The way businesses file Value Added Tax (VAT) returns has now changed, as part of Making Tax Digital (MTD). HM Revenue and Customs (HMRC) is urging businesses in your sector to join over 1.7 million taxpayers who are already benefitting from MTD to make the change. From 1 April 2022,
The majority of Self Assessment customers will have been affected in some way by the pandemic last year, which is why your tax return for the 2020/21 tax year may seem a bit different than in previous years. Whether you are new to Self Assessment or have been completing your
New “reverse charge” will reduce firms’ working capital says Clarke Willmott UK construction companies face financial disruption when new anti-fraud VAT legislation comes into force in October. The new legislation seeks to combat what the government describes as an attack on the VAT system by “organised criminal gangs”. “The new
Ever-increasing Length of Compliance Checks into Large Companies Causing Uncertainty. One of the UK’s leading tax experts today weighed into the debate emerging from news that HMRC investigations into large companies have increased in length over the last financial year. David Redfern, an expert in tax preparation and founder of
BDC 319 : Aug 2024
The way businesses file Value Added Tax (VAT) returns has now changed, as part of Making Tax Digital (MTD). HM Revenue and Customs (HMRC) is urging businesses in your sector to join over 1.7 million taxpayers who are already benefitting from MTD to make the change. From 1 April 2022, MTD for VAT became mandatory for all VAT-registered businesses, regardless of turnover. This means businesses need to keep digital business records, sign up to MTD and file all their future VAT returns using MTD-compatible software. If they do not file their VAT returns through MTD, they may have to pay a penalty. Even if a business currently keeps digital records, they must check their software is MTD compatible and sign up for MTD. MTD’s aim is to help businesses get their tax right first time and to support the UK to go digital. More than 15 million returns have been successfully submitted through MTD, with businesses reporting that MTD has increased their confidence in managing their tax affairs and using technology. There is a range of compatible software products available for VAT, allowing businesses to choose which tools they use to run their business and tax affairs. A list of software compatible with Making Tax Digital for VAT, including low-cost options, is available on GOV.UK. HMRC has continued to work with smaller businesses below the £85,000 VAT threshold to ensure they are ready and to remind them of the actions they need to take. A range of accessible help is available online through GOV.UK, webinars and videos as well as through HMRC’s Extra Support Service. Giles McCallum, Director of Making Tax Digital at HMRC, said: “We continue to support those businesses who have yet to sign up and are encouraging traders in the construction sector to help them make the change to Making Tax Digital. Using MTD helps businesses reduce errors, making it faster to prepare and submit returns. “In order to gain benefit from MTD and to avoid any penalty as many others have already, we urge all businesses to sign up to MTD now.” Federation of Small Businesses National Chair Martin McTague said: “MTD software can improve productivity and open up opportunities to tighten internal processes beyond just the tax side of things. Even if you’re not obliged to be a part of MTD at the moment, it’s worth looking into different platforms, especially now Help To Grow Digital is live. If you’re an FSB member, we can help you get up to speed in this area.” To comply with MTD for VAT, businesses or an agent on a business’ behalf need to take three simple steps: If a business hasn’t signed up to MTD yet, they must do so before they submit their next VAT return otherwise they could receive a penalty. Find out how to sign up on GOV.UK. Agents can sign up on behalf of a business, although businesses remain responsible for meeting their VAT obligations. Details on how to avoid being charged a penalty can be found here.
The majority of Self Assessment customers will have been affected in some way by the pandemic last year, which is why your tax return for the 2020/21 tax year may seem a bit different than in previous years. Whether you are new to Self Assessment or have been completing your tax return for many years, preparing your paperwork now can help avoid the unnecessary stress of leaving it until the last minute and will prevent you making mistakes or forgetting to include your allowances. If you’re self-employed and have earned more than £1,000 between 6 April 2020 and 5 April 2021, you will need to file your paper tax return by 31 October 2021 or 31 January 2022 for online returns. If you’re new to Self Assessment, you must ensure you leave enough time to register for Self Assessment first via GOV.UK in order to receive your Unique Taxpayer Reference (UTR) and activate your account. Self-employed individuals must also register for Class 2 National Insurance. By registering early, you’ll be able to access guidance to help you to understand your tax obligations such as record keeping, filing and payments deadlines, and the potential for a first tax payment to include a payment on account. Thousands of people chose to get ahead of the game this year – more than 63,500 customers filed their tax return on 6 April 2021, the first day of the tax year. Filing early means you know what tax you owe. The sooner you file, the more time you have to plan and budget for the tax you need to pay. And it doesn’t mean you have to pay your tax any earlier, you still have until the deadline on 31 January 2022 to pay your tax. For those worried about paying their tax bill, make sure you access the support and advice that’s available to you as we may be able to help by arranging an affordable payment plan. Visit GOV.UK and search ‘time to pay’. If you have been affected by COVID-19 and reached out for financial support, it is important to remember that you will have to declare any grants or payments you received from COVID-19 support schemes up to 5 April as these are taxable. This includes: Self-Employment Income Support Scheme (SEISS) Coronavirus Job Retention Scheme (CJRS) Other COVID-19 grants and support payments such as self-isolation payments, local authority grants and Eat Out to Help Out However, the £500 one off payment for working households receiving tax credits does not need to be reported in your Self Assessment. To find out which COVID-19 grant or support payments to include on your tax return, you can visit Reporting coronavirus (COVID-19) grants and support payments on GOV.UK for more information. So, start preparing for your Self Assessment now and leave yourself enough time to get the relevant documents together. Check your information is correct and set aside time to enter your details. The easiest way to file your tax return is online. You can do it at a time that suits you and it doesn’t even have to be completed all in one sitting. You can work around your busy schedule and your business by saving your progress in stages and coming back to it again and again. To find out more visit Self Assessment on GOV.UK.
