Making Tax Digital for Income Tax (MTD ITSA)
From April 2023 all unincorporated businesses will jhave to keep their business records in a digital format and submit quarterly reports dervied from those records to HMRC using MTD-compatible software.
These are the basic obligations under making tax
digital for income tax self assessment (MTD ITSA).
The start date of MTD ITSA is less than two years away
so it is a good idea to start preparing now. However
this digitisation is not as daunting as you may think.
Spreadsheets qualify as a digital format and HMRC
will continue to accept them as a digital record for the
foreseeable future. A taxpayer who records all of their
business income and expenses on a spreadsheet and uses bridging software to read the relevant totals from
that spreadsheet and submit them, without rekeying,
to HMRC will meet their MTD ITSA obligations.
More complex businesses may find that they need to
link several pieces of software to comply with the MTD
We can advise you on the different forms of accounting
software that can help your business get ready for
MTD when it starts in 2023.
See our September 2020 Newsletter for further details on the VAT reduction in the hospitality sector from 15 July 2020 to 12 January 2021.
1.25% Increase in National Insurance and Dividend Tax
From April 2022 a health and social care levy will be introduced through NIC, seeing an increase of 1.25%. This will apply to everyone who pays
National Insurance, including the self-employed.
Employers will also see an increase of 1.25% to employers national insurance.
From April 2023 the new Social Care Levy will appear separately on payslips and pensioners who work will also start to pay this new levy.
Dividend tax will also increase by 1.25% from April 2022.
Call us to discuss whether you have any options to reduce the impact of the increases.
Expense Claims - Watch out for 5% and 12.5% on hospitality expenditutre
The reduction in VAT to 5%, or 12.5% from 1 October 2021, for the hospitality sector is a welcome incentive to the sector.
But when making and paying expense claims be careful! Employees may automatically claim 20% of the expense when submitting expense claims.
A minor point, but could be a costly error where there are lots of employees claiming entertaining, travel and subsistence.
See our September 2021 Newsletter for further details on the VAT change to 12.5% in the hospitality sector from 1 October 2021 to 31 March 2022.
VAT Domestic Reverse Charge for Building and Construction Services
From 1 March 2021 builders, contractors, and other trades associated with the building industry will have to get to grips with reverse charging for VAT.
Essentially only the main contractor who invoices the end customer for the building will charge VAT.
Subcontractor S invoices for building work done to contractor C. Currently S charges VAT to C (say £1,000 plus £200 VAT, totalling £1,200) and C pays £1,200 to S. C reclaims £200 as input tax and S pays £200 to HMRC as output VAT..
From 1 October S issues an invoice to C stating that the services are subject to the reverse charge, and does not add VAT (invoice for £1,000). C adds the £200 VAT not charged to it's output tax and also to it's input tax meaning the two amounts cancel each other out and C has nothing to pay HMRC. S also has nothing to pay HMRC.
There is more detail in our Spring 2019 and Autumn 2019 Newsletters.
Please contact us to discuss these in more detail.
Trading and property allowances
For the tax year 2017/18 we saw the introduction of two new £1,000 tax-free allowances, the property allowance and trading allowance.
The trading and property allowance provides for a complete exemption from income tax if the total trading or property income in the year is less than £1,000.
If a person has both types of income, they will receive a £1,000 allowance for each.
Each is aimed at relieving the taxpayer of having to report nominal amounts of income which HMRC would, in turn, find very cost-ineffective to process and collect the tax due.
Full exemption is only available if the total income, not profit, is below the limit. So individuals are required to record their income level and if their trading income goes above £1,000 they will need to inform HMRC and be subject to self-assessment.
Pre-registration Input VAT
Where goods were bought by the business in the four years prior to the date of VAT registration and those goods are still on hand at registration, input tax may be claimed to the extent they are for use in making taxable supplies. This means that if the business uses those goods for exempt, non-business or private use, there would need to be an apportionment to reflect that. However, there is no adjustment required to reflect use prior to VAT registration.
Assuming wholly business use in a fully taxable business the input tax would be claimable per the original VAT invoice.