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Making Tax Digital (MTD) for VAT

Adrian Mooy - Friday, November 09, 2018


HMRC is phasing in its landmark Making Tax Digital (MTD) regime, which will ultimately require taxpayers to move to a fully digital tax system. The first area to be affected by MTD will be VAT with the new rules being implemented from April 2019.


Under the regulations, businesses with taxable turnover above the VAT threshold (currently £85,000) must keep digital records for VAT purposes and provide their VAT return information to HMRC using ‘functional compatible software’. These new regulations take effect for VAT return periods beginning on or after 1 April 2019.


HMRC has published VAT Notice 700/22: Making Tax Digital for VAT. This Notice defines ‘functional compatible software’ and the transaction-level data that needs to be recorded and retained within the software.


Under the new MTD regulations, businesses will have to use ‘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 must be capable of:


 • keeping records in digital form as specified by the new rules


 • preserving digital records in digital form


 • creating a VAT return from the digital records held in compatible software and submitting this data to HMRC digitally


 • providing HMRC with VAT data on a voluntary basis


 • receiving, via the API platform, information from HMRC to ascertain compliance

HMRC delays late payments penalty reforms

Adrian Mooy - Wednesday, November 07, 2018


Planned reforms to HMRC’s penalty regimes for late submission and payment of tax due are to be further delayed while the department considers how best to communicate the changes, with papers published following the Budget indicating there are unlikely to be any change before April 2021 at the earliest.
The new penalty regimes for late payments of tax and late submissions of tax returns were originally expected to be introduced alongside Making Tax Digital for income tax from its original start date of April 2018 and would have affected a very large number of taxpayers.
Deferral of Making Tax Digital for income tax meant there was more time to refine the new penalty regime, which had attracted considerable criticism, but it still was not expected to be ready for the new deadline for Making Tax Digital for VAT, which is April 2019 and was predicted to commence from April 2020.
Now the Budget papers confirm that while the regime has been subject to consultation, it will not be implemented in the timescale originally foreseen.
The Overview of Tax Legislation and Rates (OOTLAR) document states: ‘The government consulted in summer 2018 on draft legislation for new late payment and late submission sanctions.
The government remains committed to the reform and intends to legislate in a future Finance Bill, to allow for more time to consider further the communications needed for successful implementation. ‘The government will provide notice before these measures are implemented.’
The Budget announcement means that the new regime will not now be in place until April 2021 at the earliest.
John Cullinane, CIOT tax policy director, said: ‘We are broadly supportive of these reforms to HMRC’s penalties regimes, so we are disappointed by this further delay, though as with any reform, we acknowledge that it is more important to do it right than to do it quickly.
‘If HMRC say they need until April 2021 – or later - to implement these changes then we will take them at their word and make the best use of the extra time to work with them on the details of the new regimes and publicity around their introduction.’
HMRC has indicated that it wants to introduce a two-tier penalty system which would kick in 15 days after a late payment.
Penalties will be calculated on debts remaining due after 15 days from the payment due date although on a mitigated basis where payment is made or a Time to Pay arrangements (TTP) has been set up until 30 days after the due date.
Where a successful TTP agreement is made, the government will take the date of contact with HMRC as the effective date for the purpose of late payment penalties.
If a payment or TTP is made or treated as made within 15 days of the due date no penalty will be charged; between 16 and 30 days half a penalty will be charged; and after 30 days a full penalty will be charged plus a further penalty which will then accrue daily until payment is made or a TTP treated as made.


Cullinane pointed out the penalty regime will now not be in place until at least two years after Making Tax Digital becomes mandatory for VAT, meaning the VAT default surcharge regime will remain in place for 2019/20, and may well also continue for at least 2020/21 and maybe even beyond that.
‘The existing penalty regime for VAT is not well suited to Making Tax Digital, and we are concerned around the complexities and administrative burdens that will result. The penalty point model being proposed for late submissions will work better with the Making Tax Digital reporting system.
‘With Making Tax Digital for income tax not coming in before April 2020 at the earliest, it would make more sense now, given that there is this delay, for the new penalty regime to be brought in at the same time for all taxes.
‘We hope HMRC will take the opportunity to do this. It is nonetheless disappointing that there has been a failure to deliver these changes effectively from the outset,’ he said.


