More detail on the MTD proposals for VAT

More detail on the MTD proposals for VAT


MTD Proposals 

  • Date introduced
  • Software
  • Exemptions
  • Preservation of records
  • Content of records
  • The VAT account
  • VAT schemes
  • VAT returns
  • Error corrections

 

Date introduced

The new rules have effect from 1 April 2019 where a taxpayer has a ‘prescribed accounting period’ which begins on that date, and otherwise from the first day of a taxpayer’s first prescribed accounting period beginning after 1 April 2019.

 

Software

Under the new MTD rules, businesses will have to use ‘functional compatible software’.  This means a ‘software program or set of compatible software programs which can connect to HMRC systems via an Application Programming Interface (API)’.  This must be capable of:

 

  • keeping records in digital form as specified by the new rules
  • preserving digital records in digital form
  • creating a VAT return from the digital records held in compatible software and submitting this data to HMRC digitally
  • providing HMRC with VAT data on a voluntary basis
  • receiving, via the API platform, information from HMRC to ascertain compliance. It is as yet unclear what this means, but it may relate to HMRC’s ability to send compliance prompts and nudges.

 

Exemptions

Just as there are exemptions from electronic filing at present, there are some exemptions from the MTD for VAT regime, and these follow the same lines. They are for businesses:

 

  • which satisfy HMRC that they are practising members of a religious society or order whose beliefs are incompatible with the use of electronic communications
  • to whom an insolvency procedure applies
  • which satisfy HMRC that for reasons of disability, age, remoteness of location or any other reason, it is not reasonably practicable for them to make a return using an electronic return system.

The rules will provide a right of appeal if HMRC refuse exemption.

 

Preservation of records

As well as keeping digital records, businesses will have to preserve them in digital form. They will have to preserve digital records in functional compatible software for up to six years. Where a business deregisters for VAT, it will have to preserve records for up to six years.

 

Businesses to which MTD no longer applies will not have to maintain ongoing records in digital format.

 

Content of records

The information to be kept and preserved digitally includes:

 

  • ‘designatory data’: this is business name, principal place of business, VAT registration number, information about any VAT accounting schemes used
  • VAT account linking primary records and VAT return
  • information about supplies made and received

 

The VAT account

The following data will be kept digitally.

 

VAT payable portion:

  • total output tax due for VAT return period
  • total output tax on acquisitions from other EU member states
  • total output tax on supplies received where the business is required to account for and pay on behalf of the supplier (reverse charge output tax).

 

VAT allowable portion:

  • total input tax allowable for VAT return period
  • total input tax allowable on acquisitions from other EU member states.

 

Adjustments:

Adjustments made, corrections of errors in calculating VAT payable in previous periods, and any other adjustments made as required by VAT rules (such as retail scheme annual adjustments or partial exemption annual adjustments).

 

Here however, it is only the total of each adjustment that needs to be kept digitally – not the underlying calculations.

 

Exceptions

Where HMRC are satisfied that keeping and retaining the specified information for each transaction is ‘likely to be impossible, impractical or unduly onerous,’ they can vary the detail required to be kept electronically.

 

VAT Schemes

Retail scheme users will be allowed to record electronically sales transaction data based on daily gross takings, rather than recording details per sale.

 

Flat rate scheme users will need to record the relevant information in a digital form but the extent of the records will mirror current record keeping requirements.

 

VAT returns

Nine boxes

There will be a minimum of nine boxes to complete the return. The information on the return will ‘be generated by pulling information from the digital records’ – a hands-free process.

 

Other updates

There is also provision for businesses to make voluntary ‘periodic updates’ – in other words, for them to supply information outside the VAT return cycle.

 

The exact position is not yet completely clear, but HMRC say ‘We expect a voluntary update outside of the VAT Return cycle to be used mainly when a business is also providing an Income Tax update.’ This presumably looks forward to a next stage in MTDfB, when the regime also encompasses income tax. HMRC then goes on to say, ‘But it could also be used for example to update HMRC about a change of circumstances (changes to ‘designatory data’).’

 

Supplementary data

Change is hinted at by provisions for submitting additional supplementary information, which would also be ‘pulled’ from the digital records.

 

The proposals state ‘While the simplicity of the ‘Nine Box’ VAT return has advantages for businesses in terms of reduced administrative burdens … HMRC receives no information about how the figures in the return are arrived at.’

 

HMRC are concerned that some returns are incorrectly calculated, and one of the driving forces behind the MTD programme is the belief that the digital regime will reduce the amount of money lost to the Exchequer through error. The idea of submitting ‘supplementary data’ would seem to relate to this. HMRC say submission ‘will allow HMRC to test with businesses the extent to which they and HMRC can benefit from such supplementary data.’

 

Error corrections

The procedure here will broadly be the same as at present with regard to amending VAT accounting records. Corrections to VAT returns already submitted will be made as at present, with non-deliberate errors below the reporting threshold adjusted on the next VAT return, (if within the four year time limit) and other errors reported through VAT652.

 

Here too change may be on the way. However, HMRC are exploring the provision of electronic/digital submission of VAT652; at this stage on a non-mandatory basis.

