Making Tax Digital for VAT (MTD for VAT) is now live. Firms with a taxable turnover above the VAT registration threshold (currently £85,000) must comply with the new rules. Below, we answer some of your key MTD for VAT questions.

Q: What information needs to be kept digitally?

A: Under MTD for VAT, firms must keep specific records digitally. Additionally, all future VAT returns must be filed directly from digital records via an Application Programming Interface (API).

Submission of the return can be from API-enabled spreadsheets, software or bridging software. Businesses using more than one software program are required to have 'digital links' in place between the products.

Q: Does HMRC provide MTD for VAT software?

A: HMRC does not provide firms with MTD for VAT software. It does, however, list recognised products on the gov.uk site. Businesses are encouraged to contact their software provider to ascertain whether MTD for VAT products are available.

Q: Am I required to sign up to MTD for VAT, or is my business enrolled automatically?

A: Businesses are required to sign up to the MTD for VAT initiative. Business owners will need their firm's Government Gateway user ID and password, alongside its VAT number, to sign up. Once the process has been completed, HMRC will confirm via email that your sign-up has been successful.

Q: Do all businesses have the same start date?

A: Each firm has its own date to start using the MTD for VAT system. Your start date is dependent on your VAT quarters. If your taxable turnover is above £85,000, the MTD for VAT rules are compulsory for your first VAT return period starting on or after 1 April 2019. Those businesses with turnover below the VAT registration threshold are not required to use MTD for VAT. However, they may wish to join the scheme voluntarily.

Some businesses are exempt from MTD for VAT. These include:

• businesses run by practising members of a religious society or order with beliefs incompatible with MTD for VAT requirements
• businesses subject to an insolvency procedure
• those satisfying HMRC that, for reasons of age, disability, remoteness of location or for any other reason, it is not reasonably feasible for them to use digital tools to keep records and submit returns.

A significant deferral of MTD for VAT applies for a small group of taxpayers with 'more complex' requirements. These firms have been given an additional six months to prepare for the initiative.

For more information on which types of business are affected by the deferral, please see below. Firms subject to the deferral adopt MTD for VAT rules for their first VAT return period starting on or after 1 October 2019.

Q: Which firms are affected by the deferral?

A: The deferral applies to not-for-profit organisations not set up as a company; trusts; VAT divisions; VAT groups; local authorities; public corporations; and traders based overseas. Public sector entities required to provide additional information on their VAT return, those who must make payments on account, and annual accounting scheme users are also covered by the deferral.

Q: If my turnover falls, can my business leave MTD for VAT?

A: The MTD for VAT regulations specify that, once a business is in MTD for VAT because its taxable turnover exceeds the VAT registration threshold, it must remain in the scheme, even if turnover subsequently falls below the threshold.  

MTD for VAT rules only cease to apply if a business qualifies for exemption, or if it deregisters from VAT.

Q: Do penalties apply for incorrect filing under MTD for VAT?

A: For the first year, HMRC intends to take a more lenient approach to issuing MTD for VAT penalties. HMRC has termed this the 'soft-landing' period. For VAT return periods beginning between 1 April 2019 and 31 March 2020, penalties won't be charged if businesses don't have digital links between software programs in place. Cut-and-paste will continue to be an acceptable way to transfer data to HMRC. The soft-landing period has been adapted for those businesses affected by the deferral, permitting them 12 months to put digital links into place.

However, where information is transferred from the accounting records into a separate program for submission to HMRC via the API, transfer must be digital.

In addition, the VAT default surcharge regime will operate until 'at least' 2021. From this time, HMRC intends to implement a new penalty 'points' scheme for late submission of VAT returns and late VAT payments.

Ensuring you are compliant with the MTD for VAT rules is crucial. We are always on hand to answer any questions you may have - simply contact us for more information.

The beginning of the 2019/20 tax year ushers in a handful of changes to tax and business legislation. Here, we outline some of the key measures to take note of.

Rising minimum wage

From 1 April 2019, the National Minimum Wage (NMW) and the National Living Wage (NLW) rates will rise.

The new hourly rates of pay applying from this date are as follows:

*Under 19, or 19 and over in the first year of their apprenticeship.

