Businesses should consider registering for HMRC’s Making Tax Digital VAT submission after their final quarter VAT return

All businesses that fall under the MTD for VAT regulations from 1 April 2019 will be required to register on HMRC to be able to submit through MTD compliant software.

We are recommending clients do not register until they have submitted their final VAT return under the existing system. Once registered you cannot submit through the old nine box route.

For example a business with a March quarter return which is due on 7 May 2019, should not register until they have submitted this to HMRC. If they register for MTD for VAT in early April before submitting the March return, HMRC would expect this return to be submitted through MTD compliant software instead of the nine box input screen. Therefore it is crucial to consider the timing of when you register.

The registration process from point of submission to confirmation can take up to 72 hours, as HMRC have to switch your VAT registration from the current VAT mainframe to the new Enterprise tax management platform, which we understand is a manual process.

Spring Statement 2019

On any other day, the Chancellor’s Spring Statement would have dominated the headlines. However, with the UK’s scheduled withdrawal from the EU just days away, and the Prime Minister’s latest Brexit deal voted down by the Commons just hours earlier, this seemed more like a sideshow than the main event.

The little speculation there was in the days beforehand focused more on whether Mr Hammond would find anything of interest to say at all, than on what he would say. It was a Spring Statement without the usual baggage of expectation.

Mr Hammond will no doubt have been relieved at his decision to move the Budget to the autumn, making that the single annual fiscal event. The purpose of the Spring Statement is now ostensibly only to respond to forecasts from the Office for Budget Responsibility (OBR), although that has not always prevented Mr Hammond from making significant announcements.

Brexit

On a day dominated by Brexit, Mr Hammond addressed the issue head-on acknowledging the “cloud of uncertainty hanging over our economy” and saying the “most urgent task is to lift uncertainty”.

Addressing the vote on a no deal Brexit scheduled for later in the day, he said: “Leaving with no deal would mean significant disruption in the short and medium term and a smaller, less prosperous economy in the long term, than if we leave with a deal.

“Higher unemployment, lower wages, higher prices in the shops. That is not what the British people voted for in June 2016.”

By contrast, he said that leaving the EU with a deal would result in a £26.6 billion “deal dividend”.


Economy and public finances

While arguing that the “economy itself is remarkably robust”, Mr Hammond said that growth projections for 2019 have been revised down by the OBR from 1.6 per cent to 1.2 per cent.

Mr Hammond expects 600,000 new jobs to be created by 2023 and he said the OBR has revised wage growth up to around three per cent each year.

Turning to the public finances, Mr Hammond said that before Parliament’s Summer Recess, the Government would undertake a three-year Spending Review, if a Brexit deal could be reached.

He said that he expects a dividend from a deal and suggested that this could mean an increase in public spending.

Mr Hammond added that borrowing has reduced by 80 per cent since 2009-10 and that the UK is experiencing its first sustained fall in debt for a generation. Meanwhile, borrowing and debt are lower in every year of the OBR’s updated forecasts at the Autumn Budget last October. This year, borrowing will be 1.1 per cent of GDP, which is £3 billion lower than was forecast at the Autumn Budget.

He said that the Government would take a “balanced” approach to debt and borrowing while investing in public services, the economy and infrastructure.

The most eye-catching spending announcements were £100 million to help the police fight knife crime and a commitment to end ‘period poverty’ by providing free sanitary products in secondary schools and colleges.


Business and enterprise

Mr Hammond said that he wanted to “build on the UK’s fundamental strengths”, announcing a £37 billion productivity fund, focusing on improving skills throughout the workforce.

Maintaining his focus on the workforce, he said that the Government will set a new remit for the Low Pay Commission beyond 2020 and announced terms of reference for a review of international evidence on minimum wages to be undertaken by Professor Arindrajit Dube.

Returning to the theme of investing in skills, Mr Hammond said that the apprenticeship reforms announced at the Budget would be updated from 1 April to mean that the employers’ co-investment rate will be halved from 10 per cent to five per cent.

As was widely trailed, Mr Hammond said that the Government would respond later in the year to a recommendation in an independent review of competition in the digital economy, that rules should be updated for the digital age.

Saying that “we need to tackle the scourge of late payments”, he said that listed companies would have to report on their payment practices within their company accounts. Late payments are currently estimated to cost UK SMEs £6.7 billion annually.


Housing and Environment

Mr Hammond devoted a significant part of his speech to housing and the environment, announcing £3 billion for the Affordable Homes Guarantee Scheme, which he said would support the delivery of around 30,000 affordable homes.

