All you need to know about Making Tax Digital

If you’re a regular to the Intouch blog, you might have read our recent article on what the Budget means for contractors. One topic we didn’t tackle in depth was the introduction of the government’s Making Tax Digital (MTD) programme from April 2019, which is going to affect VAT registered contractors with a taxable turnover above the threshold.

 

As the government websites states, the MTD initiative forms a key part of its plans to ‘make it easier for individuals and businesses to get their tax right and keep on top of their affairs.’ Think you’ll be affected by the change? If so, here’s some information you might find useful:

 

Why the change?

Along with simplifying processes for individuals and businesses, the government wants HMRC to be one of the world’s most advanced tax administrations. MTD will lead to fundamental changes in our tax system, with the aim of reducing errors and making it more effective and efficient.

 

Who does it apply to?

The MTD scheme will apply to companies, LLPs, unincorporated businesses and charities that are VAT registered and have a taxable turnover above the VAT registration threshold, which currently stands at £85,000 per annum. If that’s you, you’ll have to store your tax records digitally (for VAT purposes only) and send HMRC VAT return information digitally via MTD ‘functional compatible software.’

Before the Budget, many people thought the Chancellor was going to slash the registration threshold to £43,000. This would have seen hundreds of thousands more small companies falling into the MTD for VAT scheme. However, Philip Hammond confirmed during his speech that the £85,000 threshold will remain in place until at least April 2022.

If you’re VAT registered but your taxable turnover falls below the threshold, it’s up to you whether or not to opt in and file your information digitally.

 

When exactly does it come into effect?

MTD for VAT will officially apply to VAT return periods beginning on or after 1 April next year. This date has been pushed back until October 2019 for a minority of small businesses with unique requirements.

 

What records should be digital?

HMRC has listed the details that should be stored digitally in your so-called ‘electronic account.’ These include:

  • Company name, address, VAT registration number and any accounting schemes you use
  • Time of supply (the date you must declare output tax on)
  • Value of supply (net value excluding VAT)
  • Rate of VAT charged

 

It’s more important than ever to make sure your digital records are correct, ahead of the changes that come into force in less than six months’ time.

There’s a lot to remember and prepare for, so if you’re a Limited Company contractor who’d rather relax and forget about MTD, why not get in touch with Intouch about becoming one of our clients? We’ll do it all for you, so you can concentrate on what you do best – providing a great service to your clients and earning money!

 

This blog has been prepared by Intouch Accounting. While we have made every attempt to ensure that the information contained in this blog has been obtained from reliable sources, Intouch is not responsible for any errors or omissions, or for the results obtained from the use of this information. This blog should not be used as a substitute for consultation with professional accounting advisers. If you have any specific queries, please contact Intouch Accounting.

All you need to know about submitting your Self Assessment tax return

Many people don’t like to hear the ‘C’ word mentioned until at least December. However, if you’re self-employed, now’s the time to start thinking about the festive period, particularly with regards to submitting your Self-Assessment tax return (SATR). Here’s all you need to know:

 

What is a SATR?

Self Assessment tax return or SATR is the system by which HM Revenue and Customs (HMRC) collect tax on your income.
Whereas tax is typically deducted automatically from wages, savings and pensions, if you’re self-employed, it’s your responsibility to declare taxable income and to notify HMRC that you need a tax return form. Fail to complete a return when necessary and you’ll receive a penalty.

 

Who needs to complete one?

If you can say yes to one or more of the below criteria for the last tax year (6 April 2017 to 5 April 2018), it’s highly likely you’ll need to complete a SATR:

You were self-employed and your income was over £1,000
You received over £2,500 from renting out property
You’re a partner in a partnership. The Partnership will have to file a return, too
You’re a company director
Your annual income was £100,000 or more
Your annual income was £50,000 or more, and you or your partner was in receipt of child benefit
You received over £2,500 in other untaxed income, such as commission or tips
You needed to claim expenses or reliefs, or you’re a trustee
You had Capital Gains Tax to pay, for instance if you sold shares or a second home
You had £10,000 or more in dividends or from other investments
You had income from abroad you needed to pay tax on

If HMRC send you a return to complete but you find none of the above apply to you, you should get in contact with HMRC as it may be an error.

