MAHLE AFTERMARKET ACQUIRES BEHR HELLA SERVICE

MAHLE AFTERMARKET ACQUIRES BEHR HELLA SERVICE

Mahle Aftermarket has announced the acquisition of automotive thermal management product supplier Behr Hella Service (BHS) for an undisclosed amount.

The acquisition will see all existing BHS activities transfer to Mahle on January 1st 2020, bringing a broad range of thermal management products to Mahle’s portfolio. The products will cover passenger vehicles as well as agricultural and construction vehicles.

The old BHS part numbers can still be used by current customers to order products even after 1st January 2020. Mahle part numbers will be implemented in parallel.

In a statement, Mahle noted the importance of thermal management products in the operation of electric vehicles. Olaf Henning, Corporate Executive Vice President and General Manager of Mahle Aftermarket, said: “E-mobility will present workshops in particular with new challenges in the medium term.

“We can now offer them targeted support with the expertise from our OEM business and provide the right solutions – by identifying a component with the correct diagnostic systems and delivering technical training and information on repairs and maintenance,” he concluded.

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BREXIT: UNCERTAINTY AND BUSINESSES CONTRACTS

BREXIT: UNCERTAINTY AND BUSINESSES CONTRACTS

By Lindsay Ellis – Lindsay Ellis advises on a range of legal matters, including outsourcing, procurement and commercial contracts for Warwickshire solicitor firm Wright Hassall 

Lindsay Ellis

Uncertainty surrounds the timing of Brexit, but when it does happen, there will undoubtedly be an impact on UK businesses and their contracts. It is important that organisations consider how Brexit might affect existing contracts.

Existing contracts

For many businesses, Brexit could impact their supply chain and they should consider the performance of obligations by subcontractors and suppliers. Other key areas to consider include; term, territory, currency, tariffs, customs clearance, resources, licensing/ consents and tax. Failure to review and plan for these could result in increased costs and/or damage to business performance.

Force majeure 

A contract typically contains force majeure clauses. Depending on the drafting, these can relieve a party from liability for a breach resulting from ‘circumstances beyond its reasonable control’. However, if Brexit was likely when the contract was agreed, it could be argued the parties should have planned for its effects. Without a specific reference to Brexit, force majeure clauses are unlikely to help of itself, but depending how the clause was drafted, it might address delays in delivery of goods due to crossborder issues.

Compliance with law clauses

Many contracts state that parties must comply with applicable law. It will be a matter of interpretation whether such a clause could oblige a party to absorb the costs associated with Brexit-related changes in law. Long-term contracts typically address what will happen if the law changes, often specifying that charges can only be increased in limited circumstances, with the supplier required to consult with the customer before making any changes.

Termination 

The contract may include scope for termination, by either party. This may be in connection with circumstances arising from Brexit related events or a failure to agree a change. If a contract’s termination clause gives a party a right to terminate on relatively short notice, the prospect of termination can always be raised to encourage negotiation.

Common law and frustration

Frustration arises where an event occurs after the date of the contract, radically transforming the obligations of either party or making it impossible to fulfil the contract. However, a contract is not frustrated due to inconvenience, hardship, financial loss or when the event should have been foreseen by the parties. As such, it is generally accepted that frustration will not help with Brexit, although it might apply if certain changes in law were to be made subsequently, which would make it impossible to fulfil a contract.

Interpretation and implied terms

The courts are unlikely to interpret a contract or imply a term to assist a party adversely affected by Brexit and will not relieve a party from the consequences of their poor business practices, if that involves departing from the natural meaning of the contract. Similarly, the fairness of a proposed implied term or the fact that the parties would agree to it is insufficient grounds for implying it. Both interpretation and implication of terms have regard to the background knowledge reasonably available to the parties at the time they entered the contract.

What are the options?

By not drafting contracts that address Brexit uncertainty, there is a risk that a party will be obliged to continue to fulfil its contractual obligations, even if Brexit-related events render it commercially unattractive. However, doing nothing may be an option for a party who can terminate contracts at short notice or are confident in their ability to perform regardless of Brexit’s outcome.

‘Brexit’ clause

Inserting a ‘Brexit clause’ into contracts will trigger some change in the parties’ rights and obligations when a defined event occurs. The best a Brexit clause may offer is a binding requirement for the parties to try and renegotiate the contract. For other contracts, it may be possible to specify the consequences of certain events, but with Brexit, there is the risk that events occur that have not been first considered.