Additionally, in the 2019 Spring Statement, Chancellor Philip Hammond announced that Professor Arindrajit Dube will undertake a review of the latest international evidence on the impact of minimum wages, to inform future NLW policy after 2020.

Alterations to income tax

In 2019/20, the income tax basic rate band will rise to £37,500. Consequently, the threshold at which the 40% band applies is £50,000 for taxpayers who are entitled to the full personal allowance (PA). Individuals pay tax at 45% on their income over £150,000.

From April 2019, the PA will rise from £11,850 to £12,500. Where an individual's 'adjusted net income' exceeds £125,000 in 2019/20, no PA is available. 

The tax on income for taxpayers resident in Scotland is different to income tax paid elsewhere in the UK. In 2019/20, there are five income tax rates, which range between 19% and 46%. The two higher rates are 41% and 46%, as opposed to the 40% and 45% rates that apply to such income for other UK residents. For 2019/20, the threshold at which the 41% band applies is £43,430 for those who are entitled to the full PA.

Meanwhile, from April 2019, the Welsh government has the power to vary the rates of income tax payable by Welsh taxpayers. The Welsh rate of income tax has been set at 10p by the Welsh government: this will be added to the reduced rates. As a result, the tax payable by Welsh taxpayers continues to be the same as that payable by English and Northern Irish taxpayers.

Changes to employer-provided cars

The scale of charges for working out the taxable benefit for an employee who has use of an employer-provided car is normally announced well in advance. Most cars are taxed by reference to bands of CO2 emissions, multiplied by the original list price of the vehicle. The maximum charge is capped at 37% of the list price of the car.

For 2018/19 there was generally a 2% increase in the percentage applied by each band. For 2019/20 the rates will increase by a further 3%.

Rising Residence Nil-Rate Band

The inheritance tax Residence Nil-Rate Band (RNRB), which was introduced in April 2017, will rise from £125,000 in 2018/19 to £150,000 for the 2019/20 tax year. The RNRB is designed to enable a 'family home' to be passed wholly or partially tax-free on death to direct descendants, such as children or grandchildren. It will increase to £175,000 in 2020/21. Thereafter it will rise in line with the Consumer Price Index.

Increase in compulsory employer pension contributions

As part of the pensions auto-enrolment scheme, employers are currently required to contribute at least 2% on the qualifying pensionable earnings for eligible jobholders. From 6 April 2019, this figure will increase to 3%.

Alterations to the Gift Aid Small Donations Scheme

Where small charitable donations are made, and it is impractical to obtain a Gift Aid declaration, individuals may choose to make use of the Gift Aid Small Donations Scheme (GASDS). The scheme currently applies to donations of £20 or less made by individuals in cash or contactless payments. From 6 April 2019, this limit will rise to £30.

As your accountants, we can advise you on how the measures taking effect from April 2019 could affect your business or personal finances. Please get in touch with us for more information.

A study recently suggested that being given the option to work flexibly is amongst the most popular work benefits desired by UK employees. Meanwhile, separate research also revealed that 56% of professionals believe that working the traditional nine to five is 'outdated', whilst a further 39% have urged employers to abandon 'dated' working traditions. Here, we take a look at how employees can request to work flexibly, and how employers should respond.

Making a statutory application

All employees have the right to request flexible working, whether that be choosing to work from home or having flexible start and finish times. However, in order to be eligible, employees must have worked continuously for the same employer for at least 26 weeks.

Employees seeking to work flexibly must make a statutory application. Employees are required to write to their employer, outlining their request. Take note: only one application can be made per year.

The employer is obliged to consider the request, and reach a decision within three months (however, this may be longer, if agreed with the employee).

Approving the application

In the event that the employer agrees to the request, the terms and conditions of the employee's contract must be changed. The employer should write to the employee, giving them a statement of the agreed changes, and a start date for flexible working. This should be done no later than 28 days after the request was approved.

Rejecting the application

If the employer disagrees with the request, they are required to write to the employee, outlining the business reasons for the refusal. Many reasons exist for an employer to reject an application:

• extra costs associated with flexible working will damage the business
• work cannot be reorganized amongst other members of staff
• individuals cannot be recruited to do the work
• the quality of work and performance will be affected by flexible working
• the business will struggle to meet customer demand
• a lack of work exists during the proposed working times
• the business plans to make changes to its workforce.

