Changes in Tax Reporting

For all you self-employed and landlords – this is a quick heads up. Company owners, you do need to know about this as well.

Overworked Character Showing Exhausting Workload

Back in March 2015, the government announced the end of the tax return and we all jumped for joy (except for accountants of course). Well, that state of play is getting closer for the freelancers/self-employed people and landlords if their income from this type of source is over £10,000.

Consultation documents were issued by HMRC in August 2016 all about “making tax digital” (MTD). The idea is that individuals with income which is not taxed at source greater than £10,000, will need to do quarterly reporting to HMRC via online accounting systems or apps, or via a standalone system that can send data directly to HMRC. Gone will be the days of using excel (other spreadsheet systems are available) to collate your numbers and then load the totals onto the HMRC portal. You will note that it says income, not profit. HMRC require that everybody caught will need to keep their records online, and these records include your bank transactions for your business whether it is a bank account, credit card or PayPal type systems; sales invoices, purchase invoices & receipts, plus records of cash spend and income.

The idea being is that these records are entered or electronically loaded on a regular basis, and at the end of each quarter (or more if you want to), a summary of data is transmitted to HMRC within 30 days of the quarter end. It is only a summary of the data in specified categories and not actual copies of receipts and invoices.

The consultation documents propose that this kicks off from April 2018, and the first reporting could be as early as May 2018 depending on how people want to set up their reporting. The maximum time between reporting is three months. At the end of the year, there is a nine-month period that you can amend your numbers of any adjustment like mileage allowance, home office calculations, accruals, etc. So the numbers have to be finalised by the 31st December (if your year end is 31st March) or 5th January (if the year-end is 5th April). So the 31st January will not exist when this comes in. You lose a month.

stick_figure_depression_800_wht_11168What people may not realise is if you have a year that is not the 31st March/5th April, for example, a teacher may pick 31st August for a school year. Then you still have quarterly reporting, but your final assessment deadline is nine months after the 31st August (31st May) rather than 31st January 18 months later. That is doing to be a huge change for these people as they will be effectively working on three tax returns at the same time rather than two. The year end of 31st August 2019 ends in tax year 2019/2020 would need to be on the tax return by the 31st Jan 2021 under the old scheme, but under Making Tax Digital, it needs to be finalised to the tax man by 31st May 2020.

There are specific exemptions noted in this consultation:

  • Self-employed businesses and landlords with income below £10000;
  • Charities;
  • Community Amateur Sports Clubs;
  • Insolvent businesses and insolvency practitioner;
  • The Digitally Excluded, e. those without computers or broadband, or for other reasons.

Another piece of workTo add a nail in the coffin a bit more, unlike self-assessment tax returns and payroll systems, HMRC will not be providing any free software for MTD. They are looking to the software providers to make available free software for the smallest of businesses, but commercially why would the software companies do this. It is more likely that the software is something that the company needs to pay for on a monthly basis and find ways of making it work for them and that then just adds to the administrative burden & cost for the business. I am already looking at package solutions for clients to overcome the problems of MTD from a DIY & review pack through to a fully serviced option. More on that another time.

I’ve seen things on social media sites that people are saying this is voluntary and you don’t have to do it. That is not correct. All self-employed businesses will have to go down this route unless they are in the exemption categories. The bits that are optional is if you use a cash accounting method, if you want to report more frequently than quarterly, or if you want to make payments on account after each reporting period.

Of course, if you don’t file things on time each quarter, there will be a penalty system. At the moment they are proposing that if you are late, you get a “point”, and once you have 4 points, you get a penalty. Those 4 points stay for 24 months, and each time you get another point when you have 4, another penalty. Of course, this is up for question as well.

If you run your company, don’t sit there and smirk as VAT registered companies will come into the game on the current rollout programme from April 2019, and all companies from April 2020.

 

latemanrunAs I say, this is still at the consultation stage that ends on the 7th November. Some people think the final plan will come out with the finance bill on the 23rd November; others believe it will be finalised in March 2017. A critical area of concern is the start date being April 2018 and if it should be April 2019. The starting level of £10,000 is being questioned of being too low and a look at the VAT threshold (£83,000 of income) before this comes into play.

I’ll be keeping a close eye on this as it will affect most of my clients. One of the best things you can do at the moment is take out that second personal bank account as your business account and get used to putting all your business transactions through it. Leave your real personal account as private costs like rent/mortgage, council tax, utilities, food, clothing, having fun, etc. Just do transfers from the “business account” to the real personal account when needed. When the MTD reporting comes on board, you only have one account to deal with and process through to an accounting system for HMRC. Also start to look at accounting systems and what they can do for you. At the moment, we will be considering Xero as the accounting system linked with Receipt Bank or Entryless for taking photos of receipts to load into Xero and Tripcatcher for mileage records.

If you have any questions, please feel free to ask. As this gets closer, I’ll probably need to get a support desk system in place, and use an FAQ page on my website to help people get through the pain of all this.

Should you desire to read the documents and put your opinion to HMRC, then the documents can be found >>> HERE <<<

 

Second Source of Income – Don’t Forget to Declare it.