HMRC urges taxpayers to complete self-assessment tax returns early

Adrian Mooy - Tuesday, November 06, 2018


With less than 100 days until the online self-assessment tax return deadline, HMRC is urging taxpayers to complete their tax returns early, in order to avoid the last-minute rush.


The deadline for submitting your 2017/18 self-assessment tax return online and paying any tax you owe is 31 January 2019.  An automatic penalty of £100 will apply if your return is late.


HMRC revealed that more than 11 million taxpayers completed a self-assessment tax return last year, with a total of 10.7 million finalising their returns on time. 758,707 individuals filed their returns on 31 January, the deadline day.


According to HMRC, a record 93% of taxpayers filed their tax returns online. Paper self-assessment tax returns must be filed by 31 October 2018.


Commenting on the matter, Angela MacDonald, Director General for Customer Services at HMRC, said: 'We want to help people get their tax returns right – starting the process early and giving yourself time to gather all the information you need will help avoid the last minute, stressful rush to complete it on time.'

Contractor’s £4,000 holiday pay claim is the ‘tip of the iceberg’

Adrian Mooy - Wednesday, October 31, 2018


Freelancers deemed ‘workers’ may bring action, experts warn, after consultant’s landmark settlement.


Experts are warning of a slew of legal action from freelancers who have been classified as workers, after a contractor settled with HM Revenue & Customs (HMRC) for thousands of pounds late last week.


Marketing and business development consultant Susan Winchester lodged a claim at Central London Employment Tribunal for £4,200 in unpaid holiday against HMRC and four other parties earlier this year. She argued it was unfair that she was being treated as a worker for tax purposes but was not given crucial workers’ rights in return.


Under the IR35 rules, which were introduced in April 2000, freelancers who work through a personal services company for a third party – and would be employees if not for the set-up – are required to pay tax and national insurance as if they were employees.


Initially, contractors decided whether they fell within IR35. In April 2017, the law was changed to require public sector organisations to determine the tax status of their freelancers instead. The government is considering extending the amends into the private sector.


HMRC engaged Winchester’s company, SJW Marketing Solutions, in September 2016 for marketing services. When the tax rules changed in 2017, HMRC analysed the relationship using its Check Employment Status for Tax tool and determined IR35 should apply. Winchester was moved onto agency payroll.


The consultant argued that, as she was now deemed an agency worker, she should be entitled to holiday as if she were an HMRC employee. The parties settled on the morning the tribunal was due to start.


“I’m a very fair person, with a strong moral compass. I would never have taken someone to court without a very good reason,” said Winchester. “But I just couldn’t understand why somebody could make some arbitrary decision about my tax and employment status on a brief, over-simplified questionnaire that I had no input in and seemingly no right to challenge.”


Chris Bryce, CEO of the Association of Independent Professionals and the Self-Employed (IPSE), which funded and backed the legal action, added: “[Winchester’s] case sends a very clear message to clients, that if you are going to treat contractors like workers then you’ve got to give them worker entitlements. You can’t just decide someone is inside IR35, shunt them onto an agency payroll and expect someone further down the line to pick up the tab for your obligations like holiday pay.”


Other organisations also welcomed the settlement. “This case is just the tip of the iceberg and we are likely to see more fallout as contractors stand up for their rights,” said Julia Kermode, chief executive of The Freelancer & Contractor Services Association. “I hope this sends a clear message to policymakers that they need to reconsider any move to roll out the reforms into the private sector or risk bringing the country to its knees.”


Dave Chaplin, CEO and founder of contracting authority ContractorCalculator, added: “Given the amount of public sector contractors who have been bundled into these types of arrangements, we expect that this settlement will give rise to a number of similar challenges.”


And Seb Maley, Qdos Contractor CEO, remarked: “This case sets a huge precedent, showing that individuals taxed as workers and not as contractors deserve employment rights. It could well be the catalyst for many more cases like this.”


An HMRC spokesperson said: “HMRC does not discuss identifiable individuals. In general, in deciding if the off-payroll working rules in the public sector applied, HMRC would consider a number of factors, including how the engagement worked in practice, as well as examining the contract itself. HMRC was committed to ensuring that its approach to the changes as an engager was clear and transparent.”

