The Blog

Should conveyancers class search fees as disbursements?

It’s a tricky question and one that’s been attracting widespread interest and speculation as a result of the recent Brabners V The Commissioners for HMRC case.

This particular case has really caused a stir within the world of conveyancing as it questioned whether or not electronic searches should be classed as disbursements when charging conveyancing clients.

Brabners V The Commissioners – a quick case overview

Brabners argued that these searches should be classed as disbursements because they are conducted at their clients’ request and the search reports belong to their clients. All solicitors have historically treated this cost as a disbursement that’s incurred on behalf of the client, which means it isn’t subject to VAT.

However, HMRC challenged this practice by arguing that these searches form part of the overall service that’s provided by solicitors and should therefore be subject to VAT.

Last month (September), the judge concluded that search fees should not be treated as disbursements and are therefore liable for VAT to be charged. The decision was based on the fact that Brabners prepares separate reports on the search results and is therefore using the search information as part of its overall service. As a result, Brabners were liable to pay more than £68,000 in VAT.

What does the ruling mean for conveyancers?

Ideally, solicitors need to err on the side of caution. This particular case may potentially be appealed as it appears to directly contradict the principles previously agreed between HMRC and The Law Society.

The Law Society has stated that it’s currently considering the implications of the case findings and intends to provide solicitors with updated advice as soon as possible.

Until that guidance is given and a clear outcome has been reached, the best option for solicitors is to make sure they don’t treat search fees as disbursements. If they do, they run the risk of potentially becoming the next Brabners and having to pay thousands of pounds in unpaid VAT in the process.

If you’re unsure about what the recent ruling means for your business or would like some more advice about the situation, contact VAT Specialists on 01905 777600 or hello@ormerodrutter.co.uk.

[Q&A] Requirement to Correct (RTC) – Offshore Tax Matters

This time next year, the Government will be just about to implement its new Requirement to Correct (RTC) penalty regime.

RTC has been put on hold since the calling of the ‘snap’ General Election earlier this year, which may have led to some people thinking it wasn’t going ahead.

However, if you’ve not been following the RTC developments or if this is the first time you’ve heard about it, it can be difficult to know:

  1. What to do to prepare for it and;
  2. The impact it’s going to have on you and your business.

Keep reading, the Q&As below are designed to provide you with a handy overview of all things RTC-related, as well shed some light on the steps you ought to take next if it applies to you.

Q. When exactly is RTC going to be implemented?

A. September 30, 2018.

Q. Why is it being introduced?

A. Overall, RTC is designed to tackle offshore tax evasion and non-compliance. More specifically, it’s hoped that taxpayers will be encouraged to make sure that any undeclared UK offshore tax liabilities, relating to all periods up to and including April 5 2017 are fully disclosed to HMRC.

Q. Who will it apply to?

A. Anybody who has underpaid UK tax that relates to overseas assets. This includes UK residents, domiciled individuals and non-UK domiciled individuals, who are UK residents. It will potentially apply to offshore trustees too.

Liabilities such as income tax, capital gains tax and inheritance tax will all fall within the scope of RTC.

Q. How will RTC impact the people listed above?

A. RTC is a penalty regime so, if you have underpaid tax that relates to overseas assets, then you’re likely to be hit with a hefty fine from HMRC.

Q. How much are people likely to get fined?

A. Taxpayers who fail to correct historical errors relating to April 6 2017 to September 30, 2018 will face much tougher penalties, which include:

  • A standard penalty of between 100% and 200% of the tax that’s not been corrected
  • A 10% asset-based penalty (relevant to ‘the most serious cases’ where tax underpaid in a tax year is greater than £25,000)
  • An enhanced penalty of 50% of the standard penalty amount if HMRC could show that assets or funds had been moved in an attempt to avoid RTC
  • Naming and shaming of taxpayers ‘in the most serious cases’ (total loss of tax greater than £25,000)

Q. Are there any exceptions to these penalties?

A. The only defence for taxpayers who fail to correct their affairs is a ‘reasonable excuse.’ However, the RTC legislation attempts to limit when the reasonable excuse defence can be used.

Q. Are there any other implications taxpayers should be aware of?

A. Yes. Under RTC, HMRC’s assessment periods can be extended. This is to prevent the tax in question falling out of assessment during the correction period and to give HMRC enough time to take action. As a result, any tax that’s potentially assessable at April 6 2017 will remain this way until at least April 5 2021.

