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Are you fed-up with increasing burdens that government imposes on businesses through the tax system? MTD is just one example of a policy which is supposed make tax easier, but the transition to reporting digitally will certainly make tax compliance more difficult and more expensive for many businesses.

There are currently two surveys open which we and our clients can express our opinions about the UK tax systems. The results of these surveys will be fed into government policy making, so they are worthwhile.

The first an annual survey is hosted by the Administrative Burdens Advisory Board (ABAB). It is designed to evaluate experiences of engaging with the tax system by both businesses and tax agents. This year it focuses heavily on MTD, but don’t delay as this survey closes on 19 October 2018.

The second survey is a one-off exercise conducted by the Office of Tax Simplification (OTS), to seek views on the which tax complexities are challenging for businesses throughout the business lifecycle. The OTS want as many small businesses and their advisers to take part in this survey as possible, particularly businesses who normally wouldn’t engage.

The results of the OTS survey will be used to make recommendations to government on ways to make the tax system simpler, fairer and better for businesses.Its open until 7 December 2018.

Written by the Tax Advise Network

It was rumoured that the Minister for HMRC had to decide this month whether the MTD project should be stopped, postponed, or go ahead. It seems that decision has been made; MTD for VAT will go ahead from April 2019.

However, HMRC still has a lot to do to get its own systems aligned with the data which will flow through a different gateway under MTD, so it has introduced a six-month buffer into the MTD timetable.

The following categories of businesses and organisations will have their start date for MTD for VAT deferred until VAT periods beginning on and after 1 October 2019:

• VAT groups
• VAT divisions
• VAT traders based overseas
• Trusts
• Unincorporated charities and similar not for profit organisations
• Certain public sector bodies and local authorities
• Those who use the annual account scheme users
• Companies paying VAT of £2m or more who make VAT payments on account.

All other VAT registered traders with annual turnover of £85,000 or more must enter the MTD regime for periods beginning on and after 1 April 2019.

HMRC have also announced that it is inviting 500,000 businesses to join the MTD for VAT pilot. We believe this invitation will be sent by letter to sole-traders and companies who do not fall into one of the categories of deferred starters listed above. If you receive such a letter, you don’t have to join MTD until April 2019, and it may be better to wait until the system has been fully tested. Once inside the MTD regime it is very difficult to leave.

Partnerships, businesses who use the VAT flat rate scheme, and those who trade with EU countries, won’t be able to join the MTD for VAT pilot until late in 2018 or early 2019.

 

Written by the Tax Advice Network

When you wish to use a venture capital scheme to allow equity investors to claim tax relief, you need to understand the conditions for the company to qualify before the investments are made. The best way to do this is to read the law, or contact our office for advice. It’s a pity that HMRC didn’t do this before declining an application to use the SEIS by a small company in Oxford.

The Seed Enterprise Investment Scheme (SEIS) is specifically designed for young companies to raise relative small amounts of start-up capital. The company is permitted to raise up to £150,000 over a three year period, and the maximum investment per taxpayer is £100,000 per tax year. There is no minimum investment for either the company or for the equity investor.

Oxbotica Ltd, a spin-out company from Oxford University, applied to use SEIS for part of its initial equity capital. It was formed with £1000 of share capital and three individuals wanted SEIS relief on their share of this which amounted to just £316. In addition the company received a substantial loan from the University.

As with any risky venture, the investors were looking to the long term gain on the shares, so they were not very interested in 50% income tax relief on the investment, but they were attracted by 100% exemption from CGT once the shares had been held for three years.

HMRC declined the company’s application to use SEIS on these grounds:

• The shares were subscriber shares – this is irrelevant as long as the shares are subscribed for in cash and are fully paid up.
• The small amount of funding wasn’t of meaningful use to the business – this is an invented condition as there is no minimum investment requirement.
• The real purpose of the share issue was to provide CGT relief to investors – irrelevant if the money is used for the business’ expenses – which it was.

The tax tribunal had no problem in agreeing with the taxpayer that SEIS was applicable, but it’s disappointing that the statutory review process didn’t reverse the initial HMRC decision, which it was so clearly outside the law.

Written by the Tax Advice Network

When our client has taken a lump sum from their pension, they may have had excess tax deducted, which needs to be reclaimed. Although 25% of the pension savings can be drawn tax free, the pension payer normally interprets this being as 25% of any withdrawal, leaving 75% of the lump sum to be taxed at the pensioner’s marginal rate.