He also announced £717 million from the Housing Infrastructure Fund to support the construction of homes in West London, Cheshire, Didcot and Cambridge.

Mr Hammond argued that the Government is going to “Build sustainability into the heart of our economic model.”

He said that he would publish a call for evidence on requiring passenger carriers to offer carbon offset and on a proposed business energy efficiency scheme. He also said the Government would look at increasing the proportion of green gas in the grid and would mandate the end of fossil fuel heating systems in all new houses from 2025.


Consultations

To allow time for the Commons to consider Brexit, Mr Hammond said that he would make some announcements in a Written Ministerial Statement, published at the end of his speech.

This primarily comprised details of consultation exercises on measures announced at the 2018 Budget. This included preventing the abuse of R&D tax relief for small or medium-sized enterprises, draft regulations on the National Insurance Contributions (NIC) Employment Allowance that would restrict the allowance to businesses with an employer NIC bill below £100,000 and a call for evidence on lettings relief and the final period exemption, which extends private residence relief in capital gains tax.


Conclusion

Perhaps inevitably, Mr Hammond had relatively little to say and devoted a substantial proportion of the speech to setting out his position on Brexit.

He was keen to frame a Brexit deal as being key to the UK’s future economic success, saying, “A brighter future is within our grasp”.

Link: Spring Statement speech

National Living Wage

From 1 April 2019, employers will be required by law to pay their employees the following minimum wages:

Year 25 and over (National Living Wage) 21 to 24 18 to 20 Under 18 Apprentice
Current rate £7.83 £7.38 £5.90 £4.20 £3.70
April 2019 £8.21 £7.70 £6.15 £4.35 £3.90

It is thought that this increase in the UK’s statutory wage requirements will benefit around 2.4 million workers and means that the annual earnings of a full-time minimum wage worker will have increased by over £2,750 since the introduction of the National Living Wage in April 2016.

For businesses though, the increase in the wage will not only affected their wage bill but will also come at a time when they are required to increase their workplace pension contributions for staff.

These contributions are set to rise yet again next month to a minimum of three per cent for employers, and a combined minimum contribution of eight per cent between employers and employees.

Those who are unprepared for these changes are likely to be the worst affected by this sudden change in costs, so it is important that they take immediate action if they are not yet prepared.

Making Tax Digital productivity boost expected to be worth billions to UK SMEs

New research suggests that the UK’s SMEs could benefit to the tune of as much as £57 billion over the next five years because of digital productivity improvements associated with HM Revenue & Customs’ (HMRC) Making Tax Digital (MTD) initiative.

The report by research firm, Volterra Partners, anticipates a ‘digital snowball’ effect from the launch of MTD for VAT in April this year that will have a major impact on the productivity of SMEs.

The report follows the logic that businesses will benefit from improved cash flow and HR processes, with time freed up to concentrate on growth through sales, marketing and training.

If MTD is restricted only to VAT, the report’s authors expect a total benefit to UK SMEs of around £46 billion. However, if as is planned, the Government extends MTD to other taxes in future years, the benefit could be worth as much as £57 billion.

Chris Evans, VP and UK Country Manager at Intuit QuickBooks, which commissioned the research, said: “Today’s report highlights that a digital-led approach will be transformational for small businesses, who are the backbone of the UK economy.

“For those businesses, the transition to digital will not be without stumbling blocks. However, it presents a huge opportunity to streamline operations, drive efficiencies and simplify tax. It will enhance cashflow management and allow them to get paid faster and access capital to grow, powering prosperity across the UK.”

Link: £1.6 billion annual productivity pay out for London’s SMEs from imminent tax digitalisation

Delay in issuing Self-Assessment penalty notifications

While 93.68 per cent of the 11.5 million taxpayers who were required to file their Self-Assessment Tax Returns by midnight on 31 January did so on time, 731,186 missed the deadline.

Those who missed the deadline will have to wait longer than in previous years to receive penalty notifications from HM Revenue & Customs (HMRC).

The notifications of £100 penalties are usually sent in February but may be sent as late as the end of April this year as part of HMRC’s Brexit plans.

However, payment of the penalties will still be due within three months and additional penalties will still apply from beyond the end of April.

The Association of Taxation Technicians (ATT) has expressed concerns that taxpayers may be unable to avoid the prospect of £10 daily penalties if they do not receive notices until late April or even May.

