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 – New Basis Periods
From 6 April 2024 all unincorporated businesses need to report their income and expenses to HMRC as they arise in the tax year replacing the old system where you paid tax on the profits of the accounting period ended in a tax year.
All sole traders, partnerships and limited liability partnerships (LLPs) will have to use the tax year basis from 2024/25, which coincides with when sole traders and landlords enter Making Tax Digital for Income Tax Self-Assessment.
General partnerships won’t enter the new regime until April 2025, and there is no published start date yet for LLPs.
If you already prepare accounts to a date between 31 March and 5 April, you will see no difference. For anybody else, you will need 2 sets of accounts to calculate the profits of the new basis periods.
Capital allowances will continue to be determined on an accounting period rather than a tax year basis, as the legislation regarding those allowances has not been changed. Businesses will account for capital additions, disposals, and writing down allowances for each accounting period.
The major problem with having to pro-rata accounting results from two accounting periods into one tax year is the tight deadlines. This may necessitate estimated filings to be updated when the figures are available.
The transitional year 2023/24 has the potential to create some serious tax headaches. More on that another time.
MTD Collects More Tax
Research undertaken on behalf of HMRC shows that more tax is collected and VAT returns are more accurate.
HMRC estimates that the tax digitalisation project will have brought in between £185m and £195m additional tax revenue. Revenues increased for businesses both above the VAT threshold and below.
HMRC will be hoping to extend these results to MTD for Self-Assessment.
Rogue tax advisers
Approximately one-third of UK tax agents are supervised by HMRC, and these are generally agents who do not hold professional body membership. WE are members and are accountable to 2 professional bodies, namely The Institute of Chartered Accountants and the Chartered Institute of Taxation. That also means we have to pay twice the fees which are not insubstantial.
HMRC does not have a clear way to report poor tax agent standards and behaviours, meaning that unaffiliated tax agents may not be held to the same level of scrutiny firms such as ourselves.
HMRC is in the process of developing a better system both of scrutiny and communication with the agents that it supervises.
HMRC have said that there are some tax agents who do not provide a good quality service to their clients either because they lack competency, have not kept up with technical changes, or do not have relevant specialist expertise, while a few are extreme boundary pushers, dishonest or fraudulent.
Many of these agents had outstanding tax debts in relation to their own affairs, and they have been contacted by HMRC with the aim of securing settlement of the debt or formal time to pay arrangements.
Agents that have not co-operated face formal action or have had their access to HMRC’s online tax agent services suspended. This suspension limits their ability to act for their clients through HMRC’s digital services.
In extreme cases HMRC has the power to issue conduct notices and financial penalties up to £50,000 to tax agents who have acted dishonestly in their dealings with HMRC. The tax authority can also issue penalties, depending on the specific circumstances of each case, and these can range between 30% to 200% of potential lost revenue.
Treasury and Bank Claims
In a Treasury Committee hearing on Wednesday, Lord Agnew once again gave evidence about the government’s attempts to prevent fraud in connection with the various Covid support schemes.
He stated that banks will soon be able make use of the guarantee to claim back money on unpaid loans. There was a two-year moratorium on banks starting to make claims under BBS, CBILS etc.
Lord Agnew told the Committee that the banks needed to take more responsibility over chasing down fraudsters that have exploited the scheme. However, due to the state guarantees, this is more likely to mean that lenders had ‘little incentive’ to do so, preferring just to claim the guarantee.
The Committee praised Lord Agnew for being ‘a fascinating witness’ and that very few come in and ‘be absolutely honest’ describing his evidence as ‘interesting and astonishing’.
Personal Tax Account Fraud
HMRC is aware that criminals are attempting to obtain your Government Gateway logins and other personal details, enabling them to register for income tax self-assessment and submit bogus tax refund claims before pocketing the repayment.
Individuals, ranging from teenagers to pensioners, are being targeted on social media platforms by fraudsters seeking to ‘borrow’ their identities. In return, the individual is promised a cut of the tax refund ‘risk-free’.
