This blog has been designed to inform our clients and other business users of announcements from HMRC and others that may be relevant to their business. Users are advised to contact their professional advisers before acting on any of the information on this blog.

Tuesday, 13 March 2018

Making Tax Digital for VAT

From April 2019 HMRC is introducing Making Tax Digital (MTD) for VAT as follows:

-  Only businesses with turnover above £85,000 will be required to take part but will not be permitted to withdraw later on turnover grounds while they remain registered.
-  VAT-registered businesses with turnover up to £85,000 and insolvent businesses will be able to opt in and out.
-  There will be special exemption rules in case of TOGCs, otherwise exemptions will apply on religious grounds, in insolvency and if, as currently, HMRC is satisfied that electronic submission is impossible due to disability, age, remoteness of location or any other reason.
-  Businesses will be required to keep the same records as at present and retain them for 6 years after deregistration. Penalties for failure to keep and preserve records will not change. What will change are the method of submission and the scope of information to be submitted.
-  Non-quarterly return periods can be maintained under MTD.
-  Error correction will not be reported via MTD. The current procedures will continue.
-  Businesses in MTD will make their returns using “functional compatible software”. This means “a software program or set of compatible software programs which can connect to HMRC systems via an Application Programming Interface (API)”. This also means that all such businesses will need to use software such as Sage, Xero, Quickbooks or some other compatible software. No more manual VAT record keeping.
The functions of the compatible software must include:
a. keeping and preserving records in a digital form as required by the regulations;
b. creating a VAT return from the digital records and providing HMRC with this information;
c. digitally providing HMRC with additional data (summary totals of information required to be kept) on a voluntary basis; and
d. receiving information from HMRC via the API platform in relation to a relevant entity's compliance with obligations under the regulations.
-  The information a business must keep and preserve digitally will include:
a. business name;
b. principal place of business;
c. VAT registration number;
d. VAT accounting schemes in use;
e. the VAT account;
f. each input and output split between standard-rated, reduced-rated, zero-rated, exempt and outside the scope;
g. dates of each supply made and received;
h. dates of payments made and received; and
i. more limited information for those using retail schemes and those on the flat rate scheme.

Thursday, 24 December 2015

New Dividend Tax

The government will abolish the dividend tax credit from April 2016 and introduce a new dividend tax allowance of £5,000 a year. 

The new rates of tax on dividend income above the allowance will be:

7.5% for basic rate taxpayers
32.5% for higher rate taxpayers
38.1% for additional rate taxpayers

What else do we know? Well, we don’t know the full story given that the details will be included in Finance Bill 2016. In the meantime, HMRC issued a Dividend Allowance factsheet on 17 August.

This includes some simple worked examples, and contains the following snippets of information.

The allowance is available to anyone who has dividend income.

Dividends received by pension funds that are currently exempt from tax, and dividends received on shares held in an ISA will continue to be tax free.

The dividend allowance will not reduce an individual's total income for tax purposes (but it will mean that the individual does not have to pay any tax on the first £5,000 of dividend income received).

Dividends within the allowance will still count towards an individual's basic or higher rate band and may therefore affect the rate of tax paid on dividends in excess of the £5,000 allowance.

Change in taxation of Buy-to-let profits

On the 8 July 2015, George Osborne announced a number of changes to the taxation of property businesses. The important is the loss of higher rate tax relief for finance charges, which includes mortgage interest. Also many landlords, who were previously basic rate tax payers, will be pushed into the higher rate tax band.

Consider Mr Patel who has built his property rental business by maximising the use of low interest rate mortgages.

He has built up his rental business profits (after deducting costs excluding mortgage interest) to £120,000 a year. All his mortgages are interest only and the annual interest charges are £100,000. He is content to manage on the modest £20,000 income that this provides as he is in the business for the long term – waiting for long term growth in the capital value of his properties.

Up to the tax year 2016-17 he can deduct the £100,000 from the £120,000 and pay tax on the difference. For 2016-17 this will amount to just £1,800.

After 5 April 2017, new legislation will disallow an increasing percentage of the mortgage interest as a business expense, until by 2020-21 none of the £100,000 will be allowed as a deduction when computing tax payable. At a stroke, and with no change in property income and outgoings, Mr Patel’s taxable profits from his property business will increase from £20,000 to £120,000.

Mr Patel will become a higher rate tax payer and lose much of his personal tax allowance as his income exceeds £100,000.

Relief for his mortgage interest payments will be given by a basic rate tax credit. For 2020-21 this will amount to £20,000 (£100,000 x 20%).