Jon Stride, the co-chair of the ATT’s technical steering group, told Accountancy Daily: “We are concerned that the delay in issuing penalty notices may give taxpayers who haven’t filed their 2017/18 tax returns misplaced confidence that they will either avoid any penalty or, at worst, incur only the fixed £100 penalty.

“In fact, if the £100 penalty notice is issued by HMRC at the end of April 2019, a taxpayer may (by the time the notice hits their doormat) already be incurring additional penalties at the rate of £10 for each day starting from 1 May 2019.

“Those £10 daily penalties will continue until their return is filed online. If that takes until, say, 21 May, that would amount to another £200 of penalty – even if there is no tax outstanding.”

Link: HMRC delays sending self-assessment penalty notifications

Advisory fuel rates for company car users remain the same

New advisory fuel rates from 1 March 2019 for drivers of company cars have fallen for all but one class of vehicle.

The rates apply where a business is reimbursing employees for travel in a company car, or where employees must repay the cost of fuel used when travelling in a company car in a personal capacity.

If an employer uses these rates, HM Revenue & Customs (HMRC) will automatically recognise that there is no taxable profit or Class 1A National Insurance due.

There is a separate electricity rate for fully electric cars that is subject to different rules. The electricity rate for fully electric cars is 4p per mile.

The rules treat hybrid cars as either petrol or diesel.

Advisory fuel rates from 1 March 2019

Engine size Petrol amount per mile LPG amount per mile
1400cc or less 11p 7p
1401cc to 2000cc 14p 8p
Over 2000cc 21p 13p

 

Engine size Diesel – amount per mile
1600cc or less 10p
1601cc to 2000 cc 11p
Over 2000cc 13p

The rates will be updated next on 1 June 2019.

Link: HMRC advisory fuel rates for company car users from 1 March

Make the grandest romantic gesture and reduce your tax bill

Getting married or conducting a civil partnership ceremony is often the happiest day of most people’s lives but unfortunately almost one million married or civil partnered couples in the UK have not used up to £900 in tax relief available to them.

The Marriage Allowance scheme currently allows couples to transfer up to £1,190 of their Personal Allowance to their partner, providing they earn more than the other individual.

Thanks to the tax relief that this offers, the one spouse could potentially reduce their annual tax bill by up to £238.

This allowance can be backdated to include any tax year since 5 April 2015, so it is not too late to act if you haven’t previously made use of the scheme.

To be eligible:

  • You must be married or in a civil partnership
  • Have the lower earning partner pay no income tax or generate an income below the personal allowance (currently £11,850, but rising to £12,500 in April 2019)
  • Have the higher earner pay income tax at the basic rate

Alongside this generous relief, married or civil partnered couples are also entitled to pass ownership of assets between them free of Capital Gains Tax and Inheritance Tax (IHT) during their lifetime, as well as gain their spouse’s IHT nil-rate band allowance after they have passed away.

Of course, few marriages are entered into just for these benefits, but considering that few people take full advantage of the reliefs on offer it is worth seeking professional advice to see what liabilities could be reduced. 

Link: Marriage Allowance

Tribunal finds in favour of Middlesbrough FC in low pay claim

In a landmark case, Middlesbrough FC has effectively won the right to pay staff below the minimum wage by providing other benefits to them.

In February, an employment tribunal at Teesside Magistrates’ Court overturned a ruling that the Championship football club had broken employment laws by deducting the cost of 2016/17 season tickets over several weeks from the pay of staff receiving the National Minimum Wage (NMW).

In both hearings, it was clear that staff were happy with the current arrangements and that the club had been responding to the wishes of employees who requested the arrangement.

However, HM Revenue & Customs has continued to argue that the club was in breach of current minimum wage legislation and was, therefore, liable for prosecution and a potential penalty.

HMRC has been steadfast in recent years in its refusal to back down and has continued to chase employers who pay less than the minimum wage, even where they have other arrangements in place.

The loss for HMRC at the courts comes after a number of actions against employers such as Iceland Foods, John Lewis and Wagamama.

During the case, HMRC’s lawyers said that Middlesbrough had the “benefit and use” of the season ticket payments from staff, and was in breach of the legislation.

However, the club’s legal team made a successful argument stating that it was “a deduction that has been made on the behest of the employee and for the benefit of the employee”.

When assessing minimum wage compliance, employers must take into account certain deductions from an employee’s wages.

These include deductions for expenditure in connection with the worker’s employment. During this process they must also consider whether the deduction is for the employer’s own use or benefit.