 

What are the deadlines this year?

You have to submit returns for tax years, not calendar years. Meaning, this return will be to declare tax on income and gains from 6 April 2017 to 5 April 2018. The deadlines for submitting the returns are as follows.

5 October 2018 for registering for Self Assessment if you have never submitted a return before
31 October 2018 for submitting a paper tax return
31 January 2019 for submitting an online tax return (you need to submit your online return by 30 December 2018 if you want HMRC to automatically collect tax owed from your wages and pensions, however you must be eligible)
31 January 2019 for paying all of the tax you owe

 

What are the penalties?

If you need to file a return but it’s up to three months late, you’ll receive a penalty of £100, with this sum increasing the longer you leave it. If a partnership tax return is late, all partners will have to pay a penalty.

 

What if you make a mistake?

If you realise that you’ve made a mistake on your tax return, don’t fret – you’re able to make amendments after you’ve filed it. But the deadlines are as follows:

31 January 2019 for the 2016-17 tax year
31 January 2020 for the 2017-18 tax year

 

Partnering with Intouch

If you’re one of our clients, your dedicated Personal Accountant will have already been in touch to guide you through the process and make sure you know exactly what needs to be submitted.

We offer complimentary completion of a SATR for one employee as part of our comprehensive monthly services for contractors. If you want to find out about the many other features of this plan, or about the benefits of partnering with Intouch, call 01202 375758 today.

 

 

This blog has been prepared by Intouch Accounting. While we have made every attempt to ensure that the information contained in this blog has been obtained from reliable sources, Intouch is not responsible for any errors or omissions, or for the results obtained from the use of this information. This blog should not be used as a substitute for consultation with professional accounting advisers. If you have any specific queries, please contact Intouch Accounting.

IR35 consultation response – we urge HMRC to learn from mistakes, start afresh and not to rush it

8th August 2018

IR35 consultation response – we urge HMRC to learn from mistakes, start afresh and not to rush it

 

I’m spoilt for proverbial choice when it comes to the advice we’ve given HMRC in our IR35 consultation response…’ fools rush in where angels fear to tread’, ‘more haste, less speed’, ‘measure twice, cut once’… they all add up to an appeal to take the time to create a new, fit for purpose approach to compliance in the public and private sectors rather than trying to reform and roll out the broken public sector approach.

Our formal response, filed today includes solid research to counter HMRC’s view that IR35 in the public sector is ‘working’, some suggested alternatives and our thoughts on timings:

 

  • We believe that the review of public-sector reforms set out in the consultation and other government documents provides an incomplete and misleading picture of the impact of the reforms. Further review on completion of a complete compliance cycle is needed and should include all parties in the supply chain. This will help identify all unintended effects of the reform such as the volume of self-employed contractors who have had PAYE incorrectly applied, and those who are working through non-compliant payroll vehicles.

 

  • We believe that the public sector reforms have driven non-compliance rather than addressing it, and for this reason, a different approach is needed for both public and private sectors. We have proposed a solution that focuses on compliance across the supply chain using enhanced record keeping with a legal requirement to supply the relevant information up the chain.

 

  • Given our points above, we believe that April 2019 is too soon for implementation of any reform and would not allow for proper consideration by HMRC or proper implementation of any reforms by contractors or end hirers.

 

We believe our response is measured, backed by evidence and realistic; we’ve always welcomed reform that encourages compliance and there is no doubt that compliance reforms are coming to the Private sector; we just ask HMRC to remember who won that race between the hare and the tortoise!

 

 

HMRC IR35 consultation ends on August 10th. We’re responding – are you?

In last Autumn’s Budget, the government announced that it would consult on how to tackle non-compliance with IR35 rules in the private sector. In May this year, that consultation was announced, with a closing date of 10th August.

We encourage all other interested parties to contribute; that means contractors as well as end-hirers who want to continue to have access to and support self-employed contractors.

You can see the consultation and how to send your response here .

Intouch will be responding to the consultation and we will publish an overview of our response early next week.