Unfortunately, even with this tax credit taken into account, Mr Patel’s Income Tax liability for 2020-21 will rise to £19,500 (based on current information available). This is a massive increase and it will consume most of his property business cash flow.

Sunday, 25 October 2015

HMRC 'taskforces' raked in an extra £109m this year

Investigators are using new powers and complex computer systems to track your spending and lifestyle.
Whether you're a hairdresser in Lincoln or lawyer in Kent, a team of investigators in Whitehall could be combing through your financial affairs in search of unpaid tax. At their disposal are billions of items of data and vast computer power with which to process it.
The "taskforce" is a special arm of HM Revenue & Customs, established with the aim to collect an extra £50m for the public purse. Its teams undertake "intensive bursts of activity" within specific employment sectors and geographical areas.
Since April 2015, the 27 new taskforces established this year have far exceeded expectations already raking in £109m to the Treasury.
As a result of the ever-increasing volume of information gathered by its “Connect” computer system, HMRC is now obtaining extensive, detailed data about the financial affairs of UK taxpayers.
The estimated 350-strong team also have the power to turn up, unannounced, to any business to inspect its premises and accounts - without a search warrant..
• What the taxman knows about you, your finances and your lifestyle
"We have an increasing amount of intelligence and this yield of £109 million almost double the figure made in the same period last year shows that our strategy is working.”
For the first time, we detail exactly how and when this year's 27 teams have targeted different taxpayer groups.
Construction workers, taxi drivers and self-employed workers making bogus claims on their tax returns for example for journeys they never made are among those targeted this year.
Low-earners, for example, living in luxury properties, would set warning lights flashing in Whitehall.
New sources of data, coupled with sophisticated new ways of screening and matching it, means the team can "dig down and look deeper" to catch tax dodgers.
And once caught, evaders face the potential additional humiliation of their crime being publicised.
HMRC has "named and shamed" 60 tax evaders just this year. Individuals' names appear on its list of " deliberate tax defaulters " for 12 months, but newspaper reports can remain indefinite. The list is published alongside the taxman's most wanted list , containing faces of the biggest evaders currently at-large.
HMRC revealed how Kevin Brown, a carpet cleaner from Perth, was caught for claiming £250,000 worth in cleaning supplies as "business expenses", for instance. The taskforce investigation spotted that he couldn't possibly have spent so much on carpet cleaner.
"If your income doesn't match that luxury boat you just bought, or you are claiming for expenses that appear improbable, taskforces will be looking into your affairs," said Lucy Brennan. "Investigators can now access a pool of information within a matter of seconds."
The taskforces and their computers are searching and looking at information from your bank and other financial service providers, as well as government sources including the DVLA and the Land Registry.
The searches can be repeated, also, to capture new data or any changes in circumstance.
Anyone suspected to contribute to the "hidden economy" that is worth an estimated £35bn will be a target, no matter how modest.
Officers routinely conduct "street sweeps" to discover if local tradesmen are carrying out jobs without declaring them on their tax returns.
Investigators patrol the streets looking for the display signs typically used by builders, scaffolders and decorators and then match these with their online tax details.
"The taxman is very concerned about anyone who deals with cash, like builders and taxi drivers," said Ms Brennan. "Offline methods can be the best way to catch these people."
Each "focus" where taskforces close in on a particular area and industry lasts around nine months.
Once caught, the investigators will demand the unpaid taxes, with penalties added on top.
HMRC will soon be able to claw money direct from the bank accounts of people who they deem evaders if they continue to refuse to pay taxes due.
The controversial new power will be used as a last resort against non-payers, with banks being required to hand over money held in current accounts or Isas.
HMRC refused to confirm which industries and areas of the country could be next for fear of jeopardising their investigations but there are ways to predict where the next "intensive burst" will fall.
The taxman routinely launches campaigns to encourage people to get their tax affairs in order.
A recent "Let Property Campaign" encouraged 10,000 buy-to-let investors to confess to £50m in unpaid taxes, after nudging landlords to disclose any unpaid taxes.
Once the amnesty period is over, during which offenders could pay reduced penalties for late tax, the taskforce will step in and they will be less sympathetic.
To expose buy-to-let landlords, taskforces are expected to use data collected from the Land Registry, council tax databases and online lettings and sales websites such as Rightmove and Zoopla.
If a landlord owns a four-bedroom property, but only declares rent for two tenants, they won't be able to argue that they could not fill the other rooms if the taskforce can prove the property market is popular with tenants.
Currently, the taskforce can impose penalties of up to 100pc of the unpaid tax in other words, require double the sum originally due. This applies to those who fail to disclose their tax, particularly if a campaign has run its course. This increases to 200pc if an evader receives income offshore.
HMRC is increasingly unwilling to tolerate people who miscalculate their own tax liability and fail to come forward when they make a mistake, according to experts.
"As the net closes on tax evaders, HMRC's public shaming of evaders sends the message that the public has more of a moral duty to pay the right amount of tax," said Mr Hubbard.
HMRC's Ms Granger added: "The message is clear: if you try to cheat, we are going to catch you.