Q. What should taxpayers be doing about RTC?

A. Taxpayers who have evaded tax or have failed to pay the correct amount of tax in relation to their offshore affairs need to declare them as soon as possible. If you think this may apply to you, but aren’t sure, now is the time for you to seek expert advice.

Q. What is the process for making corrections?

A. Corrections can be made using several methods, such as through outstanding tax returns or via an HMRC enquiry. For more serious cases, the Worldwide Disclosure Facility (WDF) or Contractual Disclosure Facility (CDF) can be used.

We hope you’ve found these Q&As useful and that they’ve helped bring you up to speed on the new RTC regime. As with all Government legislation, we recommend that if you’re not sure if it applies to you, always ask an expert, as the implications – a minimum of 100% (up to 200%) in underpaid tax in this instance – can be significant.

To find out more about RTC or to find what action you might need to take, contact our team of tax specialists on 01905 777600 or hello@ormerodrutter.co.uk.


DSC6529 (1)About the author

Anthony Middleton is responsible for monitoring all of Ormerod Rutter’s tax investigations and deals specifically with Corporation Tax and Income Tax enquiries. He has been a member of the team for 13 years.

 


 

Making Tax Digital – the latest updates

This time next year, elements of the Government’s Making Tax Digital scheme will be in the process of being trialled.

It’s envisaged that by April 2018, the scheme, which is aimed at modernising the UK tax system by moving it online, will have started to take effect for VAT payments as part of a pilot test. It’s anticipated that Income Tax will follow after 2020.

From April 2019, it will be compulsory for businesses that are above the VAT threshold to keep their records digitally and provide HMRC with quarterly VAT updates.

As with all major initiatives of this scale, the guidelines surrounding Making Tax Digital are being frequently revised, with new details being released by HMRC on a regular basis. Here’s an overview of the latest updates:

  • Businesses with a turnover greater than £85,000 will need to keep digital records from 2019 for VAT purposes
  • Businesses with a turnover greater than £85,000 will only be expected to report data quarterly for the purposes of VAT from April 2019. For other taxes, this will be 2020 or later.
  • Businesses/landlords with a turnover less than £85,000 can keep digital records and report quarterly to HMRC on a voluntary basis.
  • Businesses that are VAT-registered, but are below the VAT threshold will not have to produce quarterly updates or keep digital records, although they can do this voluntarily.

Making Tax Digital is a key part of the Government’s plans to make it easier for individuals and businesses to get their tax right and keep on top of their affairs. While the scheme will apply to all businesses above the VAT threshold, smaller businesses will not be required to use it, although they can choose to use it on a voluntary basis.

For more details about the scheme visit here.

If you would like to discuss the implications of Making Tax Digital or the latest updates on your business or would like more details about the scheme, contact Mike Brown, Software Support Manager, on 01905 777600 or hello@ormerodrutter.co.uk.

Ten top tips for surviving an HMRC tax investigation

Have you been notified by HM Revenue and Customs (HMRC) that they’re going to look into your tax affairs and aren’t sure what’s next? Or perhaps you’re not being investigated, but would like to establish a clearer picture of what’s involved, should you ever be investigated?

Some tax inspections can be short and relatively straightforward, while others can be long, complex, costly and involve going down several different routes. Here are our ten top tips for dealing with HMRC tax investigations.

TIP #1: Check the dates

If HMRC has contacted you to say they need certain details from you by a particular date, check whether or not the time period they’re requesting the information from is still valid.

HMRC have certain time scales they can enquire within and if their requests fall outside of these timescales then, unfortunately, they’re out of time and will have to close their enquiry.

TIP #2: Take care when divulging information

If you own up to a problem, then it’s important you do it in the right way. HMRC are usually looking to clarify two key things when they contact taxpayers:

  1. The wrong amount of tax that’s been paid.
  2. Why the wrong amount of tax has been paid (as they want to charge a penalty).

Silly error (reasonable care)

Penalties are all tax-geared and based on the behaviour that led to the error. If you’ve made a silly mistake, for instance, taken some bad advice, but have done everything you possibly can to get your tax return right, then you may not be charged a penalty. If you are, then it will be most probably be around 15% of the tax that’s due.

Deliberate error (no reasonable care)

However, if you’ve not made a careless error and have not taken reasonable care to get your tax return right, then you could wind up with a penalty of up to 70%.