HMRC launches MTD communications plan and guidance

Adrian Mooy - Friday, October 26, 2018


With only six months left until the launch of Making Tax Digital for VAT, HM Revenue & Customs (HMRC) has finally begun sharing information with businesses about the new regime.


While accountants and professional advisers across the UK have been making clients aware of the new digital system for more than two years, the nation’s official tax authority has remained fairly quiet on what has been described as one of the biggest changes to taxation in the last 70 years.


However, in mid-September HMRC finally began making businesses aware of their plans, initially posting a tweet linking to a new webpage entitled Making Tax Digital: How VAT businesses and other VAT entities can get ready.


The new webpage provides simplified guidance to businesses, outlining the criteria for businesses that will be mandated to join the scheme i.e. those registered for VAT with a taxable turnover above the VAT registration threshold (£85,000).


According to AccountingWEB, HMRC has revealed that it has further plans to increase its social media and public relations activity around MTD, as well as directly contacting those businesses affected via post.


HMRC is due to publish details of all compliant VAT reporting products soon after a private pilot run by the department was made public.


Link: Making Tax Digital: how VAT businesses and other VAT entities can get ready.

Many businesses still failing to pay the NMW, official figures find

Adrian Mooy - Friday, October 26, 2018


Official figures published in recent days have revealed that a record £15.6 million of underpayment to workers has been uncovered in the past year, prompting huge fines against employers.


In total, 200,000 workers have missed out on being paid at least the National Minimum Wage (NMW) in the past year – the highest number on record since the statutory rate was first introduced back in 1999.


In its report, HM Revenue & Customs (HMRC) said that social care, commercial warehousing and the so-called ‘gig economy’ were the three key sectors where businesses appeared to be underpaying their staff.


The tax authority said that it was prioritising NMW enforcement in these areas, while also investigating the underpayment of apprentices and migrant workers.


Last year, businesses were fined £14 million over the failings, as well as having to reimburse their staff for any money owed.


The Government said funding for enforcement was at record levels, rising to £26.3 million in 2018/19, up from £20 million in 2016/17.


Earlier this year, restaurant chains Wagamama and TGI Fridays were both fined an undisclosed figure for failing to pay their staff the NMW.


The current minimum wage rates per hour are £7.83 for those aged 25 and over, £7.38 for 21-24-year-olds, £5.90 for 18-20-year-olds and £4.20 for 16-17-year-olds.


Apprentices are entitled to receive £3.70. Business minister Kelly Tolhurst has urged firms to check that they are paying all of their workers correctly.


She said: “We are dedicated to stopping underpayment of the NMW. Employers must recognise their responsibilities and pay their workers the money they are entitled to.


“The UK’s lowest-paid workers have had the fastest wage growth in 20 years thanks to the National Living Wage, and today’s figures serve as a reminder to all employers to check they are getting their workers’ pay right.”

Self-employed Class 2 NI will not be scrapped

Adrian Mooy - Wednesday, October 17, 2018


The government has decided not to proceed with plans to abolish Class 2 National Insurance Contributions (NICs) from April 2019.
Class 2 NICs are currently paid at a rate of £2.95 per week by self-employed individuals with profits of £6,205 or more per year. The government had planned to scrap the Class 2 contribution and had been investigating ways in which self-employed individuals with low profits, could maintain their State Pension entitlement if this inexpensive contribution had been abolished.
In a written statement to MPs, Robert Jenrick, Exchequer Secretary to the Treasury, stated that:
‘This change was originally intended to simplify the tax system for the self-employed. We delayed the implementation of this policy in November to consider concerns relating to the impact on self-employed individuals with low profits. We have since engaged with interested parties to explore the issue and further options for addressing any unintended consequences.’
‘A significant number of self-employed individuals on the lowest profits would have seen the voluntary payment they make to maintain access to the State Pension rise substantially. Having listened to those likely to be affected by this change we have concluded that it would not be right to proceed during this parliament, given the negative impacts it could have on some of the lowest earning in our society.’



What happens if I have a capital gain?

Adrian Mooy - Monday, October 15, 2018


Self-employed business owners and individuals who make the decision to dispose of anything that might be considered an ‘appreciating asset’ – such as commercial premises or a buy-to-let property – need to be aware of the complex rules governing Capital Gains Tax (CGT) in the UK.
CGT is a tax paid on the gain made when an asset is sold, gifted or ‘disposed of’ – and anything deemed a ‘chargeable asset’ can potentially incur a hefty tax bill if specialist advice is not sought in advance.


