Making Tax Digital delay: HMRC has announced that there will be a delay to the start of Making Tax Digital for Income Tax Self-Assessment.
In this article, Marina Watters ACCA analyses some of the information arising from that announcement, highlighting the key points that businesses and individuals need to know.
What are the implications of the Making Tax Digital delay?
The mandatory introduction of Making Tax Digital for Income Tax for sole trader businesses and landlords with gross business income over £10,000 per annum will now begin in the tax year beginning in April 2024. General partnerships will not be required to join Making Tax Digital for Income Tax until the tax year beginning in April 2025, while the date other types of partnerships will be required to join will be confirmed in the future.
The Treasury have said that this extension has been granted in recognition of the impact of the pandemic on individuals and businesses.
The announcement means that the new system of penalties for the late filing and late payment of tax, legislated for in Finance Act 2021, will also be delayed.
What other tax changes are afoot?
There is speculation that the wording that has been used, ‘in the tax year beginning in April 2024 etc.’, may be because HMRC are considering moving the start of the tax year to 1 April – following the recent publication of an OTS Report ‘The UK tax year end date: exploring the potential for change’.
The report examines in detail the costs, benefits, and practicalities of moving to a 31 March end of tax year (in overview terms also looks at a 31 December alternative). There are strong arguments for the move to reduce the administrative burden of Making Tax Digital for Income Tax, particularly for those who are both property landlords and self- employed.
The announcement also confirms that reform of the basis period rules, originally timetabled for 2022/23, will also be delayed. It now appears that changes will not come into effect for any businesses before April 2024, with a transition year not coming into effect earlier than tax year 2023/24.
All businesses which were in existence immediately before April 2023 (‘existing businesses’) will join Maxing Tax Digital for Income Tax from 6 April 2024. This is a big change from previous drafts of the regulations, where the start date for a business was linked to their accounting period.
Another big change from previous proposals is that all businesses will have to provide quarterly updates for the same periods, by the same deadline, regardless of their accounting period.
Whilst we now have extra time to prepare for Making Tax Digital, it’s important that we don’t lose momentum – April 2024 will still come round sooner than you might think!
On the 6 April 2020, the government made numerous changes to tax payable around property. The main one being a new requirement to report and pay capital gains tax on disposals of UK residential property 30 days after the completion date.
In this article Chris Goad, partner at Stephenson Smart’s Wisbech office, explains the changes and how they may affect you:
Capital Gains Tax
Any UK resident that disposes of residential property, that gives rise to a capital gains tax liability, must now file a capital gains tax return and pay an estimate of the capital gains tax due within 30 days of completion. If the gain is covered by principal private residence relief no return is due, but this does mean the calculation to confirm this will need to be done within 30 days of the sale of the property. Failure to file a return, if due, could result in a penalty being issued.
Final period exemption
Historically, final period exemption meant that you were not usually liable to capital gains tax for the last 18 months of ownership, provided you lived in the property as your main residence at some point during your period of ownership. This gave protection for someone moving to a new main residence when having difficulty selling their original home. However, the final period has now been cut to nine months. Therefore, if you buy a new property before selling the old, it will be important to sell within nine months to avoid a possible capital gains tax bill.
Letting relief used to give up to £40,000 relief (£80,000 for a couple who jointly own the property) for someone letting part, or all, of a property which is their main residence, or was their former main residence at some point during their period of ownership. But, under the new rules, letting relief will only be available where you jointly share occupation with a tenant. Only the period during which both the owner and tenant occupied the residence will qualify for letting relief. Lettings that occurred prior to 6 April 2020, that would have qualified for letting relief under the old rules, will become taxable under the new rules only.
If we can help you navigate these tax matters, or any others, please get in touch.
Henry Pettitt, Partner at Stephenson Smart in Great Yarmouth, explains how the Government’s tax changes and new plan for supporting the UK’S health and social care system will work.
How will the government’s tax changes from next April affect you?
On 8 September we witnessed one of the biggest announcements to date since the beginning of the pandemic, with tax changes agreed to fund £12bn a year to support the NHS and social care backlog across the UK.
From April 2022 National Insurance contributions (NICs) will increase by 1.25pc for one year only for employees, employers and the self-employed.
