at the NI ports. The EU may request for their officials to be present.
  • There would be no regulatory checks on goods (including food and livestock checks) moving from NI to the rest of the UK.

The logistics challenges for HMRC for the above dual regime will be a considerable challenge. Back in 2018, when Theresa May’s ‘Chequers deal’ proposed a UK-wide CU administration arrangement, the chief executive of the HMRC, Jon Thompson, suggested an implementation period of five to seven years. And HMRC would be simultaneously conceiving the new post-Brexit reporting systems for the rest of the UK. That is quite a workload.

Consent on NI arrangements

The NI measures come into automatic effect on 1 January 2021. NI’s Assembly will vote on whether to continue the measures four years later at the end of 2025. This is a switch to ‘mutual consent’ from the effective DUP veto contained within the first Johnson government proposal from the start of October.

In the case of a rejection, the measures will only be withdrawn after two years. This means the measure will remain in place until at least the end of 2026.

The Assembly may then vote every four years on continuing the measures. There is an option for the Assembly to extend this to eight years.

Transition period: a new no-deal cliff edge, December 2020

If the WA is agreed, the transition period deadline remains 31 December 2020. Until then, the UK will continue to apply EU law as if it were a member state. But the UK will leave the political and institutional structures of the EU and will have no representation or say in decision making. The UK will remain subject to CJEU, including its interpretation of the WA.

What has changed from the Theresa May WA is that the UK’s default position will be a ‘hard Brexit’ on 31 December 2020. The UK will revert to World Trade Organisation terms, and most favoured nation status duties rates. This can only be averted if the UK and EU have agreed an FTA governing customs, VAT and other exit issues. This means if the WA passes, the UK could be refacing a no-deal Brexit scenario, with the stockpiling and other preparations, at the end of 2020. Alternatively, the UK may request a further two-year implementation period until December 2022. Importantly, the UK must decide on requesting this further extension by 1 July 2020.

‘Level playing field’ kicked down the road

The level playing field provisions have been swapped out of the legally binding WA into the non-binding PD. The provisions committed the UK to not undermining the EU on policies including: state aid, competition, climate change, environment, social, and employment standards.

The PD states the aims of both parties on this matter when they come to negotiate a further FTA. The EU conceded this change since it will be able to fully negotiate them as part of a full goods and services trade agreement.

Where does this leave us?

The new WA and PD are undoubtedly shrewd, compromising politics in terms of securing the government’s aim of an orderly Brexit this month. NI, instead of the whole UK, has been tied into the EU customs and single market rules to sidestep the physical NI border checks blocker that has prevented agreement for over three years.

But with the triggering of the Benn Act and Letwin amendment, the provisions of the WA lie open to amendments in the next week. A likely strong contender is reverting to membership of the CU for all the UK. UK and EU ratification of that would be impossible by 31 October. In which case, we will all be back on the Brexit roundabout for months ahead.

But the new deal has shown the likely landing ground of Brexit: it is a much looser affiliation to the EU than envisaged by Theresa May. Wish HMRC and business well with managing the multitude of new regimes it creates.


VAT Reverse Charge for Building and Construction Services

Image result for reverse vat charge 1 october 2020

As originally announced at Budget 2017 there are important changes for the construction industry on the way VAT is handled.

Changes which apply from 1 October 2020 mean that main contractors will stop paying VAT to sub-contractors working on projects where the Construction Industry Scheme (CIS) applies. Instead the main contractor will pay the VAT directly to HMRC.

Who will it affect?

It will affect you if you work on any contract covered by the CIS and both you and your main contractor or sub-contractor are VAT registered businesses. If your sub-contractors are not registered for UK VAT, or your supplies are zero-rated, then the reverse charge will not apply.

What you need to do:

  • check whether the VAT reverse charge might affect you and where it does, and payments are under a contract that will continue after 1 October 2020, ask your sub-contractors and/or contractors about their CIS and VAT registration status if you do not already know them
  • decide how the change will affect your cash flow and if you need to make any changes to your business practises
  • talk to the people that help you invoice for work or manage your VAT about the changes so they can make arrangements to update your accounting systems and apply the correct treatment from 1 October 2020

Further Information

You can find helpful information online at GOV.UK, by searching for ‘reverse VAT charge for building and construction services’. This page includes information on the services affected by the change, how it works, how to submit a VAT return, along with extensive guidance notes.

You can also attend a live webinar where you can find out more and ask questions. To find out dates of the next webinar or watch an existing webinar go to GOV.UK and search for ‘help and support for the construction industry scheme’.

Your accountant, bookkeeper or the person who manages your VAT returns for you may also be able to advise you on how this might impact on your business.