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Help to Grow: Digital scheme expanded

Written by admin on . Posted in Making Tax Digital, MTD. No Comments on Help to Grow: Digital scheme expanded

The government’s Help to Grow: Digital scheme has just been expanded to businesses with at least one employee. Previously, only businesses with five or more employees were eligible. The scheme provides a 50% discount towards the cost of software.

The extension of the scheme’s eligibility criteria means that some 1.2 million businesses can now benefit. The scheme has also been expanded to include:

  • Additional software in the form of eCommerce software that can help businesses sell online and reach new markets; and
  • One-to-one advice on how best to adopt digital technology, although this service will not go live until later this year.

The discount

The 50% discount is worth up to £5,000 (excluding VAT) on approved software, which is purchased for the first time. Only one software product can qualify for the discount, and only the first 12 months of software costs are covered. The business has to be incorporated and trading for at least 12 months.

The types of software covered are:

  • Customer relationship management software that allows a business to store its customer contact and order data all in one secure, central location.
  • Digital accounting software that makes essential business finance tasks like raising invoices, expense tracking, and sharing information easier to manage.
  • eCommerce software that helps a business sell its products and services online.

On average, using customer relationship management software boosts productivity by 18%, with digital accounting software increasing employee sales by nearly 12% over three years.

There are currently 14 approved technology suppliers listed on the Help to Grow: Digital website, which also provides a considerable amount of guidance. Business owners can learn about the different types of software available, how to identify their business needs, and use step-by-step guides to embrace new ways of working.

More information about the Help to Grow: Digital scheme can be found here.

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Are you on top of Making Tax Digital’s latest developments?

Written by admin on . Posted in Making Tax Digital, MTD, National Insurance Contributions, self-assessment, Self-Employed, VAT. No Comments on Are you on top of Making Tax Digital’s latest developments?

The widening scope of Making Tax Digital (MTD) is highlighting several issues, including the limited availability of the MTD for income tax pilot scheme, and low awareness of the recent expansion of MTD for VAT to all VAT registered businesses.

Pilot scheme

Although the functionality of the MTD for income tax pilot scheme is constantly evolving, HMRC is still restricting sign-up to small numbers, citing the need for detailed, individual guidance for users.

From this month, taxpayers can join the pilot if they have the following types of income:

  • self-employment, even if there is more than one business;
  • UK property;
  • employment income; or
  • UK savings and dividend income.

Functionality to be added over coming months will mean that pilot scheme users will be able to claim relief in respect of personal pension contributions and the marriage allowance, and it will also be possible to report capital gains, pay voluntary class 2 NICs and make student loan repayments.

The scope of the pilot scheme is still quite restricted, with taxpayers only able to sign up through their software provider.

MTD for VAT

MTD for VAT was extended to all VAT registered businesses from 1 April. Previously, it only applied to those above the £85,000 VAT registration threshold.

Some new entrants will currently be in the process of preparing their first MTD compliant VAT return – although research indicates considerable misunderstanding as to how MTD for VAT differs from the previous electronic VAT return filing requirement. Some 30% of responders thought they had already signed up to MTD, when in fact they had not.

There will be something of a delay for those businesses who submit VAT returns annually. For example, with an annual accounting period running to 31 March 2023, the first MTD return will not need to be submitted until 31 May 2023.

As MTD progresses, stay up to date with HMRC guidance here.

Please take professional advice if you require assistance with your MTD transition.

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Making Tax Digital Update

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Making Tax Digital (MTD) will become mandatory for the self-employed and landlords in 2024. Although there is no major news, a recent webinar co-hosted by HMRC has shed more light on the sign-up process, the use of spreadsheets and joining the pilot scheme.

MTD will come into effect for accounting periods commencing on or after 6 April 2024. For general partnerships (those with only individuals as partners), the start date is 6 April 2025.

Large partnerships with 20 or more partners are not included within the definition of a general partnership, and for them – along with other non-general partnerships – there is still no start date.

Signing up

It is going to be necessary for each taxpayer to sign up individually, but tax agents will be able to do this on behalf of clients. Agents will be able to sign up clients up to 12 months in advance of needing to comply with MTD.

Unfortunately, no further details have been provided, although HMRC did say the process will be different to the current MTD pilot sign-up process, which requires a substantial amount of information, plus a Government Gateway account.

Spreadsheets

HMRC has made it clear that spreadsheets can be used to fulfil the record-keeping requirement of MTD. However, when it comes to the filing requirement, MTD-compatible bridging software will be necessary.

The bridging software will need to be more advanced than that used for MTD for VAT. That is because for VAT returns, information is only sent in one direction – to HMRC. For income tax submissions, the software will also receive data from HMRC.

Pilot scheme

The scope of the pilot is still quite restricted, with taxpayers only able to sign up through their software provider.