Handing over sensitive personal information to criminals like this, even inadvertently, risks individuals involving themselves in tax fraud, and having to pay back the full value of the fraudulent claim.
Taxpayers should only deal with HMRC directly or through their tax adviser in relation to their self-assessment tax refunds.
Ukraine – be ready for Russian Cyber Attacks
Professional bodies are warning members that as we all take a stance on the events in Ukraine, be ready for some kind of retribution from Russia’s cyber agents.
It is hard to predict what Russian cyber attackers might do at this time.
We might well see a major attack on something central, such as energy supplies, banking systems or other critical infrastructure, aiming to disrupt as many organisations as possible.
If you are an SME or a big company, and you’ve got any potential links to Russia, you may well be a target.
Here is a list of the five highest-threat Russian hacking groups which was recently circulated by ICAEW.
- The UAC-0056 threat group (AKA TA471, SaintBear and Lorec53)
The UAC-0056 threat group has been active since at least March 2021 and has attacked government and critical infrastructure organisations in Georgia and Ukraine.
- Sandworm Team (Black Energy, BlackEnergy, ELECTRUM, Iron Viking, Quedagh
Sandworm, TeleBots, TEMP.Noble, or VOODOO BEAR, is a group of Russian hackers that have been behind a major cyber campaign targeting foreign-government leaders and institutions, especially Ukrainian ones, since 2009.
- Gamaredon Group
Active since at least 2013, Gamaredon Group is a Russian state-sponsored APT group. In 2016, the Gamaredon Group was responsible for a cyber espionage campaign, tracked as Operation Armageddon, targeting the Ukrainian government, military, and law enforcement officials.
- APT29 (AKA Dukes or Cozy Bear)
APT29 is a well-resourced and organised cyber espionage group. Security researchers suspect that the group is a part of the Russian intelligence services. APT29 primarily targets Western governments and related organisations, such as government
- APT28 (AKA Fancy Bear)
APT 28, also called Group 74, Pawn Storm, SNAKEMACKEREL, STRONTIUM, Sednit, Sofacy, Swallowtail, TG-4127, Threat Group-4127, or Tsar Team, is a state-sponsored hacking group associated with the Russian military intelligence agency GRU. The group has been active since 2007 and usually targets privileged information related to government, military and security organisations.
MTD – No More Cut & Paste
VAT-registered businesses with a taxable turnover below £85,000 will be required to follow Making Tax digital rules from their first return starting on or after 1 April 2022.
Making Tax Digital (MTD) is keeping digital records and using compatible software to submit VAT returns.
HMRC have specified the records you need to keep digitally as –
- your business name, address and VAT registration number
- any VAT accounting schemes you use
- the VAT on goods and services you supply, for example everything you sell, lease, transfer or hire out (supplies made)
- the VAT on goods and services you receive, for example everything you buy, lease, rent or hire (supplies received)
- any adjustments you make to a return
- the ‘time of supply’ and ‘value of supply’ (value excluding VAT) for everything you buy and sell
- the rate of VAT charged on goods and services you supply
- reverse charge transactions – where you record the VAT on both the sale price and the purchase price of goods and services you buy
- your total daily gross takings if you use a retail scheme
- items you can reclaim VAT on if you use the Flat Rate Scheme
- your total sales, and the VAT on those sales, if you trade in gold and use the Gold Accounting Scheme
All your transactions must be included but you do not need to scan paper records like invoices or receipts.
You will need to ensure the accounting package or other software can communicate with HMRC digitally.
This may require new software or at the very least bridging software to connect and communicate with HMRC systems.
If you use more than one software package or maintain records using spreadsheets for example, then you will need to link them.
What you cannot do is use ‘cut and paste’ or ‘copy and paste’ to select and move information, as a digital link. In addition, you cannot manually transfer data within or between software programs, products or applications.
Remember that we can do it all for you. Just give us a call to discuss what you need.
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.