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Dealing with HMRC over deferred VAT payments

Early on in the pandemic, HMRC confirmed that all payments of VAT due between 20 March 2020 and 30 June 2020 could be deferred until 31 March 2021, to help businesses manage their cash flow.

Many businesses took them up on this offer, but they do need to eventually be paid!

The next few months will be as big a challenge as anything so far seen in 2020 for many businesses.

Focusing on your cash position during the remainder of 2020 should be the top priority for company directors.

Now is a good time to review your existing business plan and incorporate the repayments schedule of any CBILS, bounce back loans or VAT payments due.

We are always proactive with our clients to ensure they are clear on the dates of the deadlines for payments to HMRC to avoid penalties.

A number of tax deadlines fall between now and March 31st including deferred VAT payments (made between March 20 and June 30), self-assessment income tax payments on account and potentially your corporation tax liability.

Given that these liabilities could become payable within quick succession it means that business owners should ensure they’ve got sufficient levels of cash in their business to enable the servicing of existing debts and tax bills leaving them to focus on maintaining and growing their business during 2021

Speak to our team about structuring your tax repayments/VAT payments and ways to preserve and manage optimal levels of cash in your business.

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Action required – ‘Making Tax Digital’

If you currently submit your VAT return using an Excel spreadsheet you must take action to update your process or face expensive fines from HMRC.

To comply with new ‘Making Tax Digital’ requirements you must use accredited accounting software to submit the return. We can:

  1. Guide you on upgrading your existing accounting software.
  2. Check and submit your VAT return using our specialist software for just £99 per VAT return.

Failure to comply with these new regulations could see huge fines imposed by HMRC.

We are working with all our clients to ensure they choose the best method of processing tax and VAT returns which are HMRC compliant and work best for their business.

In many cases, it is easier and more efficient for our VAT team to handle your returns. This way, you can be sure that you are compliant and also it removes the risk and hassle of doing it all your self.

To simply update the way you process your VAT returns speak to Jane Marquez in our team and she will guide you on the best option for your business.

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Don’t be an easy target for HMRC in 2019

Get insured against the costs of a tax investigation by HMRC

We are seeing more and more professional services firms – and their clients being investigated by HMRC for tax evasion. HMRC issued 1,414 production orders to accountancy, law and other professional services firms in relation to investigations into tax evasion according to this report by economia.

At least two Manchester United stars were reported to have been investigated by HMRC over alleged image rights tax evasion as the authorities opened new cases against top footballers in the Premier League.

As enquiries escalate amongst top flight footballers, tax investigations into the affairs of small business are also on the increase and we say it is because both groups are easy targets for HMRC.

Are you under investigation by HMRC?

Murray Patt, founder of Manchester-based accountants Alexander Knight & Co, said:

“It increasingly feels as if small and medium-sized businesses and Premier League footballers are two of the most targeted groups for tax investigations by HMRC.

“In the case of footballers, forming an image rights company to receive payments of up to one fifth of a player’s salary is actually a legitimate tax strategy approved by the authorities if set up appropriately.

“However, it’s logical for the authorities to launch investigations into high profile players who earn their wealth via multiple sources because it can be a rich source of extra income, particularly for players who are new to the Premier League from other countries where tax rules are different.

Get insurance for HMRC investigations 

“Let’s not forget that small and medium sized businesses are an even easier target. If you don’t take care as a small business owner you’re at risk of being pulled up over minor mistakes or small disparities, which could incur disproportionately heavy fines and penalties imposed by HMRC.

“It’s important to have insurance in place to cover the cost of an investigation if you are a small or medium sized business, since in most cases you won’t have the funds of a top-flight footballer. Don’t get caught offside by HMRC.”

Alexander Knight & Co will arrange insurance for you and your business against the costs of an expensive HMRC investigation. Don’t get caught offside by HMRC. Speak to our specialist tax team now on (0161) 980 8788.

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“Making tax digital” …so what?

A new term has been invented by the government to reflect the central role of businesses in the Making Tax Digital project – Making Tax Digital for Business – and a new acronym – MTDfB.

The government has decided how the general principles of MTDfB will operate. Much of the detail will be set by Regulations which are expected to appear in the summer.

Under MTDfB, businesses will be required to:

  • maintain their records digitally, through software or apps
  • report summary information to HMRC quarterly through their ‘digital tax accounts’ (DTAs)
  • submit an ‘End of Year’ statement through their DTAs.

DTAs are areas where a business can see all of its tax details in one place and interact with HMRC digitally.

When will this start?

