Making Tax Digital Delayed until 2020

Making Tax Digital Delayed.jpg

The Treasury have delivered what is potentially good news for many (yes, you have read that correctly).  Making Tax Digital, or MTD to give it its affectionate moniker, has been both delayed and reduced in terms of requirement.

For businesses that are VAT registered, VAT returns will still have to be submitted via MTD compatible software from 1 April 2019, but in terms of quarterly reporting for tax and national insurance (NI) purposes,  MTD has been delayed until at least April 2020.

The new timetable for income tax and NIC reporting is as follows, although the £85,000 small business threshold is subject to change.

Annual turnover

Old timetable

New timetable

Over £85,000

6 April 2018

At least April 2020

From £10,000 – £85,000

6 April 2019

At least April 2020 but on a voluntary basis

Companies

1 April 2020

At least April 2020

It appears that the Government have quite enough on their plate without launching MTD and undoubtedly many taxpayers will welcome the delay!

Please note: This article is a commentary on general principles and should not be interpreted as advice for your specific situation.

Doctor, Doctor: Are Medical Expenses Tax Deductible?

doctor doctor are medical expenses tax deductible.jpg

The question of whether medical expenses are tax deductible is one which is frequently posed and we can consider this using the example of a self-employed farmer who seeks treatment from a chiropractor. She believes that the treatment will improve her ability to farm and therefore queries whether she can claim a deduction for this in her accounts.

HMRC do recognise that taxpayers need to be in good health in order to carry on their trade, this allows them to earn an income on which they will pay their taxes. However HMRC’s approach to medical expenses typically follows that applied to costs incurred for food and clothes.

In this instance the farmer’s medical expense will not be tax deductible as the treatment will positively impact her personal life and therefore the expenditure cannot be wholly and exclusively incurred for business purposes.

If you require any further information please contact Green & Co Accountants.

Please note: This article is a commentary on general principles and should not be interpreted as advice for your specific situation.

Year End Tax Planning Tips For Companies

 iStock-587220926.jpg

Corporation tax is set to reduce to 19% with effect from 1 April 2017 but opportunities still remain to reduce and defer corporation tax liabilities. Here are some you may wish to consider.

MAXIMISE CAPITAL ALLOWANCE

The annual investment allowance (AIA) provides 100% tax relief for qualifying expenditure incurred up to a limit of £200,000 for 12 month periods starting on 1 January 2016. The allowance can only be claimed in the period in which the expenditure was incurred. You should be aware that cars are excluded from this relief.

If you have a 31 March year end, it would be sensible to review capital expenditure plans and consider bringing forward any purchase to before 31 March, thereby utilising this allowance which might otherwise be lost.

On the other hand, if the £200,000 limit has been exceeded, then further purchases should be delayed until after the year end, if possible.

PENSION CONTRIBUTIONS

Relief for employer contributions is given in the chargeable accounting period in which the contributions are paid. In most cases it is sensible to ensure that all contributions are paid before that date in order to accelerate the relief. In the context of a 31 March year-end, if the payments are made before 31 March, relief is given at 20%. This would reduce to 19% for contributions paid after this date.

DEFERRING INCOME OR PROFITS

Consider delaying a transaction to shift profits forward into the next financial year, so as to delay by one year any corporation tax payable. This will also have the effect of reducing the corporation tax payable from 20% to 19%.

There are several ways of deferring income to the next tax year. Sales could be pushed forward to the next period, selling goods on consignment, or if a seasonal trade, changing the year end to exclude a more profitable period or to include a loss-making one.

CLAIM RESEARCH & DEVELOPMENT TAX CREDITS

Companies that have undertaken research and development work could qualify for generous tax reliefs. For an SME, for every £1 of qualifying R & D expenditure, an additional £1.30 is allowed in the tax computation. A loss making SME may be able to surrender the loss arising as a result of the R & D claim for a cash credit of 14.5%

CLEAR OVERDRAWN LOAN ACCOUNTS

The tax charged on a company loan to a “participator” is equal to 32.5% of the amount of the loan outstanding at the year-end, unless the loan has been repaid or cleared within nine months of the end of the accounting period. Companies should therefore review outstanding loans and consider clearing them within the nine months to avoid the tax charge.

