All VAT registered businesses must use MTD compliant software from April
Keith Witchell
OK, so this isn’t exactly breaking news, and we’ve been speaking to affected clients about it for months, but from April 2022 all VAT registered businesses must use MTD compliant software.
Businesses with an annual turnover over £85,000 have been required to register for Making Tax Digital (MTD) since April 2019, which involves them using HMRC approved MTD compliant software, such as Xero, Quickbooks, Free Agent and Sage, to submit their VAT returns.
However, until now, smaller VAT registered businesses were able to continue submitting VAT returns through the HMRC website. That all changes next month though, when all VAT registered businesses are required to register for MTD and submit their returns using MTD compliant software.
Regular readers will know that at KRW we’ve been banging the Xero drum for years, and we remain one of the only accountancy practices to offer free support and initial training on Xero. Its fantastic software that saves time compared to using spreadsheets for your books and records, as it links to your bank account and avoids all transactions needing to be keyed in, which also reduces errors. We have over 300 clients on Xero and most comment that they wished they’d started using it sooner!
There are other software options available too, but they all carry a monthly cost, which is why some smaller businesses have stuck to spreadsheets or manual records. Unfortunately, though, that is no longer an option and all VAT registered businesses must submit their VAT returns for VAT quarters commencing on or after 1 April 2022 under MTD. When this kicks in depends on your VAT quarter dates but for many this will be for their quarter ending 30 June 2022, with others being for the quarters ending 31 July 2022, and 31 August 2022 respectively. This means that by 7 October all VAT registered businesses will have to file their VAT returns under MTD.
We’ve been in touch with all clients that we believe will be affected and offered some options to help them through this transition, and our team are always on hand to assist.
Is there any way around MTD for these businesses? Yes, there is! Some businesses have decided to de-register for VAT as the extra compliance burden/cost outweighs the benefit of remaining VAT registered. We are happy to help any clients with de-registering for VAT if that’s what they decide.
MTD for tax is coming though……so at some point in the not too distant future all businesses will need to use MTD compliant software to comply with tax legislation anyway. Current plans will see self employed businesses and landlords with incomes of over £10,000 per annum having to be MTD compliant for income tax reporting as soon as April 2024!
As mentioned above, our team are well placed to assist with these changes, so for further advice on this matter, please contact your Client Manager.
Key Facts
- All VAT registered businesses must register for MTD for VAT from April 2022
- Previously businesses with a turnover under £85k pa didn’t have to be MTD compliant
- All VAT returns commencing on/after 1 April 2022 must be submitted using MTD
- We can assist with transitioning to MTD compliant software, such as Xero
- The only alternative for small businesses is to de-register for VAT, which we can help with
For further advice on this matter, please contact me.
Fuel duty cut by 5p per litre from midnight tonight
Keith Witchell
With fuel prices soaring, Mr Sunak announced a very welcome cut in fuel duty by 5p per litre from midnight tonight. This cut will continue for 12 months.
For further advice on this matter, please contact me.
Employment allowance increased to £5K pa from April 2022
Keith Witchell
Alongside the increase to the NIC threshold for employees, the Chancellor also announced some help for employers facing the 1.25% increase in Employers NIC from next month, by increasing the Employment Allowance from £4,000 per annum to £5,000 annum from April 2022. However, disappointingly, the Employers NIC threshold has not been increased and remains at the previously confirmed level of £9,100 per annum from April 2022.
For further advice on this matter, please contact me.
Relevant life insurance as a tax-free benefit
Keith Witchell
Employer funded relevant life insurance can provide a useful tax-free benefit for company owners, with the company able to save Corporation tax on the premiums.
Taking out life cover to ensure your loved ones are financially secure should the worst happen gives you and your family peace of mind, and represents sound financial planning for business owners.
It has long been possible to take out Keyman insurance which effectively means that your company foots the bill for the premiums, on which it can claim Corporation Tax relief. However, the downside of such policies is that any pay-out in the event of your death would usually be subject to tax.
The alternative was to take out personal life cover, so that any pay-out would go to your loved ones tax-free, but then if your company pays the premiums they would be classed as a taxable benefit and entered on a form P11D, with personal tax and Class 1A National Insurance being triggered.
However, Relevant Life Insurance manages to achieve the best of both worlds, with the company paying the premiums and getting Corporation Tax relief on these as a business expense, but with no taxable benefit for the Directors and employees concerned, and usually with no tax to pay on any pay-out under the scheme. There are even Inheritance Tax advantages available too, plus any pay-out doesn’t count towards the pensions lifetime allowance unlike other life insurances.
Relevant life policies are slightly more restrictive than normal life insurance, for example the maximum age for a relevant life policy cannot exceed 75. But in most cases they represent an attractive tax efficient perk for a company owner which is well worth considering.