  • Anyone who needs to report income from other sources, such as employment income, cannot join.
  • Only sole traders and landlords with a 5 April accounting date (not 31 March) can join.
  • Anyone who is not up to date with their tax payments (so excluding those who have set up a time to pay arrangement) or tax return submissions cannot join.

HMRC’s list of software that is compatible with MTD for income tax can be found here.

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The next step for Making Tax Digital

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Making Tax Digital (MTD) for VAT has been in place for three years, but this first phase excluded voluntarily registered businesses beneath the registration threshold. From 1 April 2022, all VAT-registered businesses must implement MTD regardless of turnover.

The vast majority of businesses registered voluntarily under the scheme will have done so because they can recover input VAT without suffering any, or much, in the way of output VAT   – typically where customers are VAT registered or sales are zero-rated. Most new entrants will therefore not be using the flat rate scheme and will have to keep full digital records.

There are limited exceptions from MTD, but voluntarily registered businesses can simply deregister if the amount of VAT recovered doesn’t warrant the time and/or cost involved with MTD compliance.

Signing up

Those businesses now coming into the scope of MTD must use it for their first VAT return starting on or after 1 April 2022. There could therefore be quite a delay if submitting returns annually. For example, with an annual accounting period to 31 December, MTD will not need to be used until the year beginning 1 January 2023.

Businesses need to sign up for MTD, but this should be done only after the final non-MTD return has been submitted. If paying by direct debit, sign up needs to be at least a week before the first MTD return is due.

Software

Compatible software has to be in place for the start of the first MTD VAT return period. The easiest option will be if records are currently kept on a spreadsheet. Free bridging software can then be used to pick up relevant details and submit VAT returns to HMRC. Bridging software is necessary because any transfer of data must be done using a digital link; cutting and pasting is not a digital link.

Even if full VAT record-keeping software is required, there are some free versions available.

Smaller businesses will invariably be wary of change, but MTD should improve accuracy. HMRC figures show that for 2019/20, a reduction in errors brought in some £195 million in extra VAT revenue.

Details of MTD software that has been through HMRC’s recognition process can be found here.

 

Maxing Tax Digital delayed until 2024

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In recognition of the challenges to many businesses due to the pandemic, the government has delayed the introduction of Making Tax Digital (MTD) for income tax self-assessment (ITSA) by a further year.

MTD will not be mandatory for self-employed individuals and landlords until accounting periods commencing on or after 6 April 2024. The start date for general partnerships (those with only individuals as partners) will now be from April 2025, with the date for other types of partnerships still to be confirmed. The planned April 2026 commencement date for MTD for corporation tax now also seems uncertain.

Knock-on effect

The one-year delay means that:

  • The reform of the basis period rules for unincorporated businesses has been pushed back until at least April 2024, with the transition year no earlier than 2023 – so yet another change that now appears less certain than previously.
  • The new penalties for late payments and late submissions will now no longer apply to the self-employed and landlords (mandated to use MTD for ITSA) until April 2024, with other ITSA taxpayers included a year later.

No change

Although the delay will be welcomed by the majority of businesses, a delay is all it is. There is no change to the entry point (taxable turnover from self-employment and/or income from property over £10,000), nor to the requirement to keep digital records and provide quarterly returns using third-party software to HMRC.

HMRC has estimated the average transitional cost of becoming digital as £330, with an annual cost of £35 per business, although that assumes no new hardware will be required.

The delay will mean that more software packages are available before MTD for ITSA comes in, and there will be more opportunity to join the pilot scheme. If you are self-employed or a landlord, you should make the most of the extra time to ensure your business is ready come April 2024.

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Are you ready for MTD?

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Making Tax Digital for income tax self-assessment may still be 18 months away, but if you are self-employed or a landlord, it is time to get ready for digital record keeping, ahead of the deadline.

MTD ITSA (as it’s known) is set to begin on 6 April 2023, and it looks like businesses will need to enter the new regime from the first accounting period commencing on or after 1 April 2023; the proposed basis period rules deem an accounting period ending on 31 March as ending on 5 April.

More than four million taxpayers are set to start MTD ITSA from 6 April 2023, and the current timetable has met fierce opposition. The limited nature of the pilot scheme has not helped.

How MTD ITSA will work

MTD ITSA will initially apply to the self-employed and landlords with total annual turnover exceeding £10,000. There is no exclusion if you have, say, £6,000 of trading income and £6,000 of rental income.

  • Income and expenditure will have to be recorded digitally. Spreadsheets are fine, but, if you do it yourself, MTD-compatible software will be needed to submit quarterly updates.
  • A quarterly summary of income and expenses must be sent to HMRC, with a final declaration replacing the self assessment tax return.
  • There will be a new penalty system and no soft landing. However, a late filing penalty will not apply until four quarterly submissions are late.