Making an appeal

Employees do not have the statutory right to appeal a decision. However, an employer may choose to provide an appeals system, in order to help demonstrate that they are dealing with requests reasonably.

Employees may take the matter to an employment tribunal in cases where the employer:

• failed to handle the employee's request in a 'reasonable manner'
• incorrectly treated the employee's application as withdrawn
• dismissed the employee or treated them unfairly as a result of their request to work flexibly
• rejected the application based on false information.

 Employees are not permitted to appeal simply because their flexible working request was rejected. Those employees that do appeal must do so within three months of:

• hearing their employer's decision
• hearing their request was treated as withdrawn
• the date the employer was required to respond to the request, but failed to do so.

Individuals unsure of their rights are advised to obtain legal advice.

Flexible working is likely to become more and more popular. Both employees and employers should ensure that they stay up-to-date on the rules regarding making an application to work flexibly.

In the 2018 Autumn Budget, Chancellor Philip Hammond announced a handful of changes to capital allowances, including the introduction of a new allowance, termed the Structures and Buildings Allowance (SBA). Here, we take a look at these changes in more detail.

Alterations to the Annual Investment Allowance

The majority of firms are able to claim a 100% Annual Investment Allowance (AIA) on the first portion of expenditure on most types of plant and machinery (excluding cars). The AIA applies to businesses of any size, and most business structures. However, provisions are in place to prevent multiple claims.

In the Budget, the Chancellor announced a temporary increase in the AIA, from £200,000 to £1 million. This applies to expenditure incurred from 1 January 2019 to 31 December 2020. Complex calculations may apply for businesses whose accounting periods straddle this period. Therefore, in order to make full use of the increase, firms should ensure they time the purchase of plant and machinery carefully.

The new Structures and Buildings Allowance

The SBA provides relief for expenditure on certain new, non-residential structures and buildings. Eligible construction costs incurred on or after 29 October 2018 will qualify for relief: this will be at an annual rate of 2%, on a straight-line basis. However, if a contract was entered into before this time, relief is not available.

New structures and buildings intended for commercial use are eligible for the SBA, alongside the costs associated with making improvements to existing premises.

Businesses chargeable to income tax and companies chargeable to corporation tax are able to claim the relief. The relief will be available from the date the structure or building is brought into use for the first time for a qualifying activity. Where the business is within the charge to UK tax, overseas structures and buildings are eligible for the SBA.

Qualifying activities and exclusions

It is important to note that only certain expenditure is eligible for the SBA. Structures and buildings must be brought into use for qualifying commercial activities. Types of structures and buildings covered include factories and warehouses; offices; hotels and care homes; walls; and retail and wholesale premises. However, the final list is yet to be clarified.

Under the initiative, certain exclusions apply: expenditure on land, residential property or other buildings functioning as dwellings is not eligible for the relief. Home offices are also not eligible. Where a structure or building has mixed use, such as between residential and commercial units, relief is apportioned.

Considering other changes

In the 2018 Autumn Budget, the Chancellor also announced a reduction in the rate of writing down allowance (WDA) on the special rate pool of plant and machinery. This is set to reduce from 8% to 6% from April 2019.

We can advise on all aspects of capital allowances – please contact us for more information.

With the end of the 2018/19 tax year rapidly approaching, now is the ideal time to ensure you are making the most of the available allowances and exemptions. Here we highlight some key areas to consider by 5 April 2019.

Making the most of capital allowances

When capital equipment, such as plant or machinery, is purchased by a business, the cost of the equipment can be offset against profits by claiming capital allowances.

Most businesses are able to claim a 100% Annual Investment Allowance (AIA) on the first portion of expenditure. Please note that special rules apply for cars and certain 'environmentally friendly' equipment. The AIA applies to businesses of any size and most business structures: however, provisions are in place to prevent multiple claims.

During the 2018 Autumn Budget, Chancellor Philip Hammond announced an increase in the AIA from its current level of £200,000 to £1 million. The increase will apply to expenditure incurred from 1 January 2019 to 31 December 2020. Accounting periods which straddle these dates will be subject to complex calculations: therefore, it is vital that purchases are timed carefully.

