Making Tax Digital roadmap and COVID-19 update

Under Making Tax Digital (MTD) for VAT, VAT-registered businesses with a turnover in excess of the VAT threshold (currently £85,000) have been required to maintain digital records since April 2019. This has primarily been in the form of cloud software such as Xero, Sage or QuickBooks Online, but also includes Excel spreadsheets.

As we have been expecting, the Government have announced this week that MTD will be extended to VAT-registered businesses with vatable turnover below the VAT threshold from April 2022. This will be particularly relevant to farmers.

In addition, from April 2023 unincorporated businesses (partnerships and sole traders) and landlords with gross turnover over £10,000 will be required to join MTD for Income Tax. This will require business owners and landlords to maintain digital records and file quarterly submissions to HMRC of their income and expenses.

At present, there is no timetable for the implementation of MTD for Corporation Tax, but we are expecting some further information by the end of the year.

We will be writing to and supporting all of our clients who will fall into MTD in either 2022 or 2023 in due course. Further detail is below.

Deferral of 31 July 2020 Payment on Account

With the July tax payment on account falling due next week, it is worth noting that HMRC is allowing all taxpayers to defer their payments until 31 January 2021. However, this has been designed solely for those who have been adversely affected by Covid-19 and it should be noted that it is purely a deferral. Opting to take advantage of the delay will result in a higher payment in January 2021.

If you have been affected by Covid-19 and intend to defer your payment on account, it is essential that you factor the future payment in to your cashflow and plan accordingly. If you require any advice on this, please do not hesitate to contact us.

Deadline for Coronavirus Job Retention Scheme (CJRS) V1 31 July 2020

As advised in our previous mailing, the deadline for making a claim under version 1 of the CJRS is 31 July 2020. This would relate to any CJRS claim periods up to 30 June 2020. The deadline for staff being furloughed and qualifying for the scheme was 10 June 2020.

For any staff on furlough from 1 July 2020, a claim can be made under CJRS V2. This carries increased flexibility with the introduction of part time furlough, but also gradually increasing costs for the employer. The calculations from 1 July 2020 will be increasingly complex, and if you require any assistance please do not hesitate to contact us.

VAT Reduction and a New Flat Rate Scheme for the Hospitality Industry

The new reduced rate for the hospitality industry has now come into force. To recap, the reduced rate of 5% will apply to:

• Supplies of accommodation (e.g. hotels, B&Bs, campsites and caravan sites)

• Food and non-alcoholic drinks sold by pubs, restaurants, cafes, and other similar premises

• Admission to attractions, such as cinemas and zoos

To assist impacted businesses in understanding the changes, we have a recorded webinar available below:

• Hospitality and Tourism Industry – Temporary VAT Reduction

In addition, we have recorded practical guidance on applying the rate changes to your software:

• QuickBooks Online – Hospitality Reduced VAT 

• Xero – Daily Takings 

For clients who use the VAT flat rate scheme, these have been updated to account for the new reduced rate below:

Roadmap announced for Making Tax Digital

MTD for VAT will extend to all VAT-registered businesses from April 2022, with income tax quarterly reporting applying from April 2023. Corporation tax will be consulted on later this year.

As part of the Legislation Day announcements on 21 July, the government set out its roadmap for the further roll out of MTD. The announcement covers VAT, income tax, and corporation tax.

MTD for VAT

Since April 2019, the vast majority of VAT-registered businesses with taxable turnover above the VAT threshold of £85,000 have been mandated to keep digital VAT records and to submit their VAT returns using MTD compatible software.

From April 2022, compulsory MTD for VAT will be extended to all VAT-registered businesses.

The government’s view is that digital records are more accurate and avoidable mistakes cost the Exchequer around £8.5bn a year. HMRC considers that the amount of tax lost to these avoidable errors is reduced, but not necessarily eliminated, via:

• the improved accuracy provided by digital records,

• the help built into many software products, and

• the fact that information is sent directly to HMRC from the digital records, avoiding transposition errors.

What MTD for VAT means:

From April 2022, all VAT-registered businesses will be mandated to keep VAT records in digital form. Businesses may use dedicated record-keeping software, a combination of software packages, or spreadsheets. If spreadsheets are used, the software must be capable of taking the relevant information from the spreadsheet electronically and sending it direct to HMRC without further manual adjustment. Many businesses rely on bridging products to fulfil this function.

The deadlines for sending VAT returns and making payments have not changed.

The information submitted to HMRC is the same as on the nine boxes of the current VAT return, (although as the UK leaves the EU, these boxes may change). Details of individual transactions are not submitted to HMRC.

MTD for income tax

MTD for income tax will apply from April 2023 for unincorporated businesses and landlords with total gross income above £10,000. Businesses and landlords who join MTD for income tax will need to submit a quarterly summary of their business income and expenses to HMRC using MTD-compatible software.

The government observes that this information would have been very useful during the development of support packages for business during the recent Covid-19 crisis, when HMRC found that the most recent taxpayer income data held for the overall population of self-employed taxpayers was from 2018/19 tax returns.

The existing small pilot of MTD for income tax will be extended to allow more taxpayers to test and familiarise themselves with the system in good time before mandation.

The intention is that having made quarterly submissions of income and expenses, taxpayers will receive an estimated tax calculation based on the information provided to help them budget for their tax. At the end of the year, they will be able to add any non-business information and finalise their tax affairs using MTD-compatible software. This includes information about employment income, bank and building society interest, dividends, pension contributions, student loan repayments etc, and the goal is for this to replace the need for a self-assessment tax return.

Software developers will need to build this additional functionality into their products as MTD for income tax continues to develop.

More frequent reporting may also lead to more frequent payment of tax in due course, but that is not the intention at this stage.

Corporation tax

In a written ministerial statement, the government has announced it will consult in the Autumn on the detail of extending MTD to companies.

If you have any queries with the above, please contact your local Simpkins Edwards office.