Penalty perils for early enrolment for Making Tax Digital

Businesses that have already signed up for Making Tax Digital for VAT but are yet to file their latest VAT return need to act quickly to avoid possible penalties if they encounter problems making VAT payments on time, the Association of Taxation Technicians (ATT) is warning

While 1 April 2019 marked the introduction of Making Tax Digital for VAT, this was not the point at which those businesses required to file digitally needed to enrol onto the new system.

ATT advises that the sign-up process can, and in many cases should, be completed at a later date.

Businesses should only sign up for Making Tax Digital for VAT once their last ‘pre-digital’ VAT return has been filed using the existing government gateway facility.

Jon Stride, co-chair of the ATT’s technical steering group, said: ‘Once a business has signed up to Making Tax Digital it must submit all VAT returns - including those for periods starting before 1 April 2019, using Making Tax Digital-compliant software.

‘This could cause problems if the business signs up to Making Tax Digital before submitting its final return under the pre-Making Tax Digital rules. For example, a business which submits VAT returns on a calendar quarter basis will have to submit its VAT return for the quarter ended 31 March 2019 by 7 May 2019.

‘If it has already signed up to Making Tax Digital before submitting this VAT return then, even though the period predates the introduction of Making Tax Digital, it must be submitted using Making Tax Digital-compatible software or HMRC’s systems will not accept it. If the business has not planned for this, it may encounter problems when it comes to meeting the submission deadline.’

There is no soft landing for Making Tax Digital penalties, ATT is warning. HMRC has said it will apply a light touch approach in the first year of operation, but only in relation to record keeping penalties where the business has made a genuine effort to comply.

However, due to the extent of the changes HMRC is prepared to be flexible.

An HMRC spokesperson told Accountancy Daily: ‘MTD applies for periods from April, not before. Businesses are encouraged to file their last return through the old system before signing up to MTD but if they join early and then face difficulty complying we have committed to taking a light touch approach to filing and record keeping penalties.

‘Naturally, sanctions remain possible in cases of deliberate non-compliance, and in order to safeguard VAT revenue, so if people do face problems filing their returns, they should make sure they still pay the VAT that is due.’

Regardless of problems filing under the new system, there will be no leniency when it comes to actual payments of due VAT.

Stride said: ‘HMRC have been very clear that they want businesses to continue to pay their VAT on time under Making Tax Digital, even where they have problems filing or keeping digital records. HMRC’s light touch approach to penalties does not extend to the payment of VAT liabilities.

‘Businesses which do not pay their VAT, or pay late, remain exposed to penalties in the normal way.

‘We strongly recommend that those businesses who have signed up too early and now find that they are struggling to file their returns under Making Tax Digital should prioritise paying their VAT on time to ensure that they do not receive a penalty.’

ATT is advising any business affected by early enrolment to contact their software provider and/or HMRC as soon as possible to try and resolve their filing problems.

It is also advisable to document any problems encountered and collect supporting evidence in case they do incur a penalty which they later wish to appeal.

Source: Accountancy Daily by Pat Sweet, additional reporting by Sara White.

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HMRC sets out provisional rules on IR35 for private sector

HMRC has published preliminary guidance on how to prepare for changes to the off-payroll working rules from 6 April 2020, even though the consultation on the extension of the rules to the private sector has yet to close for comment

The consultation, which closes on 28 May, is looking at how HMRC can ensure the off-payroll working rules first introduced in the public sector are suitable for the large and diverse sectors in which the new rules will need to be operated.

It asks for views and information on several subjects, including the scope of the reform and impact on non-corporate engagers; information requirements for engagers, fee payers and personal service companies (PSCs); and how status determination disagreements will be addressed.

The consultation also sets out HMRC’s plans to provide education and support for businesses that will be in scope of the changes.

Now HMRC has published guidance a year ahead of the implementation date.