Making use of your ISA allowance

A range of ISAs are available to savers, including the Lifetime ISA for those under the age of 40; the Help to Buy ISA for first-time homebuyers; and the Junior ISA for individuals aged under 18.

Savers are able to invest in any combination of cash or stocks and shares, up to the overall annual subscription limit of £20,000. An individual may only pay into a maximum of one Cash ISA, one Stocks and Shares ISA, one Help to Buy ISA, one Lifetime ISA and one Innovative Finance ISA. Savers have until 5 April 2019 to make their 2018/19 investment.

Retaining more of your profit

The Dividend Allowance reduced to £2,000 in April 2018, and the question of whether it is better to take a salary/bonus or a dividend requires careful consideration. Dividends are taken after corporation tax has been paid, while a salary or bonus is generally tax deductible for the business. However, a salary or bonus can carry up to 25.8% in combined employer and employee contributions.

Other tax-efficient ways of extracting profit might include considering incorporation, or making pension contributions.

Maximising personal allowances

Individuals are entitled to their own personal allowance (PA), which is set at £11,850 for 2018/19 (rising to £12,500 for 2019/20). If your spouse or partner has little or no income, you may want to consider transferring income or income-producing assets to them. However, care is required: the legislation governing 'income shifting' states that any transfer made must be an outright gift, given with 'no strings attached', so speak to us before taking any action.

Certain married couples may also be able to make use of the Marriage Allowance, which allows those eligible to transfer up to 10% of their PA to their spouse. The Marriage Allowance is available to married couples and civil partners where one spouse has income below the PA and neither spouse pays tax at the higher or additional rate. Up to £1,190 can be transferred in 2018/19, which could help to reduce a couple's tax liability by up to £238.

The strategies outlined above detail some of the ways in which you may be able to minimise your tax liability ahead of the 5 April tax year end. We are able to advise on these and many other tax-saving initiatives – please contact us for more information.

With the introduction of Making Tax Digital for VAT (MTD for VAT) rapidly approaching, new developments may affect how certain businesses prepare for the measure. We take a look at the latest changes to the MTD for VAT regime.

MTD for VAT is set to come into effect from 1 April 2019 for businesses which have a taxable turnover above the current VAT registration threshold of £85,000. As part of the initiative, businesses must keep some records digitally, and must submit their VAT returns via an Application Programming Interface (API).

Any business making use of MTD for VAT whose turnover subsequently falls below the VAT threshold must stay in the regime, unless they deregister for VAT. Any firm exceeding the registration threshold after 1 April 2019 must comply with MTD for VAT, and is given 30 days to ensure that the appropriate digital software is in place.

Deferral for certain businesses

In October, HMRC's MTD for VAT guidance was updated, outlining a significant deferral of the initiative for certain businesses and organisations. A small group of taxpayers with 'more complex' requirements will be given an additional six months to prepare for MTD for VAT, and will therefore not be mandated to use the system until 1 October 2019.

The deferral applies to: not-for-profit organisations that are not set up as a company; trusts; VAT divisions; VAT groups; local authorities; public corporations; and traders based overseas. Public sector entities required to provide additional information on their VAT return, those who must make payments on account, and annual accounting scheme users are also covered by the deferral.

Meanwhile, HMRC also launched its second pilot scheme for MTD for VAT, inviting more than half a million UK firms to test the system ahead of its April introduction. The pilot is open for businesses with 'up-to-date and straightforward' financial affairs. HMRC intends to extend the pilot to 'most other business types'.

MTD for VAT 'encouragement letters'

HMRC recently sent businesses within the scope of MTD for VAT so-called 'encouragement letters'.

These letters were sent to 200,000 firms which are eligible to join the pilot scheme, and some VAT-registered businesses with a turnover just below the VAT registration threshold.

HMRC stated that it is 'committed' to writing to everyone within the scope of MTD for VAT.

When should I start to prepare for MTD for VAT?

Businesses are advised to begin preparing for the initiative now. Firms will need to ensure that they are using digital accounting records as soon as possible.

