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Making Tax Digital (MTD) is on the horizon for many businesses It represents a momentous change in the way taxpayers keep records and submit information to HMRC.
MTD is coming
MTD affects VAT first. For return periods starting on or after 1 April 2019, businesses operating over the VAT threshold (currently £85,000) must keep records digitally, using MTD functional compatible software. That’s essentially software, or a combination of software and spreadsheets, which can connect to HMRC via an Application Programming Interface. VAT submissions will then be made direct from the digital records. Manual input will not be acceptable, although there will be a ’soft landing’ period of 12 months where HMRC will not impose penalties if digital links do not exist between software programs used for submission. It will no longer be possible to submit returns through HMRC’s online portal - except for businesses voluntarily registered for VAT. These businesses will not have to comply unless electing to enter the MTD regime.
Recent slowdown in some areas, such as real-time tax coding and Simple Assessment, will mostly affect non-business taxpayers. MTD won’t be mandatory for taxes such as income and corporation tax until April 2020 at the earliest
IR35 - change ahead?
IR35 is very much in the news. Over the last months, there have been several tax tribunal cases involving IR35 contractors - one high profile case going against BBC Look North presenter, Christa Ackroyd, and another going against HMRC, in favour of an IT contractor who had worked on the Universal Credit programme for the DWP.
HMRC have found it difficult to enforce their view of the applicability of IR35 - or 'off-payroll working’ legislation, so the government is consulting on how to increase compliance.
The consultation hinges on the premiss that ’Current legislation is not working effectively. The cost of non-compliance in the private sector is high and growing - projected to increase from £700 million in 2017/18 to £1.2 billion in 2022/23.’ Looming large is the question of whether rules brought in for public sector engagers in 2017 should be adapted for private sector engagers.
IR35 rules were introduced in 2000 to apply in cases where someone would have been treated as an employee, had they not been working through a limited company in which they had a ’material interest.’ According to HMRC, they are ‘Intended to stop individuals avoiding employment taxes by working through their own company. This affects contractors including IT consultants, management consultants, and project managers.’
HMRC are currently carrying out a VAT pilot and income tax pilot for small businesses and landlords. Whilst not necessarily advantageous to participate in these, this is definitely the time to consider the next steps on the road to MTD for you and your business. Businesses currently keeping manual records would be well advised to make the transition to digital record keeping, and businesses already digital will need to check when their software provider will meet MTD requirements. Upgrades or bespoke solutions may be necessary to ensure data can be sent seamlessly to HMRC. Please do contact us if you would like help with your new compliance obligations.
In April 2017, changes introduced in the public sector made the end user responsible for making a decision as to whether IR35 rules apply, and then deducting and paying tax due. HMRC believe this has increased compliance in the public sector - as well as raising an additional £410 million in income tax and National Insurance contributions. HMRC research suggests public sector employers have not taken an unduly cautious approach, generally assessing employment status on a case-by-case basis.
No firm decision about extending IR35 decision-making responsibility to the private sector has been made. HMRC also emphasise that ‘The fundamental principles of the off- payroll working rules - that the employment status test determines who should be taxed as employees’ are not currently up for discussion. The focus is simply how to facilitate compliance in the private sector in the light of results from the public sector reforms.
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