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Making Tax Digital – update

A controversial policy of HMRC has always been that a business using, for example, the cash accounting scheme and spreadsheets to digitally record their expenses had to record every single purchase invoice in a digital format, even though the business might make a single payment to a supplier based on a statement covering perhaps 40 or 50 different invoices.

It would be sensible for the business to just make a one-line entry on the spreadsheet based on the payment total. With the cash accounting scheme, input tax is only claimed when payments are made to suppliers. That policy has now changed.

The latest update from HMRC on 5 May 2019 allows the supplier statements to be used to record expenses for input tax purposes – a big time saving for many businesses that adopt spreadsheet accounting.

 

Making Tax Digital (MTD) is on the horizon for many businesses.

MTD affects VAT first. For return periods starting on or after 1 April 2019, businesses operating over the VAT threshold (currently £85,000) must keep records digitally, using MTD functional compatible software.

That’s essentially software, or a combination of software and spreadsheets, which can connect to HMRC via an Application Programming Interface. VAT submissions will then be made direct from the digital records. Manual input will not be acceptable, although there will be a ‘soft landing’ period of 12 months where HMRC will not impose penalties if digital links do not exist between software programs used for submission.

It will no longer be possible to submit returns through HMRC’s online portal – except for businesses voluntarily registered for VAT. These businesses will not have to comply unless electing to enter the MTD regime.

 

31 January 2019 deadline

The   deadline    for    filing   self-assessment  tax returns  online  for 2017/18 and for paying any remaining tax for 2017/18 is 31 January 2019.
The deadline also applies for the self-employed to pay their Class 2 and the balance of any Class 4 National Insurance contributions due for 2017/18.

The first payment on account of the 2018/19 liability is also due by 31 January 2019.

Penalties    are    charged    where returns are filed late and tax paid late. Interest is also charged on late payments.

Comment: HMRC produce a tool which can be used by an individual to check whether they need to submit a self-assessment tax return. The tool is available on the Gov.uk website at

www.gov.uk/check-if-you-need-tax-return

Have you considered a group structure?

Is it a good idea to have substantial assets in your trading company? What if something goes wrong? All your assets may be at risk. It is advisable to consider setting up a group of companies, to separate property ownership from your trading company. If you think this may apply to you, please contact us and we can discuss your individual circumstances.

Automatic enrolment – rates changing from April 2018

The minimum contributions rates for automatic enrolment are set to
increase:

On the 6th April 2018, the total minimum contribution will increase
from 2% to 5%. Employers will need to contribute a minimum of 2%.
Employees will need to contribute a minimum of 3%.

Minimum contributions will undergo further increases in April
2019, with the total minimum contribution rate increasing to 8%,
representing a 3% employer and 5% employee contribution.

It is an employer’s responsibility to make sure that they are prepared for
these new contribution levels. If an employer wishes, they can decide
to pay the total minimum contribution rate which is 5% from April 2018
and 8% from April 2019. In these cases, the employee does not have
to pay any contributions, unless the rules of the pension scheme say
otherwise.

Tax deductions for paying wages to family members

If your son or daughter helps you in the family business, how do you make sure their wages are tax deductible?

A recent tax tribunal case (Nicholson v HMRC) highlights some issues.  Mr. Nicholson claimed his son helped him by delivering leaflets etc. His wages were £10 per hour for 15 hours per week. Unfortunately, there was no evidence of the wages being paid.

There were payments for food and drink to help his son at university. The tribunal concluded that the payments were made out of “natural parental love and affection” and concluded that Mr. Nicholson was doing nothing more than supporting his son at university.

The advice in similar situations would be to keep proper records of the hours worked and payments made, and payment should be made from the business account to the son’s account. If the son was on the payroll, then this would also go a long way to help with any queries from HMRC.

If you employ family members then please contact us if you need help or advice in this are.