1.13m businesses still to sign up to Making Tax Digital

27th March 2019
Estimates suggest almost 1.2m businesses will be required to file VAT returns digitally. While research carried out at the end of last year suggested 83% of businesses are familiar with Making Tax Digital and had already started to prepare, current uptake is low, although HMRC says more than 3,000 are now signing up every day.HMRC is urging businesses to get ready now and has written to every business that will be mandated with information on what they should do and how.At the beginning of March, HMRC reported just under 30,000 businesses had signed up, a figure which has more than doubled, while the rate of daily signings has risen from 2,000 to 3,000 a day.Theresa Middleton, HMRC’s director of the Making Tax Digital for business programme, said: ‘There are over 220 software products for businesses to choose from at a range of prices, including free ones, offering different levels of functionality.‘I’d urge any business affected by Making Tax Digital to start preparing now, and to join the thousands of others who are already experiencing the benefits Making Tax Digital has to offer.’Most businesses above the VAT threshold have to start keeping their records digitally and sending their VAT return to HMRC direct from their software for VAT periods starting on or after 1 April.However, an HMRC spokesperson emphasised that April 1 is not ‘a cliff edge’.The spokesperson said: ‘Businesses will join as and when it’s right for their VAT period. The first businesses that will be mandated to file through Making Tax Digital won’t have to do so until August.’Those already using software will need to ensure it is Making Tax Digital-compatible then sign up to the new service and authorise their software for Making Tax Digital.Those businesses that are either not represented by an accountant and/or do not already use software will need to select software to use and sign up to Making Tax Digital, then authorise their new software for the online service.HMRC says it recognises that businesses will require time to become familiar with the new requirements of Making Tax Digital, and during the first year of mandation, will not issue filing or record keeping penalties where businesses are doing their best to comply. However, sanctions will remain possible in cases of deliberate non-compliance, and in order to safeguard VAT revenue.Anyone who is already exempt from online filing of VAT will remain so under Making Tax Digital.Late paymentSeparately, ATT and CIOT are cautioning businesses that HMRC’s ‘light touch’ on Making Tax Digital penalties will not extend to the late payment of tax.Adrian Rudd, chair of the joint ATT/CIOT digitalisation and agent strategy working group, said: ‘We encourage businesses to prioritise the timely payment of VAT, even if they are struggling to comply with Making Tax Digital.‘Businesses must ensure that they pay the right amount of VAT at the right time even if they struggle or fail to keep their records digitally, or file their VAT returns through Making Tax Digital compliant software.The ATT and CIOT are also concerned that those who pay VAT by direct debit, but have problems filing their VAT returns under Making Tax Digital, may unintentionally be late paying their VAT bill. This is because the VAT return acts as the trigger for payment to be taken from their bank account. As a result, if someone files their VAT return late, their VAT payment will also be late.Direct debit payments are taken either three working days after the payment deadline (if the return is filed on time) or three working days after the date the VAT Return is filed (if late). If a business pays late as a result of filing late, they could incur a default surcharge. An appeal may be brought on the grounds there was a reasonable excuse if the late filing was due to Making Tax Digital problems outside of their control, for example software issues or an HMRC system crash.

Pensions auto enrolment contributions to rise

20th March 2019
Pensions auto enrolment contributions to riseMinimum pension contributions are set to increase from 6 April 2019:Duration Employer minimum (%) Total minimum contribution (%) Current contributions 2 5 6 April 2019 onwards 3 8The Pensions Regulator has produced guidance for employers on dealing with the increase including a letter template to advise employees of the change.Contact us if you would like help with auto enrolment.