The current penalty rates are as follows:

tax

TIP #3: Be helpful

As mentioned in the tip above, it’s important that you are as transparent, open and honest with HMRC as possible. When responding to valid questions from HMRC, you can actually score yourself some brownie points with them if you’re giving, helping and telling throughout the course of your investigation.

TIP #4: Seek expert advice

If you haven’t got an accountant, then it might be worth you appointing one to help you with your investigation. Not only will they be able to take the pressure of the enquiry away from you, so that you can focus on your business, they know the processes, not to mention the terminology and your rights, inside out. Not all accountants have experience of enquiry work so make sure you ask the right questions. Here at Ormerod Rutter we have experts who have dealt with many tax investigation and are capable of guiding you through an investigation.

TIP #5: Set the pace

Always try and control the pace of your enquiry by responding ahead of deadlines. Don’t leave things to the last minute. If, for some reason, you can’t meet a particular deadline because you’re on annual leave or might be going through a particularly busy period, then at least speak to HMRC. They are fairly flexible, will appreciate your cooperation and should be able to give you an extension.

TIP #6: Check you’ve got insurance

Many accountants and the Federation of Small Businesses (FSB) offer tax investigations insurance. For an annual fee you’ve got peace of mind that your agent’s costs are paid for, should you suddenly be hit with an enquiry. For details on insurance policies we offer or to receive a quote please call 01905 777600 or email hello@ormerodrutter.co.uk. It is important that you understand your policy and this is something we can talk you through.

Note: If you have such insurance in place, it’s important you notify your insurance company straight away if you’re going to be investigated. Failure to do so could invalidate your claim.

TIP #7: Think penalties

Ultimately, HMRC want to issue you with a penalty, which you’ll have to pay on top of the tax that you already owe, plus interest.

It’s therefore useful to always make sure HMRC’s penalties are the back of your mind if you’re being investigated, as every single thing you say and do from the moment you start corresponding with them, will impact the overall penalty you receive.

TIP #8: Pick up the phone

While communicating with HMRC might appear daunting, it can help you establish a clearer picture of what’s required from you and how your investigation’s progressing. Always chat to the inspector who’s working on your case, they’ll be able to explain the reasons why there’s an enquiry or why they’re going down a particular route with you.

TIP #9: Only meet HMRC if you want to

Many people think that if HMRC has requested to meet them then they must meet them. However, they’re under no legal obligation to meet with HMRC. Some taxpayers attend, some don’t and some ask their accountant (or agent) to go for them.

TIP #10: Don’t be an ostrich!

As tempting as it might be to bury your head in the sand and deal with your tax investigation another day (particularly if you’re busy), this is the worst thing you can do. Co-operation is key to reducing and, where possible, eradicating the risk of a penalty coming your way, it’s also the answer to getting your enquiry completed as soon as possible.

Got any questions or want to find out more? For more information or to discuss your tax investigations with one of our tax investigation specialists, contact us on 01905 777600 or hello@ormerodrutter.co.uk.


DSC6529 (1)About the author

Anthony Middleton is responsible for monitoring all of Ormerod Rutter’s tax investigations and deals specifically with Corporation Tax and Income Tax enquiries. He has been a member of the team for 13 years.

 


 

My taxes are being investigated! What’s going to happen next?

My taxes are being investigated! What’s going to happen next?

Tax investigations can happen to businesses of all sizes, whether you’re a sole trader who’s been running for a year or a corporate enterprise with multiple offices that have been established for two decades. Individuals can also receive an enquiry letter from HMRC too.

 Here, our Tax Inspection Manager, Anthony Middleton, lifts the lid on what businesses and their owners can expect when they’re being investigated by HM Revenue and Customs (HMRC), as well as the steps they can follow.

All tax investigations, whether that’s PAYE, Corporation Tax, Income Tax or individual Self Assessments, are carried out by HMRC, with most companies or owners first finding out that their tax affairs are going to be scrutinised via letter. In some circumstances, HMRC will call organisations to tell them they’re going to investigate them, which tends to mainly be for VAT-related enquiries.

There are formal notices and informal requests for information, the details of which we’ll cover in a separate article at a later point. Businesses will typically be given 30 days’ notice to respond to any requests for information. If they’ve received a telephone call, then a tighter schedule may be involved. However, in all situations, it’s up to the company that’s being investigated to decide whether or not what’s being requested is manageable in terms of their own timescales. Early discussions with HMRC to amend timescales are preferable.