Do you have a second income as well as being employed?

confidential-agreement_MkJpbLwdIt is quite common now-a-days to be employed in a PAYE job, but also to work for yourself, often not just for the money sake but due to the skills you have being in demand. However, people often don’t think they need to declare this income as part of their annual earning for tax to HMRC. And that’s where they are wrong.

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Err – You Want To Set Up A Limited Company ?

So you want to start a limited company?

Companies House logo

Are you really sure?      Do you know why you want to have a limited company?     Do you know the tax implications of a limited company?    Are you a highly organised person and slightly schizophrenic to be able to split yourself from the company financially and operationally?

Yes, there MAY be tax advantages to being a company depending on the income/profit level of the company, but there are thresholds of effectiveness and subsequent budgets may change it. If being a company is marginal for tax purposes at the moment, then it is not a good enough reason.  Limited liability may come into play; a divorce on the cards and want to limit access to funds; or just for the kudos of being a company. Some bigger companies only want to trade with other companies as the perception of being a company is better than being a sole trader. BUT, you have to be ready for it or have people around you that can deal with all the accounting and admin headaches.

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Married Couples Allowance – it’s here

 

Several months ago I wrote a blog about the Marriage Allowance transfer ability – where one person can transfer £1060 of their personal allowance to their spouse. You were able to sign up for it via the HMRC website which made it a permanent election until revoked. As accountants, we heard nothing more after that.

It is now time to start submitting you 2015/2016 tax return. The election to transfer the £1060 can be made at this time if you are one of the “lucky” millions of people that need to complete a return.

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Free Money – or is it?

Bursary, Scholarship & Prize Money for Musicians & Performers

 

 

This is a topic that I have been asked about this year on my tour round music & drama colleges, so I thought it would seem appropriate to jot down a few lines.

At some stage in your musical or performing career, you may be lucky enough to be awarded a bursary, scholarship or win performing prize money. But are you sure you understand the tax implications of these?

Bursaries and scholarships are usually tax-exempt provided the person is in full-time education at a recognised university, technical college or similar education establishments that are open to the public at large and offer a range of courses – both practical & academic. This is part of S331 of the Income & Corporation Tax Act 1988.

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What VAT Schemes Are Available?

Oh – such a fun topic this is – I am sure you will be riveted to your computer screen.

 

Flat Rate

Using the standard rate scheme, you need to record the vat on every purchase and every sale that is made in the business. However, a flat rate scheme allows you to just account for the VAT on the taxable supplies you make and not make a return for the VAT you have incurred. A lower amount is remitted to HMRC which takes into account VAT you may have suffered.

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Rental Property Allowances – The U-Turn

Back in April 2013, the government withdrew the allowance for renewals of furnishings in rental properties, so only the 10% wear & tear allowance was available for furnished property rentals.

The summer budget of 2015, the government announced that from April 2016, the 10% wear & tear allowance was being scrapped and replaced with a new “replacement allowance”.  As an overview, the new allowance enables all landlords of residential lettings to deduct the costs incurred on replacing furnishings in that property. It applies to landlords of unfurnished, fully furnished and part furnished property but not to furnished holiday lets or commercial property.

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What you need to know about VAT – Part 1

VAT – An Overview

What is VAT?

 VAT is an amount charged on most goods and services that are purchased in the UK and equivalent in Europe. A business registered for VAT will charge it on to other business and consumers in the UK. The good thing is that VAT registered business are able to recharge the amount of VAT that has been charged to them. The bad thing is that non-vat registered business and consumers are not able to claim back the VAT.  Effectively it is a sale of good tax to consumers.

  • Currently in the UK, there are three rates of VAT and an exemption rate:
  • Standard rate VAT – is the one we know – at 20%
  • Reduced rate VAT – mainly utilities – at 5%
  • Zero rate VAT – being 0%

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Tax Relief for Childcare

Let’s set the scene. You have children under 16 and they take time away from your business day with having to keep them “entertained/occupied” and dealing with their day to day needs. The time you spend with them means less time working which helps with the care of your children.  So what do you do?  I know, you can get a nanny, au pair, put them in after school clubs and get other people to do as much as possible so giving you back your time.  (You can tell I don’t have children.)

Of course these costs must be tax allowable because if you don’t have childcare provision, then you can’t work so much, and if you can’t work so much then you are not earning the money to pay tax to the government? Aren’t they?

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Should You Be Claiming the Use of Home as Office?

This subject seems to be one that many clients ask. Self-employed people mainly base their work place at home although work may take place at customer locations. This can be many trades & professions from plumbers, accountants, chiropractors, computer technicians etc. It also covers freelance musicians, actors and other performers.

As you visit customer sites, it would be reasonable to be able to charge to your business the cost of getting to the customer locations. But, there is a little bit of an issue if when you walk in after being at customer locations, your trading activity stops as you get home.  If no work was done at home, it implies that home is not the true base of your business. You need to make sure that business happens in the home such as writing up proposals, quotations, invoices, research etc.

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