Personal Tax News

27th February 2019
Personal TaxThe UK personal allowance, tax rates and bands for 2019/20 were announced by the Chancellor in the Autumn budget in October 2018. The personal allowanceThe personal allowance is £11,850 for 2018/19 and increases to £12,500 for 2019/20. There is a reduction in the personal allowance for those with ‘adjusted net income’ over £100,000. The reduction is £1 for every £2 of income above £100,000. So for 2018/19 there is no personal allowance where adjusted net income exceeds £123,700. For 2019/20 there is no personal allowance available where adjusted net income exceeds £125,000.The marriage allowanceThe marriage allowance permits certain couples, where neither pays tax at more than the basic rate, to transfer 10% of their personal allowance to their spouse or civil partner.The marriage allowance reduces the recipient’s tax bill by up to £238 a year in 2018/19. The marriage allowance was first introduced for 2015/16 and there are many couples who are entitled to claim but have not yet done so. It is possible to claim for all years back to 2015/16 where the entitlement conditions are met. A recent change to the law allows backdated claims to be made by personal representatives of a deceased transferor spouse or civil partner.Tax bands and ratesThe basic rate of tax is 20%. In 2018/19 the band of income taxable at this rate is £34,500 so that the threshold at which the 40% band applies is £46,350 for those who are entitled to the full personal allowance. In 2019/20 the basic rate band increases to £37,500 so that the threshold at which the 40% band applies is £50,000 for those who are entitled to the full personal allowance.Individuals pay tax at 45% on their income over £150,000. Scottish residentsThe tax on income (other than savings and dividend income) is different for taxpayers who are resident in Scotland to taxpayers resident elsewhere in the UK. The Scottish income tax rates and bands apply to income such as employment income, self-employed trade profits and property income.In 2018/19 and 2019/20 there are five income tax rates which range between 19% and 46%. Scottish taxpayers are entitled to the same personal allowance as individuals in the rest of the UK. The two higher rates are 41% and 46% rather than the 40% and 45% rates that apply to such income for other UK residents. For both 2018/19 and 2019/20, the threshold at which the 41% band applies is £43,430 for those who are entitled to the full personal allowance. Welsh residentsFrom April 2019, the Welsh Government has the right to vary the rates of income tax payable by Welsh taxpayers. The UK government has reduced each of the three rates of income tax paid by Welsh taxpayers by 10 pence. The Welsh Government has set the Welsh rate of income tax at 10 pence which will be added to the reduced rates. This means the tax payable by Welsh taxpayers continues to be the same as that payable by English and Northern Irish taxpayers. Tax on savings incomeSavings income is income such as bank and building society interest.The Savings Allowance, which was first introduced for the 2016/17 tax year, applies to savings income and the available allowance in a tax year depends on the individual’s marginal rate of income tax. Broadly, individuals taxed at up to the basic rate of tax have an allowance of £1,000. For higher rate taxpayers the allowance is £500. No allowance is due to additional rate taxpayers.Some individuals qualify for a 0% starting rate of tax on savings income up to £5,000. However, the rate is not available if taxable non-savings income (broadly earnings, pensions, trading profits and property income less allocated allowances and reliefs) exceeds £5,000. Tax on dividendsThe first £2,000 of dividends are chargeable to tax at 0% (the Dividend Allowance). Dividends received above the allowance are taxed at the following rates:7.5% for basic rate taxpayers 32.5% for higher rate taxpayers 38.1% for additional rate taxpayers.Dividends within the allowance still count towards an individual’s basic or higher rate band and so may affect the rate of tax paid on dividends above the Dividend Allowance.To determine which tax band dividends fall into, dividends are treated as the last type of income to be taxed. Gift Aid – donor benefitsThe donor benefits rules that apply to charities who claim Gift Aid tax relief on donations are simplified from 6 April 2019. The benefit threshold for the first £100 of the donation remains at 25% of that amount. For gifts exceeding £100, charities can offer benefits up to the sum of £25 and 5% of the amount of the donation that exceeds £100. The total value of the benefit that a donor can receive remains at £2,500.CommentThe new limits replace the current mix of monetary and percentage thresholds that charities have to consider when determining the value of benefit they can give to their donors without losing the entitlement to claim Gift Aid tax relief on the donations given to them.Gift Aid Small Donations SchemeThe Gift Aid Small Donations Scheme (GASDS) applies to small charitable donations where it is impractical to obtain a Gift Aid declaration. GASDS currently applies to donations of £20 or less made by individuals in cash or contactless payment. The limit increases to £30 from 6 April 2019.