In the case of staff at the club, the courts found that they were not required to buy a ticket or watch the matches, and the deduction did not count towards the minimum wage.

Despite the club’s success in this case, similar cases have ended with prosecution by HMRC and so experts are warning that businesses must be on top of all minimum wage matters, even where employees can opt-in to perks and benefits at the expense of their wages.

Link: Club Statement: HMRC Tribunal

Are you making full use of the generous R&D relief scheme?

Hundreds of businesses across the UK enjoy tax relief totalling millions of pounds thanks to the Government’s generous R&D relief scheme.

Last year nearly 40,000 claims were made for Research and Development (R&D) tax credits in the UK, almost double the amount made in the previous year.

Businesses both large and small benefited from £3.5 billion in tax relief during the same period in 2018 from the often-neglected tax credit, which helped contribute towards £24.9 billion of R&D expenditure across the nation.

However, many more businesses are potentially missing out.

Many smaller businesses can benefit from the small and medium-sized enterprise (SME) R&D relief, which is available to businesses with fewer than 500 staff or a turnover below £87 million.

This allows small businesses to deduct an extra 130 per cent of their qualifying R&D costs from their yearly profits, as well as the normal 100 per cent deduction, to make a total 230 per cent deduction – which equates to an additional 33p for every £1 spent on R&D.

However, businesses that want to take advantage of this need to meet certain eligibility criteria.

In order for a project to be eligible for R&D relief, it must have involved a search for an advance in science and technology or tried to overcome uncertainty using a method or procedure which couldn’t be easily worked out by a professional in the field.

Larger businesses can also benefit from Research and Development Expenditure Credit, which is worth 12 per cent of a company’s qualifying R&D expenditure and is offset against a person’s tax liability or, in some circumstances, is payable in cash.

The credit is taxable at the normal Corporation Tax rate, which effectively means the benefit is worth 10p for every £1 you spend on qualifying R&D.

Naturally, the rules surrounding all types of R&D tax credits are complex and some businesses may find the criteria governing what is and is not eligible confusing.

With this in mind, it is always wise for firms to seek specialist advice, as it may be possible to obtain confirmation of the relief prior to major investment in a project.

Link: Research and Development (R&D) tax reliefs

Claim R&D Tax Relief to reinvest in your Business

The Government introduced Research and Development (R&D) Tax Relief to provide an incentive for UK companies to undertake innovative activities. This would improve competition and technology investment whilst ensuring that the UK doesn’t lag behind global competitors.

In 2016-17, the UK manufacturing sector made up 24.48% of all UK R&D tax claims with 33,880 claims being made in total across all UK industries showing that thousands of businesses are still missing out on the tax relief (Read the full report here).

By undertaking activities that qualify as R&D you could save thousands to put towards new projects or improve current processes or services creating an endless cycle on innovation within your business. Eligible activities can include:

  • New Products, New Processes (internal or external), New Services
  • Enhanced products, processes, services with improved features, durability, reliability, efficiency, capability, resilience etc.
  • Bespoke software programs to integrate multiple systems and improve existing systems

The tax relief works by uplifting the direct costs of the research and development by 130%. If your costs for the research amounted to £100,000, your taxable profit would be reduced by a further £130,000 meaning you save tax or should have tax refunded of £26,000!

The R&DCo, a specialist sector of Howard Worth Chartered Accountants, has already helped hundreds of businesses to complete successful R&D claims including Farming Businesses, Solicitors Practices, Storage & Distribution companies, software companies and more, with tax savings ranging from £4,000 – £500,000. Tax Partner Tim Lwin, who heads the team at the R&D Co said “Quite often businesses think R&D is only for a business with a scientific or technological focus, this is just not the case. Most businesses carry out R&D without even realising it. By speaking with the R&D Co it allows us to share our knowledge on research and development and how it can be straightforward to make a claim and ultimately receive a tax refund.”

To find out more about R&D or how your business can benefit, visit https://www.theranddco.co.uk/ or contact Tim Lwin by email timlwin@howardworth.co.uk or call 01606 369000.

“R&D was something I knew little about and I thought it was something big global companies took part in. After a brief conversation with Tim Lwin we quickly realised we had a product that would qualify. Again I thought this would be a long drawn out process that would take many months, even years. Within 8 weeks our claim has gone through and we are expecting a substantial amount of money back from HMRC. I would recommend any person or company that manufactures anything to have a 1-2-1 with Tim and see what you may be entitled to.” – Opticians