CONSIDER ROLL OVER RELIEF

Any company that has realised gains on the disposal of land and buildings used in a trade should consider whether the corporation tax on this can be deferred by way of business asset roll over relief. This may be available if the company reinvests all of the disposal proceeds in new qualifying assets, either within 12 months before the disposal or up to 3 years after. Partial relief could be available if all the proceeds are not reinvested.

For further information please contact the tax team at Green & Co.

Please note: This article is a commentary on general principles and should not be interpreted as advice for your specific situation.

2017 Budget Review

Following on from the Chancellor’s first and last Spring Budget, we are pleased to provide you with our summary of the key announcements, along with our tax tables for the 2017/18 tax year:

Budget Summary

Tax Data
The main changes include:

  • The tax-free dividend allowance will be reduced from £5,000 to £2,000 from April 2018.
  • Class 4 national insurance contributions for self-employed workers will increase to 10% in April 2018 and rise again, to 11%, from April 2019.
  • Unincorporated businesses and landlords with a turnover below the VAT threshold will have until April 2019 before they are required to implement ‘Making Tax Digital’.

Among the key changes to note for this year are:

  • The Chancellor confirmed that corporation tax will be cut to a rate of 19% from April 2017 and it will be further reduced to 17% in 2020.
  • The personal allowance will rise to £11,500 in April 2017 and to £12,500 by 2020 and the higher rate income threshold will rise to £45,000, although special rules will apply in Scotland.
  • Individual landlords’ tax relief for finance costs will be restricted to basic rate tax – to be phased in over four years from April 2017.

More information on the Budget is available on our website or if you would like to speak to one of our team please contact us.

Please note: This article is a commentary on general principles and should not be interpreted as advice for your specific situation.

Accountancy firm develop its own software in bid to perfect service to clients

green_and_co

This weeks edition of the South Wales Argus features an article on the development of our own software.

An accountancy firm has developed its own software suite in order to help businesses manage their taxation and finances better.

Cwmbran-based accountancy firm Green & Co Accountants and Tax Advisors has spent over two years researching what their clients need ahead of what is a busy few years of legislative changes.

The software suite is comprised of three facets; an income tax forecaster, a financial performance review and a prosperity dashboard.

Barrie Kenyon, Partner at the firm, said: “Recently, the government has made a number of adjustments to the tax system that are all coming into effect across the next three to four years such as the changes to mortgage interest relief and company car benefit. We want our clients to see how the changes in legislation will affect them so we can reorganise remuneration in a tax-efficient way.”

With Green & Co’s software suite, clients can use the forecaster to analyse the current taxable income and see what future liabilities will be for the next five years.

Explaining the financial review element of the software, Mr Kenyon said: “Some clients may not be able to fully understand the numbers thrown at them from the accounts. It is important that they know how to digest the data from key performance indicators of how the business is performing. Our graphical analysis helps clients understand how the business has been performing year-on-year and it is something we can help them work through and improve upon.

“Our prosperity dashboard reviews the business’ progression toward set goals whilst affording directors accurate up-to-date information as opposed to waiting until year-end accounts are produced.”

The theory behind the software is to provide businesses with real-time information in order to make quicker and better-informed decisions regarding the performance, direction and sustainability of the business.

Mr Kenyon continued: “As with everything we strive to achieve, our end goal is to help build a stronger business for our clients whilst increasing profit and reducing liabilities.”

Green & Co Accountants and Tax Advisors specialise in business growth and tax minimisation for businesses across Wales and the South West of England.

For proactive advice, contact Green & Co Accountants and Tax Advisors on 01633 871 122, follow @Green_and_Co on Twitter or email barrie@greenandco.com.

Please note: This article is a commentary on general principles and should not be interpreted as advice for your specific situation.

HMRC Update On Making Tax Digital

Paid Digital Device Internet Wireless Searching Concept

Following a consultation period, HM Revenue and Customs have now released more information regarding the changes to self assessment under their new “Making Tax Digital” project.

Some of the more significant details are:

  1. Receipts and expenditure recorded on spreadsheets can be linked to HMRC software.
  2. Free software will be available to smaller businesses.
  3. The cash accounting system of reporting will be extended.
  4. Charities will not be obliged to take part in quarterly reporting.
  5. In the first year, a 12 month period of grace will be allowed before late submission penalties are applied.

Businesses and buy-to-let landlords with a turnover of more than £10,000 pa will be expected to submit their financial information quarterly, the new regime to be rolled in from April 2018. A spokesperson for the Revenue optimistically suggests this will help businesses avoid errors on returns and cut down the need for compliance investigations.

