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 sole basis for making decisions.
2021 SA Filing Deadline Easement
HMRC has announced that self-assessment taxpayers will get an extra month to file their tax returns without incurring a fine, although interest will still accrue.
You won’t receive a late filing penalty if you file online by 28 February (and payments are made by 1 April), but HMRC is continuing to encourage filing by the 31 January deadline as interest will still be payable from 1 February, as usual.
HMRC has revealed that almost 6.5m taxpayers have already filed their tax returns, which leaves around 5.7m still to submit. Early signs were that the numbers were tracking at the same levels as previous years.
One comment that we have seen was “A deadline extension gives some clients a new excuse to not bring their paperwork in on time.” Don’t let that be you!
Making Tax Digital – The Facts
MTD ITSA – Overview
Under MTD you will be required to:
keep digital records;
provide ‘periodic’ (quarterly) updates and;
provide an end of period statement.
New clarifications and guidance are still appearing but we probably have most of the basics.
Digital record keeping
You will be required to use one or more software products but also you can use a spreadsheet, in conjunction with the software (bridging software) to produce the desired record. The software must be able to communicate with HMRC in order to file the returns and also receive messages from HMRC.
You will be required to have the digital record up to date at the end of each quarter so this potentially allows record keeping to be done quarterly.
Quarter dates – Quarterly returns
The Regulations specify the following quarter dates which may well not coincide with your accounting year end:
1 Period from 6 April to 5 July with submission by 5 August
2 Period from 6 July to 5 October with submission by 5 November
3 Period from 6 October to 5 January with submission by 5 February
4 Period from 6 January to 5 April with submission by 5 May
So every business and every person within MTD will file to the same dates and have the same due dates.
However, you will be able to elect to prepare the summary reports to calendar quarters.
There is no declaration about ‘correct and complete’ for the quarterly updates, and there will be no checks provided records have been kept in an appropriate digital format.
End of Year Statement
An EOPS (End of period statements) will be required to be filed by 31 January following the end of the tax year and covers the period of your accounts.
It may not coincide with your quarterly submission. The EOPS is disconnected from the quarterly filing obligation.
The EOPS includes all of the year-end adjustments, capital allowance claims and other reliefs relevant to the business and a declaration that the statement is correct and complete to the best of your knowledge so a bit like the present self-assessment tax return for the self-employed.
Content of the EOPS
- Details of the relevant period to which the statement refers (that is the dates of the accounting period or basis period if different);
- The totals of the amounts falling within the specified categories of transactions for the relevant period;
- Details of the properties forming part of the property business.
- Adjustments, allowances, balancing charges or costs
- Losses or exemptions, and
- Reliefs and allowances
MTD ITSA – The income exemption
There is an income threshold of £10,000 (adding trading and property income together) but the rules are designed to make it hard for businesses to opt in and out of MTD easily.
Broadly you can only drop out of MTD once your income has been below the limit for three consecutive years.
Income is defined as the sum of the amounts of income before any deductions for each business carried on by you in the tax year, so this means:
- Turnover from all trading activities, and
- Gross rents and other income received from property (including an overseas property business)
So, it will only be the very smallest businesses that will be able to make use of this exemption.
MTD ITSA – The income exemption – The Tests
For the income exemption to apply, two tests must be met:
1. The digital requirements did not apply to the person in the previous tax year, and
2. The gross income for the tax year for which the filing deadline fell before the start of the tax year in question was less than £10,000. Broadly what this means is that if we are looking at whether you are within MTD for 2024/25, you look at your figures for 2022/23, as the filing deadline is 31 January 2024 which is just before the start of the 2024/25 tax year.
So, by 5 April 2023 we will know, or have a good idea who will qualify for the exemption from 5 April 2024, the date MTD commences for sole traders and landlords.
There is a lot more detail but I think that is probably enough to absorb for the moment.
MTD ITSA timeline
The Digital start date is an important part of the Regulations as it determines the time when each business is required to make quarterly returns.
For businesses trading as at 5 April 2023 the digital start date is 6 April 2024. Partnerships will not come under MTD until a year later.
When new businesses come within the digital requirements depends on when HMRC issue the ‘Notice to file information’ (previously a ‘Notice to make a return’). The same applies to their digital start date. More on that another time. It’s complicated.
Will National Insurance Contributions increase?
A number of MPs including Jacob Rees-Mogg, have come forward to urge the chancellor to halt the hike to NICs in April in order to alleviate the strain on people’s finances as inflation rises above the current 5.1%.
The national insurance rise was announced to tackle the NHS backlog and eventually be used to fund social care and is expected to raise around £12bn a year.
Experts including from think tanks and charities have also come forward to urge Sunak to stop the increase.
However, on Thursday Rishi Sunak stated that the plans were still to go ahead.
On the energy crisis, the cost of gas and electricity is set to increase significantly when Ofgem, the energy watchdog, announces the price cap rise which will be in place from April to September 2022 which is expected to be around £600 a year per household, adding further pressure to the calls to defer the NI rise.
1.25M more higher rate taxpayers
The government’s plans to freeze income tax thresholds until 2025-26 will mean that an additional 1.25m people will be brought into the 40% tax bracket due to the current rapid wage and price inflation.
In addition, 1.5m people on a low wage will be brought into paying the basic level of income tax.
Household disposable incomes are expected to be 1% lower by 2026 across all regions compared to what they would be if there was no freeze to income tax thresholds.
When announced the government stated that the freeze was set to raise around £13bn for the NHS and social care, however, a House of Commons report estimates that the freeze is only set to raise £10.9bn a year by 2025-26.
Christmas Tax Returns
HMRC revealed that on Christmas Eve 19,802 self-assessment tax returns were filed, down from 20,200 from last year, with the peak time for filing being 11:00-11:59.
Christmas Day saw 2,828 tax returns filed, up from 2,700 in 2020, with peak time for filing being the hour after midday which saw 227 completions.
Boxing Day saw the submission of 8,641 returns with the peak time for filing being again the hour after midday which saw 821 returns. This was up from the 8,500 filed on Boxing Day last year with the peak time for filing being between 3pm and 4pm.
The overall figure is almost identical to the same period last year which saw 31,494 submissions, However, it is 9% lower than the Christmas 2019 figures which saw 34,292 returns submitted.
Questions? If you have any questions about any of these, you know where to find us. If you prefer, just give me a ring on 07770 738770 or email me at firstname.lastname@example.org.