Making changes

Organisations must take the time to review their existing commercial contracts, ensuring every possible outcome is accounted for and the necessary clauses are added. Seek advice from experienced contract lawyers and plan for life after Brexit, sooner rather than later.

 

 

 

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IS THAT CLEAR?: JOHNSON CONTROLS TO BECOME ‘CLARIOS’

IS THAT CLEAR?: JOHNSON CONTROLS TO BECOME ‘CLARIOS’

Johnson Controls Power Solutions has been rebranded as ‘Clarios’. The new name for the battery arm formerly owned by Johnson Controls International comes some months after the business was acquired by private equity firm Brookfield Business Partners in a cash deal valued at $13.2 billion. According to a statement, Clarios intends to continue to provide automotive battery products and services, with a focus on new technology such as traction batteries for electric vehicles.

READ: GKN FIGHTS ‘OPPORTUNISTIC’ HOSTILE TAKEOVER BID

Johnson Controls Battery Technology becomes Clarios

“As a global leader with a product used in virtually every vehicle from conventional to fully electric, we are well positioned to capitalise on market trends, including a move toward more electrified and autonomous vehicles which are elevating the critical role of the battery and accelerating the need for more advanced batteries,” said Joe Walicki, President of Clarios. “Under Brookfield’s ownership, we can better capitalise on these growing trends and operate with more focus and efficiency.”

Clarios currently has 56 facilities worldwide with over 16,000 employees. It is best known in the UK for its Varta battery range. 

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EUROPE’S TOP NEW AUCTION HOUSE

EUROPE’S TOP NEW AUCTION HOUSE

First published February 2019

Auction house Aston Barclay’s new site in Wakefield has been dubbed ‘Europe’s most advanced auction house’. We felt a claim like that required substantiation, so we paid a visit ahead of its first sale.

Inside, the warehouse is huge and modern, with a painted road running through the center of the main auction hall and glass-walled conference booths along its flank. The 18-acre branch is divided into two sections: office space and auction space. The former is light and airy, providing a pleasant workplace for the 150 employees – finance teams, auctioneers, yard staff and more – who will put a steady stream of 35,000 cars every year through the auction process.

Also joining the team at the Wakefield site will be newly-acquired Leeds-based auction house Independent Motor Auctions (IMA) as well as the 30-strong team of The Car Buying Group, which Aston Barclay acquired in October last year. Over on the auction side, Aston Barclay are choosing to forgo the typical burger-van and pints-of-tea of old auction sites, instead installing a restaurant. More shocking still, there’s even an on-site gym and showers, for those who might want to spend lots of time at the center – professional traders, for example. With 15 auctions planned per month, this could certainly be the case.

The only downside to this modern minimalist design is that it looks very empty without any cars in it, which sadly was the case on the day of the media event. Still, it’s easy to imagine how impressive it will look when full; particularly the massive storage warehouse which adjoins the auction hall and boasts enough room for around 200 vehicles – a huge amount for a totally indoor space. There will be plenty of variety, too: “From bangers to Bugattis, all the way though,” quipped Aston Barclay CEO Neil Hodson. Commercial vehicles will be handled by the firm’s Leeds site – which was formerly their Northern powerhouse. “Our old premises leads itself to being a commercial center so I think that we’ll make that a dedicated center,” explained Hodson. “If we’ve got some vans, they’re better to go to the commercial center. They get more money; that’s where the commercial buyers go.” 

Digital future

In addition to the shiny new center, Aston Barclay have also been developing Cascade – a four-piece software suite to enable online auctioneering. The four products: e-Valuate, e-Hub, e-Xchange and e-Live are designed to take dealers and leasing vendors through the whole auction process from appraisal to sale entirely online. e-Live even offers a live-streamed auctioneer who will take users through a sequential bidding auction to give the sale an authentic feel. In addition to the rollout of the new digital suite, Hodson was very open to the idea of acquiring even more digital partners in the future. “I’d be looking around that digital space. If we could make some other acquisitions, I will. We’ve got a great investor in [private equity firm] Rutland Partners, we’ve got the cash, and that puts us in a great place. So if we can buy the right things to accelerate our journey, I definitely will.”

