Thursday, 8 November 2018

Making Tax Digital (MTD) for VAT

The UK government has long desired to move businesses to a fully digital platform linked to HMRC, citing the advantages for taxpayers over collecting transaction data in one system and then submitting it separately to HMRC. There is also, of course, the advantage to HMRC that it gets access to a lot more data to analyse !

There was an aborted attempt last year to bring forward a wide-ranging programme requiring many business types to effectively upload their accounting transactions electronically to HMRC to support their tax returns. This MTD for business (MTDfb) initiative has been delayed in part until 2020 but a more limited scheme MTDforVAT will be introduced starting April 2019.

Initially all VAT registered businesses with turnover in excess of £85,000 per annum will be required to take part. The underlying doctrine is that any such business must keep it's records digitally and those digital records are used to prepare and submit the VAT return.

In essence, accounting software must be used. Some software companies are proposing 'bridging' products which will link Excel spreadsheet records to HMRC's portal but at the present time they are limited and we cannot be sure how compliant they will be in the long term.

So our current advice to any clients who are VAT registered and have turnover above the £85,000 threshold is to switch to a compliant accounting software product before April 2019. We would also suggest an online system rather than a traditional desktop program.

We are happy to discuss the way forward with clients even if we do not currently process your VAT return. We have a lot of experience with appropriate software and can advise. Please contact Gerry Sims who will be pleased to help you.

Thursday, 1 November 2018

Not so much an “Année Blanche” as 50 Shades of Grey!

As France moves to the system of “prélèvement à la source” for 2019 it was hoped by many that 2018 would produce something of a tax windfall but, following the final decision taken by President Macron in September to proceed with the plans for prélèvement à la source, then it became clear from the raft of new rules that the “année blanche” would be virtually the same as any other year! 

A declaration reporting all 2018 income will still be required in May/June 2019.  Broadly, reportable income will then be classified as “non-exceptional” or “exceptional” income.  In the first group, there will be income sources such as salary, pensions, and social security benefits whilst exceptional items will include all investment income eg dividends, interest, Assurance Vie gains and capital gains. 

Non-exceptional income will be referenced back to similar sources in the previous three years – 2015, 2016 and 2017 - and the highest of those years will be used as a reference income.  If the 2018 income exceeds this reference income, then the difference between the 2018 declared income and the referenced income will be subject to tax in 2018.  This measure was introduced to prevent individuals with the power to manipulate salary or bonuses etc. being able to generate higher levels in 2018 on the basis that 2018 income would fall out of account.

A tax credit will be applied to the 2018 non-exceptional income.  This credit is known as the CIMR (crédit d'impôt modernisation du recouvrement) and will be calculated by reference to the total income, the family co-efficient and the marginal progressive tax rate.

Exceptional income eg dividends, interest, capital gains etc. will be taxed at the “flat rate” applicable which is usually 30% - 12.8% income tax + 17.2% prélèvement sociaux.  It is possible to opt for the “old rules” of calculating the liabilities on such income, thereby benefitting from the abatement for dividends and capital gains rather than accepting the 30% flat rate.  Whether the old or new rules will be most beneficial can only be determined by doing the maths!

Usual levels of rental income will be eligible for the CIMR for the année blanche but any significant items – such as a lease premium, penalties paid on the breaking of a contract etc. – will be regarded as exceptional and will not receive the CIMR credit.

For individuals with business income (and this is expected to include micro-entrepreneurs) the same rule as for salaries will apply in that the highest of the previous three years will be used as a reference income and, if 2018 is more, then the excess will be taxed.  If, in 2019, the profit is higher than 2018, it is possible to reclaim the amounts paid on the 2018 excess so as not to penalise growing businesses.  Taxpayers have to claim this back themselves as it is not volunteered by the Tax Administration!

Prélèvement à la source ie tax at source will be in the form of a direct withholding from income if the payor is a French entity – think PAYE in the UK from salaries or pensions – or by an on-account or “acompte” payment which the Tax Administration will take directly from a taxpayer’s bank account.  On the avis d'impôt issued for 2018 (based on 2017 income) the Tax Administration has already calculated and indicated the monthly acompte payment for each taxpayer.

Households with a RFR (revenu fiscal de référence) of more than €25,000 single occupant or €50,000 for a married/PACs couple are required to report foreign investment income and pay the flat rate tax and prélèvement sociaux by filing form 2778-SD within 15 days of receipt of the income and paying over the tax due.  It is not clear how this interacts with the amount taken from bank accounts as an acompte payment so there seems scope for a potential double payment here, although it is clear any tax overpaid in the year via whichever method, does get refunded by the Tax Administration.

As expected there are rafts of penalties for employers who do not withhold or for individual taxpayers who are over-zealous in requesting reductions in their accompt payments.  Without doubt it will take a couple of years, at least, to bed in this new system and there are sure to be some penalties applied along the way!

Wednesday, 31 October 2018

UK Budget: Key Issues

In his last Budget before Brexit, Philip Hammond gave away with one hand but did take back with the other!

The good news is that he has accelerated the increase in personal allowances and the threshold for higher rate tax meaning that from next April ie 6 April 2019, the personal allowance will rise to £12,500 and the basic rate tax band will extend to £50,000.  The current levels of dividend allowance and personal savings allowance all remained unchanged, although the transferable married allowance available to married couples/civil partners has increased to £1,250, meaning a tax saving of £250 can be passed over to the taxpaying spouse. 

The main areas of concern for property owners is that main residence relief is being severely curtailed from 6 April 2020.  If the owner has had to move away from the property for any reason but the property had been occupied as a main residence, then the last 18 months of ownership were counted towards periods of occupation as a main residence.  This period of “deemed” occupation has now been halved to only 9 months – meaning that over the last few years this “relief” has been slashed down from 36 months to just 9 months!

Furthermore, if a property that had previously been a main residence, was let out, then additional relief for capital gains tax was available in the form of “Lettings Relief” up to a maximum of £40,000 but this is to be withdrawn from 6 April 2020.  The Chancellor stated that Lettings Relief would still be available in the event the house was in “shared occupancy” ie landlord and tenant living in that property together but this seems a somewhat disingenuous statement because if the landlord- proprietor was living there, he/she would get main residence relief anyway!

There was no movement from the capital gains rates on property of 18% and 28%.

The government will publish a consultation in January 2019 on an SDLT surcharge of 1% for non-residents buying residential property in England and Northern Ireland.

Contractors working in the private sector are being brought within the same IR35 changes from April 2020 that were brought in for public sector contracting two years ago.  The IR35 rules will not apply if the engaging company is regarded as “small”.  The definition of “small” is expected to be companies with fewer than 50 employees but this still has to be confirmed.  A further consultation period is expected before the draft Finance Bill is published in Summer 2019.