IR35 in the private sector – HMRC announces consultation

In last Autumn’s Budget, the government announced that it would consult on how to tackle non-compliance with IR35 rules in the private sector. On Friday, HMRC issued this eagerly-awaited consultation which they say “looks at improving the rules around ‘off-payroll’ working so contractors who work through their own company pay the right tax.”

At Intouch, we would suggest that HMRC learn from the negative feedback following the public sector reform and at the same time, remember that private sector and public sector hirers are different entities with different motivations and potential responses. They engage with their clients in different ways and often at different levels and as such we’d encourage HMRC not to view them as the same with respect to off-payroll rules and deemed employment. Input should be taken from across the industry with a view to tailoring a bespoke private sector solution that improves compliance whilst mitigating any potential administrative burdens.

The consultation timescales mean that any changes could be introduced as early as April 2019, although we’d urge HMRC to take the time to consider timings very carefully to avoid any negative impact to the UK economy as we move forward with Brexit.

Intouch will be responding to the consultation and we encourage all other interested parties to contribute; that means contractors as well as end-hirers who want to continue to have access to and support self-employed contractors. You can see the consultation and how to send your response here – you have until 10th August!

If you want to have your say but need to brush-up on your IR35 knowledge, check out our resources below:

Guide – Embracing IR35
Infographic – IR35; Don’t panic!
IR35 FAQs

 

This blog has been prepared by Intouch Accounting. While we have made every attempt to ensure that the information contained in this blog has been obtained from reliable sources, Intouch is not responsible for any errors or omissions, or for the results obtained from the use of this information. This blog should not be used as a substitute for consultation with professional accounting advisers. If you have any specific queries, please contact Intouch Accounting.

 

Spring Budget 2017 – what contractors need to know

Following the Chancellor’s first and last Spring Budget on 8 March 2017, many will be thankful that the landscape has not changed more drastically. The Budget primarily confirmed the changes announced in the Autumn Statement, with only a few new measures that will affect Limited Company contractors.

 

We have today emailed our clients with our full report on the Budget announcements and how they may be affected. Please see below for a summary of the key points and contact us to find out more about becoming an Intouch client and benefiting from our expert advice tailored to your personal circumstances.

 

Key Spring Budget points for Limited Company contractors:

  • Dividend Allowance: An announcement that didn’t appear in the Autumn Statement – a reduction in the tax-free Dividend Allowance from 6 April 2018. The allowance will reduce from £5,000 to £2,000.
  • ISA savings limit: The Chancellor counter-balanced the Dividend Allowance changes by also announcing that the overall ISA savings limit will jump to £20,000 in 2017/18, from the current limit of £15,240 for 2016/17.
  • Off-payroll working in the public sector (IR35): Whilst some minor changes to the draft legislation have been made, the measures will become effective on 6 April 2017.
  • VAT Flat Rate Scheme (FRS): As announced in the Autumn Statement, changes to the VAT Flat Rate Scheme (FRS) will come into place on 1 April 2017 with the introduction of a new ‘limited cost business’ category.
  • New measures to tackle tax avoidance and evasion: A selection of measures has been announced, with the most notable new measure applying to those that enable tax avoidance schemes. A new Enabler penalty will apply when tax avoidance schemes are found not to work.
  • Corporation Tax: As pre-announced, the main rate of Corporation Tax will be reduced from 20% to 19% for the Financial Year beginning on 1 April 2017.
  • Corporate Gains Tax: The CGT annual exemption will be increased to £11,300 for 2017/18 from £11,100 for 2016/17.
  • Making Tax Digital for Business: Extensive changes to how taxpayers record and report income to HMRC are being introduced under a project entitled Making Tax Digital for Business. The Spring Budget announced a one year deferral from the mandating of MTDfB for unincorporated businesses and unincorporated buy to let landlords with turnovers below the VAT threshold (£83,000).
  • New consultations announced: Those notably likely to affect contractors include consultations on Rent a Room Relief, disguised remuneration (again), employee expenses and Benefits in Kind.

 

Further information

 

Still got questions? Our Personal Accountants are available right now to give tailored advice to our clients on how these announcements will affect them. Contact us to find out more about becoming an Intouch client.