The biggest impact will be for those currently maintaining paper records. A move to spreadsheets should not be too onerous, however, and it will then be fairly straightforward to use these as a basis for the filing requirements.

If you are thinking of moving to a software package, be warned there are currently only seven providers of suitable software. HMRC has issued guidance on MTD ITSA and of course we’re here to help.

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Changes afoot for Basis period tax rules

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Although it looks like the next Budget will be pushed back to spring 2022, several tax changes are already on the cards, some more certain than others. The government’s fast progress with reform of the basis period rules for unincorporated businesses has taken some by surprise.

Basis period rules

The basis of taxation for sole traders and partnerships looks like it will change to a tax year basis from 2023/24 onwards. The government’s plan is to simplify the rules by the time MTD for income tax becomes mandatory.

This will not impact on you if you already draw up accounts to 5 April (or 31 March), but for others 2022/23 will be the transition year.

Example

A partnership prepares accounts to 30 June. The profits assessed for 2022/23 will be those from 1 July 2021 to 5 April 2023 (or 31 March 2023), less any unused overlap profits. For 2023/24, profits assessed will be from 6 April 2023 to 5 April 2024 (or 1 April 2023 to 31 March 2024). Profits for the years ended 30 June 2023 and 2024 will have to be apportioned.

Any unused overlap profits can be offset in 2022/23, although some will find themselves taxed on up to 23 months of profits with little overlap profits to offset. In this case, an election will be possible so that the additional profits are spread over five tax years.

The need to apportion profits in future will mean having to estimate figures (with a subsequent amendment) where the second set of accounts is not prepared in time for the 31 January self- assessment deadline.

The simplest solution will be to change to a 5 April (or 31 March) accounting date. Making that change in 2021/22 could be a good option if current profits are low due to Covid-19.

Another change already on the cards is the increase to the normal retirement age for registered pensions from 55 to 57 in April 2028, which will be legislated in the Finance Act 2021/22. Less certain is a proposed 1% increase in NICs for the employed and self-employed to fund social care.

The Government’s policy paper on basis period reform can be found here.

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MTD income tax pilot

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The pilot scheme for Making Tax Digital (MTD) for income tax is now open for self-employed workers and landlords. The scheme becomes mandatory for accounting periods commencing on or after 6 April 2023, so those who join now will get ahead of the game.

The first phase of MTD for income tax will be mandatory if your taxable turnover from self-employment or income from property is above £10,000. If you want to be one of the early adopters in the pilot scheme, there are various conditions that you will need to meet.

Who can join?

You can only join if you are a sole trader with income from just one business, a landlord renting out UK property, or both. If you need to report income from other sources, such as employment, pensions, or capital gains, then you cannot currently join. The other conditions should not be a problem for most:

  • UK resident;
  • registered for self assessment, and
  • up to date with tax returns and payments.

Your accountant can sign you up if you make a request.

Digital records

To join the pilot, you will need to use software that is compatible with MTD for income tax. Be warned that only five fully compatible products covering both self-employment and property are currently listed by HMRC, although this includes two with free versions.

You’ll need to keep digital records of all your business income and expenses, starting from the beginning of the accounting period you sign up for, and send updates to HMRC. At the end of the period, you will submit a final declaration instead of a self-assessment tax return.

If you’re already using software to keep records, you should almost certainly wait for your provider to update their product to be compatible with MTD for income tax rather than switching providers just to join the pilot scheme. HMRC’s list of software compatible with MTD for income tax can be found here.

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Changing tax payments for SMEs

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As making tax digital extends to businesses and landlords from April 2023, the government is considering whether to increase the frequency of tax payments, both for the self-employed and companies.

The recently published consultation is part of the government’s ten-year strategy to build a modern tax administration system.

Current problems

The newly self-employed can go up to 22 months after commencement before their first tax bill, which can lead into debt. A similar problem arises if there is a large increase in profits from one year to the next.

The consultation is only concerned with companies outside the quarterly instalment regime. The normal due date for such companies to pay their corporation tax is nine months and one day following the accounting period end, so again a significant time lag. It is all too easy for funds to have been spent if a year of high profits is followed by one with much lower income.

Spreading payments

One option likely to be available soon is an improvement to HMRC’s budget payment plan, making it easier for taxpayers to voluntarily budget for future tax payments.

The consultation considers a move to quarterly or even monthly tax payments and points out that the majority of taxpayers already pay monthly or weekly under PAYE. However, a move to quarterly or monthly tax payments will mean more time spent on calculation and reporting, increasing the administrative burden on SMEs. More frequent tax payment also throws up other issues:

  • The funds available to a business in-year will be reduced.
  • The chosen frequency may not be appropriate for different trades or sectors.
  • Income tax and corporation tax are designed to be calculated on an annual basis, with reliefs, allowances, adjustments, and certain deductions factored in at the year-end.

The closing date on the call for evidence on the consultation is 31 July.

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