It is just 7 weeks until HMRC start their pilot scheme of Making Tax Digital (MTD), this is where as a minimum businesses will be required to report their figures each quarter rather than annually as now. The full system is due to be rolled out from 6 April 2018 – Sole Traders and Landlords being the first to be mandated to do this, followed the next year by partnerships and lastly limited companies by 2020.
There is still a lot of detail to be resolved, and we are already busy planning what we need to do to help you be compliant with the new system. We will be requesting your assistance in due course, in making it possible for your returns to be both accurate, on time and without penalty. There may need to be changes to the way you keep your records, both to meet the new regulations and also to help us be able to meet the new deadlines for you.
For those of you that are VAT registered, you are already a long way there, and it will not be such a big change, and by 2019 your VAT return and Making Tax Digital returns will be one and the same, HMRC have indicated their intention to combine the 2 returns – so watch this space – lots of changes ahead – we are here to help you smoothly through them.
VAT Flat Rate Scheme changes
The government considers that some businesses with ‘limited costs’ are obtaining too much advantage in using FRS as, although they correctly use the flat rate appropriate to their trade sector, they have significantly lower costs than most small businesses in that sector. So a new flat rate of 16.5% for certain businesses with limited costs will be introduced from 1 April 2017.
A ‘limited cost trader’ is defined as one that spends less than 2% of its VAT inclusive turnover on goods in an accounting period. A business is also defined as a limited cost trader if its expenditure on goods is greater than 2% of its VAT inclusive turnover but less than £1,000 a year. There will be exclusions from the calculation to prevent attempts to inflate costs above 2%. So some businesses will need to perform calculations to determine whether the trade sector rate or the 16.5% rate applies.
The additional tax cost may result in some businesses choosing to:
- cease to operate the FRS, or
- opt to deregister from VAT altogether where they are under the VAT threshold.
Please contact us if you are currently using the FRS and consider the new rate may apply to you. Also please contact us if you are not currently in the FRS and your VAT turnover is expected to be less than £150,000 (excluding VAT) in the next 12 months. You may find the FRS is of benefit to you.
New finance service
In 2015, of the 324,000 small and medium sized businesses seeking a loan or an overdraft, 26% were initially declined by their bank. Historically the majority of businesses seeking finance only ask one lender. If they are rejected for finance many give up on investment rather than seeking alternative options.
In November 2016, the government launched a scheme for small businesses which have difficulty in obtaining finance from the larger banks in the UK. The scheme provides the business with details of alternative finance providers.
Under the scheme, the government requires nine of the UK’s biggest banks to pass on the details of small businesses which have been rejected for finance to three finance platforms – Funding Xchange, Business Finance Compared and Funding Options. However, businesses must give permission for their details to be shared.
The finance platforms will share the information on the consenting business with alternative finance providers in order to ‘facilitate a conversation’ between the small business and any finance provider who expresses an interest in them.
The Federation of Small Businesses helped to push for this facility and we agree with the hope of the Federation that it will bring more competition and choice in the finance market.
Entrepreneurs’ Relief claim
Entrepreneurs’ Relief (ER) has been with us for many years and provides a valuable relief – only a 10% rate of capital gains tax on lifetime gains of up to £10 million. However, as with everything in the world of tax, there are always niceties to be observed in order to ensure that you qualify for ER.
HMRC have been criticised by Parliament for not checking enough ER claims and it appears that HMRC are now examining claims more closely. The main area which HMRC seem to be focussing on is ER claims on share disposals. Briefly, ER will apply to gains on disposals of shares in a trading company (or the holding company of a trading group) provided that the individual making the disposal:
- has been an officer or employee of the company, or of a company in the same group of companies, and
- owns at least 5% of the ordinary share capital of the company and that holding enables the individual to exercise at least 5% of the voting rights in that company.
These two conditions must be satisfied throughout the year leading up to the disposal of the shares.
ER is important to many but if you are unsure as to your current position or are contemplating a disposal in the near future, please do get in touch so that we can check you qualify.
Some good news for companies
Changes are proposed which will mean that losses arising on or after 1 April 2017, when carried forward, will be useable against profits from other income streams or other companies within a group. This will apply to most types of losses but not to capital losses. The removal of the restrictions on the use of carried forward losses is very welcome.
The other good news for all companies is that the corporation tax rate will fall from 20% to 19% for the Financial Year beginning 1 April 2017, and will reduce again to 17% for the Financial Year beginning 1 April 2020.
State Pension entitlements – check now
The state pension is clearly a worthwhile thing to have, particularly for the self-employed who will receive a pension through the new ‘flat rate’ pension. However, there have been numerous changes to the qualification criteria over recent years and now may be a good time to check your entitlement.
One thing which is worth bearing in mind is that it is the individual’s obligation to keep track of their own entitlement and ensure that it is correct, although most people do not appreciate that. Keeping track of this over a working life is difficult but rectifying problems with the state pension at the point of retirement can be even more difficult, so a quick check of your position once every four or five years is time well spent.
So don’t delay – get a pension forecast and if you believe it is incorrect please get in touch with us and we can consider your options.
https://www.gov.uk/check-state-pension if you have a government gateway log in or Contact the Future Pension Centre to ask for a statement by telephone: 0345 3000 168
Are you or have you been self-employed?
A recent case lays out some of the historic problems with the state pension. The taxpayer was both employed and self-employed between 1965 and 2013 when he retired. He was dissatisfied with his state pension on retirement and queried his NIC record. As a result he was sent a full breakdown of the NIC paid during his career. He queried a number of matters on that breakdown, including the periods of nil payment in 1993/94 to 1996/97. The taxpayer appealed his NIC record from 1965 to 2013, on various grounds including:
- it was the obligation of HMRC to send him statements showing NIC due
- he was submitting income tax returns for the same period and the Inland Revenue and National Insurance Contributions Agency must have shared the information.
The Tribunal, in summary, held that the onus was on the taxpayer to have sorted things out during his working life and that he had limited ability to do anything at the point of retirement.
Potential Child Benefit trap
Child Benefit can pay a parent £20.70 a week for the first child and £13.70 a week for each additional child. However, if a person’s (or partner’s) income exceeds £60,000, then all of the Child Benefit will need to be repaid through an increase in tax liabilities of the higher earner. To avoid this, affected persons can elect not to receive the Child Benefit in the first place. However this may mean for some ‘stay at home’ parents that they miss out on accruing entitlement to state pension. The best advice therefore is to fill in the Child Benefit form.