There are two different routes HMRC can choose to go down. They can either look at a whole return, which is known as a Full Enquiry, or a single item or area of a return, referred to as an Aspect Enquiry. 

Regardless of the route that’s being taken, investigations tend to follow a similar process, which should ideally be dealt with as follows:

STEP 1: Notify your accountant

This may seem like a really obvious point, but companies or individuals who have an accountant (or ‘agent’ in HMRC’s language), don’t always tell them that they’re going to be investigated. They assume their accountant knows everything, but this isn’t always the case. For instance, HMRC, might write to the company about three taxes, but only write to their accountant about two as they only have the authority to discuss matters where a relevant authority has been signed. Never assume that your accountant knows that HMRC has been in touch with you.

STEP 2: Analyse what’s required

So, now that you know HMRC want to look into your tax affairs, the next step is to ascertain exactly what is it they’re after. What information are they requesting to see? How can you help them answer the question(s) they’re posing? And is what they’re asking for accurate?

It’s worth noting here that the type of tax that’s being explored and how many taxes that are being investigated will impact the length of the investigation.

STEP 3: Don’t be afraid to say ‘no’

Obviously, it’s important that you’re as co-operative as possible with HMRC and provide them with the details they require within the given timescales (usually within 30 days). In fact, it’s a common fact that companies that give, help and tell during the course of their enquiry are more likely to receive reduced penalties if errors have been made and additional tax is due.

However, co-operation aside, there are instances, when HMRC do ask for information in Opening Letters that they aren’t necessarily entitled to know about at that given time.

For example, you might be a limited company and you’re being asked in your Opening Letter to share all of your personal bank statements as a company director. Usually, this is something HMRC are actually not entitled to see at this stage. It’s essential that their requests for information are made at the right time and that they’re not just simply ‘fishing’ around for information. If you’ve followed the advice in Step 1 and notified your accountant, then they’ll be able to advise you on what can and can’t be divulged at this stage. Alternatively, you may want to seek professional help from a tax investigation specialist.

STEP 4: Provide what’s required

It’s important that you do provide HMRC with the details they’re entitled to see within the given timescales. Ideally, you should produce the information that’s been requested of you through your accountant.

STEP 5: Be patient (and potentially expect to hear from HMRC again)

HMRC will analyse the information you’ve shared with them and, if they have any further questions or if there are any causes for concern raised by what you’ve divulged, then you’ll receive another letter from them.

STEP 6: If there are no problems, look out for your Closure Notice

Assuming everything’s ok and your tax affairs all add up, you’ll be issued with a Closure Notice that confirms your enquiry is over and no additional tax is due. End of investigation.

STEP 7: Check HMRC’s calculations

When a Closure Notice is issued, and HMRC issue revised assessments or calculations based on their findings, be sure to check them. These computations should be correct, but they can sometimes be wrong. Make sure any adjustments have been entered correctly, and the tax rates that have been used are correct. In certain circumstances, it can be difficult to amend them at a later date or even get them revised.

STEP 8: If there are any issues, be prepared to discuss them

If HMRC do identify any problems, there are different ways you can choose to progress your enquiry. You might want to call a meeting with them, which you can attend with your accountant or ask your accountant to attend on your behalf. The aim of this meeting should be to ascertain what the issues are that have been identified and what HMRC requires going forward.

Hopefully, by scheduling the meeting and discussing your enquiry face-to-face, any queries can be quickly identified and ironed out and you’ll hopefully receive your Closure Letter quickly. HMRC often request a meeting to see company directors or representatives. There’s no legal requirement to attend a meeting with them. All meeting requests should therefore be discussed and carefully considered.

STEP 9: Weigh up your options

If your further communication with HMRC has resulted in you having a disagreement with them (unfortunately this can happen), then now’s the time to weigh up your options.

More often than not, businesses continue to debate the issue(s) at hand for a number of months, which finally results in HMRC issuing a Closure Notice through a Decision Letter.

OPTION 1 – Internal review

If you don’t agree with the Closure Notice, then you can ask for an Internal Review to be carried out by a HMRC employee who wasn’t involved in the original investigation. There’s no additional cost involved in requesting an Internal Review. However, you do need to ensure it’s done within the correct time parameters.