As part of MTD for VAT, every business will be required to make use of an online Business Tax Account (BTA). Firms which do not currently have a BTA are advised to set an account up ahead of the MTD for VAT start date. The first step is to generate a Government Gateway ID – this can be done here.

Preparing for and complying with MTD for VAT will undoubtedly prove to be challenging for many businesses. As your accountants, we are always on hand to answer any questions you may have – simply contact us for more information.

In his 2018 Autumn Budget speech, Chancellor Philip Hammond unveiled a so-called 'Digital Services Tax' (DST), which is set to come into effect from April 2020. The DST will require specific digital businesses to pay tax on sales generated in the UK. Here, we outline what we know so far in regard to the DST.

Taxing international digital businesses: a background

Over the past few years, a handful of large international companies have been subject to criticism for paying only small amounts of tax on their UK profits. The Chancellor previously stated that international agreements 'need to be put into place' to help tackle the issue; however, the Organisation for Economic Co-operation and Development (OECD), the body responsible for co-ordinating economic policy, has reportedly struggled to come to a decision on the matter.

The European Commission (EC) separately proposed an EU-wide 3% digital tax, but has so far failed to convince some EU member states.

Outlining the DST

From April 2020, the DST will apply a 2% tax to the revenues of certain digital businesses. The tax will raise £1.5 billion over four years, according to the government.

A double threshold will exist, meaning that businesses will have to generate revenues from in-scope business models of at least £500 million globally to become taxable under the DST. Government documentation states that the first £25 million of relevant UK revenues are not taxable. Small businesses will therefore not be within the scope of the tax.

Under ordinary principles, the DST will be an allowable expense for corporation tax purposes: however, it will not be within the scope of double tax treaties, and therefore it won't be creditable against corporate tax in the UK.

Who will be affected?

The DST will apply to large search engines, social media platforms and online marketplaces where their revenues are linked to the participation of UK users. The government is keen to emphasise that the DST is not a tax on online sales of goods, but rather a tax on the revenues earnt from intermediating such sales.

According to official documentation, financial and payment services, the provision of online content, sales of software and hardware, and television and broadcasting services will not be subject to the DST.

The DST: a temporary solution

The government expects the DST to be an interim solution, having effect only until an international decision is reached in regard to taxing digital services firms. A review clause will exist in order to allow a formal review to take place in 2025, to determine whether the DST is still required in light of international developments.

A consultation will be launched by the government to establish the finer details of the DST. By doing so, the government will make sure that all key concerns and challenges are addressed, and will also ensure the DST operates as intended, and does not place 'unreasonable burdens' on businesses.

The introduction of the DST in the UK will undoubtedly affect other countries' decisions in regard to the way they tax digital services firms. Commenting on the matter, Glyn Fullelove, Chair of the Technical Committee at the Chartered Institute of Taxation (CIOT), said: 'The best outcome would be that the announcemet... spurs the international community to find a globally-agreed solution to taxing digital multinational companies by 2020 so that this UK DST is never actually introduced.'

The DST will be legislated for in the 2019-20 Finance Bill.

An update on national insurance contributions

In an unexpected move, the government recently announced that it will not be abolishing Class 2 national insurance contributions (NICs) during this Parliament. With this in mind, we provide an overview of the current NICs regime.

What are NICs?

NICs are a tax on earned income. Under the regime, income is divided into various classes, including Class 1 contributions, which are payable on earnings from employment, and Class 2 and 4 contributions, which apply to the profits of self-employed individuals.

Who must pay NICs?

Under the NICs regime, employees are required to pay Class 1 NICs on their earnings. Employers must pay a secondary contribution.

In 2018/19, employees need only pay NICs when their earnings exceed the £162 per week 'primary threshold'. The amount payable is 12% of the earnings above this threshold, up to the Upper Earnings Limit (UEL) of £892 per week. An additional 2% charge applies for weekly earnings above the UEL.

Employers are required to pay secondary contributions of 13.8% of earnings above the £162 per week 'secondary threshold'. No upper limit exists for employer contributions.

For employees aged under 21, employer NICs are reduced from 13.8% to 0%: however, the worker must be aged under 21 when the earnings are paid for this rate to apply. Similarly, employer NICs are reduced to 0% for apprentices aged under 25 who earn less than the Upper Secondary Threshold (UST) of £892 per week (2018/19).