Growth

In short, it’s a good start to the year for Aston Barclay. The acquisitions and opening of the new site suggest that the wholesale used car market is in good health; a fact also highlighted in the National Association of Motor Auctions’ ‘encouraging’ December industry report late last year. Does this also reflect the health of the aftermarket? Hodson thinks so: “I think you know if that vehicle market’s turning and consumers are buying, then it has to affect the aftermarket. Selling all those cars at all those different ages – I think it’s good for the aftermarket because that keeps putting new parts and supply in there.”

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FUEL CARDS – SHOULD YOU GET ONE?

When running a business, the issue of fuelling company vehicles is probably not the first thing on one’s mind. Indeed it’s probably more comfortable to try not to think about it, seeing as it’s another overhead that the company could do without. On top of that, keeping track of receipts for accounts purposes or to reimburse staff creates an administrative headache. This is where fuel cards come in. Or rather, came in. Fuel cards have been around for decades, and aim to simplify the process of keeping a company vehicle fleet topped up with fuel by consolidating invoices.

A fuel card is essentially a credit card which is restricted to the purchase of petrol or diesel, plus some vehicle accessories depending on the type of card owned. The fuel card company then pays for a fill-up transaction, and sends the invoice to the company that the fuel card is registered with. These invoices tend to be weekly, and mean that hours once spent sifting through hundreds of receipts to reclaim VAT can be used more productively.

Many fleet operators now use fuel cards. But for those who don’t, it’s a question of knowing when to start.

Types

There are many different types of fuel cards available to suit the type of business one might be running, from SMEs to large, nationwide fleets. BP, for example, offers its BP Plus card or fleets who need maximum coverage with a cross-acceptance partner network including Texaco, Gulf and Esso. Alternatively, there is the BP Plus Bunker specifically for bus and truck fleets who use key motorway and A-road routes.

Generally, more and more companies are signing up, as Jo McDonnell, UK Fuel Card Manager of BP, explains. “We have definitely seen overall growth in the amount of businesses recognising the ways in which fuel cards can support them, by saving them time and costs. There has also been a rise in the number of SMEs using fuel cards as it’s of high priority that their fleet management is efficient and easy to manage, as well as track, and fuel cards along with the BPme app make the process much simpler.”

One such fleet operator is Richard Shortis. Though the Shortis Group, which owns such brands as Wilco and Fast Fit, has outgrown SME territory, Shortis has made use of fuel cards for around 15 years, and thinks that a small fleet size shouldn’t be a factor in deciding when to adopt fuel card use. “Any organisation which has just one vehicle and they have a driver that has to go and put the fuel in it, it’s much easier to give them a card rather than giving them money,” he said. “We used to have our own diesel tanks and have them on site and fill up our vans on site with diesel. But when the savings disappeared from having your own tank, it became more convenient just to use a petrol station. So it wasn’t dependent on the size of the vehicle fleet, it’s the fact that we used to have our own tank and in the old days, years ago, you used to get quite a good saving if you bought diesel in bulk. But that [saving] got less and less, so that’s why we moved to the fuel cards.”

Downsides

Fuel cards aren’t without their faults. Just like any other payment card, there is a risk of fraud associated with their use, despite efforts to make the platform as secure as possible. For instance, if a fuel card is stolen or lost, then what’s to stop anyone picking it up and purchasing fuel on a company tab? For one thing, notifying a fuel card provider of a lost card as soon as possible is a crucial step. But there is further security on top of this.

McDonnell explains that as well as the standard practice of setting a PIN number for card purchases, BP keeps an ‘online authorisation process’ of all fuel transactions, as well as “special alerts that monitor card use, keeping track of everything including location, site type, day and time, products bought, and litres of fuel purchase – giving fuel managers complete transparency.”

Additionally, cards can be linked to certain vehicles or drivers, further enhancing security and enabling fleet managers to keep a more detailed record of spending and mileage. “Firstly, when the driver purchases fuel, the registration and milage are requested at the point of purchase and captured as part of the transaction,” says McDonnell. “Secondly, if a driver pays using BPme, they must enter their vehicle registration and mileage before activating the pump, meaning more accurate data as they capture this whilst in front of their odometer.” This linking of fuel cards seems to be a strong security method employed by most fuel card providers. Indeed, when asked if he had ever had a security problem with the fuelling of his fleet, Shortis replied: “Not really. Most of the fuel cards are assigned to a vehicle registration. The only downside is, it depends if the petrol station doesn’t do their bit with the check on the vehicle. But we haven’t had any issues through misuse of fuel cards.”