OPTION 2 – Alternative Dispute Resolution (ADR)

Alternatively, you can go to ADR, where members of HMRC’s dedicated ADR team act as a mediator between the taxpayer, accountant and HMRC, and look to identify if there’s a way around the particular problem. It could be that there’s been a genuine mistake or information has simply been misinterpreted. This can be a sensible option to hopefully avoid the need to go to a Tax Tribunal.

OPTION 3 – Tax tribunal

Beyond ADR, there are two tax tribunals (1) First Tier (for the vast majority of enquiries) and (2) Upper Tier (for more complex enquiries, as well as First Tier Tribunal appeals).

There are four different types of First Tier Tribunals:

  1. Paper (can be conducted informally, so there’s no need for the taxpayer to attend).
  2. Basic case.
  3. Standard (for middle of the road investigations).
  4. Complex

Most tribunal hearings are chaired by legally qualified tribunal judges, who often sit with specialist, non-legal members – for example, doctors, accountants, surveyors or those with particular experience of disabilities or the armed services – depending on the subject matter of the hearing.

It’s worth bearing in mind that the longer your investigation takes to sort, the greater the cost implications, which could include appointing a solicitor or tax barrister at this stage. You may need to consider the commerciality of continuing with an enquiry, even if you disagree with HMRC. Tribunals can be extremely time consuming to prepare for and, as a result, expensive.

The scale and complexity of tax investigations do vary from business-to-business and individual-to-individual however, by following this best practice advice, taxpayers and their businesses stand a much greater chance of navigating their way around the investigation process as efficiently and effectively as possible. Always consider penalties when responding to HMRC as they’re tax geared and can be reduced if you fully co-operate with HMRC.

For more information or to discuss your tax investigations with one of our tax investigation specialists, contact us on 01905 777600 or mail@ormerodrutter.co.uk.


DSC6529 (1)About the author

Anthony Middleton is responsible for monitoring all of Ormerod Rutter’s tax investigations and deals specifically with Corporation Tax and Income Tax enquiries. He has been a member of the team for 13 years.

 


 

Making Tax Digital commentary

Making Tax Digital is set to be introduced by the Government in a bid to make it easier for individuals and businesses to get their tax right, as well as stay on top of it.

The regime has been the subject of much debate since it was first announced as part of the Government’s vision to modernise the tax system at the March 2015 Budget.

And it’s recently attracted even more discussion after legislation to implement the initiative was removed from the Finance Bill 2017 ahead of the debate on the bill in the House of Commons on April 25.

The move has led to a flurry of speculation that the scheme will be delayed by at least a year, with some even claiming it could be scrapped altogether. However, Software Support Manager, Mike Brown, says it’s highly unlikely it won’t go ahead.

“While the Government’s actions may have come as a surprise to many, it’s very likely Making Tax Digital won’t be completely cancelled.

“This is merely a delay in implementation, which individuals and businesses should be using to their advantage to ensure they’re fully prepared for the proposed regulations.

“For many businesses, who already have computerised systems in place, they should be double checking they’re within a subscription or cover contract to ensure they’ll receive the necessary updates. For those who don’t have a digital method of record-keeping, they should be testing and implementing suitable pieces of software.”

For more best practice advice, including how Making Tax Digital will impact your business and the accounting software that’s required to comply with it, call Mike on 01905 777600 or email software@ormerodrutter.co.uk.

Spring Budget 2017: how will the announcements affect you?

Following the UK’s historic vote to leave the EU, and with Prime Minister Theresa May poised to trigger Article 50, Chancellor Philip Hammond presented the Spring Budget against a backdrop of economic uncertainty. Figures from the Office for Budget Responsibility revealed that UK economic growth is now expected to reach 2% this year, before falling to 1.6% in 2018.

The Chancellor announced a range of significant measures for businesses and individuals, including a support package for firms in England affected by the business rates revaluation and the announcement that unincorporated businesses and landlords with turnover below the VAT registration threshold will have until 2019 to prepare for quarterly reporting.

Also unveiled in the 2017 Spring Budget was an increase in the main rate of Class 4 national insurance contributions (NICs) to 10% in April 2018 and a reduction in the tax-free dividend allowance, which will fall from £5,000 to £2,000 in April 2018.

Our Budget Report provides an overview of the key announcements arising from the Chancellor’s speech. However, it also looks beyond the more sensational measures and offers detail on the less-publicised changes that are most likely to have an impact upon your business and your personal finances.

Additionally, throughout the Report you will find handy tips and ideas for practical tax and financial planning, as well as an informative 2017/18 Tax Calendar.