This will cover both Class 1 (employee and employer), Class 1A and 1B and Class 4 (self-employed) contributions, although State Pension Age are not impacted by the April 2022 changes.
Essentially if you earn more, you will pay more.
From 2022/23, if you earn around £24,100 you will have to pay in the region of £180 extra in National Insurance, while someone earning £67,000 will contribute another £715.
Health and Social Care Levy
From April 2023 the National Insurance contribution rates will decrease back to the levels of 2021/2022, with the introduction of a new Health and Social Care Levy.
The new ring-fenced levy of 1.25pc will apply to those who pay Class 1 (employee and employer), Class 1A and 1B and Class 4 (self-employed) NICs.
It will also be extended to those over State Pension age who are in work, with employment income or profits from self-employment above £9.568.
The levy will be administered by HMRC and collected through the current reporting and collection procedures for NICs – Pay As You Earn and Income Tax Self-Assessment.
The government will also increase the rate of income tax paid by people who receive dividend income from shares by 1.25% from April 2022.
These tax changes are all part of the need for a long-term solution to funding health and social care, allowing everyone to pool and share risks and resources.
Update: The date for self-employed businesses and landlords with annual business or property income above £10,000 to follow the rules for Making Tax Digital has been moved back to 6 April 2024.
Landlords: Are you ready for Making Tax Digital?
Making Tax Digital is a new way of working that sees the government calling upon taxpayers to report their income and expenses via digital software.
At present it only applies to VAT registered businesses with a taxable turnover above the £85,000 VAT registration. However, self-employed businesses and landlords with annual business or property income above £10,000 will need to follow the rules for Making Tax Digital for Income Tax from their next accounting period starting on or after 6 April 2023.
This means that any type of landlords, including but-to-let and furnished holiday lets, with an annual turnover above £10,000 will be required to keep income and expense records digitally and submit their tax return directly to HMRC using compatible software.
These cloud accounting software solutions are user friendly. They streamline the recording and reporting process and synch with your business bank account – all via an app on your phone or tablet.
Cloud accounting solutions use bank feeds to import live data, this reduces the time needed to undertake manual data entry. They are easy to use on the go and can improve the cashflow of your business. This can, in turn help in making crucial business decisions as there will be a better picture of finances with the real time information.
It is understandable that you may be unsure of these big changes, but businesses must ensure their data is accurate and compliant with the new legislation. There will be a penalty regime introduced by the government for late submissions and late payment of tax.
The deadline for landlords may seem a long way off but it is good to forward plan and may mean you get a better deal from the cloud accounting software provider you choose to use.
We have specialist knowledge and accreditations to support our clients with their Making Tax Digital obligations.
Get in touch with us now if you would like to discuss how to prepare for the digital future.
In this article and video Kerry Williams, Associate Director at our Great Yarmouth office, explains the new super-deduction and how it works alongside the Annual Investment Allowance.
What is super-deduction?
The chancellor announced the new super-deduction allowance in the spring Budget.
Super-deduction works alongside the Annual Investment Allowance and gives 130 per cent deduction against the purchase of new plant and machinery. However, it is only applicable to companies and for the purchase of new equipment.
There is no upper expenditure limit on super-deduction.
Corporation Tax at 19 per cent = tax saving of 19,000 pounds
Super-deduction – 130 per cent deduction = 130,000 pounds
Corporation Tax at 19 per cent = tax saving 24,700 pounds
Also announced was a 50 per cent first-year allowance for assets that would ordinarily qualify for the Special Rate Pool. However, if you have any remaining Annual Investment Allowance to use you should utilise that first to get 100 per cent deduction rather than 50 per cent deduction.
What is Annual Investment Allowance?
Annual Investment Allowance gives 100 per cent deduction against business profits for the purchase of qualifying plant and machinery.
The current expenditure limit is 1 million pounds until 31 December 2021 when it will drop to 200,000 pounds.
Any expenditure in excess of this limit goes into a Main Pool or Special Rate pool for tax purposes and attract Capital Allowances at either 18 per cent or 6 per cent per annum.
Do vehicles qualify for super-deduction?
Commercial vehicles such as lorries and vans do but cars do not. However, electric cars still qualify for the 100 per cent First Year Allowances.
Planning and timing are key to making the most of super-deduction and the Annual Investment Allowance. At Stephenson Smart we can help you get this right, please get in touch.