There is a very convincing phone scam doing the rounds. People are receiving calls from an automated message saying that HMRC have filed a case against you for tax evasion or that your details have been passed onto a debt collection agency.
If you receive one of these calls please hang up, if you stay on the line you will end up ringing them!
If you ever receive phone calls or emails that seem too good to be true or cause you any concern, please ignore them and either contact your accountant or HMRC.
NEVER click on any links in emails from HMRC as HMRC do not send emails with links.
The Chancellor delivered the Autumn Budget speech yesterday and pledged that austerity is coming to an end. What are the key tax announcements to be aware of?
Personal allowance and higher rate threshold. The government will legislate to increase the personal allowance to £12,500 for 2019/20 and 2020/21. Individuals will not pay the higher rate of income tax until they have income in excess of £50,000 from 6 April 2019; this measure has been brought forward by one year as expected.
Capital gains tax. Two new tests have been introduced in order to qualify for entrepreneurs' relief (ER). The changes are effective immediately so any affected clients could benefit from advice in this area. To satisfy the definition of a personal company, the claimant must have a 5% interest in both the distributable profits and the net assets of the company. The new tests must be met, in addition to the existing tests, throughout the specified period to access the relief.
From 6 April 2019 the minimum qualifying period for ER will increase from twelve months to 24 months. However, individuals that have a 5% interest that becomes diluted due to a share issue taking place from 6 April 2019 will now be able to access the relief.
Changes to private residence relief from April 2020 were also announced; lettings relief will be reformed so that it is only available to those who are in shared occupancy with a tenant. The final period exemption will be reduced from 18 months to nine.
Corporation tax. The corporation tax rate will remain static at 19% until 1 April 2020 when it is expected to decrease to 17%. As announced in July, the government will amend the loss relief legislation to prevent relief for carried forward losses being claimed in excess of that originally intended.
Capital allowances. The annual investment allowance will be increased temporarily to encourage spending and growth. The current limit of £200,000 will increase to £1m from 1 January 2019 to 31 December 2020.
VAT. The VAT threshold will remain unchanged at £85,000 until 2022 despite the rising costs to the Exchequer. The government has confirmed that reform in this area will be considered once the terms of Brexit are clear.
Employment taxes. Tax rules for off-payroll working in the private sector (IR35) will be reformed to mirror the rules for the public sector from April 2020. The government will undertake further consultations in this area in due course.
HMRC is aware of a number of arrangements being promoted which claim to enable users to escape the 2019 loan charge. HMRC's view is that these arrangements do not work and users are advised not to sign up to them. While promoters claim that these arrangements work, users should be clear that HMRC does not agree. Any arrangements to avoid the loan charge, which seek to deceive HMRC as to what is really happening, may be fraudulent.
A number of previous cases promoted as being compliant and legal have resulted in criminal convictions for the key people involved and extensive investigation of several hundred users. HMRC will investigate all of these arrangements and is likely to take similar action if it finds any that are seeking to deceive. At the very least, anyone who takes part in an offensive arrangement is likely to face penalty sums, chargeable along with any tax and interest that will be due.
Tax avoidance doesn't pay. Most arrangements simply don't work and people can end up paying more than they were trying to avoid. Users may have a long-term requirement to deal with the cost, commercial and tax fallout from these transactions with no support from the promoter of the original arrangement. If users are worried about their financial position, it is better to contact HMRC rather than risk more investigation and what is likely to be a larger bill.
HMRC has decided to delay plans to introduce further digital services for individuals, so that it can prioritise Brexit-related work. What's changed?
Which plans are on hold? HMRC has confirmed that it will pause work on new digital services that impact a fewer number of customers. It highlighted that additional services will only be added where they reduce phone and post contact or deliver significant savings. Digital services regarding the payment of inheritance tax, applying for tax-advantaged venture capital schemes and PAYE settlement agreements will be paused. Progress on simple assessment and real time tax code changes has also been halted.
Which ideas have been scrapped? HMRC no longer plans to implement a new service for online tax credits claims, as no new claims will be made after January 2019. It will instead focus on improving the existing Tax-Free Childcare system.
What is HMRC prioritising? The plan is still to become the world's most digitally-advanced tax authority. It has confirmed that the MTD for individuals programme has made significant progress and the foundations are there that will enable it to return to the plans in the future. During this time it will instead focus on various Brexit-related initiatives, from changes to tax credits through to a number of VAT projects. It will continue to deliver all of the additional work it was given in Budgets and Autumn statements.
Is there any impact on MTD for businesses? No, MTD for business will continue as planned (VAT mandated from 2019 and no other MTD for business changes before 2020).
HMRC will charge a fixed penalty of £100 where self-assessment returns are received after the 31 January deadline. Where a self-assessment liability is paid later than the normal due date HMRC will charge interest (currently at 3% simple per annum). It can also charge late payment penalties equal to 5% of any tax outstanding for more than a year from the date that the balancing payment was due.