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Hawsons help out at Whirlow Hall Farm

Hawsons help out at Whirlow Hall Farm 

Partners and staff from Hawsons enjoyed two tough, but enjoyable days at Whirlow Hall Farm. Over the course of the 9th and 10th of May, two teams of 12 visited the local charity, which provides education and training for some of the region’s most disadvantaged children and young people, to provide some much needed additional labour.

Each day our teams’ sessions were led by Corporate Fundraiser Andrew Cowell, who set out the day’s plans and objectives. Our partners and staff engaged in a wide range of activities to help the farm get ready for the summer, including clearing and jet-washing the barn after spring lambing, path clearing, gardening and various other maintenance tasks. The days were a fantastic opportunity for all involved, not just to get out of the office into the sunshine and fresh air, but also to give something back to the local community – the visit to Whirlow Hall Farm being the latest of our corporate and social responsibility days.

Andrew Cowell commented, “The teams from Hawsons were really enthusiastic and hardworking. The farm is always grateful for additional volunteers as we prepare the grounds for the summer.”

Scott Sanderson, Partner at Hawsons had this to say, “It gives me great pride to see fellow partners and staff being prepared to roll up their sleeves in order to help a key local charity. Our work at Whirlow Hall Farm was physically challenging but extremely rewarding at the same time and we thank Andrew and his team for allowing us the opportunity to get involved.”

Pensions: Accumulation

Pensions: Accumulation

Pensions: Accumulation

Pensions have been around since the seventeenth century with the first organised pension scheme being established for Royal Navy Workers in the 1670’s. Nowadays, they are a minefield to many, not least because of the numerous acts of parliament which have introduced complex changes to the legislation behind them.

Rest assured though, with the right advice you can definitely take full advantage of what is still one of the most tax efficient investments available.

If you are still building up your pension pot, either by regular contributions or one off payments you are known as being in the accumulation phase.

Broadly there are 2 types of pension scheme, Defined Benefit (Final Salary) and Defined contribution (Money Purchase/Personal Pension). Today, Defined Benefit pensions are not as widely held therefore this article focuses mainly on the legislation around Defined Contribution pension schemes/Personal Pensions.

So, what are the main attractions…?

1.  Tax relief – when you save into a pension you receive tax relief from HM Revenue & customs (HMRC). If you pay into a personal pension out of earned income, this income has already been taxed. For every £80 you pay in, the taxman adds a further £20 to your pension (basic rate relief). That is an immediate 25% gain!

If you pay tax above the basic rate band, you can claim the additional relief via your self-assessment at the end of the year.

If you are a director/key employee and your company is making contributions to your pension, whilst you won’t personally get tax relief, the company will benefit from a corporation tax saving.

 

2.   Death Benefits – contrary to popular belief, pensions don’t die with you. In fact, they don’t have to die with the next generation either! Any personal pension you hold can be left to whoever you choose, this doesn’t have to be a direct spouse or dependent child it can even be your next door neighbour if you like.

The tax treatment of the pension fund in the recipient’s hand depends on the age of the person who has died. If you die before age 75 the recipient would receive the whole value of the pension fund tax free for life. If you die after 75 then the pension fund is taxable at the marginal rate of the recipient. (Please note that tax treatment on payments made to trusts may differ and you must ensure that the funds are passed on within 2 years of death).

 

3.   Inheritance Tax – Pensions currently fall outside of your estate for inheritance tax purposes. This could be a good way of passing your pension savings to future generations if you don’t spend it all.

 

4.  Investment choice – Cash held within your pension can be invested in assets such as stocks and shares, fixed interest, government gilts, commodities etc. This gives you access to greater growth potential than the returns available in cash deposits. Certain types of pension scheme can also hold direct commercial property (not residential though, such as buy to let).

 

Too good to be true…what can catch you out…?

 

1.  The Annual Allowance – There is a limit to how much you can put into your pension each year and obtain tax relief. This is currently £40,000 (for higher earners this could be reduced to as low as £10,000). Make sure you are within the annual allowance limit(s). Failure to do this could mean you end up with a tax charge at the end of the year – your financial adviser can assist you this.

 

2.    Lifetime Allowance – over your lifetime there is a total amount you are allowed to hold  in pension benefits. This is currently £1 million pounds. If you go over this, at certain times a tax charge can be made on the excess. Again, with the right advice you can plan for this efficiently.

 

3.  Nomination to beneficiaries – Make sure that you nominate your beneficiaries with the pension trustees. This is usually a straight forward form. By doing this, in the event of your death it is clear what your wishes are, rather than the trustees having to make that decision!

 

4.  Moving your pensions – always ensure that if you are moving your pensions from one provider to another you don’t lose any valuable benefits.

 

5.  Age – Currently you can access the money within your private pensions from the age of 55 (this will become age 57 in 2028). Doing it earlier could result in severe tax and unauthorised payment charges. Pensions have many benefits, but to get  the best out of them advice is crucial. Your financial adviser will be more than happy to help you.

The information contained within this is based on our current understanding of the legislation. Past performance is no guide to the future and investments can go down as well as up.

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