This points out that from April 2020 the rules for engaging individuals through PSCs are changing. The responsibility for determining whether the off-payroll working rules apply will move to the organisation receiving an individual’s services.

Businesses are advised to look at the current workforce (including those engaged through agencies and other intermediaries) to identify those individuals who are supplying their services through PSCs.

They can use HMRC check employment status for tax tool (CEST) to determine if the off-payroll rules apply for any contracts that will extend beyond April 2020. HMRC suggests businesses start talking to their contractors about whether the off-payroll rules apply to their role, as well as putting processes in place to determine if the off-payroll rules apply to future engagements.

These processes might include determining who in the organisation should make a determination and how payments will be made to contractors within the off-payroll rules.

HMRC guidance, Prepare for changes to the off-payroll working rules (IR35) issued 15 April 2019

Open consultation, Off-payroll working rules from April 2020

Source: Accountancy Daily by Pat Sweet.

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Young people targeted with phone tax scams

HMRC is warning young adults who may have less experience of the tax system to be especially vigilant about tax refund scams via smartphone, as fraudsters ramp up activity after the self assessment season

During April and May, fraudsters regularly blitz taxpayers with refund scams by email or text pretending to be HMRC. Criminals do this to coincide with legitimate rebates being processed by HMRC.

HMRC says these messages include spoofed calls, voicemails and text messages. They are designed to encourage people to provide bank details, in exchange for a payment worth hundreds of pounds, on a fake government website to harvest private information and steal money. It confirms that HMRC will never ask someone to provide bank details by text or email.

Last spring alone, HMRC received around 250,000 reports of tax scams - which is nearly 2,500 a day - and requested that over 6,000 phishing websites be deactivated.

In the 12 months to February 2019 HMRC received 73,382 reports of suspicious HMRC phone calls, and asked phone carriers to remove more than 400 unique numbers associated with scams.

Angela MacDonald, head of customer services at HMRC, said: ‘We are determined to protect honest people from these fraudsters who will stop at nothing to make their phishing scams appear legitimate.

‘HMRC is currently shutting down hundreds of phishing sites a month. If you receive one of these emails or texts, don’t respond and report it to HMRC so that more online criminals are stopped in their tracks.’

When taxpayers file returns to HMRC, they will then legitimately receive a tax calculation as well as an email promoting them to check their personal tax accounts, but no other HMRC communication. As many taxpayers file self assessment returns, most of HMRC’s contact happens in the months after January.

If an individual has paid too much tax, HMRC will issue the repayment automatically either direct into their bank account or if they have indicated on their tax return there is no bank account then HMRC will send a cheque. In the case of underpayments of tax, HMRC will tell taxpayers how much they owe and how to pay securely.

Source: Accountancy Daily by Pat Sweet.

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Businesses warned on winding up perils over unpaid tax

HMRC applied to shut down 4,160 businesses because they had fallen behind on their tax payments in 2018 with financial problems being exacerbated by a late payment culture

Based on analysis of HMRC’s winding up petitions by Funding Options, the tax authority is still being too aggressive in its approach to shutting down businesses, particularly given the tough trading conditions caused by Brexit uncertainty and slowing global economic growth.

Funding Options suggests that instead of liquidating businesses, HMRC should take a more sympathetic approach with them, perhaps giving them more time to pay their bills. HMRC has a ‘Time to Pay’ scheme that allows taxpayers to spread overdue tax payments over longer periods, which was used to tide small businesses through the last recession.

Conrad Ford, CEO of Funding Options, said: ‘HMRC continues to take a hard line approach despite businesses facing tough economic headwinds.

‘While HMRC has eased back from last year when they tried to shut down 4700 businesses, it should be looking to give them even more leeway.’

Funding Options says its research indicates that a key reason behind some businesses not being able to meet their tax payments on time is late payments by larger clients. Some tax bills, such as VAT and corporation tax, are billed on money invoiced, rather than money received. Being paid late by clients can, therefore, make it harder for a business to pay their bills on time.

