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In this blog, partners Jack Posner and Darren Stone of Leon and Company Chartered Accountants in Leeds write about Making Tax Digital.
For all those business owners, unless you've been on a desert island, you will no doubt have heard about the new 'Making Tax Digital' regime. If you haven't heard of it, then you should read ahead to see if it affects you. For the rest of us 'in the know', we've tried to answer the main points.
What is Making Tax Digital (MTD)?
Essentially all UK businesses with a turnover above the VAT threshold (currently £85,000), must keep digital records and send in their VAT returns to HMRC digitally.
When does this come into effect?
All VAT returns with a quarter commencing on, or later than, 1st April 2019 will need to comply. Therefore, the earliest compulsory MTD deadline is 7th August 2019 (although some people have started early!).
Does it affect all taxes?
At the moment, only VAT has to be reported and filed under MTD. There are plans for other taxes to be reported this way (i.e. corporation tax, self-assessment), but the roll-out of this will not be any earlier than April 2020; in fact, there is no concrete timetable at this stage. In our opinion, MTD will not be extended to other taxes until VAT MTD is shown to be running smoothly.
What do I have to do then?
All qualifying businesses must record transactions digitally. In many cases, this means transferring your records to a software-based bookkeeping package, or at the very least recording your transactions on an electronic spreadsheet (HMRC have explicitly confirmed spreadsheet bookkeeping still counts as digital bookkeeping). If you are doing either of the above, then you are already keeping your records digitally. So far, so good!
Is that all?
Not quite. MTD also requires that the VAT return itself is transmitted digitally to HMRC. This is not the same as logging on to the HMRC Gateway and typing the numbers in to the 6 boxes! Essentially, HMRC do not want any manual typing to take place between the initial input of the transactions and the VAT return itself.
How do I do that?
If you are using a cloud-based bookkeeping package, then that will create the VAT return automatically and allow you to send it in with the push of a few buttons. If you use a spreadsheet, then you will need to obtain some special 'bridging software' which will extract the figures from the spreadsheet and create a digital VAT return which transmits to HMRC. In either case, you will have avoided manually 'keying-in' the figures into the VAT return - and therefore ensuring full compliance.
What if I still write up my records in a ledger book (the old way)?
Then I'm afraid you will now need to digitalize at least some of your bookkeeping to become compliant. We recommend that you contact your accountant learn more.
During this blog, partners Jack Posner and Darren Stone of Leon and Company chartered accountants write about the recent Budget.
Last month, the Chancellor, Mr Hammond, outlined his Conservative Budget for the coming year. The Chancellor's headline is that the era of austerity is 'finally coming to an end' - but we obviously do not yet know how the upcoming Brexit on 29 March 2019 will affect this. We have selected some key points we believe would be of interest to business owners and individuals with personal tax requirements:
Selected points for individuals:
Tax-free allowance: The personal tax allowance will increase from £11,850 in 2017/18 to £12,500 from April 2019. The 40% higher-rate threshold will increase from £46,350 to £50,000 at the same time. After that, these thresholds will rise in line with inflation.
Dividends: In 2018/19, the first £2,000 of dividends were chargeable to tax at 0%. This will remain in the coming year. Dividends received over this allowance are taxed at 7.5% (for basic rate taxpayers), and 32.5% and 38.1% for higher and additional rate taxpayers respectively. It is essential that you speak to your accountant to carefully plan your tax affairs around these rates.
Selected points for business taxes:
Corporation tax: The corporation tax rate continues it downward trajectory. The current 19% tax rate is set to reduce to 17% from 1 April 2020.
Class 2 and Class 4 National Insurance contributions: It has been confirmed that Class 2 NICs (this is the one that counts towards the state pension!) will not be abolished for the lifetime of this current Parliament. Moreover, it has also been confirmed that Class 4 NICs will not increase either during this Parliament.
Making tax Digital (MTD): As previously announced, the Government will push ahead with MTD. Essentially all businesses with a turnover above the VAT threshold (currently £85,000), must keep digital records and provide their VAT return information to HMRC using MTD compatible software. This comes into effect from 1 April 2019. There are also plans for all aspects of tax to be filed in this way, but the roll out of this will not be any earlier than April 2020.
This is not an exhaustive list of all the budget announcements, but just a selection of key changes that we believe would be of interest to individuals and business owners.
In this blog, Darren Stone, partner at Leon and Company Chartered Accountants writes about the importance of putting aside enough cash so that a business can pay its taxes on time.
As accountants, we are always being asked about tax and other liabilities which need to be paid over to the authorities, like HMRC, Companies House etc. One thing that I often talk about is the importance of planning for the tax that is due.
Most business owners will be well aware of the regular taxes, i.e. quarterly VAT, monthly PAYE and National Insurance Contributions if you have a payroll, and of course personal or corporation tax on the end-of-year profits.
What many business owners - especially those new to the game - often overlook is the benefit of setting up two bank accounts. One is to manage the business’s day-to-day banking, like paying suppliers, staff, etc. The other is a reserve account (often known as the “number two” or “saver” account); this account is where you can deposit all future monies required to settle the company’s tax, VAT and payroll liabilities. Many people overlook this simple step – and yet it can resolve so many problems.
I am sure many will recognise the old scenario of waiting for a payment to arrive from that stubborn customer, when in the meantime, your own suppliers are waiting to get paid. When you finally get paid, the temptation is to take the whole of that money and pay yourself some (of course!), and pay off your most pressing suppliers, contractors, etc. But hang on a minute! That payment included 20% for VAT, possibly 19% for corporation tax. And what about the PAYE and NICs due on your payroll? Essentially, this is the old “robbing Peter to pay Paul” scenario. And moreover, this pushes the problem down the line. Imagine getting to the end of the quarter, or year, and there’s no cash in the reserves to pay the VAT or tax when it falls due.
This is why I always recommend setting up a reserve bank account on day one. As soon as cash rolls in, it is wise to remember that not all of it belongs to the business. Some of it belongs to the tax man, and as such, should be immediately transferred to this secondary bank account. I realise people will be saying that this is not living in the real world, but I say that not being able to pay your taxes will soon wake up a business owner to the real world.
I strongly recommend speaking with your accountant to work out a guide as to how much you should be putting aside on a regular basis. For many, this is the beginning of cash-flow planning, and moreover, will enable the vast majority to keep on track, avoiding ‘robbing Peter to pay Paul”, and allowing the business owner to get on with growing their business.
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