What information will you need to report under Making Tax Digital (MTDfB)? Reply

Once the election is over, Making Tax Digital will be pushed forward again, ready for its launch in April 2018.

If you aren’t using any software or apps to prepare your accounts, now is the time to start. Under MTDfB – Making Tax Digital for Business – Sole Trader, Partnerships, Landlords and ultimately Companies will need to file returns every quarter and submit a final year end return.

This what you will need to report

The categories of information listed below are being reviewed and have not yet been finalised. They have been included mainly for indicative purposes.

https://www.gov.uk/government/publications/bringing-business-tax-into-the-digital-age-legislation-overview/bringing-business-tax-into-the-digital-age-legislation-overview#schedule

Non-property businesses

Income:

  • turnover, takings, fees, sales or money earned
  • any other business income

Expenses:

  • cost of goods bought for resale or goods used
  • construction industry – payments to subcontractors
  • wages, salaries and other staff costs
  • car, van and travel expenses
  • rent, rates, power and insurance costs
  • repairs and renewals of property and equipment
  • phone, fax, stationary and other office costs
  • advertising and business entertaining costs
  • interest on bank and other charges
  • bank, credit card and other financial charges
  • irrecoverable debts written off
  • accountancy, legal and other professional fees
  • depreciation and loss/profit on sale of assets
  • other business expenses
  • goods and services for your own use
  • income, receipts and other profits included in business income or expenses but not taxable as business profits
  • disallowable element for each category

Property businesses

Income – furnished holiday lettings:

  • rental income and any income for services provided to tenants

Expenses – furnished holiday lettings:

  • tax taken off income
  • rent paid, repairs, insurance and cost of services provided
  • loan interest and other financial costs
  • legal, management and other professional fees
  • other allowable property expenses
  • private use adjustment
  • premiums for the grant of a lease
  • reverse premiums and inducements
  • property repairs and maintenance
  • costs of services provided, including wages

Income – property:

  • rental income and other income from property

Expenses – property:

  • tax taken off any income from total rents
  • premiums for the grant of a lease
  • reverse premiums and inducements
  • rent, rates, insurance, ground rents etc.
  • property repairs and maintenance
  • loan interest for residential properties and other related financial costs
  • other loan interest and financial costs
  • legal, management and other professional fees
  • costs of services provided, including wages
  • other allowable property expenses
  • private use adjustment

Partnerships

Interest and alternative finance receipts without UK tax deducted:

  • interest and alternative finance receipts from UK banks and building societies paid without tax deducted
  • interest distributions from UK authorised unit trusts and UK open-ended investment companies and investment trusts
  • income from National Savings and Investments
  • other untaxed income from UK savings and investments (except dividends)

Interest and alternative finance receipts with UK tax deducted:

  • other taxed income from UK savings and investments (except dividends) (amount net of tax deducted)
  • tax deducted

Dividends:

  • dividends and other qualifying distributions from UK companies
  • tax credits attached to such dividends etc
  • dividend distributions from UK authorised unit trusts and open-ended investment companies
  • tax credits attached to such distributions
  • stock dividends from UK companies
  • tax credits attached to such stock dividends
  • non-qualifying distributions and loans written off
  • tax credits attached to such distributions etc

Other income received without UK tax deducted:

  • other income – profit
  • other income – loss

Other income received with UK tax deducted:

  • other income (amount net of tax deducted)
  • tax deducted

Partnerships – end of year information

Disposal of capital assets – partnerships:

  • description of assets
  • whether listed or unlisted shares or securities (if applicable)
  • name of partners who benefited from the disposal proceeds
  • total proceeds from disposal

End of year information

Tax adjustments and elections:

  • adjustment required where the basis period is not the same as the accounting period under section 203 of the Income Tax (Trading and Other Income) Act (ITTOIA) 2005
  • averaging adjustment applied to taxable profits where an election has been made for averaging under section 222 or 222A of ITTOIA 2005
  • adjustment required as a result of a change in basis under Chapter 17 of Part 2 of ITTOIA 2005
  • total of any construction industry scheme deductions taken from payments made to subcontractors under section 61 of Finance Act 2004
  • any other tax deducted from trading income (excluding deductions made by contractors on account of tax)
  • sums due to be charged under sections 277 to 285 of ITTOIA 2005
  • adjustments required under Chapter 7 of Part 3 of ITTOIA 2005
  • claims for loss relief under Chapter 2 of Part 4 of the Income Tax Act 2007 (Chapter 4 for property businesses)
  • disallowable expenditure
  • foreign tax deducted
  • any other tax adjustment
  • adjustment on change of basis
  • foreign tax deducted