NICs and the self-employed

Depending on their profits, self-employed individuals are required to pay Class 2 and Class 4 NICs. However, special rules apply to those in specific jobs (such as invigilators, ministers of religion who do not receive a stipend and people who run land or property businesses).

The self-employed pay a flat rate Class 2 contribution, alongside a variable amount based on the business's taxable profits (Class 4). Class 2 NICs are usually collected as part of the final self assessment payment. Those with profits below the £6,205 Small Profits Threshold are not required to pay Class 2 NICs, but can do so voluntarily.

In 2018/19, Class 4 NICs are payable at 9% on profits between £8,424 and £46,350, with an additional 2% added on profits above this amount.

Abolition of Class 2 NICs

In September 2018, the government announced that the planned abolition of Class 2 NICs will now not take place during this Parliament. Former Chancellor George Osborne originally announced the tax cut during the 2016 Budget, and stated that abolishing Class 2 NICs would benefit an estimated 3.4 million self-employed workers.

Class 2 NICs were due to be abolished in April 2018, but in November 2017 the plans were put on hold until 6 April 2019.

Announcing its latest decision to scrap the plans entirely, the government cited the potential 'negative impacts' the abolition of Class 2 NICs could have on low-earners. It plans to keep the matter 'under review' in the context of the wider tax system.

Voluntary contributions

Some individuals may choose to pay Class 3 NICs at a rate of £14.65 per week (2018/19). These provide individuals with an entitlement to the State Pension, Bereavement Benefit, Maternity Allowance and contributory Employment and Support Allowance for self-employed workers.

As your accountants, we can help you in ensuring your business is compliant with the NIC regulations. Please contact us for more information.

Making Tax Digital for VAT (MTD for VAT) is set to come into effect from 1 April 2019 for businesses which have a taxable turnover above the VAT registration threshold (currently £85,000). In VAT Notice 700/22, published on 13 July 2018, HMRC outlined further details and confirmed its intention to give some respite to taxpayers who may struggle with the digital requirements.

Eventually, all businesses will be required to keep their records in a digital format and to have digital links between the software programs they use. However, in the first year of mandation, businesses will not be required to have digital links in place between MTD-compatible software programs.

Firms will, nevertheless, need to file VAT returns digitally using HMRC’s Application Programming Interface (API) platform.

What are digital links?

VAT Notice 700/22 states that a digital link is ‘an electronic or digital transfer or exchange of data between software programs, products or applications’. Under MTD for VAT, taxpayers are permitted to use more than one piece of software, as long as the programs are digitally linked.

The VAT notice gives some examples of digital links. HMRC will accept digital links as:

• linked cells in spreadsheets
• emailing a spreadsheet with digital records to an agent so that they can import the data into software in order to carry out a calculation (such as for partial exemption)
• transferring digital records to a portable device, such as a USB stick, to give to an agent to import into their software
• XML and CSV import and export, and the download and upload of files
• automated data transfer
• API transfer.

HMRC is keen to emphasise that this list is not exhaustive. The Notice also states that ‘the use of cut and paste does not constitute a digital link’. However, in the first year of mandation, HMRC will ‘accept the use of cut and paste as being a link’ for the relevant VAT periods. In time, however, taxpayers will need to ensure that digital links are available between the software programs they use.

Filing VAT returns

VAT returns must be filed digitally through API-enabled software, and not through HMRC’s current portal.

Businesses with up-to-date digital records will find that their chosen software can collate and prepare VAT returns with ease; firms will then be able to declare that the information is correct, and submit the return to HMRC.  

HMRC will not be providing software to enable taxpayers to file their VAT returns. It has, however, compiled a list of MTD-compatible software providers. The list can be found here, and will be updated as more software providers develop MTD-compatible software programs.

Next steps

With MTD for VAT set to take effect in April next year, VAT-registered businesses will need to ensure that they are digitally compliant. If you do not already use compatible software, this may be the first thing you will need to address and begin making use of.

It is vital to ensure that you are prepared for the forthcoming introduction of MTD for VAT. We will be keeping you up-to-date with the latest information.