Breaking news! Does today’s Autumn Statement harm or help Limited Company contractors?

Breaking news! Does today’s Autumn Statement harm or help Limited Company contractors?

Philip Hammond today delivered his first Autumn Statement as Chancellor of the Exchequer (and his last). He and the Prime Minister continue to compete for control of economic policy and are arm wrestling for the “glory sound bites”. Unless they get on the same page, the losers of this Pyrrhic victory will be you and I.

 

Famous for ill-conceived strategies implemented at a dangerous pace in the face of universal criticism, and ignoring calls for caution from industry experts (who HMRC asked for advice in the first place), HMRC and the Treasury just keep ploughing their own furrow regarding the flexible workforce.

 

Today’s statement offered public sector contractors no surprise good news, and worse no reason for private sector contractors to be optimistic. HMRC’s vision for a level playing field between employees and the UK’s flexible workforce continues to be deployed in the face of all arguments to the contrary. Mr Hammond continues to imply that anyone who is not taxed under PAYE is a tax dodger, and that any independent worker wanting to trade as a Limited Company is only doing so for the tax benefit. I wonder if this is a real belief or a view necessary to keep his job in a post-Brexit, post-Trump world of pragmatic politics.

 

HMRC are JAM (“Just about managing”)

“Passing the buck” is now officially written within the Autumn Statement. When policing employment status compliance gets too tough for HMRC and they end up in a JAM, they outsource the problem to the public sector supply chain (only affecting public sector contractors) and ignore advice from stakeholders telling them it will not work!

 

It’s such a pity that the Chancellor refuses to accept that the positive contribution from a vibrant flexible workforce is widely recognised by stakeholders as essential to the prosperity and economic recovery of UK plc, and therefore dangerous to ignore.

 

“Hammond and May never listen” ( I sound like Jeremy Clarkson)

Throughout the summer HMRC have “consulted” Industry experts, Accountants, Business leaders, Trade Associations and even the man on the “Clapham omnibus” searching for views and comment on key topics including: IR35 reform in the Public sector, and Making Tax Digital.

 

I wish that I could understand why HMRC are not listening. A significant proportion of stakeholder responses on both consultations are consistently negative about:

 

  • the unrealistic timetables being imposed
  • the lack of attention to detail in the implementation guidance
  • the absence of the digital tool for IR35 status assessment
  • the administrative burden being outsourced from HMRC to employers, service providers and taxpayers in an attempt to reduce HMRC’s cost of delivery
  • blanket self-justifications from HMRC of their own actions, which ignore the advice of the wider community and which do not stand up to intellectual scrutiny

 

There seems little evidence from today’s statement that smart people who work at HMRC are using their ears. A consultation process, which has merit in concept, becomes a waste of everyone’s time if consistent contributions from stakeholders across the UK are continually ignored.

 

“Hammond’s way”

So Mr Hammond let’s try it your way: Push on with the policy of forcing independent flexible workers in the public sector into a taxation straitjacket against their will, and against the will of the end hirers. Engagers (even public bodies) want control over the ease with which their business units can expand, they do not want to provide employment rights, and flexible workers are not asking for them. But to do that you will need to continue to vilify and call “tax dodgers” hardworking and proud independent workers, who are trying to put their family’s wellbeing ahead of their own.

 

Make sure that the public don’t work out that by passing the buck for determining Employment Status (because HMRC have failed to find a way to get it right) and by passing the costs of doing so on to the engager or supply chain, saves the Government plenty of cash (because I doubt you will ever find c£400m of “tax gap” that you’re looking for from contractors). Make sure also that the workers don’t blame you for the fact that their take home pay is being reduced, as the supply chain adjusts to protect its margins.

 

Proposals to remove abuse under existing flat rate VAT rules will follow in December and could affect the many innocent parties seeking fairness not abuse.

 

I am not saying that non-governmental stakeholders have exclusive access to crystal balls, but we do have ears and we use them more than you do. Your statement today affecting the contractor community is only as strong as your ability to get the implementation right. If I were to buy you and your colleagues at HMRC a Christmas present, it would be a large hearing aid. If you wanted to give independent contractors in the UK a Christmas present, just turn it on.