Capital allowances – claims and balancing charges:

  • annual investment allowance
  • capital allowances at 18%
  • capital allowances at 8%
  • restricted capital allowances on cars costing more than £12,000 where bought before 6 April 2009
  • business premises renovation allowance
  • enhanced capital allowances: energy-saving relief
  • enhanced capital allowances: environmentally-beneficial relief
  • enhanced capital allowanced: electric charge-points
  • enhanced capital allowances: gas refuelling equipment
  • allowances on sale or cessation of businesses use (where an asset has been disposed of for less than its tax written down value)
  • total capital allowances
  • balancing charge on sale or cessation of business use (where business renovation allowance has been claimed)
  • balancing charge on sales of other assets or on the cessation of business use (where an asset has been disposed of for less than its tax written down value)

 

steve@bicknells.net

Do you have to charge VAT when you buy things for clients? 1

When you buy things for your client on their behalf the items could be excluded from your VAT calculations if they are Disbursements

To treat a payment as a disbursement all of the following must apply:

  • you paid the supplier on your customer’s behalf and acted as the agent of your customer
  • your customer received, used or had the benefit of the goods or services you paid for on their behalf
  • it was your customer’s responsibility to pay for the goods or services, not yours
  • you had permission from your customer to make the payment
  • your customer knew that the goods or services were from another supplier, not from you
  • you show the costs separately on your invoice
  • you pass on the exact amount of each cost to your customer when you invoice them
  • the goods and services you paid for are in addition to the cost of your own services

It’s usually only an advantage to treat a payment as a disbursement if the supplier didn’t charge VAT on it, or if your customer can’t reclaim the VAT.

An example of an invoice showing disbursements and recharges

A website design consultant based in London does a week’s work for a client in Edinburgh. The consultant visits the client’s premises at the start of the week to discuss the project. The consultant also agrees to purchase a website hosting package from an Internet service provider on behalf of the client.

The consultant and the client agree the following fees:

Activity Fee
Consultant’s work £2,500 plus VAT
Consultant’s travelling expenses £300
Website hosting package purchased on the client’s behalf £150

The £300 travel cost that the consultant recharges to the client is not a disbursement so the consultant must charge VAT on it. But the cost of the website hosting package is a disbursement and can be excluded from the VAT calculation, because:

  • it was purchased for the use of the client
  • the client agreed that the consultant would arrange and pay for it on their behalf – this means the consultant agreed to act as the client’s agent
  • the consultant passed the whole £150 charge on to the client, without adding anything, as a separate item on the invoice
  • it was the client’s responsibility to pay for the goods
  • the consultant had permission from his client to make the payment
  • the client knew the web hosting package was from another supplier and not from the consultant
  • the consultant showed the costs separately in the invoice
  • the web hosting package paid for by the consultant is additional to the other services being billed to the client

The consultant’s invoice to their client for this work might include the following items:

  • design services – £2,500
  • travelling expenses – £300
  • amount on which VAT is due – £2,800
  • VAT at 20% – £560
  • disbursements – £150
  • total including VAT – £3510

steve@bicknells.net

How does a property investor or partnership ask HMRC for incorporation clearance? Reply

Woman working with documents, Tablet pc and notebook. Property management Concept.

It doesn’t matter whether you have a partnership, an LLP or just have properties in your own name, provided you play an active role in managing your properties you could qualify for Section 162 Incorporation Tax Relief which will allow you to roll/hold over the capital gain into shares in your new company.

https://www.gov.uk/government/publications/incorporation-relief-hs276-self-assessment-helpsheet/hs276-incorporation-relief-2015

If you, either as an individual or in partnership, incorporate a business by transferring the business, together with all the assets of the business, in exchange wholly or partly for shares, you can defer some or all of the gain arising from the disposal of the ‘old assets’ (the business and the assets of the business) until such time as you dispose of the ‘new assets’ (the shares).