We have had two reported cases from clients/family now of a telephone scam, where you are called and told that HMRC are taking you to court or building a case against you. Please be aware that this is a scam. If you are ever unsure ring HMRC on the number 0300 200 3310 or contact your accountant. Another common scam is to receive an email telling you, that you are due a refund. HMRC will NEVER email this sort of information.
Tax credit claimants who make a Self-Assessment Tax Return need to provide the net profit figure from that return before 31 January 2018. If you have other income, for example: dividends, investment income, interest, pensions or property/rent; these also need to be reported to the Tax Credits Office. These sources are commonly omitted from tax credit claims and renewals.
The changes in the dividends allowance taking effect from 6 April 2018 might mean that you wish to draw more dividends than usual this year. This means there is a greater risk that your tax credits award could be wrong. Remember to update the Tax Credits Office.
From 6 April 2018 the yearly tax-free allowance for dividend income will reduce from £5,000 to £2,000.
HMRC are making some changes to the ways customers can make payments.
The pay at the Post Office service will be withdrawn from 15th December 2017 and from 13th January 2018, HMRC will no longer accept payment by personal credit card. Debit cards and corporate credit cards will continue to be accepted.
We hope these changes don't cause any inconvenience. There are still many ways to pay including:
These are more secure and will save you the time and expense of going to a post office or bank.
After being dropped from the original 2017 Finance Bill the £1,000 tax-free property allowance is back on the agenda. When will it take effect and what types of rental income will it apply to?
In September 2017 most of this year's Finance Bill, which was dropped in March to make way for the general election, was reintroduced. The original start dates will apply when the reintroduced legislation is enacted meaning that the brand new property allowance will apply to qualifying rental income from 6 April 2017.
Interaction with rent-a-room
The property allowance is only available to individuals, not companies. It also doesn't apply to income from letting property which qualifies for rent-a-room relief. Even if you elect for rent-a-room relief not to apply you cannot then claim the property allowance. What's more, if you can't claim rent-a-room relief because your income exceeds the limit (£7,500 for 2017/18), you're not allowed to claim the property allowance.
Tip: In practice there's no reason why you would want to claim the property allowance in preference to rent-a-room relief as the latter is worth considerably more in tax savings. The restrictions in the new rules are there just to block you from claiming both.
The property allowance also can't be claimed where the restriction (which took effect on 6 April 2017) on tax deductible loan interest and other costs used to buy or improve residential accommodation applies.
It's not an Airbnb allowance
The press widely dubbed the property allowance as the "Airbnb allowance", linking it to those people who let all or part of their homes to holidaymakers. That name is inappropriate and misleading because rent from an Airbnb type arrangement is likely to be excluded from the property allowance because either rent-a-room relief or the interest restriction rule will apply.
What does the property allowance apply to?
The property allowance applies to any sort of letting income apart from that which we've already mentioned. For example, rent from a parking space on your drive or your garage, or from a commercial property. In fact, where you receive rent that qualifies and is no more than £1,000 in a year, the property allowance automatically applies - there's no need to claim it.
Tip: If the total rent from all property (that's not excluded) exceeds the annual £1,000 limit you can claim the property allowance as a deduction instead of the actual letting-related expenses you incur. Naturally, you would only do this where your tax deductible expenses are less than £1,000. For example, if you first let a property in, say, March, at £1,800 per month, you might incur little or no expenses before the end of the tax year. You would be better off claiming the £1,000 property allowance.
Note: Anti-avoidance rules prevent the property allowance applying where the rent you (or your spouse or associate) receive is from your employer, a close company you're a shareholder in or a partnership you're a member of.
Selling goods online can be a convenient platform for small businesses but there are a number of traps that you need to be aware of. What especially should you keep in mind?
Many SMEs trade online through platforms such as Amazon and eBay. There are many advantages to this as the set-up and maintenance costs of the online platform are not borne by you as the trader. However, there are a number of VAT issues that need to be considered to avoid costly problems down the line. Let's look at the three main problem areas.
Selling to other EU member states
When you sell goods to customers in other EU member states you are engaged in distance selling. If you have low levels of sales to other member states, you charge UK VAT. If your sales exceed certain limits, either €30,000 or €100,000, depending on the member state things are different. You will need to monitor your sales to each member state. If you exceed the threshold you will need to register and account for VAT at the appropriate rate in each member state.
Tip: Some of the larger online platforms will identify and correlate sales to each member state helping you to identify any registration requirements and how much VAT is due to each tax authority.
What do you account for VAT on?
Businesses selling through an online platform set a price for the goods, plus any postage and packaging that they charge for. In turn, the online platform charges them commission on the sale, plus any handling and delivery charges if they hold stocks on behalf of the trader. At the end of the accounting period, the online platform provider nets off the total sales from their charges and pays over the difference to the trader.
Some traders then account for VAT on the monies that they receive. Unfortunately, this is incorrect, and catches many businesses out. Assuming that the goods are standard-rated, any separate delivery charge is subject to VAT at the same rate as the goods being sold, even if no VAT is charged to the business. VAT is due on the full selling price of the goods plus postage and packaging before the online platform provider deducts its costs.
Example: If the total sales plus postage and packaging are £2,000 in the period and the online platform deducts £300 for commissions and any other charges, the trader receives £1,700. However, VAT is still due on the full £2,000.