Funding Options says that small businesses should also be looking at ways to improve their cashflow management to avoid facing HMRC sanctions. If a business is able to identify the finance options available to them as early as possible, it is less likely to run into HMRC-related difficulties if they do arise.

Ford said: ‘In an ideal world, small businesses would be paid in good time by their clients, meaning they have less trouble meeting their tax obligations. However, that’s not always the case, so businesses must be prepared and know how they are going to manage their finances through the tricky periods.’

Source: Accountancy Daily by Pat Sweet.

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HMRC update income tax forms for new tax year changes

Released 06 April 2019

HMRC have updated income tax forms to reflect the new tax year changes.

View the updated forms and guidance at Collection: Income Tax forms.

Source: Accountancy Daily.

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2019/20 tax year: personal tax rate changes and allowances

A roundup of all the personal tax changes which come into force from the 2019/20 tax year including, an increase to the personal allowance and higher rate threshold, changes to residential inheritance tax and capital gains tax regime for non-UK residents

Personal allowance and higher rate threshold

The personal allowance increases on 6 April 2019 to £12,500 from £11,850. This will lead to a reduction in tax of £130 a year for most people. The threshold for paying the higher rate of income tax (which is 40%) will increase to £50,000 from £46,350.

Income tax rates

UK and Northern Ireland

Scotland – Scottish rate of income tax (SRIT)

Wales

Other Allowances


*Available to persons born before 6 April 1935. Relief limited to 10%. Reduced to minimum allowance by £1 for every £2 over income limit. Minimum allowance reduced by £1 for every £2 income over £100,000 after applying personal allowance reduction.

Inheritance Tax

Disguised remuneration loan charge

The deadline for settling loan charges with HMRC is 5 April 2019. In April 2019, all outstanding loans from disguised remuneration schemes will become subject to an income tax and national insurance contributions (NICs) charge under Income Tax (Earnings and Pensions) Act 2003 ITEPA 2003, Pt 7A. The loan charge is an anti-avoidance measure which targets the payment of remuneration in a form (in this case, as a loan) that avoids tax and NIC.

The new loan charge was introduced by Finance (No. 2) Act 2017 on all disguised remuneration loans, eg, loans made via company employee benefit trusts (EBTs) or EBT sub-trusts, or similar via employer-financed retirement benefits scheme (EFRBS) made on or after 6 April 1999 and still outstanding at 5 April 2019.

Pensions, loans and savings

Student loans

The Department for Education has confirmed that from 6 April 2019 the Plan 1 threshold increases to £18,935 from £18,330 and the Plan 2 threshold to £25,725 from £25,000 but the rate of deduction for both remains 9%.

Individual savings accounts (ISAs)

From 1 April there will be a small adjustment to the annual Child Trust Fund and Junior ISA savings limit with a £108 rise from £4,260 to £4,368 from 6 April 2019, equivalent to 2.5%. The interest and gains received on money saved in a CTF and Junior ISA is tax free as per standard ISA rules.

An estimated 907,000 Junior ISAs were paid into during 2017-18 tax year.

Personal pensions

The tax-free amount you can pay into a personal pension remains at £40,000 per tax year. The lifetime allowance for pension savings increases from 6 April 2019 to £1,055,000 (from £1,030,000)

Workplace pensions

The minimum amount you need to pay into your employee’s auto-enrolment workplace pension increases from 6 April 2019. This means the total amount of employer and employee contributions must be a minimum of 8% of your employee’s qualifying earnings.

Capital gains tax

The capital gains tax (CGT) annual exempt amount for individuals increases to £12,000 from £11,700.

Non-resident CGT

Non-UK residents will be pulled into the capital gains tax CGT regime for the first time on 6 April if they dispose of UK land and property.

Currently, non-UK residents are only taxed on disposals of residential property, but from 6 April 2019, all UK land (including commercial property) will come within the scope of UK taxation.