Buy-to-let landlords face shorter CGT payment window

9th July 2018
Where CGT is due, a disposal is normally reported to HMRC in a self-assessment tax return. Under self-assessment, any CGT must be paid by 31 January following the tax year of disposal.The government has noted that (depending on the timing of the sale within a tax year) this allows residential property owners between 10 and 22 months after the sale of the property before the tax is due.Concerned about the length of time before any CGT is paid, HMRC is planning to bring in new rules from April 2020 which will require individuals and trustees disposing of a residential property to make a payment on account of the CGT within 30 days of the completion of the sale. Sellers will have to calculate, report and pay the CGT that they believe is due within that window.As an example, if an owner exchanged contacts for the sale of a house on 15 April 2019 and the sale completed on 15 May 2019, the existing rules would apply and mean that any CGT arising would be due on 31 January 2021. By contrast, under the proposed rules, an exchange of contracts on 15 April 2020 with completion on 15 May 2020 would mean that the CGT had to be paid by 14 June 2020 – over seven months earlier than if the property had been sold in the previous tax year and indeed before any CGT was due for the previous tax year.Jon Stride, co-chair of ATT’s technical steering group, said: ‘The new rules will significantly reduce the amount of time that those selling residential property will have to calculate and pay their CGT bill. CGT computations can be complex and it can take time to establish all the necessary facts to make an accurate computation of the taxable gain. Sellers will need to start gathering information and details of historic costs, or dates of occupation well in advance of the sale.’ATT says such ‘in year’ reporting can create complications as many individuals will not know what rate of tax will apply at the time of disposal. This is because the applicable tax rate for CGT depends on the individual’s total income for the tax year which can only be estimated at the time of disposal.Equally, individuals may make other disposals in the year liable to CGT which might affect the position. After making an ‘in year’ report, individuals will therefore need to review and revise the computation at the end of the tax year, either as part of their usual self-assessment procedures or via new ‘end of year’ reconciliation process. This will increase the compliance burden for taxpayers.A particular area of concern is the treatment of capital losses, says ATT. Under the current proposals, the taxpayer will only be able to take into account of losses which are known about at the time of disposal. If they incur more capital losses later in the same tax year, then it is likely that the original payment on account of CGT will be found to be too large.However, they will not be able to reclaim any overpayment until after the tax year has finished. This could leave the taxpayer out of pocket for some months, warns ATT. The only time that capital losses realised after the disposal of the property can be taken into account is if the taxpayer disposes of further residential property in the same tax year.ATT points out that when similar ‘in-year’ reporting rules were introduced for non-residents disposing of UK residential property, many individuals only realised they should have reported their disposals earlier when they came to complete their self-assessment return after the end of the tax year.The association’s response to a HMRC consultation on how to administer the CGT changes highlights concerns that UK individuals may also miss the earlier deadline and have asked HMRC to consider a ‘soft-landing’ for penalties in the early years of these new rules.Stride said: ‘If the government wants to accelerate tax payments in order to minimise possible loss to the Exchequer, we would like to see a wider debate on the timing of payment of tax rather than payments on account being introduced in a piecemeal fashion over a number of different assets or income sources. A broader debate would enable HMRC to identify clearly the specific areas of concern and the risks to tax collection and thereby enable identification of possible solutions.’People selling their only or main home should not be affected by the new rules provided that they are entitled to full private residence relief1 which exempts them from having to pay CGT on the sale.