This relief is given automatically by Section 162 Taxation of Chargeable Gains Act 1992 provided the various requirements are met.

The key problem area is that Property Investment is generally not considered to be a Trade but because of the uncertainty created by recent legal cases you are able to ask HMRC for a Non-Statutory Clearance. This is effectively written approval from HMRC.

An example of playing an active role (and therefore having a Trade/Business) came up in EM Ramsay v HMRC [2013] UKUT 0226 (TCC)

Mrs Ramsey carried out the following activities

  1. Mr & Mrs Ramsey personally met potential tenants
  2. Mrs Ramsey check the quarterly electric bills
  3. Mrs Ramsey arranged insurance
  4. Mrs Ramsey arranged and attended to maintenance issues (drains)
  5. Mrs Ramsey and her son maintained the garages and cleared rubbish
  6. Mrs Ramsey dealt with post
  7. Mrs Ramsey dealt with fire regulation issues
  8. Mrs Ramsey arranged for a fence to be erected
  9. Mrs Ramsey created a flower bed
  10. Shrubs were pruned and leaves swept
  11. The parking area was cleared of weeds
  12. The flag stones were bleached
  13. Communal areas were vacuumed
  14. Security checks were carried out
  15. She took rubbish to tip
  16. She cleaned vacant flats
  17. she helped elderly tenants with utilities

This work equated to at least 20 hours per week and Mrs Ramsey had no other employment.

It is because she did the work herself that her property investment was considered a ‘Business’ and eligible for Incorporation Tax Relief.

How do you request a Non-Statutory Clearance from HMRC?

You can ask HMRC for further guidance or advice if you:

  • have fully considered the relevant guidance and/or contacted the relevant helpline
  • have not been able to find the information you need
  • remain uncertain about HMRC’s interpretation of tax legislation

HMRC will then set out their advice in writing.

Annex A of HMRC explains the information required

https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/377646/annex-a.pdf

steve@bicknells.net

When do you pay Capital Gains Tax on a Property Sale? 1

One family house for sale

Capital Gains Tax is a tax on the profit when you sell (or ‘dispose of’) something (an ‘asset’) that’s increased in value.

It’s the gain you make that’s taxed, not the amount of money you receive.

So it doesn’t apply to Property Developers, their profits are trading income not investment income.

Disposing of an asset includes:

If you sell a property that your have lived in you will probably qualify for Principle Private Residence Relief

https://stevejbicknell.com/2015/04/13/how-does-principle-private-residence-relief-work/

Even it it wasn’t your Principle Private Residence but you did own it personally you will still get an allowance of £11,100 tax free.

Companies get an indexation allowance

https://stevejbicknell.com/2012/06/17/capital-gains-tax-for-companies/

Residential properties don’t qualify for business asset rollover relief.

Once you have worked out your gain, the choices for individuals are:

Report your gain and pay straight away

You can use the Report Capital Gains Tax online service for the 2016 to 2017 tax year (6 April 2016 to 5 April 2017) if you’re a UK resident.

You’ll need a Government Gateway account – you can set one up from the sign-in page.

You don’t need to wait for the end of the tax year – you can use this service as soon as you’ve calculated your gains and the tax you owe.

Report in a Self Assessment tax return

Use Self Assessment to report your gain in the tax year after you disposed of assets.

If you don’t usually send a tax return, register for Self Assessment by 5 October following the tax year you disposed of your chargeable assets.

If you’re already registered but haven’t received a letter reminding you to fill in a return, contact HMRC by 5 October.

You must send your return by 31 January (31 October if you send paper forms).

Report Company Capital Gains in a Corporation Tax Return

Report your gains to HM Revenue and Customs (HMRC) when you file your Company Tax Return. How much tax you pay depends on any allowances and reliefs you claim.

steve@bicknells.net

Is your Expense Checking System up to scratch? Reply

Angry tax inspector looking serious and determined

HMRC have guidance in EIM30275 and EIM30270 which set out what they expect, so for example, this is what they expect the expense checking process to be for a one man company

Model D – One man company

Single employee of a one man company working at a series of temporary workplaces. Claiming benchmark scale rates.