In addition, non-UK residents will also be subject to UK tax on the disposal of assets that derive at least 75% of its value from UK land, so called ‘property-rich’ companies.

With the new CGT regime, a new compliance system is being introduced, which non-UK residents will have to follow in reporting disposals of UK land and paying the associated tax.

Non-UK residents disposing of UK land (or assets that derive at least 75% of its value from UK land) must file a return within 30 days following the completion of the disposal, and a payment on account must be made at the same time.

The amount of tax to be paid is calculated under the normal rules, including using any allowable losses at the date of disposal.

Property tax

Interest relief for buy to let mortgages

Since April 2017, the government has phased in the removal of interest for buy to let landlords. Now in the fourth year of implementation, the restriction will be fully in place from 6 April 2020.

The finance costs that will be restricted include interest on mortgages, loans - including loans to buy furnishings and overdrafts.

Stamp duty land tax (SDLT) – UK and Northern Ireland

Residential

Non-residential

SDLT: first-time buyers

Residential only


SDLT rate effective from 22/11/17 for purchases by first time buyers only

Scotland – Land and Building Transaction Tax (LBTT)

LBTT rates and bands for residential and non-residential property transactions

Wales – Land Transaction Tax (LTT)


These rates came into force on 6 April 2018.

Cars

Company cars

From 6 April 2019, benefit in kind (BiK) tax rates are increasing for company cars. The percentage applied to the list price of the car will increase based on the CO2 emissions published by the Vehicle Certification Agency.

Tax free mileage allowances

The following rates will remain the same from 6 April 2019:

National Insurance Contributions (NICs)

Class 1 NICs

Employees

Employers

- Class 1A and Class 1B – 13.8%
- Class 2 (self-employed) – Flat rate £3 a week. Small profits threshold £6,365 a year.
- Class 3 (voluntary contributions) - £15 a week.
- Class 4 (self-employed) – 9% of profits between £8,632 and £50,000 a year. 2% of profits above £50,000 a year.

Source: Accountancy Daily - Report by Amy Austin.

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HMRC call centre connection times deteriorate

One in five taxpayers are not satisfied with HMRC’s digital services despite the tax authority’s push to move all services online, while wait times to speak to an adviser worsened in February with nearly a third of callers waiting more than 10 minutes to speak to an adviser

At the same time, call centre response times have worsened this month, with the average speed of answering a call worsening from five minutes 14 seconds to six minutes, 27 seconds, well above HMRC’s target five-minute waiting time. This is nowhere near the performance in 2015-16 when average answer times were 12 minutes but HMRC did work to improve this with substantial investment in technology, automated call services and more call centre staff to improve response times.

However, although taxpayers are getting through to the service, they face longer waits to actually speak to an adviser as response times only illustrate time waiting to reach the automated service. Nearly a third of callers – 29% - have to wait more than 10 minutes to speak to an HMRC official, which is nearly double the number waiting this long in 2017-18. The call wait worsened significantly in February, up from 19.8% to 29% of taxpayers waiting more than 10 minutes, compared with HMRC’s target connection time of five minutes.

Pressures of Brexit queries and Making Tax Digital implementation dates have contributed to the deterioration in service as the tax authority has been reassigning staff to Brexit transition and no deal planning and preparation.

An HMRC spokesperson told Accountancy Daily: ‘Over the past 12 months, the average wait times for our helplines have been around our target of five minutes. We know that at busy times some customers have to wait longer, and we are doing all we can to keep all waiting times as low as possible.

Despite the push to online services, HMRC is still having to deal with large volumes of post and is falling well behind its target of dealing with 80% of post within 15 days of receipt. It received more than one million items of post in February for which customers require a response.

HMRC dealt with 64.8% of customer post within 15 days, leaving over 300,000 letters unanswered.

Despite the level of dissatisfaction with digital services, there has been good take-up of personal tax accounts, HMRC reported.