 

Want to know more?

Before the statement, we released our own set of predictions and wish lists on what we thought would happen and what we wanted to see announced. So were we correct? We will be sending out our full Autumn Statement review tomorrow, simply leave us your email address and we will ensure you are sent a copy.

 

cat catch the mouse

 

This blog has been prepared by Intouch Accounting. While we have made every attempt to ensure that the information contained in this blog has been obtained from reliable sources, Intouch is not responsible for any errors or omissions, or for the results obtained from the use of this information. This blog should not be used as a substitute for consultation with professional accounting advisers. If you have any specific queries, please contact Intouch Accounting.

5 reasons the IR35 public sector consultation is one small step for HMRC

5 reasons the IR35 public sector consultation is one small step for HMRC

(One giant leap for everyone else)

 

A play on a famous quote from the Apollo 11 mission (to land on the moon) is where the similarity with HMRC’s mission (to reform the intermediaries’ legislation) ends. Neil Armstrong’s 1969 moon landing was welcomed by all. Unfortunately, the same can’t be said for HMRC’s 2016 IR35 proposals.

 

From 26 May through 18 August – roughly 85 days – HMRC will be consulting with the great and the good about the proposed public sector changes to IR35, which take effect in April 2017. Draft legislation, which will only apply to public sector bodies, will probably follow suit in the autumn. The reforms aim to transfer the burden of determining IR35 applicability from the personal service company (PSC) to the public sector body, agency or third party paying the PSC.

 

Here are five reasons why this doesn’t strike us as a good idea at Intouch.

 

1. HMRC’s IR35 non-compliance statistics are unproven

HMRC claims that a whopping 90 per cent of PSCs (20,000) don’t play by IR35 rules (they incorrectly tax themselves as being outside rather than inside IR35). HMRC estimates that non-compliance will cost the Treasury circa £400m through 2016/17.

 

But Julia Kermode, CEO of the Freelancer and Contractor Services Association (FCSA), begs to differ. She observes that, “there does not appear to be any substantiated data to support HMRC’s 10 per cent compliance claim.

 

Incidentally, the Public Accounts Committee published a report stating that, in 2013/14, PSCs complied with IR35 almost 90 per cent of the time – a wholesale reversal of HMRC’s figures.

 

In light of these statistics, Kermode believes that, “it is inappropriate to persevere with a consultation which appears to have no supporting evidence and where the rationale seems fundamentally incorrect.

 

2. IR35 proposals are unfair, irrational and illegal

Under the IR35 proposals, recruitment firms will be responsible for ascertaining the IR35 status of a worker supplied to the public sector.

 

Bizarrely, they will be held liable despite not having sight of the daily operations of the PSC or its worker (and being unable to confirm the accuracy of the information provided by the worker or the client).

 

According to the Association of Professional Staffing Companies (APSCo), the proposals are “unworkable” because they fly in the face of Article 1, Protocol 1 of the European Convention on Human Rights, which provides that tax systems must be “proportionate, reasonable, public and predictable.”

 

On this note, Samantha Hurley, Operations Director at APSCo, argues that tax law principles dictate that it’s “not reasonable to give parties obligations when they have no means of obtaining the information to fulfil them.”

 

Hurley continues her reasoning (which has been echoed by the Institute of Chartered Accountants in England and Wales): “This is clearly unjust as [recruitment firms] could end up bearing penalties attributable to other people’s lack of disclosure and conduct over which they have no control. The typical recruiter will have to assume that the contractor is inside IR35. This will result in large numbers of contractors in ‘false employment.’”

 

3. HMRC’s IR35 status tool will be inaccurate (and potentially biased)

HMRC has grand plans to devise an ‘all-knowing’ online tool, which the client will use to input information about the assignment to conclusively determine IR35 status.

 

Referring to the online tool, Dave Chaplin, founder and CEO of ContractorCalculator, has this to say: “The finest legal minds in the last 17 years haven’t been able to boil down decades of employment case law into an IR35 questionnaire that provides a binary result. How HMRC is going to achieve this in time for April 2017 is anybody’s guess.”