Don’t forget, we can help to ensure that your accounts are accurate and fully compliant, as well as suggest strategies to minimise your tax liability and maximise your profitability.

Click the link to download the Spring Budget 2017 Summary.

Have a question on the Spring Budget 2017? Leave a question or comment below and we can offer you expert advice.

At Ormerod Rutter we understand that finances and tax can sometimes be confusing. We have 15 expert partners to hand that can offer expert advice on all financial matters, no matter how big or small. We pride ourselves on having big firm capabilities and family firm personality. Have a question or want to discuss your personal or business finances? Give us a call on 01905 777600.

* Please note that all information contained in this article is for informative purposes only and that we cannot be responsible for any errors or omissions.*

*Since the Budget the government has now made a U-turn and will not be increasing the National Insurance Contributions from the self-employed. This was overturned as it went against one of the main Conservative manifestoes promises of not raising taxes. 

Payments On Account: Everything you need to know

What are Payments on Account?

Payments on Account are a method of paying towards future self-assessment tax bills. They are payable twice a year and each payment is normally 50% of the previous year’s tax liability.

Payments on Account are payable by midnight on 31 January and 31 July.

How does it work?

The first instalment is due on the 31 January. This amount will be 50% of your previous tax year’s tax liability. This is the same day that a balancing payment must be settled for the previous tax year.

The remaining 50% will be due by 31 July.  This enables your tax liability to be spread out throughout the year.

How about an example?

You owe £4,000 on earnings between 6 April 2015 and 5 April 2016 (excluding Class 2 National Insurance).

This amount will need to be settled by 31 January 2017. On top of this, a payment of £2,000 will need to be paid at the same time and again on 31 July 2017.

This means that when you file your self-assessment tax return for 2017 you will have already paid £4,000 towards it.

If you have overpaid, you will be due a refund. If you have underpaid, this difference will need to be settled by 31 January 2018.

Are Payments on Account voluntary?

If the tax bill from the previous year was over £1,000 then Payments on Account are required. However, if more than 80% of that year’s tax liabilities have been paid at source (e.g. through PAYE) Payments on Account are not required.

Can Payments on Account be reduced?

It is not unusual for earning’s to fluctuate year to year. If this is the case and earnings are forecast to be lower for the next financial year; an application can be made to reduce the Payments on Account via HMRC.

It is worth noting that if earnings remain the same and do not decrease after you have reduced the Payments on Account, that the difference will need to be settled by the preceding January plus any interest accrued.

Have a question on Payment on Account? Leave a question or comment below and we can offer you expert advice.

At Ormerod Rutter we understand that finances and tax can sometimes be confusing. We have 15 expert partners to hand that can offer expert advice on all financial matters, no matter how big or small. We pride ourselves on having big firm capabilities and family firm personality. Have a question or want to discuss your personal or business finances? Give us a call on 01905 777600.

* Please note that all information contained in this article is for informative purposes only and that we cannot be responsible for any errors or omissions.*

Making Tax Digital Update

The UK government’s response to the Making Tax Digital consultations has finally been published and has broadly been welcomed by business leaders and the tax profession.

With the exception of a very few, it is expected that all businesses will be required to hold their accounting records digitally and submit quarterly updates to HMRC. In addition to this, an end-of-year reconciliation will be required to ensure all financial activities have been recorded.

Criticisms of the report have focused on the short timeline for further consultations for the legislation and also the cost of transition during the first year.

The government will continue to consider issues contained in the report, such as the exemption threshold, so the features in the report are not a finalised list of changes.

Here is a list of some of the proposed decisions for Making Tax Digital:

  • Businesses will be able to continue to use spreadsheets for record-keeping, but they must ensure that their spreadsheet meets the necessary requirements of Making Tax Digital for Business – this is likely to involve combining the spreadsheet with software
  • Businesses eligible to use ‘three line accounts’ will be able to submit a quarterly update with only three lines of data (income, expenses and profit)
  • Free software will be available to businesses with the most straightforward affairs
  • The requirement to keep digital records does not mean that businesses have to make and store invoices and receipts digitally
  • Activity at the end of the year must be concluded and sent either by 10 months after the last day of the period of account or 31 January, whichever is sooner
  • Charities (but not their trading subsidiaries) will not need to keep digital records
  • For partnerships with a turnover above £10 million, Making Tax Digital for Business is deferred until 2020

You can view the full report here

Due to the overwhelming response to the initial consultations, the government is taking more time to consider issues raised alongside fiscal impacts.