Typically, an individual will incur CGT when disposing of:


 • Any property that is not their main residence.
 • Shares that are not considered to be an ISA or PEP.
 • Any personal possessions worth £6,000 or more (excluding motor vehicles).


It is worth noting that, in most cases, individuals will not incur CGT when disposing of their main residential property, due to a tax allowance known as private residence relief. However, if they have previously let out the property or used it for business purposes, it may still be liable for CGT. The same applies if the property is very large – as homes of more than 5,000 square metres (one acre) in total fall foul of the private residence relief rules.
In comparison, business owners will often incur CGT on the disposal of business assets such as:


 • Land and buildings
 • Plant and machinery
 • Fixtures and fittings
 • Registered trade marks


In all cases, individuals and business owners alike need to think very carefully when they are considering disposing of any assets. It is important to seek specialist tax advice in order to determine whether a disposal will qualify for CGT – and if CGT liability can be mitigated in any way.
Individuals should note that they will usually only need to pay CGT on gains above their Annual Exempt Amount or tax-free allowance for the year. Currently, this is set at £11,300 – or £5,650 for trusts.
Similarly, business owners should be aware that they will not need to pay any tax on assets that are ‘gifted’ to a wife, husband or a civil partner.
In addition to this, self-employed business owners can benefit from Entrepreneur’s Relief – a tax relief which enables sole traders, business partners or those who hold shares in a ‘personal company’ to pay just 10 per cent CGT on qualifying profits if they sell all or part of their business. This is just one of the many tax reliefs available.


Property investments once again hit by new tax rules

Adrian Mooy - Tuesday, October 09, 2018


In the last few years the property sector has been hit by a number of new tax rules, but now there are two new things on the horizon that landlords must consider.


Rent-a-Room Scheme

The current Rent-a-Room scheme offers people up to £7,500 a year tax-free from letting out a spare room.


However, HM Revenue & Customs (HMRC) has revealed new plans to introduce a shared occupancy test, which would restrict the allowance to those landlords who are living and physically present in the property during the letting period.


For those letting out their whole property, this may mean that they are required to pay additional tax, while for some it may mean that it is the first time they are charged tax on their property rental.


The government will include legislation for the shared occupancy clause in the Finance Bill 2018 to 2019 and the change will take effect from 6 April 2019.


Let Property Campaign

Concerned that some landlords may not be paying the correct amount of tax on their rental property, HMRC has also launched the Let Property Campaign.


This will give landlords the chance to disclose any unpaid tax in the UK or abroad, allowing them to get up to date with their tax affairs.


Similar to other recent disclosure campaigns, once the tax is disclosed landlords have 90 days to calculate and pay what they owe. Full and voluntary disclosure of all unpaid liabilities will usually lead to a lower penalty for unpaid tax.


  1. If a person does not come forward and HMRC discovers that tax is due, it may be harder to convince them that it was simply a mistake and they could find that a higher penalty could be applied – including fines of up to 200 per cent of tax due or criminal prosecution.


To take part in the Let Property Campaign a person should:

  • tell HMRC that they want to take part in the Let Property Campaign


  • inform HMRC about all income, gains, tax and duties not previously disclosed


  • make a formal offer


  • pay what they owe

There is no disclosure ‘window’ requiring a landlord to disclose what they owe by a specific date and HMRC have confirmed that the campaign will be ongoing for some time.


A quick guide to the new penalties for late MTD filing and payments

Adrian Mooy - Monday, October 08, 2018



HM Revenue & Customs (HMRC) has announced a pair of penalty systems for late filing and late payment under Making Tax Digital (MTD) for VAT, which is due to come into effect in April 2019.


Late filing will attract penalty points, which will accrue on the basis of how late the filing is and how many filings have been submitted late.  After four late submissions, a penalty will be charged for each late submission. Points will be wiped after four compliant submissions.


A separate system will apply to late payments, with penalties applying after 15 days, and then doubling after 30 days, with daily penalties charged thereafter.


There will be a ‘soft landing’ period for late submissions during the first year of MTD for VAT, but this will not apply to the requirement for digital record keeping, which must be in place immediately.


The Government confirmed last year that MTD will not apply to other taxes until 2020 at the earliest.