 

Will the tool be comprehensive enough to cater for all roles, sectors and levels of seniority (à la the current IR35)? Will HMRC be prepared to hang its hat on the tool’s results? Will Joe Public have confidence in them? In reality, the tool will need to have the wisdom of Solomon, the patience of a saint and the trust of all – an unlikely combination!

 

Current thinking in the consultation proposals is that the tool will reach a conclusion in every case: Yes or NO. Intouch is firmly of the opinion that “I don’t know” will be a popular outcome and needs to be catered for.

 

Then, there’s the intractable issue of bias. More often than not, HMRC has lost many a hard-fought legal battle centred on what constitutes an ‘inside IR35’ assignment. It would hardly be a stretch of the imagination if HMRC’s tool toes its own line.

 

Chaplin makes this very point: “The likelihood is that those who are hovering anywhere between certain pass and fail will automatically be deemed within IR35.”

 

4. Contractors’ incomes will fall or contractors will face discrimination

The upshot of the online tool, coupled with HMRC’s inherent bias, is that contractors are likely to be incorrectly put on the payroll and taxed at a higher rate than they should be. According to Deloittecontractors’ average take home pay will drop by 13 per cent if the IR35 proposals go through.

 

Worse still, recruiters may even discriminate against contractors and seek alternatives to meet their staffing needs.

 

5. Contractors will be taxed as employees, but won’t be given employees’ rights

If contractors are taxed like employees, it isn’t unreasonable for them to expect employment rights.

 

FCSA CEO, Julia Kermode, describes the proposals as “unfair, unethical and fundamentally wrong.” Kermode’s is not a lone voice in the wilderness. Chris Bryce, CEO of the Association of Independent Professionals and the Self-Employed (IPSE), says the proposals are “exploitative.”

 

Public sector first, private sector next?

In our view, the IR35 public consultation is part of a much larger HMRC strategy to encourage ‘upstream compliance,’ where taxpayers are educated to get their tax payments right the first time around, which ultimately saves time, resources and increases the ‘tax-take.’

 

As things currently stand, the IR35 proposals are confined to the public sector. But there are growing concerns that, if the proposals are successfully implemented in the public sector, it won’t be long before the Government will venture into the private sector with the same idea (despite “general resistance” by the private and public sectors).

 

So, if there’s ever a time to challenge these IR35 proposals, the time is now. After all, if the system ain’t broke, don’t try to fix it!

 

This blog has been prepared by Intouch Accounting. While we have made every attempt to ensure that the information contained in this blog has been obtained from reliable sources, Intouch is not responsible for any errors or omissions, or for the results obtained from the use of this information. This blog should not be used as a substitute for consultation with professional accounting advisers. If you have any specific queries, please contact Intouch Accounting.

IR35 consultation hot off the press

IR35 consultation

HMRC has now published the anticipated consultation on IR35 and the public sector, following closely on the heels of the announcement made in this year’s Budget and the discussion document in 2015.

 

The consultation centres on a new online test that HMRC expects engagers to use to determine a worker’s status and therefore the tax they will suffer at source. The reliability and acceptance of that test is critical to the fair application of the new rules. HMRC are inviting interested parties to offer to assist in the development of this test. Intouch has already registered its willingness to contribute to the development of a test that is appropriate, fair and consistent with the legislation and case law, and not just HMRC’s view of the world.

 

We will be submitting a response in defence of the genuine self-employed contractors and we urge everyone who has a vested interest to respond to the consultation. It is our chance to influence HMRC’s understanding of our market and attempt to contribute to the shape of the future of tax, not only for public sector contractors, but the wider freelance and contracting market.

 

The consultation can be found here and it invites all to respond, so let’s have our voices heard.

We’ve unpicked the consultation to see just how fair it is…and whether it really is a consultation. Read our findings in our blog posted on Contractor UK.

 

This blog has been prepared by Intouch Accounting. While we have made every attempt to ensure that the information contained in this blog has been obtained from reliable sources, Intouch is not responsible for any errors or omissions, or for the results obtained from the use of this information. This blog should not be used as a substitute for consultation with professional accounting advisers. If you have any specific queries, please contact Intouch Accounting.