"A small number of people still think they can cheat the tax system; these figures prove we can track them down and take back what they owe."
Telegraph By Kate Palmer

Friday, 31 October 2014

Importance of Keeping Business Records

Three directors of a lapdancing club were found guilty of failure to keep proper accounting records between January 2008 and 2010.

Ross Connock, Matthew Sharp and Richard Taylor, who owned Divas Gentlemen’s Club based in Newquay pleaded guilty to the offences at Exeter Crown Court. In addition, Connock admitted a charge of false accounting in the same timeframe.

The trio were directors of RMR Newquay, which was incorporated in 2003 and went into liquidation in 2010. At that time the firm owed HMRC £240,000 in unpaid VAT.

Taylor and Sharp were sentenced to four months in prison each, suspended for two years at Exeter Crown Court. Due to illness Connock's sentencing was deferred for six months.

The judge said the case was of a company with a "woeful disregard for basic accounting".

In summing up, Judge Carr said: "Accounts were produced for 2004, 2005 and 2006 but 2007 accounts were only prepared in 2009 and there were no accounts for 2008 or 2009. Both of you were directors and were aware of the responsibility."

"This was predominantly a cash business, which brings even greater responsibility on directors to ensure correct accounting."

According to the West Briton, the offences came to light when the business went into liquidation and was examined by an administrator.

Department for Business, Innovation and Skills investigation officer John Pearson said following the hearing, that there weren't any accounts at all - "that was the bottom line".

He added that the largely cash business had a turnover of around £1m each year and that it had failed to keep business accounts. Although it wasn't clear whether this was incompetence or dishonesty.

Money had been moved from RMR Newquay into other companies Taylor and Sharp owned. It was not known how much other parties and HMRC had lost.

Taylor was ordered to pay £6,000 towards the costs of prosecution and Sharp was ordered to pay £4,000.

Rachael Power - AccountingWeb

Sunday, 22 September 2013

HMRC's new Let Property Campaign

HM Revenue and Customs is giving landlords who have not declared all of their rental income to the taxman a chance to come forward and 'put their tax affairs in order'.

Under HMRC's new Let Property Campaign, landlords who may owe tax - whether through misunderstanding the rules or deliberate evasion - can come forward and tell HMRC about any unpaid tax on rents, and pay what they owe, including any penalties and interest due.

The campaign is open to all residential property landlords - from those that have multiple properties, to single rentals, and from specialist landlords such as student or workforce rentals, to holiday lettings.

Marian Wilson, head of HMRC Campaigns, said: "All rent from letting out a residential property or holiday home has to be declared for income tax purposes. Telling us is simple and straightforward.

"We appreciate some people will have made honest mistakes, and some may not be fully aware that the rent from a property is taxable, and that is why it always makes sense to talk to us so we can help. It is always cheaper to come forward voluntarily and pay the tax you owe, rather than wait for HMRC to come calling.
"Telling HMRC about your tax liabilities is simple and straightforward, and help, advice and support are available. The message for all landlords owing tax is simple - it is better to come to us before we come to you."

HMRC will use information it holds about property rental in the UK and abroad, along with information already held on HMRC‘s digital intelligence system Connect, to identify people who have not paid what they owe. For those that fail to come forward, higher penalties - or even criminal prosecution - could follow.


Thursday, 26 January 2012

Buy-to-Let Investors warned

BUY-TO-LET investors have been warned to keep their rental income records up-to-date in the face of a new tax clampdown.

HM Revenue & Customs (HMRC) is looking to recoup revenue lost through tax avoidance and evasion in rental income and has intensified the spotlight on landlords.While it already requests details of rental income and property sale revenue from local authorities, its Stamp Office and letting agents, that information will now be data matched to draw out those who don't appear to have made the appropriate tax returns.

Where evidence is uncovered of untaxed rental income and gains, HMRC officers will have the power to inspect records at the business premises, which in the case of some landlords can include private residences. HMRC is taking the buy-to-let market seriously in its clampdown on tax evaders.
It's crucial to notify HMRC of any new source of taxable income, including rental income, as soon as possible.

If landlords do realise they have made a mistake they should take tax advice immediately and contact HMRC. The voluntary disclosure of any omission is looked upon favourably by HMRC and a better tax position can be frequently be obtained.