Another concern is with the providers themselves. There is a concern among fuel card users that prices can rise if they don’t pay attention, as Shortis highlights: “The only downside is that some of the fuel card providers try to get one over on you – either alter their terms or say ‘oh, by the way we’re putting in a charge now so if you want to use a card it’s gonna be x number of pounds per use’ or whatever,” he said. This certainly isn’t exclusive to fuel card providers though, and many readers can probably tell of similar stories with their electricity, internet or phone bill provider, for instance. This is a nuisance, to be sure, but the way of tackling the situation is the same: negotiate the price down, or threaten to switch providers. “We have switched providers and they’ve come back pretty quickly saying ‘oh, we didn’t actually put that in!’” says Shortis. “Everything’s up for negotiation, or sometimes they don’t negotiate until after you’ve switched.” It’s worth keeping that in mind if ever you notice mysterious charges on your invoice. Plus, regularly keeping in touch with your provider to negotiate a better deal might be a good idea as well.

Looking forward

It’s a system that seems to work just fine, so what could possibly change? Well, even the fuel card industry is keeping on top of environmental trends. “For example, as EV becomes an increasingly relevant topic for both individual drivers and fleets, fuel cards will adapt to meet this need,” says McDonnell. “For example, BP has invested in Chargemaster, which will soon allow BP Fuel Card users to manage their fleet through one simple solution even if they shift to electric vehicles, including access to Polar, the largest network of electric vehicle charging points in the UK.”

Food for thought, whether you operate a one-van fleet or dozens of electric minivans.

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EMPLOYMENT LAWS ARE CHANGING – ARE YOU?

EMPLOYMENT LAWS ARE CHANGING – ARE YOU?

By Tina Chander – partner and head of the Employment team at leading Midlands law firm, Wright Hassall

Tina Chander

Since 2010, the UK has experienced lower unemployment rates across every region, underpinned by a strong and innovative labour market that has seized on the opportunities offered by new technologies, emerging business models and changing ways of working. 

Existing employment law and policy framework has found a balance between flexibility and worker protections, placing Britain in a strong position to benefit from the new industrial revolution and the opportunities it will bring.

Out with the old, in with the new

The government unveiled its Good Work Plan in December 2018 as a direct and carefully detailed strategy to strengthen worker’s rights and change employment laws.

Labelled as ‘the biggest package of workplace reforms for over 20 years’, the plan builds on the Taylor Review recommendations of February 2018 and outlines an intention to improve conditions for agency, zero-hour and other atypical workers.

Within this plan, the government commits to a wide range of policy and legislative changes, clarifying the relationship between employers and workers, while ensuring the enforcement system is fair and fit for purpose.

As working becomes more flexible and varied, it is imperative that the key protections relied on by workers are not negatively impacted, and this Good Work Plan is designed to reinforce existing rights.

Requesting stable contracts

One of the main issues addressed is ‘one-sided flexibility’, which recognises some businesses have transferred too much business risk to the individual, affecting their financial security and personal well-being.

New legislation will give workers the right to request a more stable contract, allowing them to benefit from flexible working, without the financial uncertainty.

Those happy to work varied hours each week can do so, but others will be allowed to request a fixed working pattern after 26 weeks of service, giving workers greater control over their own lives.

For those working zero-hour contracts, this change will allow them to request a contract that guarantees a minimum number of weekly hours, which is crucial when looking to secure a mortgage.

Repealing Swedish derogation

The Good Work Plan also addresses Swedish derogation, which currently allows agency workers to exchange their right to be paid equally to permanent counterparts in return for a contract guaranteeing pay between assignments.

Although the original intentions of Swedish derogation were to offer reassurance that individuals would still earn during quieter periods, some employers have been using this opt-out to reduce the size of their pay bill.

Nowadays it is very unusual for agency workers to have gaps between their assignments, and in some cases, employers have devised schemes to keep their exposure to a minimum contrary to the requirements originally outlined.