Employee maintains a diary and time sheet to confirm occasions when travelling in the performance of their duties and retains receipts in respect of subsistence costs.  An independent third party performs regular monthly checks on a sample of the employees’ records to confirm that the relevant conditions for the exemption were met on each occasion. Checks are performed at random and the employee does not know in advance which journeys will be checked.

Independent third party would generally mean your accountant, but as HMRC encourage people to file themself many One Man Companies won’t have an accountant, so who does the checking then?

Lets see what bigger companies need to do?

Model C – Small employer

Small employer with less than 100 employees who regularly travel in the duties of their employment. Employer pays benchmark rates

Employer checks a random 10% of all claims.  Checks to be independently checked and authorised, and vouched by reference to employee diaries, work schedules and time sheets to confirm that employees were travelling in the performance of their duties on the date of the claim, and receipts to demonstrate that employees had in fact incurred costs whilst travelling. Employees should be aware that they might be subject to review at any time, and not be given notice that any particular claim will be subject to review.

The employer will have to be able to satisfy HMRC that their 10% sample really is a random one – for example, every 10th claim received.  HMRC will accept the evidence produced by such an exercise as being random for the purposes of confirming that employees meet the qualifying conditions for payment of the scale rate.

Employees required to retain receipts for a period of twelve months from the date of expenditure.

I think for small employers this would probably work and is achievable.

What system do you use? Do you think HMRC would accept your system?

steve@bicknells.net

The future is Digital, but we aren’t ready to Make Tax Digital yet! Reply

b1854df8-4af2-474b-b2ae-fd20bfa3f1bb

On 14 December 2015, HMRC published a “roadmap” showing that the new process known as ‘MTD Making Tax Digital’ would be mandatory for most businesses:

“By 2020 most businesses, self-employed people and landlords will be required to keep track of their tax affairs digitally and update HMRC at least quarterly via their digital tax account. These changes will be introduced for some businesses from April 2018, and will be phased in by 2020, giving businesses time to adapt.”

Accountant’s have been saying for sometime that 2018 is too ambitious and the £10,000 threshold is too low.

The House of Commons Treasury Committee now agree that 2018 is too soon and feel it should be 2019 or later.

One of the big areas of concern has been over the quarterly tax reporting requirements and concerns over data accuracy.

Data accuracy is going to be critical, are most businesses up to providing data in real time? RTI has worked for payroll but could it really work for accounting information? many businesses rely on their accountants and book keepers to get the information correct.

The relationship between UK Taxpayers and HMRC is a good one, the vast majority of UK taxpayers want to pay the right amount of tax and the UK tax gap is already one of the lowest in the world. HMRC could lose that trust by rushing MTD.

Software is also a big issue, with the threshold at £10,000 even very small businesses will need specialist software to cope with MTD and spreadsheets will not be able to cope.

It’s time to take a slower more considered approach.

steve@bicknells.net

What if you can’t afford to pay your tax bill? Reply

No money concept

Some tax payers are great at saving up and keeping money aside to pay their tax bill, but many aren’t!

What can you do if you can’t pay?

You could ask HMRC for help

You may be able to either:

  • get more time to pay
  • pay your bill in instalments by direct debit
  • Telephone: 0300 200 3835
  • Opening times:

    8am to 8pm, Monday to Friday
    8am to 4pm, Saturday and Sunday

Another option might be to use Credit Cards, you may be able to get a 0% credit card or pay and then transfer to 0%

https://www.uswitch.com/credit-cards/credit-card-balance-transfers/

This might be easier, better and cheaper than spreading payments with HMRC.

steve@bicknells.net

 

Only 8 days left to file your Self Assessment! don’t panic Reply

Red help button concept.

Over 4 Million Self Assessment Returns (over 40%) will be filed in January 2017, last year the 29th January saw the highest level of filing with 50,358 returns filed between 2pm and 3pm on that day!

Its likely that many of those who haven’t yet filed their 5th April 2016 returns will either start to panic now or the panic will set in and increase in the next few days.

Here are some things to ease that panic.

What if you don’t have all the information you need for the return?

Returns which include provisional or estimated figures should be accepted provided they can be regarded as satisfying the filing requirement.

