Budget Update – Year to 5 April 2021

From 6 April 2020, the thresholds will change to the amounts set out below (this does not include rates in Scotland).

                                                          2021              2020

Personal allowance                             £12,500           £12,500

National Insurance (PT)                     £9,500              £8,632

Higher rate threshold 40% tax         £50,000           £50,000

Marriage allowance                             £1,250              £1,250

 

Limited company shareholders:

Dividend allowance                              £2,000               £2,000

The dividend allowance is particularly important to owner managed businesses. The allowance of £2,000 for the year to 5 April 2021 is set at a rate of 0%, meaning any dividend income in the year up to £2,000, will be taxed at 0%.

Corporation tax is set to remain at 19% (the same as for the year to 31 March 2020).

 

Self-employed:

Class 4 National Insurance                        9%                   9%

Rates for taxable profits

over £9,500 up to                                        £50,000          £50,000 (over £8,632.00)

Class 2 National Insurance                       £158.60         £156.00

 

Employment Allowance:

The employment allowance is set to increase from £3,000 per year to £4,000 from 6 April 2020. The employment allowance cannot be claimed in company’s with only one director. There is more information on the employment allowance here.

 

Capital Gains Tax (for individuals):

Annual exemption                                      £12,300       £12,000

 

VAT Threshold

The taxable turnover threshold which determines whether a business or person must be registered for VAT, will remain at £85,000.

The taxable turnover threshold which determines whether a business or person may apply for deregistration will remain at £83,000.

 

Reporting Capital Gains:

From 6 April 2020, if you’re a UK resident and sell a residential property in the UK that is not your main residence, you’ll have 30 days to tell HMRC and pay any Capital Gains Tax owed. There is more information on this here.

 

IR35 off-Payroll Changes:

The Government has announced that planned changes to come in from 6 April 2020 for contractors have been delayed by one year. IR35 reforms have already come in for public sector bodies and was due to be introduced to the private sector for medium and large sized businesses. It has been announced that this change will be delayed by one year to 6 April 2021. There is more information on the changes here.

 

The latest guidance on COVID-19 for small businesses

Latest Government Guidance

Attached is the latest government guidance which includes the information we have on;

https://www.gov.uk/government/publications/support-for-those-affected-by-covid-19/support-for-those-affected-by-covid-19

https://www.gov.uk/government/topical-events/coronavirus-covid-19-uk-government-response

 

Making Tax Digital for VAT – Sign up Process

To submit VAT returns under Making Tax Digital (MTD), there are steps to follow to make sure that you are signed up for MTD.

If you are unsure whether MTD applies to you, there is more information here.

Where We Prepare & Submit VAT Returns For clients:

Where we currently prepare VAT returns for you and submit them to HMRC, we have set up the necessary online account to submit VAT returns under MTD. We will need to register you/your business for MTD online, which we will do after 7 May, which is the final deadline for March VAT returns under the old regime.

You Prepare & Submit Your Own VAT Returns:

You will need to register to file VAT returns under MTD online. To do this, you will need to go to the link below and fill out the relevant information.

https://www.tax.service.gov.uk/vat-through-software/sign-up/have-software

HMRC will send you a confirmation email within 72 hours of signing up.

Do not submit a VAT Return until you receive the confirmation email. You must send your VAT Return using MTD compatible software.

You can still view your next VAT Return deadline in your Business Tax Account as you normally would.

You can contact HMRC at the VAT helpline on 0300 200 3700 if you have any questions on registering for MTD.

 

Making Tax Digital – Where is the Communication?

With Making Tax Digital for VAT coming for many VAT registered businesses from April 2019, many people are asking the question, what is it and why haven’t I been told about it?!

For many businesses that are VAT registered and over the VAT threshold, they will go in to Making Tax Digital from April 2019. There are some exceptions set out by HMRC to this deadline, which will be delayed until October 2019 and includes;

  • Trusts
  • Unincorporated charities
  • VAT divisions & VAT groups
  • Some public sector entities
  • Public corporations
  • Traders based overseas
  • VAT traders who use annual accounting

For many other businesses that are both VAT registered and over the VAT threshold, they will go in from April 2019. Which begs the questions, why don’t many people know about it? We have been writing to clients to let them know about the changes since April and posting updates online here;

https://wp.me/p7ElJK-lg

https://wp.me/p7ElJK-lh

Whilst HMRC have been Tweeting about Making Tax Digital, there seems to have been little time spent on informing those businesses that are affected by the changes. We expect that HMRC will be writing to businesses affected by the changes at some point soon! The ICAEW found in research carried out in July 2018 that just over half (51%) of all UK VAT registered businesses had heard of MTD for VAT which means that around 49% had not heard about Making Tax Digital for VAT, which is very worrying.

When Paul Lewis from Money Box tweeted about the Making Tax Digital changes the responses included comments such as “I thought this had been delayed” and “I think the changes will be scrapped.”

Whilst we do not agree with the changes being compulsory for all businesses, as we feel that some businesses will not benefit as much from using software, whether we like it or not, businesses have to work to the deadlines set out by HMRC. If you go in to Making Tax Digital from April 2019, there will be no option to file a VAT return online to HMRC, it will need to be done through compatible software. The issue is navigating through the software available if you have never used any.

Of the software available, we have been recommending software to clients that suits their needs. For some businesses that may be Xero, Sage, or QuickBooks, and for others it may be bridging software that takes figures from spreadsheets and imports the figures in to the bridging software (although this is not as straight forward as it sounds, as template software is used which must be filled out in a set way).

There are some benefits for many businesses in using software. It can help to keep the record keeping more up to date, to enable you to review figures in the year such as;

  • Profit and Loss – this can help to plan and budget and to set some money aside for tax liabilities.
  • Management Accounts – to enable you to review figures for specific projects, jobs, periods, or services in the year to see how much profit is being made and a breakdown of the cost involved.

There are some other benefits with using software which will vary from business to business. Our best advice to any businesses that will go in to Making Tax Digital from April 2019 is to look at all available software. Try the free trials on software to see how the software works. Start preparing now for the change, so that you are prepared and ready for it when it comes in.

For any businesses that do not know what the next step to take is, we can discuss any software options with you. Whilst we are against the changes, we feel that is important to make the most of any benefit that the software offers to you and we can help to explain these benefits to you.

Please feel free to get in touch with us if you have any questions on Making Tax Digital.

 

 

 

 

HMRC extend data gathering powers

HMRC have focused on extending their data collecting powers to keep up with changing technology and payment methods.

Legislation gives HMRC the power to collect a wide range data about taxpayers financial affairs. Since 2014 HMRC has been able to collect data on credit and debit card transactions to help them identify traders who are not registered for VAT and should be, or traders who are not declaring income on their tax returns. HMRC also have powers to issue separate information notices to individuals and third parties who hold data on tax payers.

 

HMRC are now seeking to extend their bulk data collection powers to cover new payment methods and will also collect data from

  • Electronic payment providers and
  • Business intermediaries who facilitate transactions, usually online.

Data which HMRC can require includes the account holder’s

  • Name
  • Address
  • Telephone number
  • Email address
  • Website address
  • National Insurance number
  • VAT number
  • Unique Tax Reference (UTR)
  • Other identifying information
  • Bank account details
  • Status as individual, partnership or limited company