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MAKING TAX DIGITAL

Common sense prevails

Making Tax Digital (MTD) is the government’s latest attempt to fully digitise the process of collecting data from taxpayers so they can speed up the process of calculating how much tax you owe.
 
Until last week, we were facing radical changes to the tax system to accommodate this objective. Businesses (including landlords) were to be required to upload summarised accounts data from their accounts software on a quarterly basis. This information, plus details of other income was to be collected in a personal tax account which would automatically calculate future tax liabilities.
 
The process was timed to commence April 2018 and be completed April 2020.
 
The accountancy profession was united in opposition to the undue haste of the implementation process and the obligation that all businesses with turnover more than £10,000 would be required to invest in acceptable accounts software and make quarterly uploads.
 
It would seem the government has listened. Last week, Mel Stride, Financial Secretary to the Treasury and Paymaster General said:

Businesses agree that digitising the tax system is the right direction of travel. However, many have been worried about the scope and pace of reforms.

We have listened very carefully to their concerns and are making changes so that we can bring the tax system into the digital age in a way that is right for all businesses.

Under the new timetable:
  • only businesses with a turnover above the VAT threshold (currently £85,000) will have to keep digital records and only for VAT purposes
  • they will only need to do so from 2019
  • businesses will not be asked to keep digital records, or to update HMRC quarterly, for other taxes until at least 2020
Making Tax Digital will be available on a voluntary basis for the smallest businesses, and for other taxes.

This means that businesses and landlords with a turnover below the VAT threshold will be able to choose when to move to the new digital system.

As VAT already requires quarterly returns, no business will need to provide information to HMRC more regularly during this initial phase than they do now.

It seems clear from this announcement that MTD is proceeding, but at a much more sensible pace.
 
VAT registered traders will need to have MTD compatible software in place by April 2019, and all businesses including property businesses with turnover above the VAT registration threshold (currently £85,000), will need to be ready to make the quarterly uploads of accounts data by April 2020.
 
Businesses with turnover below the VAT threshold will be under no obligation to use the MTD process, but can join in on a voluntary basis.
 
We will continue to work with clients to ensure they are ready to meet their obligations. It is gratifying to see the pace of change in this area slow down. This will give affected business owners and their advisors more time to implement the changes required and make more considered decisions about the software they will use to implement their links to HMRC’s MTD systems.  
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Tax payments due 31st July 2017

We can deal with your formal application

If you are self-employed, or registered for self-assessment, we are approaching “that” time of the year: your second instalment on account for 2016-17, is due for payment at the end of the month, 31 July 2017.
 
Any payment due will be based on your self-assessment liability for the previous tax year (2015-16) so it is worth underlining that this is a payment on account, and even though it is the second you will have made for 2016-17, it may not cover your total liability for this tax year.

There are two possibilities:

1.That your income or profits have increased during 2016-17, and that as your payments on account (January and July 2017) were based on your previous year’s income, you may have underpaid tax and NIC. If this is so any balance outstanding will fall due for payment 31 January 2018.

2.That your income and profits have fallen during 2016-17. In this case if we leave your payments on account with no change, you will likely have overpaid tax and be due a refund.


If the second option applies in your case, it may be worth calculating what your payments on account should be, based on your estimated, lower income for 2016-17. This may well reduce or perhaps eliminate any second payment on account due at the end of this month.

If you think your income or profits have decreased during 2016-17 (or the accounts ending in that tax year) please call so that we can deal with a formal application to have your payments of account reduced for 2016-17.
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Digital Tax deadlines Are Looming

Making Tax Digital for Business (MTDfB)

Deadlines are looming

Let’s talk about making tax digital.

You may or may not have heard that the tax return as we know it is on its way out, and quarterly electronic submissions are on their way in.

But what does this mean? It means that electronic records must be kept and data transmitted to HRMC on a quarterly basis.

When does this need to happen? This depends entirely on what type of income you have and what type of tax you pay.

Here’s the basics for you. If you’re self-employed (subcontractor or sole trade business), or a landlord and your turnover is over £85k (the VAT threshold); then from April 2018 you will need to start submitting your profit and loss results quarterly. If you are self-employed or a landlord and your turnover is less than £85k but more than £10k, then you need to start as of April 2019.

If you’re VAT registered, then the new HMRC system will need to be used as of April 2019 for your VAT returns. As for those that pay Corporation Tax (i.e., limited companies), then you need to be submitting your profit and loss results from April 2020 onwards.

What if you’re in a Partnership or LLP? You will need to nominate a partner to be responsible for the submissions. The start date for you will be dependent on the level of turnover attributed to profit share. For example, if your turnover is £50k and it’s a straight 50/50 Partnership, the start date is April 2019.

However, if the turnover is £50k and the profit share is 90% to one and 10% to another, then you still need to submit data for both partners, as one of you is above the threshold.

There are exemptions, you’ll be pleased to hear. The government are being lenient on those that have an annual turnover of less than £10k, and don’t insist on digital record keeping and quarterly updates but you must still report to HMRC annually. However, you lucky things, you can still opt in to the scheme if you so desire.

It should be noted that whilst the quarterly updates are being insisted upon within one month of the quarter’s end; it does not mean that you are expected to pay every quarter. The good news is that that remains an annual requirement. For those that pay VAT, however the leniency on submission and payment is changing from one month and seven days to just one month.

More good news for those that are always late to the party (if the party is submitting records, that is); the penalties for late submission are expected to now have a cap of £3k. That said, we wouldn’t recommend that.

There’s a better way: why not just get in touch with us instead? We can help you with just the software or indeed the whole process? Contact us on mail@braceys-accountants.co.uk or give us a call on 01462 413249
 
 
 
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Sole trader or limited company?

We are often asked to judge whether it’s better for a business to be run as a sole trader, or incorporated as a limited company.
 
The risk argument is fairly straight forward. If your trade or service provided involves risk, and a risk that it is difficult to fully insure, then the limited company is the best route. The only assets at risk will be those owned by your company. Your personal assets will be safeguarded.
 
If there is no significant risk, the next criteria to test is taxation. Which option generates the lower tax and NIC bill and provides you with more take home pay?
 
At the lower end of the spectrum, say taxable profits up to £20,000, it is probably better to be a sole trader, as any perceived tax benefit will likely be eliminated by the increased costs of running a limited company.
 
In the mid-range, profits between £20,000 and £200,000, you will save tax and NIC by being limited. Above £200,000 you may be better off being a sole trader.
 
However, these assumptions only apply if you withdraw everything you earn from your business. If you want to retain profits in your business, then the picture changes dramatically.
 
For example, if your company made £200,000 trading profit and you drew out £50,000 in salary and dividends and paid any corporation tax due, the company would be able to retain £114,000. This is cash that the company would be able to use to invest in the business. The combined take home pay and retained funds in the business would now be some £42,000 more than if you had paid tax and NIC as a self-employed person. The reason; as a self-employed sole trader you would pay tax at income tax rates on all your profits, even those you left in the business, whereas the company would only pay corporation tax at the lower 19% rate (2017-18).
 
There is no substitute for looking at this number crunching process on a case by case basis. If you are contemplating a new business venture and you are unsure what structure you should choose, please call so we can look at the options taking all of the above options into account.
 
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