HMRC delays Making Tax Digital for VAT trial for businesses

26th June 2018
MRC has published a stakeholder communications pack offering guidance about the requirements of Making Tax Digital, which will see VAT-registered businesses with a taxable turnover above the registration threshold required to keep and submit digital VAT business records and make digital VAT returns from 1 April 2019.HMRC launched a private pilot of Making Tax Digital for VAT in April 2018, working with software providers in order to test its systems and their products. The guidance suggests this will become a public trial ‘later in 2018’, having previously indicated it could begin this summer.HMRC will not be offering its own software products, but will provide the application programming interfaces (APIs) that commercial software developers will use to develop a range of applications that will enable businesses to keep their records digitally and integrate with HMRC systems.The guidance describes the VAT trial as ‘a private pilot available to invited volunteer VAT businesses and their agents’ and says that ‘for now, we are limiting the number and types of business we invite into the pilot.’According to HMRC’s latest update, more than 130 software suppliers have told HMRC that they are interested in providing software for Making Tax Digital for VAT, of which over 35 have said they will have software ready during the first phase of the pilot, which involves small numbers of invited businesses and agents.So far, 18 suppliers including Intuit, IRIS, PwC, Xero and Sage, are listed as having tested their products in HMRC’s test environment and having demonstrated a prototype of their software to HMRC.The guidance states: ‘We’ve invited a small number of volunteer VAT businesses who meet a specific set of eligibility criteria to join. Some are represented by agents and others are unrepresented. As we continue testing, we’ll increase the numbers and start to invite businesses with more complex features.’HMRC also says it will provide more detailed guidance about the operation of Making Tax Digital for VAT after the launch of the public service later this year.In March 2018 HMRC launched a pilot for Making Tax Digital Income Tax pilot on a voluntary basis. It will not be mandatory for businesses until at least 2020.Businesses can sign up if they are a sole trader with income from one business and/or are landlords (except those with furnished holiday lettings).If a business that signs up to Making Tax Digital for income tax has no other income to provide to HMRC they will not need to complete a separate self assessment return for 2018/19.The stakeholder communications pack says: ‘Where additional personal income needs to be reported, such as employment income, bank and building society interest, dividends and gift aid, additional functionality will be made available in the coming months to allow software providers to build this into their products, meaning many more businesses will be able to send all of their additional personal income details using MTD.’It also states that the income tax pilot ‘continues to be developed and additional functionality to allow more business to join will be released in the coming months’. This will include the ability to report other sources of income through software e.g. bank interest and dividends.Currently there are four approved suppliers on HMRC’s list for Making Tax Digital for income tax: Absolute, Forbes, IRIS and Rhino.HMRC says the communication pack provides information for firms, agents and others, who can use the contents to inform their own communications activity and key messages for their clients, customers or members.As well as explaining the background to Making Tax Digital, it includes details of the pilots and encourages stakeholders to get involved in these, and to ensure that they and their clients are aware of new digital requirements.

Small businesses spend three working weeks on tax compliance

27th February 2018
The average UK small business spends £5,000 and three working weeks every year on tax compliance, according to research from the Federation of Small Businesses (FSB), which is calling for the system to be simplified.The survey of over 1,000 small businesses found that almost half (46%) say determining the tax rates at which they are required to pay is a challenge, while 40% find exemptions confusing.VAT, PAYE and employer national insurance contributions (NICs) are identified as the most time-consuming taxes to handle. The average small business spends 95 hours a year complying with the three collectively.More than three quarters (77%) of small firms pay a specialist to ensure their taxes are paid correctly, with almost all opting for a qualified accountant.Almost half (47%) of small firms say business rates have made growing their firm more difficult. The same proportion say corporation tax has hampered expansion, with similar numbers stating that growth has been stifled by employers’ NICs (44%).One in seven (14%) small firms say VAT has prevented expansion completely.When asked about changes that would reduce the tax compliance burden, the majority (53%) say the ability to pay in instalments would make the process more straightforward.A similar proportion (52%) would like to see an early estimation of their tax bill. Four in ten (40%) state that the automation of tax calculations would be useful.Mike Cherry, FSB national chairman, said: ‘We hear a lot about the need to simplify the UK tax code.‘In fact, our priority should be simplification of the tax compliance process. Small firms by and large understand a tax like VAT, for example, but the sheer complexity of VAT administration means they spend 44 hours a year filing returns.‘It’s no wonder the majority end up shelling out for expert help.’A quarter of survey respondents (27%) currently seek online tax advice from HMRC and just 19% make telephone contact, with a number of businesses highlighting issues with response times.Cherry said: ‘The rollout of making tax digital needs to be seen as an opportunity to radically improve the small business user experience of HMRC.’The Taxing Times report also reveals that the majority (55%) of small firms are not aware of tax reliefs available to them. Most (73%) have not heard of either the business rates relief offered to those based in enterprise zones, or the enhanced capital allowance, which encourages investment in clean technologies.The most familiar tax reliefs to small firms are small business rates relief, which more than three quarters (78%) are aware of or have claimed, and standard capital allowances (66%). The dividend allowance (51%) is also popular.Cherry said: ‘There are lots of useful tax reliefs out there but many small firms simply don’t know they exist or don’t have the expertise to access them.‘Lots of firms actually employ consultancies to help them apply for R&D tax credits, for example. When applications are complex, it’s big firms, not time-strapped small business owners, which stand to gain.‘There needs to be a real push from local and central government to ensure small firms are aware of all the reliefs available.’