What’s worse, if the lump sum is the first withdrawal by that pensioner the pension payer will use an emergency tax code, so the pensioner will have far more tax deducted under PAYE than is actually due.

If the pensioner is not expecting to take further pension payments in the same tax year, he can reclaim the tax on the lump sum using form P53Z or P53. We can submit these forms on our client’s behalf, but not online.

If the pensioner expects to take further pension payments in the same year, the tax repayment should be dealt with through the PAYE code. The tax repayment should be made when the next pension instalment is paid. However, for this to work the pensioner’s PAYE code needs to be adjusted.

The taxpayer can request a new tax code from HMRC through their online personal tax account (PTA), but we can’t access the PTA on behalf of our client. An alternative is to phone HMRC to ask for the code to be changed, – but you will need authorisation to talk to HMRC on behalf of the pensioner.

Written by the Tax Advice Network

How will you know whether you are obliged to start submitting your VAT returns using MTD-compatible software? The simple answer is: HMRC should tell you. HMRC is planning to write to all VAT registered businesses who are required to enter the MTD regime, probably in the Autumn of this year.

The MTD for VAT notice (700/22) tells us: “With effect from 1 April 2019, if your taxable turnover is above the VAT registration threshold you must follow the rules set out in this notice.” We know the VAT registration threshold is currently £85,000, but the VAT notice fails to specify what turnover and what for period it should be measured for MTD.

The VAT regulations are more precise: the turnover to be measured is VATable supplies, which are all sales subject to VAT including zero-rated sales. The period to measure is the rolling 12 months up to the end of the month before the current month. Taken together these are the same tests as for VAT registration, except for MTD there is no forward-looking test of supplies to be made in the next month.

This means that where a business has registered for VAT voluntarily, and its turnover is under £85,000, it will have to check its cumulative turnover every month to see if it must enter the MTD regime from the beginning of its next VAT period. However, once within the MTD regime there is no escape, unless and until the business deregisters for VAT.

The VAT notice is misleading at para 2.1 where it says “Only businesses with taxable turnover that has never exceeded the VAT registration threshold (currently £85,000) will be exempt from Making Tax Digital.” This is incorrect as the turnover test for MTD only comes into effect from 1 April 2019. Say a business is VAT registered because its turnover was £80,000 in 2013, when the VAT registration threshold was £79,000. If its turnover is still £80,000 and it is still VAT registered, it doesn’t have to enter the MTD regime.

Written by the Tax Advice Network

You can’t keep your head in the sand about MTD for VAT any longer: it is happening and we need to prepare you and yourselves. But there are an enormous number of outstanding questions about MTD.

Some of the answers may be found in the HMRC’s VAT Notice: Making Tax Digital for VAT, which is due to be published any day now, – we will let you know when it appears.

Many pertinent questions were raised by listeners to the MTD webinar hosted by CIOT on 7 June 2018. This is webinar freely available to stream from the CIOT website. You don’t have to be a CIOT or ATT member to access the webinar, as it is provided as part of the CIOT’s charitable objective of tax education. The CIOT technical team have found answers to all of those questions, which they have listed in a separate document. Here are some of the highlights:

• The go live date for VAT will be 1 April 2019, it will not be postponed for Brexit.
• The MTD for VAT pilot currently includes invited businesses and agents, but it should be opened up to all businesses by the end of the summer.
• There are over 100 software companies developing MTD for VAT packages, and the approved list of MTD for VAT software will be published by HMRC once the test phase is complete and products go live.
• HMRC anticipate that broadly the same number of taxpayers will be digitally excluded from MTD for VAT as are currently exempt from online filing of VAT returns – ie very small number.
• Business will have to comply with MTD for VAT from the start of the next VAT return period once the VAT threshold of £85,000 of sales in 12 months has been exceeded, there is no look forward test of turnover.
• Businesses won’t be notified individually that they have to comply with MTD for VAT, you will have to tell those of your clients who are affected.

HMRC will run a Talking Points webinar for tax agents on the detail of MTD for VAT on 24 and 25 July 2018, which can be viewed at three alternative time slots. The CIOT will also host another MTD webinar this Autumn, which will be worth watching.

Written by the Tax Advice Network