Have a question on Making Tax Digital? Leave a question or comment below and we can offer you expert advice.

At Ormerod Rutter we understand that finances and taxes can sometimes be confusing. We have 15 expert partners to hand that can offer expert advice on all financial. We pride ourselves on having big firm capabilities and a family firm personality. Have a question or want to discuss your personal or business finances? Give us a call on 01905 777600.

* Please note that all information contained in this article is for informative purposes only and that we cannot be responsible for any errors or omissions from use of this information.*

VAT: Flat Rate Scheme Changes

HMRC has announced that, as from the 1 April 2017, all businesses using the Flat Rate Scheme or intending to use the Scheme will have to consider (in addition to the existing conditions) whether or not their VAT inclusive expenditure on goods is either:

  • less than 2% of their VAT inclusive turnover in a prescribed accounting period; or
  • greater than 2% of their VAT inclusive turnover but less than £1000 per annum, or proportion thereof (ie, £250.00 per quarter or (£83.33 per month).

If this criteria is met then the business will be regarded as a “limited cost trader” and MUST apply a fixed Flat Rate percentage of 16.5% to its’ VAT inclusive turnover.

All businesses using or considering using the Flat Rate Scheme should now review their status.

If you would like to discuss anything in this article please contact either David Pegg or Leanne Macgregor on 01905 777600

Pre VAT registration input tax claims – HMRC approach challenged

Have you been affected by HMRC seeking to restrict input tax claims on pre VAT registration costs?

A newly VAT registered fully taxable business has historically been allowed to fully recover VAT incurred in the following circumstances:

  • on services incurred up to 6 months prior to VAT registration and that have not been supplied on to a third party
  • on stock and assets purchased up to 4 years prior to VAT registration, to the extent that the goods or assets are still on hand at the date of VAT registration and are being used by the business (an apportionment may be required if some have been sold).

However, HMRC has recently been seeking to restrict VAT on qualifying goods and services by attempting to view the “use” of such goods or services over their useful, economic life, and dis-allowing, proportionately, any “use” of the goods, assets or services prior to VAT registration.

A number of businesses have received Assessments of VAT or have been instructed to amend their VAT returns.

This approach has been found to be incorrect and inconsistent with EU legislation and HMRC has now issued Revenue and Customs Brief 16 (2016) confirming that taxpayers who have been assessed or had their input VAT restricted in this way may now seek a refund.

Correcting Errors – Making a Claim?

If you need help with making an input tax claim, please contact us now.

Be warned there are time limits in place to correct errors, which are as follows:

  • 4 years from the end of the VAT period in which any adjustment was made; or
  • 4 years from the end of any VAT period Assessed by HMRC.

If you would like to discuss anything in this article please contact either David Pegg or Leanne Macgregor on 01905 777600.

The Making Tax Digital consultation has ended…

On 7 November 2016 the Making Tax Digital (MTD) consultations came to an end. First outlined in the 2015 Budget, it is a move to transform the tax system to make it the ‘most digitally-advanced tax administrations in the world by 2020.’

The controversial plan is set to raise £1bn in additional tax revenue but there is criticism about the potential costs and administrative burden for businesses and individuals.

The six consultations that have taken place are:

  1. Bringing business tax into the digital age
  2. Simplifying tax for unincorporated businesses
  3. Simplified cash basis for unincorporated property businesses
  4. Voluntary pay as you go (PAYG)
  5. The tax administration consultation
  6. Transforming the tax system through the better use of information

There is also a separate overview for small businesses, self-employed and smaller landlords.

The consultation was initially planned to begin in April 2016, but was delayed until later in the year. With the reforms set to be introduced in 2018 businesses and individuals want to know how this will affect them going forward.

What we do know is that all unincorporated businesses and landlords with a turnover of less than £10,000 a year will be exempt.

Additionally, HMRC has said that it will delay the start of MTD for ‘some other small businesses’ to give them enough time to get used to the digital record keeping and submitting of quarterly updates. HMRC then goes on to say that they expect all tax returns to be done digitally by 2020.

With feedback from the consultation due before the end of January 2017, we are actively looking at any changes that may be implemented; and are here to help you during this transition.

If you have any questions or concerns about MTD please feel free to contact us at mail@ormerodrutter.co.uk or calling the office on 01905 777600.

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