HMRC urged to plug the gap on electric car charging

17th January 2018
At the Autumn Budget 2017, it was announced that, from April 2018, there will be no benefit in kind charge on electricity that employers provide to charge employees’ own electric vehicles. However, this exemption was not included in the Finance Bill published in December 2017 which is currently passing through Parliament.HMRC have now confirmed to the ATT that the intention is to include this exemption in the next planned finance bill, instead, which will be announced and published in the autumn of 2018. The legislation will be retrospective so that the tax exemption applies from 6 April 2018.Yvette Nunn, co-chair of ATT’s technical steering group, said: ‘The delay in legislating for this exemption puts both employers and employees in an uncertain position because it will come into force before they see any of the details.‘It would be a pity if this initiative to increase the use of electric cars falls flat because some employers are unaware of how to apply it or promote it due to a lack of information. There is also the risk that employers and employees may not be aware of this initiative, which means it does not get used.’ATT is not expecting Finance Bill 2018 to be published until the end of 2018. Draft legislation may be published for consultation this summer but even that will be several months after the exemption is intended to take effect.Nunn said: ‘The ATT is urging HMRC to provide guidance to employers and employees as soon as possible so that they can have certainty over the tax treatment of employer-provided charging from the start of the tax year. This should include a commitment to an effective date of 6 April 2018, together with as much detail as possible on any potential exclusions or conditions.’

HMRC consults on Making Tax Digital VAT rules

23rd December 2017
There is a main consultation on draft amendments to the VAT regulations and a draft VAT notice about keeping digital records and providing VAT returns using compatible software, as the first stage of the planned implementation of its Making Tax Digital programme.The proposed secondary legislation would make changes to the VAT regime, effective from 1 April 2019.Businesses with taxable turnover above the VAT registration threshold now fixed at £85,000 will have to keep digital records and submit VAT returns using compatible software.In addition there is a proposed addendum to the draft VAT Notice, setting out how businesses could use compatible software alongside spreadsheets to provide VAT returns.The proposed legislation requires VAT registered businesses to keep an electronic account of information specified in the amended regulations and use an approved form of software to prepare and deliver returns.These obligations will not apply to businesses if their VAT taxable turnover for the previous 12 months is below the VAT registration threshold in force at the start of the next month.Once the threshold is exceeded, the obligations will commence from the business’s next return period.However, once any business is caught by these regulations, then even if the business’s VAT taxable turnover subsequently falls below the exemption threshold they will still be obliged to keep and preserve digital records and provide VAT returns using functional compatible software unless and until they deregister from VAT.The regulations provide exemptions based on turnover, an inability to use electronic systems for religious or practical reasons and for businesses subject to insolvency, but exempt businesses may opt for the obligations in the amended regulations to apply to them if they wish. The amended regulations also provide rules for how business records should be preserved.Originally Making Tax Digital was to apply to all businesses but the government announced on 13 July 2017 that, for the time being, only businesses above the VAT registration threshold will participate in Making Tax Digital from 1 April 2019.The rest of quarterly reporting requirements will not be introduced before tax year 2021-22 at the earliest.The consultation closes on 9 February 2018.

HMRC stops use of personal credit card to pay employer PAYE penalties

13th October 2017
HMRC has confirmed that employers will not be able to pay PAYE penalties with a personal credit card from 13 January 2018. It will continue to accept payments by company credit card or debit card, as well as BACS payments.All payments must include the 14 or 15 character payment reference that begins with X and is on the payslip. Payments may be delayed if the wrong reference is used.It will also not accept part payments by credit or debit card so any employers who are unable to make full payment by card will have to pay a different way, through telephone banking, CHAPS or Bacs using sort code 08 32 10, account number 12001020 via HMRC Shipley account.Faster payments (online or telephone banking) usually reach HMRC on the same or next day, including weekends and bank holidays. CHAPS reach HMRC on the same working day if paid within bank’s processing times while Bacs payments take three working days.The slowest way to pay is via direct debit which takes five working days to arrive. HMRC also charge a fee for credit card payments.The facility to pay HMRC through a Post Office will be withdrawn from 15 December 2017.HMRC will accept payment on the date made, not the date it reaches HMRC’s account (including bank holidays and weekends).HMRC limits the number of credit and debit card payments that can be made to any single tax regime within a given period of time, so that only a reasonable number of payments can be made.The definition of what the actual limit on number of payments is vague.The HMRC guidance states that the tax authority ‘will decide what is reasonable by checking payment card industry standards and guidance and may withdraw the facility to pay by credit or debit card from any customer who tries to bypass the limit’.HMRC Guidance, Pay other HMRC taxes, penalties or enquiry settlements

Partnership tax rules overhaul by 2018

15th September 2017

This measure makes changes to the income tax calculations of certain partnerships and is part of a wider policy of government to tighten the tax rules for partnerships.

 

The draft legislation is now out and the Treasury says that this ‘provides additional clarity over aspects of the taxation of partnerships’.

 

But it will raise costs for partnerships, as partners and some partnerships may be required to calculate partnership profit on all four possible bases of calculation (for example, UK resident individual, non-UK resident individual, UK resident company and non-UK resident company), and report these in the partnership return.

 

There will be some winners as around 1,300 investment partnerships will no longer have provide a tax reference for partners who have no charge to tax or business activity.

 

HMRC expects that there will be ‘fewer interventions, as a result of clarifying various partnership rules and requiring partners to return the profit/loss allocation shown on the partnership return, which will generate operational savings’.

 

Partners will be able to refer profit/loss allocation disputes to the tribunal. HMRC is going to set up a new IT referral system for partners to notify them about disputes referred to the tribunal, which is likely to cost up to £100,000 to develop.

 

The rules for the allocation of partnership profits and losses will have effect for accounting periods and periods of account starting after the date of Royal Assent to Finance Bill 2017. Likewise the changes to returns for overseas partners in investment partnerships will have effect for returns made after enactment of the Bill.

 

Other changes will have effect for 2018-19 returns.

 

The main issues focus on how the current rules and reporting operate in particular circumstances where a partnership has partners who are bare trustees for another person or that are partnerships; and the allocation and calculation of partnership profit for tax purposes.

 

Under the new rules, ‘the provisions ensure that partnership returns contain sufficient information to facilitate HM Revenue and Customs (HMRC) assurance work,’ the Treasury stated.

 

In addition, the measure makes it clear that the allocation of partnership profits shown on the partnership return is the allocation that applies for tax purposes for the partners but provides a new, structured mechanism for the resolution of disputes between partners over the allocation of taxable partnership profits and losses shown on the partnership return.

 

It also reduces the amount of information which has to be shown on the partnership return for investment partnerships that report under the Common Reporting Standard (CRS) and who have non-UK resident partners who are not chargeable to tax in the UK.

 

The measure was first announced at Budget 2016 and was subject to a consultation published in August 2016, entitled Partnership taxation: proposals to clarify tax treatment.

 

Policy paper, HMRC Partnership taxation: proposals to clarify tax treatment is available here.