The government aims to repeal Swedish derogation with new legislation, banning the use of this type of contract to withhold equal pay rights. Instead, long-term agency workers will receive equal wages to those of permanent employees.

Tougher enforcement measures

In order to create a level playing field between businesses, there needs to be effective enforcement.

The government plans to extend state enforcement for vulnerable workers, introducing tough financial penalties and an approach that already applies to underpayment of the National Minimum Wage.

This involves increasing enforcement protections for agency workers where they have pay withheld or unclear deductions made, while new legislation will increase the maximum penalty imposed during employment tribunals on the grounds of aggravated breach.

Ongoing employment developments

While the Good Work Plan looks set to bring about some wholesale changes to employment law and workers’ rights, there are other broader developments on the horizon.

On April 6, 2019, new legislation under the Employment Rights Act 1996 is due to come into force, introducing a right for all workers to be provided with an itemised pay statement and the ability to enforce this right at an employment tribunal.

On the same day, other legislation will require itemised payslips to contain the number of hours paid for where a worker is payed hourly.

Preparing for the future

With the arrival of the Good Work Plan and ongoing consultation regarding employment laws and legislation, 2019 will be a crucial year for businesses and workers alike.

It’s important that organisations take the time to review the changes and understand the requirements outlined in the new legislation, as non-compliance could cost organisations financially and damage their reputation.

If you’re unsure about the Good Work Plan and wider developments, it is important to consult a legal team with significant experience of employment law and the imminent changes.

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ZF ACQUIRES WABCO FOR $7 BILLION

ZF ACQUIRES WABCO FOR $7 BILLION

Technology giant ZF has announced that it has
acquired commercial vehicle safety
technology specialist Wabco at $136.50 per share, or approximately $7 billion.

ZF say that the acquisition is part of its ‘Next Generation Mobility’ strategy, and has highlighted an interest in developing automated driving functions in commercial vehicles such as trucks and trailers. It is the first time that ZF has expanded into commercial vehicle braking systems.

Wolf-Henning Scheider, CEO of ZF, said: “For ZF the acquisition of a specialist and leader for commercial vehicle braking systems means adding a stable and growing business segment and enables our existing commercial vehicles division to expand its expertise in vehicle dynamics control.”

Meanwhile, Jacques Esculier, Chairman and CEO of Wabco, said: “Joining forces with high respected ZF will create a leading global technology company well positioned to capitalise on future demand for autonomous, efficient and connected commercial vehicles.”

Wabco products and services include braking systems, stability control, aerodynamics, telematics and more. The company generated revenues of €3.3 billion in 2018 and employs around 16,000 employees in 40 countries. ZF expects to close the transaction of Wabco by the start of 2020.  

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‘SEMI SKILLED’ TECHNICIANS CONSIDERED BY DEALER GROUP

‘SEMI SKILLED’ TECHNICIANS CONSIDERED BY DEALER GROUP

VM-owned Ford dealer and garage network TrustFord is considering hiring ‘semi-skilled’ technicians to work on some of its vehicles to tackle a shortage of technicians and accelerate its apprenticeship scheme. 

READ: VMS IN EUROPEAN COMMISSIONER’S SIGHTS

TrustFord CEO Stuart Foulds said in an interview with Motor Trader magazine that the company is ‘exploring the possibility of using semi-skilled staff’, because ‘a lot of the work can be done by semi-skilled’ as opposed to fully-qualified technicians. 

The issue of training and retaining staff is familiar to some in the aftermarket. However, Peter Welch of Scotlands Ash Garage, who has discussed the issue in the past, is critical of TrustFord’s approach. “It would worry me because technology is getting more and more,” he said. “If they’re just changing oil and filters that’s a bit of a different thing, or fitting tyres or putting bulbs in. But if they’re doing proper servicing, well, perhaps main dealers don’t do much more than that.” 

Foulds also mentioned in the interview how the group offers one-hour servicing without appointment, which is possible by having three technicians working on one car at the same time. 

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COMPULSORY ADAS PROVISIONALLY AGREED

COMPULSORY ADAS PROVISIONALLY AGREED

New regulations on vehicle safety standards in the EU, due to come into force in 2022, were provisionally agreed in Strasbourg on March 25th. 

Under a wide-ranging set of rules known as the Third Mobility Package, the European Commission described a vision of connected vehicles and digitised roads, where automatic data logs, particularly on CVs ‘will cut red tape and facilitate digital information flows for logistic operations’.