Unincorporated businesses and unincorporated landlords with annual turnover:

  • above the VAT threshold (which has been set at £85,000 from 1 April 2017) will need to comply with the requirements of MTDfB from the start of accounting periods which begin after 5 April 2018
  • at or below the VAT threshold but above £10,000 will need to comply from the start of accounting periods which begin after 5 April 2019.

Businesses and landlords with turnovers under £10,000 are exempt from the requirements. Companies (and partnerships with a turnover above £10 million) will not come within MTDfB until April 2020.

What will quarterly accounting mean?

This is still the big question to which there are no definitive answers at present. The government has made some concessions from its original proposals including:

 

  • if businesses are using a spreadsheet to record data, they will be able to continue to use this for record keeping, but they must ensure that their spreadsheet meets the necessary requirements of MTDfB – this is likely to involve combining the spreadsheet with software
  • the requirement to keep digital records will not include an obligation to store images of invoices and receipts digitally. Under the original proposals, HMRC envisaged that a digital record would include not only a record of each item of income and expense but also evidence of each transaction such as copies of invoices and receipts.

Once all the relevant data for a quarter has been compiled into the software, the business will then feed this data directly into HMRC systems. The information that will be sent to HMRC will be summary data for the quarter, not all income and expense items. Businesses will have one month from the end of the quarter to submit the update to HMRC.

Why is all this important to you?

It’s important to you. But, it’s not particularly interesting or relevant – because naturally you are getting on with the job of running your own business.

It’s more exciting for accountants to discuss the issues and the merits of this than it is for our clients. We prefer to talk to our client in a straightforward and practical manner – so using confusing acronyms like MTDfB is, in our view, totally unhelpful to small and medium sized businesses.

So, the key message from all this ‘making tax digital’ is – let us take care of all this and we’ll make sure your business takes advantage (where there is any) of these slowly meandering initiatives being introduced by the taxman.

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If you are a landlord (no, not the pub type) …you need to read this

It was almost two years ago in the Summer Budget 2015 that the then Chancellor, George Osborne, announced restrictions to income tax relief for interest costs incurred by landlords of residential properties. The proposals became law in November 2015 but it is only from the 6 April 2017 that these provisions came into effect.

In the 2017/18 tax year, the restriction of interest relief to basic rate of tax will apply to 25% of the interest with 75% of the interest getting relief against rental income in the normal way. Landlords will therefore first see the effect in the calculation of their tax liabilities for 2017/18 – the balancing payment for which is due 31 January 2019. A higher rate taxpayer will, in principle, get 5% less relief for finance costs (i.e. one quarter of 40% higher rate less 20% basic rate).

5% doesn’t sound much but it can be worse than this due to 25% of the interest not being deductible from income. So, total income may cross a threshold such as:

  • £50,000 – in which case Child Benefit may be clawed back
  • £100,000 – in which case personal allowances may be reduced.

The restrictions are only going to get worse, so please talk to us if you want clarification on any aspect of these rules.

HMRC’s Making Tax Digital project also has an impact on many property businesses from 6 April 2017. The government considers that all unincorporated businesses except for the larger property business will benefit from using the cash basis rather than the usual accruals basis and so is proposing to make this the default basis.

The cash basis means the business accounts for income and expenses when the income is received and expenses are paid. The accruals basis means accounting for income over the period to which it relates and accounting for expenses in the period in which the liability is incurred.

Property businesses will remain on the accruals basis if their cash basis receipts are more than £150,000. The cash basis also does not apply to property businesses carried out by a company, an LLP, a corporate firm (i.e. a partner in the firm is not an individual), the trustees of a trust or the personal representatives of a person.

The government proposals are that the cash basis will first apply for the 2017/18 tax year which means that your tax return for 2017/18, which has to be submitted by 31 January 2019, will be the first one submitted on the new basis.

There will be an option to elect out of the cash basis and stay with the accruals basis and we are here to help you make a decision on this later in the year.

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Fancy £600 tax free?

Gift cards tax break for directors

One of the most underused perks of being a company director is the ability to award directors with an annual £300 ‘trivial benefit’.

To get £600 – you draw £300 before April 5th – and £300 after April 5th and purchase a retail gift card with the funds. John Lewis, Selfridges or Tesco – whatever takes your fancy. That makes a total of £600 tax free over two days.

If your wife or husband is a company director, they can also have the perk. Meaning that, as a family, you can collect £1200 tax free!

This tax perk is because HMRC considers it acceptable to reward directors with a ‘trivial gift’ up to the value of £300 each, per tax year.

For more details on how to do this correctly and in accordance with current HMRC rules speak to one of our tax team.

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