New “reverse charge” will reduce firms’ working capital says Clarke Willmott UK construction companies face financial disruption when new anti-fraud VAT legislation comes into force in October. The new legislation seeks to combat what the government describes as an attack on the VAT system by “organised criminal gangs”. “The new VAT reverse charge for the construction industry is intended to tackle the issue of construction employers and contractors paying fees for works and services plus VAT, and then that VAT not being paid to HMRC in its entirety,” said Zoe Stollard, partner at national law firm Clarke Willmott specialising in the construction industry. Under the new rules, the company receiving the services may be required to account for the VAT itself, rather than paying the VAT to the supplier. “While anything that stops unscrupulous traders from effectively stealing VAT is to be applauded, it should also be noted that the new law’s implementation is going to have serious consequences for all construction firms whether they operate within the rules or not,” continued Zoe Stollard. “For example, construction businesses which make an onward supply of construction services themselves will be forced to adapt their existing accounting systems to process this reverse charge which could well create cash flow issues, especially as they can no longer use the VAT collected from customers as working capital before it is paid to HMRC.” Clarke Willmott and accountancy firm Milsted Langdon have been holding seminars to alert construction firms about the coming legislation and highlighting what it could mean to their financial position. Julian Borley, Milsted Langdon’s Director of VAT, said: “HMRC believe that organised criminal gangs are exploiting the current rules. “They provide the construction works to bona fide contracting business and are paid for their services plus VAT. “However, the VAT collected is not paid to HMRC and the fraudulent business disappears before HMRC realise that there is an issue. “This presents a risk to the genuine business as HMRC’s only recourse is to argue that the amount charged by the fraudulent business is not actually VAT and cannot therefore be recovered by the genuine business.” Zoe Stollard explained that one of the unintended consequences of the new rules is that it will be detrimental to most sub-contractors’ cash flows. “The tax point for construction services usually means that contractors are paid the VAT on their services before they have to pay the VAT to HMRC,” she said. “Most businesses have to account for VAT on a quarterly basis, meaning some businesses have been paid VAT up to three months before it is due to be paid to HMRC.” “It is common practice within the industry for this money to be used to buy building materials and pay for expenditure.” “Businesses further down the supply chain need to realise that this benefit will be taken away from them with the introduction of the reverse charge.” Julian Borley added: “There are just five months to go until this new law is brought in by HMRC and, even though there will be a settling in period, it is vital for construction companies to start preparing for this important change to their working practices and, where at all possible, take appropriate professional advice.” If you’re under VAT investigation get in touch with Cooper Parry for advice.
Ever-increasing Length of Compliance Checks into Large Companies Causing Uncertainty. One of the UK’s leading tax experts today weighed into the debate emerging from news that HMRC investigations into large companies have increased in length over the last financial year. David Redfern, an expert in tax preparation and founder of DSR Tax Claims, highlighted the negative impact and financial uncertainty that prolonged HMRC investigations can have on businesses and called for HMRC to commit more resources to ensure that tax enquiries are completed at a swifter pace. Noting that the average enquiry into a large business had risen to nearly 3 years in the previous tax year (34 months up to March 2017), Redfern stated that “even though these investigations can be expected to take some time, due to the size and complexity of the businesses being inspected, the uncertainty that these businesses will face in terms of their business planning and financial reporting will impact upon their ability to do strong business”. He added that although larger companies could often cope with such prolonged compliance checks, he was disappointed to note that investigations into smaller businesses could still take up to 16 months, sometimes longer if appeals were made. He stated that “it can be devastating to small businesses to be plunged into financial limbo for such a length of time, often spanning well over a tax year, and very often without the resources that large companies have to manage such uncertainty”. Redfern acknowledged that he accepted that there were resourcing issues at HMRC, not just within the Large Business Directorate which is tasked with investigating the tax affairs of the UK’s 2,100 largest and most complex businesses, but also with the departments responsible for dealing with smaller businesses and individuals. However, he stated that he believed that it was unreasonable that businesses should bear the brunt of the lack of HMRC resources. He added that “it is absolutely appropriate to expect that all businesses, large and small, should be paying exactly what they owe in terms of taxes and HMRC have the right to investigate those they believe aren’t playing by the rules, but in such times of job insecurity and business hardship, they shouldn’t be actively making things difficult for businesses and should commit the resources to make the taxation system work properly and equitably for all”. He finished by asserting the importance for companies and individuals of getting their taxes correct in the first instance.