However, it is a description of the Commission’s desire to improve road safety that will be of most interest to anyone who sells or repairs light vehicles. 

Among the odder proposals on the list are mandatory alcohol interlocks (which are essentially breathalysers that allow you to start your car). Light vehicles will also need to be designed to be kinder to pedestrians and cyclists if they are being run over, with improved front crash areas and a safer type of safety glass.

Mandatory ADAS (Advanced Driver Assistance) systems under the proposal read like a dealer option list. Drowsiness detection, Autonomous Emergency Braking and Intelligent Speed Assist (where the vehicle’s equipment ‘reads’ the prevailing road speed and adjusts the built-in limiter accordingly) are all being considered, and it is this last feature that garnered the most attention from the national press. Curiously, built-in dashboard cameras are not on the list. 

Antonio Avenoso, Executive Director of the European Transport Safety Council (ETSC), compared the agreement on the new regulations with the introduction of the seat belt and EU minimum crash safety standards. “If last night’s agreement is given the formal green light, it will represent another of those moments, preventing 25,000 deaths within 15 years of coming into force,” he said. 

ADAS has provided both the dealer service market and the aftermarket with a new opportunity, due to the number of sensors that need precisely calibrating on a regular basis. Systems for calibration, such as the kit pictured have been in high demand. 

Absolute Alignment

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MAKING TAX DIGITAL

Digital tax will be taxing

By Adam Bernstein 

By the end of March 2019, some one million UK businesses will need to have prepared for what many consider to be the biggest change for years in how they deal with HMRC. Despite what some may think, this has nothing to do with Brexit.

The changes, which will affect every single transaction a firm makes, come from what HMRC calls Making Tax Digital – MTD. While HMRC thinks it’s the answer to everyone’s tax problems, the reality is that life is about to become very complex for business.

The background

Jason Piper, senior manager for tax and business Law at the ACCA, an accounting body, says that MTD has been around five years since the then minister, David Gauke, announced bold plans for The Death Of The Tax Return, which became Making Tax Simple before finally settling on Making Tax Digital. Says Piper, “the underlying goal is to transform the whole UK tax system, both HMRC’s internal IT infrastructure and the way that taxpayers engage with it.”

It appears that by having taxpayers keep their records digitally, engaging with HMRC entirely online, everyone’s costs should be lowered, and avoidable errors will be minimised. But as Piper puts it, “as a utopian ideal the seamless transfer of information, with taxpayers able to see all their records in one place in real time, has clear attractions – but from the start, practical issues around the ability of taxpayers to adapt, especially in the suggested timescales reared their heads.” And there has been no shortage of commentators ready to remind HMRC of government’s record on large scale IT projects – MTD would be one of the biggest, and riskiest were it to go wrong, ever attempted.

Rollout

Problems with the rollout have been compounded by unprecedented political developments such as the snap election and the Brexit referendum – both delayed the ability of civil servants to consult with stakeholders.

The result is that the initial plans to force virtually all businesses to keep their records for profits taxes digitally from 2018 were abandoned; now all but the barest bones of MTD have been put on hold to free up resource for Brexit. Nevertheless, firms will have much to worry about from next April.

Impact

From April 2019 HMRC will have MTD in place for VAT for all businesses above the compulsory registration threshold of £85,000. Income and Corporation Tax will follow at some point.

Of course, as Piper notes, MTD won’t apply to those businesses not (yet) registered for VAT – “even if they do subsequently register for VAT, they’ll be outside of the regime until 2020. Unfortunately, that doesn’t necessarily mean they can relax.”

So those who are VAT registered need to prepare – now.

For VAT, MTD subtly alters how the online filing works and makes a huge change to how businesses prepare for that submission. HMRC’s existing web portal will close for MTD filers and instead they’ll need to use specialist software to create and submit their return.

“But the biggest, unprecedented, change,” explains Piper, “is in how much control HMRC’s processes will have over how you run your business. Under online filing, you submit your VAT return to HMRC in their prescribed digital format so it’s easy for them to process. But you’re in control of how the records are kept that help you work out the nine numbers you need for the return. Under MTD, it’s not just how the nine figures reach HMRC that’s legally regulated; it’s how they’re calculated, and the format (electronic) of the records that support it which is laid down in law.” In essence, he says that every transaction will need to be recorded digitally (so on a spreadsheet or in accounting software) and those records have to automatically drive the return calculation. If you’re caught up in MTD, you’ll need to be online aware, or have a very accommodating accountant.