Some Relevant Life Insurance providers are also now offering significant illness cover in addition to life cover which will pay-out in the event of you being diagnosed with certain serious illnesses which might lead to your forced retirement. This offers a good alternative to normal critical illness policies which don’t enjoy the same tax benefits.
We work closely with business owners to find the most tax efficient way to structure their earnings from their company, and this falls squarely into that category, along with making pension contributions through their company, or getting an electric company car.
If you would like further advice on this matter then please contact me.
Key Facts
- Relevant life premiums are not a taxable benefit for the director/employee
- Corporation Tax relief is available for the premiums in most cases
- Any payout under a relevant life policy will be tax-free and goes to your loved ones
- Significant illness cover is also being offered with the same tax benefits by some providers
- Relevant life offers significant tax savings compared to Keyman or personal life insurance
For further advice on this matter, please contact me.
Who has to complete a 60-day capital gains tax return on uk property?
Keith Witchell
As we move into Self Assessment silly season this month, we’ve come across a couple of clients that sold properties during 2020/21, but weren’t aware of the new CGT reporting requirement.
The requirement to report Capital Gains on UK residential property to HMRC soon after sale completion started in April 2020, but we are still finding that knowledge of the new reporting regime is limited. It will often be flagged by the conveyancing solicitor handling the sale, but not always, and we are finding that there is a lot of confusion out there.
The reporting requirement can be best explained by considering the following Q&A’s:
Q: I’m already registered for Self Assessment, can’t I just include it on my tax return instead?
A: No. Since April 2020 any sales of UK residential property require you to report your Capital Gain on the property, and pay the CGT owed, within 60 days of completion. You then also have to include the gain on your Self Assessment tax return together with a note of the tax already paid.
Q: I thought it was a 30 day return?
A: It used to be, but it was changed to a 60 day return for residential property sales completing on or after 27 October 2021, to allow a bit more time.
Q: What if the property was my home throughout? Do I still have to do a return?
A: No. Private residence relief should cover any gain you have made so no CGT will be due and no report will be needed.
Q: What if it used to be my home, but then I rented it out? Do I still have to do a return?
A: Yes you probably do. Partial private residence relief will apply, but you may still end up with a Capital Gain that exceeds your £12,300 CGT annual exemption and if that’s the case you need to file a 60 day return.
Q: What if I made a gain on the sale of property that’s below my annual exemption?
A: If you are confident that your Capital Gain is below £12,300, and you are not using that allowance against other gains in the tax year that contracts of sale were exchanged, then you don’t need to file a 60 day return.
Q: I’m not UK resident? Do I have to file a 60 day return?
A: Yes you do. Non-UK residents have been required to pay CGT on UK property disposals since 2015, but they now fall under the main 60 day reporting regime for residential property sales.
Q: I’ve sold a commercial property. Do I have to file a 60 day return?
A: No. The 60 day reporting requirement only applies to residential properties.
Q: I’ve sold a mixed-use property. Do I have to file a 60 day return?
A: Yes. You need to report and pay your CGT on the residential element within 60 days of completion.
Q: I haven’t reported but now realise I should have? Will a penalty be charged?
A: Yes, unfortunately it will. The late filing penalty is £100 if you then file the return within 6 months of the 60 day reporting deadline (or 30 day deadline if completion was prior to 27 October 2021). If you file more than 6 months late an additional penalty of the greater of £300 or 5% of the CGT owed is added to the initial £100 penalty. If you report more than 12 months late a further penalty of the greater of £300 or 5% of the CGT owed is added to the first two penalties.
Q: Are there any penalties for paying the tax late?
A: HMRC are not currently issuing penalties for the late payment of CGT, and have confirmed that they will not do so until after 31 January 2022.
Q: Will I be charged interest if I don’t pay the CGT within 60 days of completion?
A: Yes, you will. Late payment interest will be charged.
If you need help calculating your gain, or completing your 60 day CGT on property return, then we would be very happy to help.
Key Facts
- You must report Capital Gains on the sale of UK residential property within 60 days of completion
- Any CGT owed will also be due 60 days after completion
- The reporting and payment deadline for property sales before 27 October 2021 was 30 days
- A 60 day report is needed even if you are already registered for Self Assessment
- Late filing penalties and interest will be charged for late reporting and payment
For further advice on this matter, please contact me.
KRW team update: goodbye Laura & Jessica, hello Lauren, Matt, Chloe & Anish
Keith Witchell
With our normal newsletters making way for COVID related updates over the last couple of years, it’s been a while since we’ve updated you on our awesome team.
Here’s a short summary of the new recruits:
First up we have Lauren Jones who joined us a Client Manager in February 2021. Lauren is ACCA exam qualified and her prior experience includes working for other accountancy practices, as well as a spell working in London as an in-house accountant for a children’s book publisher.
Next up, Matthew Hayes joined us in April 2021 as another Client Manager. Matt is part ACA qualified and is continuing to study towards this qualification. Alongside preparing accounts and tax returns, