Category Archive: March 2017

  1. Business Bitesize – March 2017

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    Welcome to Business Bitesize, Wright Vigar’s bi-monthly newsletter providing food for thought on general business matters.

    To download Business Bitesize ‘Winning Influence’ click here

    How do you get the world’s most stubborn people to help your business win? click here to find out.

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    We hope you enjoy Business Bitesize. Please feel free to pass on this edition and the supporting tools to your colleagues or contacts. And if you would like printed copies just give the marketing team a call on 01522 531341 or email action@wrightvigar.co.uk

  2. NEW VAT Flat Rate Scheme Changes

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    The Flat Rate Scheme (FRS) was originally introduced as a simplification scheme to help reduce the administrative burden for smaller businesses. It is not a tax allowance and businesses using the scheme should broadly pay the same amount of VAT as they would on standard VAT accounting.

    In the Autumn Statement the Chancellor of the Exchequer announced new legislation to come into effect from 1 April 2017 to tackle what HM Revenue & Customs believes is “aggressive abuse” of the FRS. This new legislation introduces a new test to undertake and a new flat rate for businesses with low costs.

    On 28 February 2017 HMRC updated VAT Notice 733: Flat Rate Scheme for small businesses to include detailed legislation on “limited cost businesses”.

    HMRC state that the legislation is aimed to level the playing field and tackle the abuse. In the past 12 months HMRC dealt with an additional 30,000 applications to join the FRS, the bulk of which were received from “unscrupulous employment agencies” who have transferred clients out of umbrella companies into single limited companies and then registered them for VAT and the FRS. In addition, it believes many businesses were registering to use the scheme for a cash benefit rather than for simplification purposes and that many advisors were marketing the scheme in this way.  HMRC believe that the solution published is resilient and should retain the simplification benefits for the majority of FRS users.

    Limited cost business category

    From 1 April 2017 businesses need to assess if they fall into the new limited cost businesses category for each VAT period, if they are not a limited cost business they will continue to use the sector appropriate percentage to calculate the VAT liability for that period. If the VAT period straddles the 1st of April then split treatment is required. The appropriate sector percentage under the current FRS rules is used for months prior to 1 April, and the limited cost business test is completed for the months post 1 April, with appropriate limits being time apportioned.

    A limited cost business is defined as a business whose expenditure on “relevant goods” (including VAT) is either:

    • Less than 2% of their VAT flat rate turnover or
    • Greater than 2% of their VAT flat rate turnover but less then £1,000 per year (£250 per quarter).

    Unless it is clear that you are not a limited cost business you will have to complete the test each VAT period. You could be a limited cost business in one period but back to using your relevant sector percentage in another. In order to assist FRS users HMRC are releasing an online calculator. This is currently at beta testing stage and should be finalised in early April. The calculator can be found at:

    https://www.tax.service.gov.uk/check-your-vat-flat-rate/vat-return-period

    “Relevant goods”

    The key to the test is the definition of “relevant goods”. After the draft legislation was released much commentary was published and potential work-arounds discussed. The final legislation has increased some of the complexity behind the definition but has removed what appeared to be some potential loopholes. The main definition for relevant goods as stated in VAT Notice 733 is:

    “You receive a supply of goods (including by acquisition or import) if the exclusive ownership of moveable items is passed to you from another person.”

    There is some further clarification on the supply of goods which includes receiving “water or any form of power, heat, refrigeration or ventilation”. The notice then details goods that are used for the purposes of your business but are specifically excluded from the “relevant goods” definition and these are:

    • vehicle costs including fuel, unless you’re operating in the transport sector using your own, or a leased vehicle
    • food or drink for you or your staff
    • capital expenditure goods of any value
    • goods for resale, leasing, letting or hiring out if your main business activity doesn’t ordinarily consist of selling, leasing, letting or hiring out such goods
    • goods that you intend to re-sell or hire out, unless selling or hiring is your main business activity
    • any services

    It is also important to note that goods are only included if they are used exclusively for the purposes of the business. This means that if goods have a dual purpose such as some element of private use then it is excluded from the definition.

    If you are using the FRS then HMRC are in the process of writing to you and the first round of letters will be received mid-March. HMRC are also looking to notify users via email. The communications from HMRC will outline the potential outcomes and options of this new test, which are:

    1. No change – you are definitely not a limited cost business and can continue to use the relevant sector percentage.
    2. You are a limited cost business:
      1. Use the limited cost business percentage for the periods in which your purchases of relevant goods are below the limits, or
      2. Leave the FRS and calculate VAT using the standard method, or
      3. If your turnover is below the VAT deregistration limit you can deregister from VAT.

    Another option to consider if you are currently accounting for VAT on a quarterly basis is to apply to use the annual accounting scheme in conjunction with the FRS, which means you will only need to undertake the test once per year when you submit your annual VAT Return. This also allows you to spread the payments over 10 months and gives you 2 months after the end of the VAT year to complete and submit your return.

    If you are currently using the FRS to calculate and administer your VAT then please discuss the various options with us. Please call your local office and ask to speak to a member of our VAT team – we would be delighted to advise you.

     

  3. Budget 2017 – The last Spring Budget?

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    The last Spring budget?

    Mr Hammond opened his budget speech by declaring that his “last Spring budget” was not the first! Apparently Norman Lamont presented the first “last Spring Budget” 24 years ago.  However the tax landscape has changed greatly since then and the system of announcing intentions, running consultations and only then introducing legislation, appears to be one that is here to stay. There may not have been many new announcements in this budget, but April 2017 will still see the start of many changes which have been announced previously.  Here are just a few:

    • The income tax and employer NIC advantages of using a salary sacrifice arrangement for benefits in kind will be removed for new arrangements
    • Non-contractual payments in lieu of notice (as well as contractual ones) will be taxable as earnings
    • The substantial shareholding exemption will be simplified ensuring relief for qualifying institutional investors
    • New flexibility will be available for corporate losses made from 1 April 2017 onwards
    • A restriction on the offset of corporate losses against profits above £5 million will be introduced
    • A limit will be imposed on corporate interest relief above £2 million
    • The annual allowance for contributions to a money purchase pension by someone who has flexibly accessed their pension savings will be restricted to £4,000
    • All profits from dealing in or developing land in the UK, irrespective of the residence of the person making the disposal will come within the charge to UK tax

     

  4. Budget 2017 – Business Rates

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    Budget changes to soften the impact of 2017 rates revaluation

    Many businesses are dreading the impact of the five yearly revaluation which will take effect in April 2017.  Details of a transitional relief were announced in the 2016 Autumn statement, ensuring that no small property would see more than a 5% increase before inflation due to the revaluation. Three further measures were announced in the Spring budget:

    • Small businesses coming out of small business rates relief will pay no more than £600 per annum more in business rates than they did in 2016-17
    • Pubs with a rateable value of up to £100,000 will be able to claim a £1,000 business rate discount
    • Additional funding will be made available to local authorities to provide discretionary relief to the businesses most affected by the revaluation.

     

  5. Budget 2017 – NICS for the self-employed

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    Big changes planned for NICs payable by the self-employed

    Mr Hammond was keen to point out that the self-employed are paying less in NIC than the employed, a fact which he described as unfair.  In his comparison he conveniently made the difference appear greater by quoting both employee’s and employer’s NIC contributions when describing how much NIC was paid in respect of an employed individual.  In terms of NIC contributions actually suffered by the individual, the difference between what is paid by an employed individual and a self-employed individual is only currently 3%. Despite the Chancellor’s reference to the fact that the new State Pension for those reaching retirement age on or after 6 April 2016 gives the self-employed access to the same State Pension as employees, there remain differences in entitlements to parental benefits, job-seekers allowance, statutory sick pay and holiday pay.

    Class 2 NICs will be abolished from April 2018.  This was something announced by George Osborne in 2016, but would increase the differential in the amount of NICs paid by employed and the self-employed. However, as Class 2 NICs are a flat rate of £2.80 a week, Mr Hammond is going ahead with the abolition and instead increasing the rate of Class 4 NICs by 1% from April 2018, bringing the rate to 10%. A further 1% rise will be applied from April 2019.

    The true reason for these changes can be found in the detailed background information published on gov.uk. The proportion of the work-force who are self-employed has been rising steadily since 2000. It is estimated that the lower rates paid by the self-employed cost the Exchequer £5.1 billion in 2016-17.

    The changes are however designed to protect those with the lowest profits. Only someone with annual profits in excess of £16,250 in 2019/120 will have to pay more NIC than under the current rules and when combined with the increases in the personal allowance, (based on these changes alone) only someone with profits in excess of £32,900 in 2019/20 will pay more in tax and NICs than in 2015/16.

  6. Budget 2017 – R&D tax relief is safe!

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    Research & Development Tax Relief is Safe!

    Many businesses have been concerned that the economic impact of Brexit might have a detrimental effect on the enhanced tax relief and tax credits currently available for R&D expenditure.  The fact that the government were conducting a review was regarded by many as an indication that they might be considering cutting the benefits.

    In his budget speech however,  Mr Hammond told us that the review had confirmed that the UK system of R&D tax credits is globally competitive.  He promised a reduction in the administrative burdens of the scheme to increase certainty and simplicity around claims and further action to improve awareness of the scheme among small and medium sized enterprises.

  7. Making Tax Digital – for Partners and Partnerships

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    In August 2016, the government published their proposals on how businesses will maintain their accounting records for tax purposes in the future and also how businesses will report their profits to HMRC. At the end of January 2017, after consideration of suggestions made by interested parties, revised proposals on many aspects of the new regime were published. This article aims to set out how these proposals, known as Making Tax Digital for Business (MTDfB), could affect your business.

    At the moment, businesses keep their accounting records in a variety of ways, from paper records, spreadsheets or accounting software. These records are then used to prepare a tax return for the business at a later date. Under MTDfB, businesses will be required to:

    • maintain their records digitally, through software or apps
    • report summary information to HMRC quarterly through their ‘digital tax accounts’ (DTAs)
    • make an ‘End of Year’ declaration through their DTAs.

    DTAs are like on-line bank accounts – secure areas where a business can see all of their tax details in one place and interact with HMRC digitally.

    When does MTDfB apply to you?

    In the Spring Budget, the government announced its proposed timetable for the introduction of MTDfB. Unincorporated businesses with annual turnover:

    • above the VAT threshold (which has been set at £85,000 from 1 April 2017) will need to comply with the requirements of MTDfB from the start of accounting periods which begin after 5 April 2018
    • at or below the VAT threshold but above £10,000 will need to comply from the start of accounting periods which begin after 5 April 2019.

    A business with annual turnover of less than £10,000 is exempt from MTDfB.

    The appendix to this letter provides some examples of when the new requirements will apply depending upon the accounting period of the business.

    How do partners and partnerships fit into this scheme?

    The principles of the proposed system for partners and partnerships are:

    • the partnership, rather than each partner, will be responsible for the central requirements of MTDfB (ie keeping a record of each transaction, providing quarterly summary updates and End of Year information)
    • a nominated partner will fulfil these obligations
    • the nominated partner will need to inform each partner of their share of profits by ‘pushing’ the information to each partner’s DTA. When this is done is covered in more detail later in this letter.

    HMRC recognises that there are special problems in larger partnerships and so the reporting of business profits will not change for partnerships with a turnover of over £10 million until 2020. There will be however the need for such partnerships to include the current (nine box) VAT return through the partnership’s DTA from April 2019.

    What are digital records for the partnership?

    A digital record is a record of data for each transaction of the business. The proposed minimum required data will be:

    • invoice date
    • invoice value
    • income or expense category
    • deducted amount / percentage for expenses.

    Retailers with high volumes of low value cash sales transactions will be able to just record the trading date, gross cash takings and income category.

    The software that could be used may be a smartphone app or software on a tablet or a desk-based computer. This software would be able to scan paper invoices and receipts into the software, using a smartphone camera. The software will be available from third party suppliers and HMRC have confirmed they will ensure there will be some products which are free of charge.

    Tax legislation contains a variety of rules on allowable and non-allowable expenses. So transactions will need to be categorised in the software into income and expense types – for example advertising or professional expenses.

    The software will either store the records locally, for example on a computer, or in the cloud. HMRC expect that the software will, after an initial phase of manually assigning transactions to income or expense categories, start to recognise regular items and automatically assign them.

    Under the original proposals, HMRC envisaged that a digital record would include not only a record of each item of income and expense but also evidence of each transaction such as copies of invoices and receipts. In the revised proposals the requirement to keep digital records will not include an obligation to store images of invoices and receipts digitally.

    HMRC are aware that a lot of businesses use spreadsheets to currently record their data and have now confirmed that spreadsheets will be one of the options for maintaining digital records. But users will need to ensure that the spreadsheet is able to meet all the necessary requirements of MTDfB (ie not just keeping a record of each transaction but also providing quarterly summary updates and End of Year information).

    Businesses will need to use software appropriate to their business requirements. For example, a business that is registered for VAT will need the software to cope with the VAT scheme it uses, and a partnership will need software that can record the partners’ details and profit shares.

    Quarterly returns for the partnership

    Once all the relevant data for a quarter has been compiled into the software, the business will then feed this data directly into HMRC systems. The information that will be sent to HMRC will be summary data for the quarter, not all income and expense items. It is envisaged that the analysis of the data will be similar to the existing categories in the Self Assessment tax return. Smaller businesses will be able to prepare an update that contains only three lines of data – income, expenses and profit.

    When the quarterly update is due, businesses will have one month to compile their records and complete the update.

    What about a tax return for the partnership?

    Throughout the year, businesses will have provided HMRC with regular updates, building a picture of their net income for the year. However, many businesses will need to make adjustments to that information, for example reconsidering which expenses are not allowable for tax and make claims to reliefs or allowances, such as capital allowances. Businesses will then make a declaration that everything is complete and correct as regards their business – an ‘End of Year’ declaration. The business will have 10 months from the end of their period of account (or 31 January following the tax year if sooner) to complete their End of Year declaration.

    If a partnership has any other income such as interest received or property income, the partnership will need to record and report all this income as well. The intention is therefore that the End of Year declaration effectively becomes the Self Assessment tax return for the partnership.

    How do partners obtain information about their share of profit?

    There will be an option for the nominated partner to ‘push’ quarterly summary information of their share of the profit to each partner’s DTA. Each partner under this option would therefore have an estimate of their profit to date in the tax year.

    When the End of Year declaration is made, the nominated partner will be obliged to ‘push’ each partner’s share of profits to the DTAs.

    How we can help you

    Please note that, at the moment, you do not have to do anything in respect of these developments. However, please be assured that we will continue to assist you with your tax affairs and we will keep you informed of developments in the Making Tax Digital for Business project.

    Please speak to us if you have any questions regarding Making Tax Digital.

    Appendix

    When does keeping digital records first apply? – Examples

    A business has a 5 April year end:

    Digital records?
    Year end Tax year for which profits are assessable Turnover above VAT threshold Turnover at or below VAT threshold
    12 months to 5 April 2018 2017/18 No No
    12 months to 5 April 2019 2018/19 Yes – from 6 April 2018 No
    12 months to 5 April 2020 2019/20 Yes Yes – from 6 April 2019

    A business has a 31 December year end:

    Digital records?
    Year end Tax year for which profits are assessable Turnover above VAT threshold Turnover at or below VAT threshold
    12 months to 31 December 2018 2018/19 No No
    12 months to 31 December 2019 2019/20 Yes – from 1 January 2019 No
    12 months to 31 December 2020 2020/21 Yes Yes – from 1 January 2020

    A business has a 31 March year end:

    Digital records?
    Year end Tax year for which profits are assessable Turnover above VAT threshold Turnover at or below VAT threshold
    12 months to 31 March 2019 2018/19 No No
    12 months to 31 March 2020 2019/20 Yes – from 1 April 2019 No
    12 months to 31 March 2021 2020/21 Yes Yes – from 1 April 2020

    Under current proposals a business with a 31 March year end rather than a 5 April year end has almost 12 more months before it has to meet the digital records requirements.

     

  8. Making Tax Digital – for the Self-employed

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    In August 2016, the government published their proposals on how businesses will maintain their accounting records for tax purposes in the future and also how businesses will report their profits to HMRC. At the end of January 2017, after consideration of suggestions made by interested parties, revised proposals on many aspects of the new regime were published. This article aims to set out how these proposals, known as Making Tax Digital for Business (MTDfB), could affect your business.

    At the moment, businesses keep their accounting records in a variety of ways, from paper records, spreadsheets or accounting software. These records are then used to prepare a tax return for the business at a later date. Under MTDfB, businesses will be required to:

    • maintain their records digitally, through software or apps
    • report summary information to HMRC quarterly through their ‘digital tax accounts’ (DTAs)
    • make an ‘End of Year’ declaration through their DTAs.

    DTAs are like online bank accounts – secure areas where a business can see all of their tax details in one place and interact with HMRC digitally.

    When does MTDfB apply to you?

    In the Spring Budget, the government announced its proposed timetable for the introduction of MTDfB. Unincorporated businesses with annual turnover:

    • above the VAT threshold (which has been set at £85,000 from 1 April 2017) will need to comply with the requirements of MTDfB from the start of accounting periods which begin after 5 April 2018
    • at or below the VAT threshold but above £10,000 will need to comply from the start of accounting periods which begin after 5 April 2019.

    A business with annual turnover of less than £10,000 is exempt from MTDfB.

    The appendix to this letter provides some examples of when the new requirements will apply depending upon the accounting period of the business.

    What are digital records?

    A digital record is a record of data for each transaction of the business. The proposed minimum required data will be:

    • invoice date
    • invoice value
    • income or expense category
    • deducted amount / percentage for expenses.

    Retailers with high volumes of low value cash sales transactions will be able to just record the trading date, gross cash takings and income category.

    The software that could be used may be a smartphone app or software on a tablet or a desk-based computer. This software would be able to scan paper invoices and receipts into the software, using a smartphone camera. The software will be available from third party suppliers and HMRC have confirmed they will ensure there will be some products which are free of charge.

    Tax legislation contains a variety of rules on allowable and non-allowable expenses. So transactions will need to be categorised in the software into income and expense types – for example advertising or professional expenses.

    The software will either store the records locally, for example on a computer, or in the cloud. HMRC expect that the software will, after an initial phase of manually assigning transactions to income or expense categories, start to recognise regular items and automatically assign them.

    Under the original proposals, HMRC envisaged that a digital record would include not only a record of each item of income and expense but also evidence of each transaction such as copies of invoices and receipts. In the revised proposals the requirement to keep digital records will not include an obligation to store images of invoices and receipts digitally.

    HMRC are aware that a lot of businesses use spreadsheets to currently record their data and have now confirmed that spreadsheets will be one of the options for maintaining digital records. But users will need to ensure that the spreadsheet is able to meet all the necessary requirements of MTDfB (ie not just keeping a record of each transaction but also providing quarterly summary updates and End of Year information).

    Businesses will need to use software appropriate to their business requirements. For example, a business that is registered for VAT will need the software to cope with the VAT scheme it uses.

    Quarterly returns

    Once all the relevant data for a quarter has been compiled into the software, the business will then feed this data directly into HMRC systems. The information that will be sent to HMRC will be summary data for the quarter, not all income and expense items. It is envisaged that the analysis of the data will be similar to the existing categories in the Self Assessment tax return. Smaller businesses will be able to prepare an update that contains only three lines of data – income, expenses and profit. If your business already completes a VAT return then the MTDfB updates will only include the current (nine box) VAT return from April 2019.

    When the quarterly update is due, businesses will have one month to compile their records and complete the update.

    What about a tax return for the business?

    Throughout the year, businesses will have provided HMRC with regular updates, building a picture of their net income for the year. However, many businesses will need to make adjustments to that information, for example reconsidering which expenses are not allowable for tax and make claims to reliefs or allowances, such as capital allowances. Businesses will then make a declaration that everything is complete and correct as regards their business – an ‘End of Year’ declaration. The business will have 10 months from the end of their period of account (or 31 January following the tax year if sooner) to complete their End of Year declaration.

    For a sole trader whose only income is from the business, there will be no requirement to complete a Self Assessment tax return.

    How we can help you

    Please note that, at the moment, you do not have to do anything in respect of these developments. However, please be assured that we will continue to assist you with your tax affairs and we will keep you informed of developments in the Making Tax Digital for Business project.

    Please speak to us if you have any questions regarding Making Tax Digital.

    Appendix

    When does keeping digital records first apply? – Examples

    A business has a 5 April year end:

    Digital records?
    Year end Tax year for which profits are assessable Turnover above VAT threshold Turnover at or below VAT threshold
    12 months to 5 April 2018 2017/18 No No
    12 months to 5 April 2019 2018/19 Yes – from 6 April 2018 No
    12 months to 5 April 2020 2019/20 Yes Yes – from 6 April 2019

    A business has a 31 December year end:

    Digital records?
    Year end Tax year for which profits are assessable Turnover above VAT threshold Turnover at or below VAT threshold
    12 months to 31 December 2018 2018/19 No No
    12 months to 31 December 2019 2019/20 Yes – from 1 January 2019 No
    12 months to 31 December 2020 2020/21 Yes Yes – from 1 January 2020

    A business has a 31 March year end:

    Digital records?
    Year end Tax year for which profits are assessable Turnover above VAT threshold Turnover at or below VAT threshold
    12 months to 31 March 2019 2018/19 No No
    12 months to 31 March 2020 2019/20 Yes – from 1 April 2019 No
    12 months to 31 March 2021 2020/21 Yes Yes – from 1 April 2020

    Under current proposals a business with a 31 March year end rather than a 5 April year end has almost 12 more months before it has to meet the digital records requirements.

     

  9. Making Tax Digital – for Landlords

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    In August 2016, the government published their proposals on how businesses will maintain their accounting records for tax purposes in the future and also how businesses will report their profits to HMRC. At the end of January 2017, after consideration of suggestions made by interested parties, revised proposals on many aspects of the new regime were published. This article aims to set out how these proposals, known as Making Tax Digital for Business (MTDfB) could affect your property business.

    At the moment, landlords keep their accounting records in a variety of ways, from paper records, spreadsheets or accounting software. These records are then used to prepare a tax return for the property business at a later date. Under MTDfB, unincorporated property businesses will be required to:

    • maintain their records digitally, through software or apps
    • report summary information to HMRC quarterly through their ‘digital tax accounts’ (DTAs)
    • make an ‘End of Year’ declaration through their DTAs.

    DTAs are like on-line bank accounts – secure areas where a business can see all of their tax details in one place and interact with HMRC digitally.

    When does MTDfB apply to you?

    In the Spring Budget, the government announced its proposed timetable for the introduction of MTDfB. Unincorporated property businesses with annual turnover:

    • above the VAT threshold (which has been set at £85,000 from 1 April 2017) will need to comply with the requirements of MTDfB from the start of the accounting period which begins on 6 April 2018
    • at or below the VAT threshold but above £10,000 will need to comply from the start of the accounting period which begins on 6 April 2019.

    A business with annual turnover of less than £10,000 is exempt from MTDfB.

    What are digital records?

    A digital record is a record of data for each transaction of the business. The proposed minimum required data will be:

    • date rentals due (and payment received date if using cash basis of accounting – see later)
    • rental value
    • invoice date and value for expenses
    • expense category
    • deducted amount / percentage for expenses.

    The software that could be used may be a smartphone app or software on a tablet or a desk-based computer. This software would be able to scan paper invoices and receipts into the software, using a smartphone camera. The software will be available from third party suppliers and HMRC have confirmed they will ensure there will be some products which are free of charge.

    Tax legislation contains a variety of rules on allowable and non-allowable expenses. So transactions will need to be categorised in the software into expense types – for example advertising or professional expenses.

    Where multiple properties are held within a property business, income and expenditure only has to be recorded for the property business as a whole and does not have to be allocated to individual properties. There will however, be a requirement to maintain details of each property’s address in the digital records.

    The software will either store the records locally, for example on a computer, or in the cloud. HMRC expect that the software will, after an initial phase of manually assigning transactions to expense categories, start to recognise regular items and automatically assign them.

    Under the original proposals, HMRC envisaged that a digital record would include not only a record of each item of income and expense but also evidence of each transaction such as copies of invoices and receipts. In the revised proposals the requirement to keep digital records will not include an obligation to store images of invoices and receipts digitally.

    HMRC are aware that a lot of property businesses use spreadsheets to currently record their data and have now confirmed that spreadsheets will be one of the options for maintaining digital records. But users will need to ensure that the spreadsheet is able to meet all the necessary requirements of MTDfB (ie not just keeping a record of each transaction but also providing quarterly summary updates and End of Year information).

    Businesses will need to use software appropriate to their business requirements. For example, a property partnership will need software that can record the partners’ details and profit shares.

    Quarterly returns

    Once all the relevant data for a quarter has been compiled into the software, the landlord will then feed this data directly into HMRC systems. The information that will be sent to HMRC will be summary data for the quarter, not all income and expense items. It is envisaged that the analysis of the data will be similar to the existing categories in the Self Assessment tax return. Smaller property businesses will be able to prepare an update that contains only three lines of data – income, expenses and profit. If your property business already completes a VAT return then the MTD updates will only include the current (nine box) VAT return from April 2019.

    When the quarterly update is due, landlords will have one month to compile their records and complete the update.

    So for larger property businesses the first quarterly return will be required for the three months to 5 July 2018 and needs to be sent to HMRC by 5 August 2018. For smaller businesses, the respective dates will be 5 July 2019 and 5 August 2019.

    What about a tax return for the property business?

    Throughout the year, landlords will have provided HMRC with regular updates, building a picture of their net income for the year. However, many businesses will need to make adjustments to that information, for example reconsidering which expenses are not allowable for tax. Landlords will then make a declaration that everything is complete and correct as regards their property business – an ‘End of Year’ declaration. The landlord will have until 31 January following the tax year to complete the End of Year declaration.

    So for larger property businesses the first End of Year declaration will be required for the 12 months to 5 April 2019 and needs to be sent to HMRC by 31 January 2020. For smaller businesses, the respective dates will be 5 April 2020 and 31 January 2021.

    Changes to accounting basis

    Alongside the changes being brought in by MTDfB, there are also proposed amendments to the way that unincorporated property businesses account for their property income. These proposals will make cash basis accounting the default option for smaller unincorporated property businesses unless they elect to use the accruals basis.

    The cash basis means the business accounts for income and expenses when the income is received and expenses are paid. The accruals basis means accounting for income over the period to which it relates and accounting for expenses in the period in which the liability is incurred.

    These changes are due to start from 6 April 2017 although a decision as to whether to use the new cash basis or maintain the existing accruals basis does not have to be made until the 2017/18 tax return is submitted. Please contact us if you require more details on cash basis accounting and the new rules.

    What about properties owned by a partnership or jointly?

    The principles of the proposed system for partners and partnerships are:

    • the partnership, rather than each partner, will be responsible for the central requirements of MTDfB (keeping a record of each transaction, providing quarterly summary updates and End of Year information)
    • a nominated partner will fulfil these obligations
    • there will be an option for the nominated partner to ‘push’ quarterly summary information of their share of the profit to each partner’s DTA. Each partner under this option would therefore have an estimate of their profit to date in the tax year
    • when the End of Year declaration is made, the nominated partner will be obliged to ‘push’ each partner’s share of profits to their DTAs.

    The above rules applying to partnerships would not apply to property that is jointly held. In this situation each individual who received income from jointly held property would report that income separately.

    How we can help you

    Please note that, at the moment, you do not have to do anything in respect of these developments. However, please be assured that we will continue to assist you with your tax affairs and we will keep you informed of developments in the Making Tax Digital for Business project.

    Please speak to us if you have any questions regarding Making Tax Digital.

     

     

     

  10. March 2017 Tax Tips & News

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    Welcome to March’s Tax Tips & News, our newsletter designed to bring you tax tips and news to keep you one step ahead of the taxman.

    If you need any further assistance just let us know.

    Changes IR35 rules confirmed

    Tax-free access to pension advice

    Salary v dividend

    Changes to company carry-forward of losses confirmed

    Company Cars: Change in Advisory Fuel Rates from 1 March 2017

    March Questions and Answers

    Q. Will I have to pay stamp duty land tax on a property I am about to inherit?

    Q. I run a small business but I am registered for VAT. What are the advantages and disadvantages of using the annual accounting scheme?

    Q. I live in a leasehold flat in a property in which there are six other leasehold flats. The opportunity has arisen for the leaseholders to buy the freehold reversion from the landlord and all of the leaseholders have agreed to contribute equally towards the purchase. Our solicitor has advised a limited company should be set up to buy the freehold. Are there any tax consequences involved here?

    March key tax dates