Every week we take a look at what is trending in the accountancy and tax press and share items that we think will interest you. However, these are only outlines and where they relate to tax planning should not be acted upon without looking into them more completely as everyone’s circumstances are particular to them. You need to take specific advice appropriate to your own circumstances.
While every effort is made to deliver accurate, informative and balanced articles this content is general in nature and should not be used as the basis for making decisions without seeking further advice and guidance.
If you were worrying about MTD for the self employed and landlords, you can relax for a year. In a statement to MPs last week, new financial secretary to the Treasury Lucy Frazer said that the introduction of Making Tax Digital (MTD) for income tax will be postponed by a year.
Quarterly reporting for landlords and the self employed was due to start in April 2023, but it will be pushed back by 12 months.
In addition, general partnerships will not be required to join MTD for ITSA until April 2025.
The date at which all other types of partnerships (i.e. LLPs, mixed or corporate partnerships), will be required to join has not yet been announced.
This delay will also affect the introduction of the new penalty scheme for late filing and late payment of tax for ITSA. This will now be introduced for those who are mandated for MTD for ITSA in the tax year beginning April 2024, and for all other income tax self assessment customers from April 2025.
With this, HMRC are buying themselves some time, especially with the new social care levy and the backlog from covid. There’s also the recent consultation on moving the tax year, and aligning the basis period, and various proposals from OTS. This will give HMRC some time to deal with the IT infrastructure and to do proper testing of the systems.
This delay may also have a knock-on effect on the plans to introduce basis period reporting for the self-employed and partnerships. We have heard nothing yet, but we will have to wait and see.
This is the latest in a series of delays and deferrals in the MTD programme, which was proposed by Chancellor George Osborne in late 2015. The MTD start date for small businesses was first planned to be in April 2018, then the focus switched to MTD for VAT. The MTD for income tax programme was to be delayed until lessons had been learnt from the VAT roll-out.
MTD for VAT commenced on time for most VAT registered businesses for VAT periods starting on and after 1 April 2019. We now have this delay for MTD for Income Tax. There is no indication if the MTD for corporation tax project will start as planned in 2026 or not.
The turnover limit for MTD for income tax remains at only £10,000 per year, much to disappointment of many who were lobbying for a much higher entry threshold. Will this also be changed before implementation, we will just have to wait and see.
As the turnover threshold must take into account the taxpayer’s income from all of their sole-trader businesses, plus their rental income, HMRC needs to pull together several figures from the taxpayer’s self assessment tax returns. Only when the tax return totals reach the £10,000 threshold will HMRC issue a notice to file under the MTD regulations.
If MTD for income tax was to be introduced from 6 April 2023, the turnover test would need to apply to the figures reported in years affected by the pandemic which reduced turnover and rental income for many businesses and landlords.
There was also a complication because of grants received, and especially as many taxpayers have misreported the SEISS grant incorrectly as part of their turnover.
As MTD ITSA will now start in April 2024 the base year for testing the MTD turnover threshold will be the tax year 2022/23. The turnover figures for that year should not be distorted by Covid-related grants, and hopefully will better reflect normal trading for most businesses, albeit that this may be the “new normal”.
HMRC estimates a transitional cost for MTD adoption by businesses of around £1.3bn and a net increase in the ongoing costs of tax compliance of around £152m for those businesses mandated to use MTD for ITSA. You wonder how all these changing deadlines will add to the cost.
Scottish Budget – 9 December
The Scottish Government has set 9 December 2021 for the annual Scottish Budget to review spending for 2022-23 and the medium term financial strategy. This will ensure sufficient time to scrutinise the Scottish government’s spending plans for the next financial year.
The 2022-23 Scottish Budget will focus on delivering the new Programme for Government, reflecting the challenges facing households, communities and businesses as a result of the covid-19 pandemic.
Finance secretary Kate Forbes said:
“There is no doubt the pandemic has changed how we live, and equally the consequences of Covid continue to impact how we live, how our communities interact with each other and how our businesses operate. Covid has also brought significant pressures for our public finances, with billions of pounds invested in public health measures, individual support and lifeline financial assistance for thousands of businesses.
The 2022-23 Scottish Budget will be delivered against these considerable financial challenges, as we continue to prioritise investment in the services, infrastructure and support measures that help build a fairer, greener, more progressive Scotland.
As always, the Scottish Budget will be informed by voices across Scotland, from the private, public and third sector, to ensure we continue to promote wellbeing, deliver our climate change and net zero ambitions, and get on with the task of transforming our economy to the benefit of all.
We welcome the UK government’s decision to revert to an autumn Budget and I look forward to constructive engagement to ensure Scotland’s interests are listened to as part of their spending plans.”
Tax Gap – 35bn
HMRC figures released for the pre-pandemic period of 2019/20 show a £2bn increase in the estimated tax gap, largely attributable to an increase in the VAT gap.
On 16 September, HMRC published its annual data estimating the difference between the total tax expected to be paid and the amount actually paid. The £35bn figure for 2019/20 equates to 5.3% of tax liabilities, a slight increase on the 5% of tax liabilities in 2018/19.
The VAT gap is measured predominantly by reference to a top-down method of comparing tax receipts to the estimated tax due based on consumer spending data.
Looking at the tax gap by customer group, small businesses make up the largest group. A striking figure buried within the report is that business taxpayers are estimated to only pay 77.5% of the amount expected under self assessment (underpaying £4.3bn).
However, it is worth noting that HMRC’s methodology for estimating the gap for income tax self assessment is calculated from the bottom up. It is based on enquiries together with operational results from compliance activity.
In reporting the figures by type of behaviour, criminal behaviour is subdivided by HMRC into evasion, criminal attacks, and the hidden economy. Between them they account for almost 40% of the tax gap.
Failure to take reasonable care remains consistently around 19% of the tax gap. In contrast, the tax gap due to avoidance is down to only 4% of the total, which suggests that HMRC’s drive to curb avoidance has achieved results.
HMRC Target Oil and Gas, Banking and Finance
Businesses operating in the oil and gas, banking and finance sectors are being targeted by HMRC to confirm that they are complying with the off-payroll working regime introduced in April 2021.
Since 6 April 2021, it has been the responsibility of all private sector engagers, other than small businesses, to ensure that the employment status of their contractors is determined correctly and, if the off-payroll working rules require, for them to be paid through a payroll.
It appears that HMRC has been issuing letters to organisations operating in the these sectors to confirm either that they are correctly operating the Off Payroll Working rules or PAYE, where applicable.
The letter seeks to understand more about the organisation’s process for hiring contractors. The challenge for many larger organisations is that contractors invoice for their work and are handled by purchase ledger teams with the risk that status checking is overlooked by human resources and payroll teams.
These compliance checks follow a number of large settlements by the public sector.
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