Piper outlines two situations where businesses can carry on as usual (for the short to medium term at least). One is if you are registered voluntarily for VAT: “If your annual turnover is below the threshold then operating the MTD regime will be optional, and you can continue filing via the portal.” Turnover has to be below, and stay below, that £85,000 limit from April 2019 though – as soon as turnover goes above the limit MTD obligations become compulsory, permanently. This means that even if turnover falls later on the requirement to keep recording everything digitally will stand unless deregistering entirely from VAT. “Firms can,” adds Piper,” voluntarily waive that exemption and operate full MTD processes. As long as turnover stays below £85,000 they can withdraw that waiver and go back to paper/online filing, from the end of the quarter they’re in.”

All of this means an extra headache for businesses with turnover hovering around £85,000 – one big transaction that might trigger compulsory registration. The rules are a minefield here.

The other route to staying outside MTD, according to Piper, “is to qualify for one of the existing exemptions from online filing for those who are digitally excluded or on grounds of religious belief. HMRC have said they will publish guidance on this in November 2018 and expect to have the application process ready by January 2019, but we can use the regulations and what we know about the current position to make some predictions.”

Piper says that it’s a myth that taxpayers can get religious exemption just by telling HMRC they’re a member of a tiny sect that shuns technology. The bar to clear is incredibly high and involves proving that the individual’s entire life revolves around their beliefs.

The other exemption he points to – digital exclusion – “is likely to get a lot messier for HMRC and for taxpayers. “At the moment, around 4,000 taxpayers are exempt from online filing ‘by reason of age, disability or geographical location’. That means they either can’t use a computer to meet HMRC’s requirements, or even if they could, they can’t get reliably online because there’s no internet connection at their place of business. The same legal test will apply for MTD.”

However, historically HMRC has taken a hard line leaving many businesses who couldn’t file online themselves to pay an accountant to fulfil the digital obligations. But there the difference ends he says: “Filing the nine figures of the return isn’t that expensive; paying a professional adviser to maintain the digital record of every single transaction would be a different story though, and that’s what MTD would require. The stakes are much higher this time for small businesses, and we expect far more to need to apply for exemption because paying someone else to do what’s needed just isn’t economic.”

Crucially Piper says that there’s an “any other reason” catch-all term built into the regulations and it’s possible that the tax Tribunals “would include the economic impact on the business of shifting to digital in that – so if the disruption would effectively bankrupt a business, that could be grounds for exemption.” Put bluntly, if claiming exclusion as a sole trader then it’s just the trader’s own circumstances that matter. For a partnership though, every single partner needs to be excluded. If just one could maintain digital records and file online then the partnership would be expected to. For a company it’s likely to be even more complicated to assess.

Action

Piper says that the first step is to simply establish if HMRC expects MTD to apply, that is, the business is turning over more than £85,000 per year. “If so, start to prepare, or collect the evidence that you might not need to because you’ll be exempted.”

Next, if the business already uses an accounts software package then it will probably support MTD filing and record keeping – the key is to check without delay.

“If you don’t use any digital tools” says Piper, “then you’ll need to start, and quickly do your own research to find a suitable product.” He reckons that there will be an official HMRC tool, but government rules on commercial competition means that businesses might do better to search out resources that accountants use. Accountingweb.co.uk offers reviews on products.

Spreadsheets will still be fine for the basic record keeping Piper advises, “but you’ll still need access to a filing package as well, known as ‘bridging software’. In a variation on the current practice of phoning your accountant every three months with the nine figures, you could post them a USB stick, or email a spreadsheet with all your records (in the right format) once a quarter. Their software could do the rest, but it’s likely to cost more than the current equivalent.” Of course, doing this means that there’s scope for things to go wrong, and it will mean an accountant doing more which will be reflected in their bill.

The advice to those who think they might be, or should be, exempted, it to start gathering evidence. Once HMRC is accepting applications for exemption, get it in early taking advice from an accountant so that the application is correctly worded. And if rejected – appeal. Don’t ignore MTD as it’s not going away.

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