While company registration for Making Tax Digital for VAT has been slow with the majority of companies required to report VAT digitally still not registered, there has been strong interest in HMRC’s digital tax accounts with nearly half of taxpayers now signed up for the service.

The number of individuals signing up for personal tax accounts has hit 18.8m, up nearly 25% on the same time last year when total number stood at 14.7m, out of 30.3m UK wide taxpayers. Digital tax accounts were first launched in 2015 and are optional for taxpayers; each account amalgamates records for taxpayers including tax and NICs from different employment sources and income streams.

‘The numbers of customers using our digital services continues to increase, and we carry on improving these services in line with customer feedback,’ HMRC added.

Source: Accountancy Daily - Report by Sara White.

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HMRC sends late filing penalties earlier than expected

The Association of Taxation Technicians (ATT) is alerting taxpayers that HMRC is starting to issue late filing penalties for self-assessment income tax returns this week

The penalty for missing the filing deadline of 31 January 2019 for a 2017/18 return is £100.

HMRC announced in February 2019 that, due to Brexit-related pressures, the issue of late filing penalty notices would be delayed.

At the time HMRC said that individuals who filed late will still be charged the penalty; but the notice would be delivered later than normal. It will still issue daily penalties to individuals who have still not filed three months after the deadline, in appropriate cases, at the normal time.

Previously, ATT raised concerns about the delay, pointing out that the £100 penalty notice is an important prompt to taxpayers that their return is outstanding as well as reminding them that they risk incurring an additional penalty of £10 per day if the return is still outstanding after three months from the 31 January due date.

ATT was concerned that if the penalty notices were not received until late April or into May, the £10 daily penalties will be unavoidable.

Jon Stride, co-chair of the ATT’s technical steering group, said: ‘The ATT is pleased that HMRC have now started to issue penalty notices and have not delayed the exercise to the end of April, which was originally a possibility. However, it will take HMRC until 12 April 2019 to issue all the penalty letters. This gives taxpayers a little over two weeks to submit their return before the daily penalty regime commences.

‘Anyone who has yet to file their 2017/18 tax return should do so as a matter of urgency. They will not be able to avoid the £100 penalty unless they have a reasonable excuse for being late, but getting the return filed online by no later than 30 April 2019 will mean that they will avoid the additional £10 per day.’

Source: Accountancy Daily - Report by Amy Austin.

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Businesses not ready for Making Tax Digital VAT deadline

Nearly two thirds of businesses (64%) say that Making Tax Digital is a good idea but that they need more support with their plans ahead of the deadline of 1 April for mandatory digital VAT reporting, and only 12% are confident of their approach, according to research from KPMG

The firm’s poll of 1,000 businesses asked which statement best described their attitude to Making Tax Digital and the 2019 deadline to comply with the new VAT legislation requiring all businesses registered to pay VAT over the threshold of £85,000 to digitally report transactional quarterly reports.

While nearly two thirds (64%) of respondents thought it was a good idea but wanted more support, one in five (19%) could see no advantages of changing the current VAT reporting system, while 5% said it would be damaging to their business.

Just 12% were supportive and ready for the 1 April deadline, literally days after Brexit day on 29 March.

From that date, most VAT-registered businesses above the threshold of £85,000 will have to keep digital records and submit VAT returns using compatible software.  A small percentage of businesses with more complex needs are deferred to 1 October. After a soft-landing period of a year, a further requirement for digital links throughout the VAT return process, or a digital audit trail, will be required until the full implementation deadline of 31 March 2020.

Chris Downing, tax partner at KPMG said: ‘With just over a month to go until the deadline, it’s worrying to see that almost two thirds of businesses say that they need more support and are still in the process of working out what they need to do. This could potentially be both costly and time-consuming, depending on the changes that need to be made.

‘Although 98% of VAT registered businesses already file VAT returns electronically, Making Tax Digital will involve significant changes to their existing processes. For example, keeping digital records, maintaining a digital audit trail of all business transactions, and implementing new software to submit their VAT returns digitally.’