For many small businesses, however, the prospect of transmitting their financial information on-line every 3 months is not one they welcome. Recent research carried out by HMRC themselves showed that over 40,000 businesses had concerns about having to comply with quarterly reporting.

The Federation of Small Businesses (FSB) also warns that more vulnerable taxpayers will incur additional costs in software and/or increased accountancy fees and that HMRC’s plans to implement the system in 2018 is total “fantasy”. A survey undertaken by 1-Tap Receipts has even shown that a staggering 97% of self-employed taxpayers who took part were unaware of the proposed changes to the tax system.

With these factors in mind, the FSB is supporting a recommendation by the Treasury Committee for quarterly reporting to apply only to businesses with a turnover in excess of £83,000 (in line with the VAT registration threshold) and to be phased in gradually from 2020. This would give the Government a chance to re-think their proposals and tax-payers time to consider their options going forward.

Please note: This article is a commentary on general principles and should not be interpreted as advice for your specific situation.

Self Employed Landlords: What you need to know about Digital Accounting

Making Tax Digital.jpg

By 2020 most businesses, self-employed individuals and landlords will be required to use software or apps to keep their business records and to report their income and expenditure on a quarterly basis to HM Revenue & Customs. This new regime will commence on 6 April 2018 for most small businesses. Self-Assessment tax returns will no longer be completed from 2018/19 onwards.

What records will I need to keep?

HMRC will expect businesses to scan paper invoices and receipts into software using a smartphone camera. For many businesses it is expected that the scanned evidence of income and expenditure will be automatically processed by the software into the relevant accounting entries. HMRC prefers that the following data fields are completed for each receipt or expense item:

  • Invoice date and payment received date, if cash basis being used
  • Invoice value and payment received value, if cash basis being used
  • Income or expenses category, and
  • Deducted amount/percentage for expenses.

The above is the minimum required data which will be needed to enable software to identify and categorise each transaction.

Landlords

Landlords will need to provide the following:

  • The full address of each property
  • Income and expenses attributable to each property.

Quarterly Updates

The data of income and expenditure will have to be reported quarterly, although the reports will only be summary data. Businesses will be able to see an estimate each quarter of what their liability will be, based on the summary data provided.

End of year return

A final fifth submission will be made which will incorporate a correct and complete declaration. It is proposed that this final account will have to be submitted within 9 months of the end of a period of account.

The above is subject to a period of consultation due to end in November and final details are due to be announced in December. Green & Co will keep you informed as further details/changes are announced.

Please note: This article is a commentary on general principles and should not be interpreted as advice for your specific situation.

Research & Development Tax Credits: What could it be worth to your business?

 Research & Development.jpg

Many companies are apparently still not aware of Research & Development (R&D) Tax Credits or what it could be worth to their Business. Yet for companies who use them, R & D tax credits usually become an important part of their overall financial position.

So what is R & D expenditure?

It relates to money spent on a project which contains technical uncertainty e.g.,

  • Labour costs relating to management, development, technical analysis and developing manufacturing processes etc.,
  • Consumables – software licences, heating and lighting,
  • Supporting software.

R & D tax credits are tax breaks which work by reducing your profit and accordingly your corporation tax. The scheme is designed to help companies whether they are in profit or not. So if your company only makes a small profit, or none at all, it can still benefit by surrendering for cash some of the tax loss that has been created.

The relief for an SME can be as much as 230% of the eligible expenditure. Serious consideration should therefore be given as to whether your Company is eligible to claim this valuable relief.

So how do you know if you qualify?

If the project you have undertaken includes any element of technical uncertainty then it is worth investigating whether a claim can be made. Are there any elements of the project where you were not sure the component could be built to the required specification, or perhaps you were not sure what it would look like once built because it was evolving during the process?

Innovation – Has your project achieved something on a technical front that no other project has achieved? Cost – Have you spent a significant amount on, say, software development? If so, chances are there is an element of technical uncertainty in there.

There is no denying that this is a very complex area and that many businesses will not realise that the projects they are working on will contain an element which could qualify for R & D. Usually, the most expensive part of any project are the labour costs involved, which can be substantial. The tax savings being missed are therefore also substantial. Review your projects and get advice if there is even a small chance you feel it may qualify.

Green & Co specialise in R & D Tax Relief, if you would like to speak to one of our team, contact us on 01633 871122.