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.
MTD: Do you know what’s coming?
A recent survey has found that less than a third (29%) of UK businesses know what they need to do to become MTD compliant and are confident of meeting the deadline. This has fallen from 38% since November. The percentage of businesses that have ‘no idea’ what to do and are putting off becoming compliant has doubled from 8% in November to 16%.
The changes take effect from 1 April, less than a month away. From that date, VAT-registered businesses with an annual turnover below £85,000 will need to have implemented MTD.
Some of the key reasons why businesses are putting off being compliant, include:
- feeling like they don’t have time (32%)
- being uncomfortable with the technology involved (30%)
- not knowing what MTD is (29%)
- needing to talk to an expert first (28%)
- being scared to make errors (26%)
Failure to comply with MTD will lead to penalties.
Government policy – tax as a weapon
Government taxes individuals, companies and organisations in order to raise funds for the government of the day to spend or invest.
However, should tax ever be used to change behaviours? In reality, it has been used like that for many years. The government wanted to encourage home ownership and so you got tax relief on your home mortgage interest. That disappeared many years ago.
The government wanted to encourage saving in to pensions so you get tax relief on your personal pension contributions.
It is also used as a simple way of recovering benefits that the government thinks you should not have, The High Income Child Benefit Charge is their way of getting back child benefit you have claimed where you or your spouse earn more than £50000. It was a simpler solution than actually fixing the problem at point of payment of the benefit.
The plastic packaging tax comes into effect on 1 April 2022 catching manufacturers or importers of plastic packaging where 70% or more of those materials are not formed from recycled plastic.
The declared purpose of the soft drinks levy was to reduce the amount of sugar in soft drinks in order to tackle childhood obesity.
Don’t you wish that governments would use targeted regulations to change products and markets and not complicate the tax system every time?
Navigation in turbulent business seas
RPI is over 5% and the Bank previously expected inflation to top 7% later in the year. Now even that may turn out to be unduly optimistic.
The terrible events taking place in Ukraine will have significant economic repercussions, affecting fuel and food prices and therefore feeding into inflation.
Will we also see an increase in Government spending particularly on defence?
Are we finally getting clear of Covid? Who knows, blet’s hope so.
There are significant staff shortages in a number of sectors and we see this in accounting where the situation was already dire due to Brexit. Many firms are getting around the problems in the UK labour market by outsourcing the work to Indian firms.
As costs rise this is going to be reflected in increased prices.
One of the consequences of the war in Ukraine, apart from the effect on the economy, is the Governments desire to reform Companies House as part of wider economic crime reform to stop wealthy criminals laundering cash through London.
The UK government has therefore introduced legislation aimed at tackling economic crime, as it seeks to rid London of illicit money parked by wealthy Russians.
The legislation is designed to increase the transparency of ownership of property in the UK and amongst other things, it will mean increased checks around anti-money laundering.
Crime agencies estimate more than £100bn is laundered through the UK annually via a complex network of banks, accountants, offshore trusts and shell companies, with wealthy Russian supporters of Putin particularly drawn to London’s property market.
A new register under the laws will require anonymous foreign owners of UK property to reveal their real identities to ensure criminals cannot hide behind secretive chains of shell companies. Entities who refuse to divulge their ‘beneficial owner’ will face restrictions overselling their property, and those who break the rules could face up to five years in prison.
Covid loans What have they been used for?
Some business owners were able to take out loans without any intention of using them to support their businesses.
In one instance a director spent the full £50,000 on a Range Rover, claiming it was a grant, not a loan, while another spent the full loan amount on a jet ski and a deposit on a buy-to-let property. The abuse was not limited to material goods with another director spending £22,000 on a ‘redundancy payment’ to the wife of a director, who wasn’t actually employed by the company.
Other loans were claimed for non-existent businesses with a £25,000 loan given to a director despite the business being dissolved two years earlier
There are also many instances where tens of thousands of pounds were sent to family members abroad within days of receiving the bounce back loan.
One director spent £250,000 of a Coronavirus business interruption loan on a £12,000 car deposit, £6,000 on an engagement ring, payments to his parents and partner, large amounts on pornographic websites and multiple unexplained cash withdrawals of £500.
Russia sanctions– Are you compliant?
The sanctions were introduced in response to the war in Ukraine They include restrictions against individuals, companies, and other organisations. They also limit deposits held by Russian nationals in UK bank accounts to £50,000. They are wide-ranging and could impact on many UK businesses.
Businesses, therefore, need to review their contacts and processes to ensure that they are not transacting with individuals or organisations that are subject to the new sanctions.
Johnston Carmichael fees hit £54.6m
Accountancy firm Johnston Carmichael has reported annual revenues of £54.6m, up 6.2% for the financial year ending 31 May 2021, despite the challenges of the pandemic
The pre-tax profit for the group for year ending 31 May 2021 was £15.8m, up from £12.4m in the previous year.
Founded in 1936, Johnston Carmichael has grown to become the largest independent firm of chartered accountants and business advisers in Scotland with more than 850 staff and partners.
FRS and the Postponed VAT Accounting System
The system for imported goods was introduced on 1 January 2021 and allows VAT registered businesses to declare and reclaim import VAT on the same VAT return.
This avoids VAT being paid to HMRC on import and the business having to reclaim through its VAT return, sometime later.
Under the flat rate scheme (FRS), VAT cannot be recovered on goods purchased or imported for resale. If the Postponed VAT scheme is not used then VAT will be paid on arrival of the goods into the UK and this would be reclaimed on the next VAT return. However, unless it is for capital items over £2000, a flat rate trader cannot reclaim this VAT.
According to current HMRC guidance, if you are on the Flat Rate Scheme you must add the net cost of the items being imported to your flat rate scheme turnover and the appropriate percentage applied.
However, for VAT return periods commencing on or after 1 June you must exclude the value of imported goods from the Flat Rate Scheme calculation completely.
The full amount of import VAT should be added to box 1 only, after the flat rate calculations have been completed.
HMRC: Label NIC rise on payslips
HMRC has emailed employers ‘strongly encouraging’ them to label the increased National Insurance contributions (NICs) rate on their employee’s payslips as ‘for the NHS’
This follows a similar message circulated last month.
What they want you to include is “1.25% uplift in NICs funds NHS, health and social care”.
Software providers have also been contracted to build this into their standard payslips.
From 2023 the rate for NICs will return to the current level and the Social Care Levy will be highlighted on payslips.
This is a suggestion and is not mandatory for employers to include the message, but it was ‘strongly encouraged’.
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 email@example.com.