Downing cautioned that businesses also need to think about the flexibility of their systems and processes to meet potential future requirements.

‘HMRC are seeking to become the most digitally advanced tax administration in the world. We are likely to see provisions for income tax and corporation tax further down the line,’ he said.

Source: Accountancy Daily - Report by Pat Sweet.

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Leading institutes back Lords call for MTD delay

A recommendation by a Lords committee that the government’s introduction of mandatory Making Tax Digital (MTD) for VAT should be delayed by at least one year is supported by the Low Incomes Tax Reform Group (LITRG), CIOT and the ICAEW.

Victoria Todd, head of the LITRG team, said that HMRC had underestimated quite how significant a change the programme will be for many small businesses, pointing out that that who will be forced to move to digital recording keeping for the first time ‘may well find the prospect very daunting and intimidating’.

She said that these businesses ‘will need time to familiarise themselves with what is required, both in terms of the digital record keeping requirements and any system requirements’, even though some of these businesses were still unable to join HMRC’s pilot scheme in order to test whether their systems are compatible.

‘We are very concerned that HMRC have not yet published any detailed information as to how exemption from MTD for VAT may be obtained. Some small businesses may want to apply for exemption from the new regime, which they are allowed to do where it is not reasonable to expect them to use digital tools because of age, disability or remoteness of where they live or work.

‘However, HMRC have not yet told people how they should apply for an exemption, or what they can do if their application is turned down. As it is likely to take some time to get a decision under any process introduced, if someone is denied an exemption when they were expecting to get it, they will now have very little time to get themselves ready to go digital by April 2019 - this is completely unacceptable.’

In its submission to the House of Lords economic affairs committee’s inquiry LITRG highlighted concerns about the challenging timetable, the availability of suitable free software, the small scale of the pilots and a lack of information for those requiring digital assistance and exemption.

Appearing before the committee in October 2018, Todd argued that MTD should not be mandatory, saying: ‘If a system is good and has benefits you would expect people to naturally want to use it, as is the case in the self-assessment system, filing online. We do not think it needs to be mandatory.’

The ICAEW has concurred with this opinion, saying that the pace of take-up should ‘be led by what is best for businesses themselves’. It recently conducted research which suggested that over 40% of businesses due to be affected by MTD were not yet aware of the impending change, and that 25% of affected businesses were still using a paper-based accounting system.

According to Anita Monteith, ICAEW tax manager, with only four months to go, ‘there is not enough time for businesses to act’.

‘We support HMRC’s ambition to increase the use of digital technology’, she said, ‘but we are concerned, as is the committee, that many VAT registered businesses are not going to be ready for implementation in April 2019. Direct communication by HMRC about this major change is only just beginning and with only four months to go, there is not enough time for businesses to act.

‘Time is running out. MTD for VAT is a major change in tax administration and, with its start date coinciding with Brexit, it is important for businesses, the economy and the UK tax system that it is a success. This is too important to be rushed.’

CIOT and the Association of Taxation Technicians (ATT) have also expressed doubts about the rollout of MTD and backed calls for a delay to the scheme. Adrian Rudd, chair of the CIOT/ATT digitalisation and agent strategy working group, said that although digitalisation ‘could lead to efficiencies for taxpayers, agents and tax authorities’, it should be something that businesses implement because it delivers those benefits and should ‘not be something they are forced to adopt’.

'If properly implemented, digitisation could lead to efficiencies for taxpayers, agents and tax authorities. But many businesses will really struggle to get ready in time, and we support the committee’s recommendation of a delay for MTD for VAT.

'Pushing back the start date for Making Tax Digital for other taxes to 2022 at the earliest, is something we support, but it is more important that there is sufficient time set aside for a full review and evaluation of MTD for VAT before this programme is extended.'

Source: Accountancy Daily - Report by James Bunney.

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