Making Tax Digital for business has been dropped from the Finance Bill 2017 for now, but Making Tax Digital for individuals starts in this month. So how will it affect you?

HMRC have a lot of information at their fingertips; every time you are paid a monthly salary or pension HMRC are told, if you get a company car HMRC are told, they are given details of the interest paid to you by your bank etc. etc.

If you get multiple sources of income, to date HMRC have only been able to establish if you have underpaid or overpaid tax at the end of the tax year.

But from 31 May they are going to look each month to see if you have underpaid or overpaid tax. If you’ve overpaid tax you should get it back very quickly but if you have underpaid tax they will adjust your tax code so you pay more tax for the rest of the year.

Thus if you have underpaid tax HMRC will seek quicker and more significant tax deductions as they look to square off your tax by the end of the tax year. This will accelerate the receipt of taxes by the Treasury.

The net effect of these changes is that you will receive more frequent coding changes, maybe several a year if your affairs are more complex. But these do need to be checked to ensure they are correct. This can be done via your personal tax account and every tax payer can access theirs online via www.gov.uk/personal-tax-account

The other useful information on the personal tax account is your National Insurance contributions record and a forecast of your entitlement to state pension at pension age.  We all need between 10 and 35 qualifying years to receive an amount of state pension – ideally you will aim for the full 35 years. If there appears to be a shortfall you can act on it. In particular parents who have not claimed child benefit in recent years may be missing out on National Insurance credits for years that they are out of work due to childcare responsibilities.

If you wish to discuss this in more detail please do not hesitate to contact me.

I have just returned from a 2 week holiday and decided that there are benefits in going away over Budget day as I didn’t have to spend time protesting the class 4 rise on the self employed. But rightly so it’s been reversed.  The differences between employment and self employment are vast but unfortunately recent publicity has lumped all the genuinely self employed individuals who have to seek new clients and work day by day into the same boat as Uber drivers and the like.

The reduction in the dividend allowance from £5,000 to £2,000 from 6 April 2018 was disappointing. This is of course aimed at director shareholders and is intended to reduce the attractiveness of operating through a company. The change will need to be factored into shareholders’ income extraction plans although we can also factor in the reduction in corporation tax from 6 April 2017 to 19% so that will help. I expect that there will be plenty of mileage in playing around with dividend bands and rates in future Budgets.

In a move welcomed in the accounting profession, there will be a 12 month delay in the Making Tax Digital (MTD) timeline for unincorporated businesses turning over more than £10,000 up to the VAT threshold to start filing online from April 2018.  MTD will essentially require any business/rental property with a turnover of over £10,000 to report their profits even quarter and then do a final summary after year end replacing the current annual return system.  I have been reluctant to speak to clients about this as the details are very uncertain and there is much lobbying over the ability of HMRC to implement this and the size of businesses it is aiming at.  Great doubts/missgivings have been expressed by the Treasury Select Committee and the House of Lords. Thus we have until April 2019 before this potentially comes into play for self employed clients below the VAT threshold, so I will keep clients posted as and when.  For self employed clients above the VAT threshold we will need to look at the requirements of MTD along with the quarterly VAT return from April 2018.

If clients have any questions please do not hesitate to contact me.

We are pleased to advise that we will now be able to welcome clients to our new office at 57a Henley Street in the heart of Stratford upon Avon.  All other contact details remain unchanged.

Key announcements:

• The personal allowance will be increased to £11,500 in 2017/18 and up to £12,500 before the end of the Parliament.
• The higher rate tax threshold will rise to £45,000 in 2017/18 and up to £50,000 by the end of this Parliament.
• Corporation tax will still be cut to 17% by 2020.
• Tax savings under salary sacrifice schemes will be removed from April 2017, with the exception of ultra-low emission cars, pensions, childcare and Cycle to Work.
• The National Living Wage will go up from £7.20 an hour to £7.50 an hour from April 2017.
• Employee and employer National Insurance thresholds will be brought in line at £157 per week from April 2017.
• Insurance premium tax will increase to 12% from the current 10% next June.
• Fuel duty will remain frozen for the seventh successive year.
• A new VAT rate of 16.5% will be introduced from 1 April 2017 for businesses with limited costs, such as many labour-only businesses, to tackle abuse of the Flat Rate Scheme. More detail is required to establish the level of costs and types of costs that would require businesses to move to this rate. Depending on this businesses trading below the VAT threshold would probably be best advised to deregister.
• The Government intends to publish its response to the Making Tax Digital consultations in January 2017.

A recent first tier tribunal appeal highlighted a case where an individual purchased an off the shelf company in 2000 from an online Accountancy provider with the intention of splitting the shares between him and his partner.

He expected that this was all dealt with by the Accountant who submitted accounts and returns and they paid their tax on this basis.

In March 2011 HMRC investigated a difference between dividends declared on his tax returns and the shareholdings declared at Companies House. He contacted his online Accountant who gave him verbal confirmation that there were two shares held in the names of him and his partner but the paperwork did not support this assertion.

But HMRC relied on the information filed at Companies House and it was held that all the shares were held by him so all the dividends from the company should be declared on his tax return. Assessments were raised for underpaid tax and penalties applied for careless errors!

It is clear that there was a misunderstanding between the client and online Accountancy provider. But this is the risk you run when you go with a mass-market online Accountant where the staff rarely have time to pick up on this sort of thing or even to become familiar with your company.

The service offered by us is the polar opposite of the online Accountancy market – we work with a small portfolio of businesses that we know well. We work in partnership with you and face to face contact and regular dialogue is essential.