  • A provisional figure is one which the taxpayer / agent has supplied pending the submission of the final / accurate figure
  • An estimated figure is one which the taxpayer / agent wishes to be accepted as the final figure because it is not possible to provide an accurate figure for example where the records have been lost. The taxpayer is not required to tick box 20 of the Finishing your Tax Return section of the return page TR 6 (or equivalent in a return for an earlier year) where estimated figures have been used

HMRC SAM121190

Is there a reasonable excuse as to why you can’t file the return?

Here are some excuses that HMRC have accepted

  1. a failure in the HMRC computer system
  2. your computer breaks down just before or during the preparation of your online return
  3. a serious illness, disability or serious mental health condition has made you incapable of filing your tax return
  4. you registered for HMRC Online Services but didn’t get your Activation Code in time
  5. it was lost in the post HMD Response International v’s HMRC 2011 The accountant produced a contemporaneous note in his office diary for 16 May showing that he had filed the return.

What if you make a mistake?

If you make a mistake on your tax return, you’ve normally got 12 months from 31 January after the end of the tax year to correct or amend it.

What if you don’t know where to send the payment?

For all those struggling to work our whether to make a bank transfer to HMRC Shipley or Cumbernauld

Your payslip tells you which HMRC account to use. If you’re not sure, use HMRC Cumbernauld. You must use your UTR as the payment reference.

Sort code Account number Account name
083210 12001039 HMRC Cumbernauld
083210 12001020 HMRC Shipley

If you make a Faster Payment this will clear the same day if the amount is within your bank’s limits.

https://www.gov.uk/pay-self-assessment-tax-bill

What if you don’t know how much to pay because of payments on account?

You can check the amount by logging onto HMRC or by asking your accountant to check with their Agent Login.

If you make payments on account you will have made payments in January 2016 and July 2016 towards the final payment to be made in January 2017.

What are the penalties for missing the deadline?

HMRC have tool to help you estimate the penalties and interest

https://www.gov.uk/estimate-self-assessment-penalties

steve@bicknells.net

When does a SSAS/SIPP property become residential? Reply

foreman builder and construction worker with blueprint in indoor apartment

This question comes up a lot, the definitive answer is in the HMRC pension manual…

https://www.gov.uk/hmrc-internal-manuals/pensions-tax-manual/ptm125200#IDAYYPQB

Property converted or adapted as residential property

The definition of residential property is a building or structure that is used or suitable for use as a dwelling. It does not therefore apply to property, including land, which is not residential property when the investment-regulated pension scheme acquires it. But the building or structure may become residential property whilst owned by the pension scheme as a result of being subsequently subject to development.

Whilst it is in the course of construction, conversion or adaptation such land and property is not residential property because during that period it is not suitable for use as a dwelling.

Land and buildings being converted are treated as residential property from the point when they become suitable for use as a dwelling.

In any specific case this point should be determined by taking a common sense approach to the facts and circumstances.

Essentially the question to be answered is: would a person normally live in that dwelling?

The point at which this occurs will normally be when the works are substantially completed. In the case of UK property this is likely to be when the certificate of habitation is issued.

A property that is sold before the development or conversion is substantially completed never becomes residential property.

steve@bicknells.net

Should I worry about a tax investigation? Reply

Tax Investigations can happen to anyone, around 7% are estimated to be random.

Even if your accounts and tax affairs are in totally up to date and correct investigations will take up your accountants time and incur fees.

What can you do to reduce your chances of being selected:

1. File your tax returns on time and pay what you owe – If you file late or at the last minute HMRC will think you are disorganised and as such there are more likely to be errors in the return

2. Declare all your income – HMRC get details of bank interest and other sources of income, sometimes they test them and match them to returns

3. Use an accountant – Unrepresented taxpayers are more likely to be looked at, mainly because many of them don’t know what they are doing

4. Trends – if your business doesn’t match the profile of similar business in the same sector or your results suddenly fluctuate it could raise concerns at HMRC, for example, if you suddenly request a VAT refund

According to the FSB

The average duration of a full investigation is circa 16 months whereas an aspect investigation can last between 3 – 6 months, but can take longer.

We are currently putting in place a solution for our clients with Taxwise  better to be safe than sorry, letters will be sent to our clients before Christmas

taxwise

steve@bicknells.net