Many of the online platform providers are based outside the UK and so do not charge VAT on their commission and other charges. You might not have given this any thought, but VAT has to be accounted for under the reverse charge rules on this distance selling (see The next step ). You would have to charge yourself VAT on the commission etc. which you can deduct as input tax on the same return. However, if you are not registered for VAT the amounts subject to the reverse charge count towards your taxable turnover for VAT registration purposes.
HMRC is rolling out an upgrade to business tax accounts (BTA) that should now be completed (as of September 2017).
What is a business tax account? As well as personal tax accounts for individual taxpayers, HMRC provides each PAYE scheme with the facility to view its liabilities and payments. This is now called the business tax account (BTA) although it's had several names over recent years such as the "liability and payments viewer" and the "business tax dashboard". Between 14 August and 11 September 2017, HMRC rolled out new breakdown screens for the BTA that replace the old green screens in use since 2013. Nothing is planned to change for agents using the trial service to view clients' payments and liabilities.
Pro advice You should check the BTA at least twice every month, around the 10th and the 22nd , as HMRC only updates its systems twice monthly. Don't rely on your agent if your payroll is outsourced as they aren't allowed to view your BTA. A few have access to another similar service, but it's only a trial.
What to check and when Check that both the "amount due" and the "amount paid" for each tax month match the reports generated by your payroll software or provided by your outsourced agent. Once everyone has access to the new breakdown screens from mid-September, on the 10th of the month after tax month end (two days earlier than previously) you should see that the "amount due" figure matches the gross tax and NI that was reported on your FPS. On the 22nd , payment deadline day, you should see the "amount due" figure reduced by any recoveries reported on your EPS, plus the payments that you have made for the tax month in question.
Pro advice HMRC has now admitted that for the last four years there has been an error in its batch process that has led to a different display of information for employers to that seen by its own staff. This rollout will fix that error so any discrepancies now shown must be reported to the employer helpline for urgent investigation.
Any discrepancies that are now showing on the BTA for either payments or liabilities are now likely to be true discrepancies, so report them to the employer helpline as soon as you spot them.
HMRC has now published a draft of the legislation that will implement Making Tax Digital (MTD) for VAT. What are the key points?
Who does it apply to? The draft law confirms that from April 2019 all businesses (incorporated and unincorporated) will be required to keep their VAT records digitally, using MTD compatible software. Businesses trading below the VAT registration threshold (currently £85,000) will be exempt from keeping digital records but they can opt to use MTD on a voluntary basis if they wish.
Note 1. If a business is subject to MTD but its turnover later drops below the VAT threshold, it will still continue to keep digital records unless it cancels its VAT registration.
Note 2. VAT-registered businesses that are currently exempt from online filing for VAT due, for example, to religious beliefs, will also be exempt from MTD.
Deadlines. HMRC has confirmed that the MTD quarterly submission dates can be linked to a business's existing VAT return periods. The draft law also confirms that the one month and seven day after the quarter end deadline will be retained under MTD at least until it is extended to cover income as well as VAT.
What information needs to be reported? HMRC says that the MTD VAT submission will, as a minimum, require the same information as is needed to complete the current VAT return's nine boxes. However, HMRC will encourage voluntary submission of other information contained in the digital accounting records to test the practicalities and potential benefits of doing so.
Will HMRC be providing free VAT software? This is the big change - there will be no free HMRC product. So businesses currently using HMRC's VAT online service will need to use MTD compatible commercial software to file VAT returns from April 2019. If businesses currently use accounting software to keep their records, then the software provider should be updating their product to ensure the software includes a facility to make the MTD VAT submissions.
How will errors be corrected? HMRC says that if a business discovers an error, then all it needs to do is adjust the relevant sales or purchase record in the MTD-compatible accounting software and the change should be pulled through to the next VAT submission.
All businesses over the VAT registration threshold will need to make MTD submissions for VAT from April 2019. While the draft law confirms that these will be similar to the current VAT returns, businesses won@t be able to file them using HMRC's VAT online service and will need to use a commercial software alternative instead.
A National Insurance Bill was announced in yesterday's Queen's Speech. Does this mean that self-employed taxpayers will now pay more NI?
U-turn confirmed. In yesterday's Queen's Speech, the government was keen to stress that it would not include the increases in the Class 4 NI rates for self-employed people originally announced in Budget 2017. The Chancellor came under fire in the spring for breaking a 2015 manifesto pledge and later did a U-turn stating there would be no NI increases during this Parliament.
What will the NI bill contain? The background notes to the speech state that the government will legislate for the "National Insurance contribution (NICs) changes announced in the 2016 Budget and the 2016 Autumn Statement". In the 2016 Budget it was announced that Class 2 NI (currently £2.85 per week on profits over £6,025) would be scrapped for the self-employed from April 2018. After April 2018 Class 4 NI will be reformed so that self-employed people can continue to build entitlement to the state pension and other contributory benefits.
The NI bill will not include the controversial measure to increase NI rates for self-employed people but will include the scrapping of Class 2 NI.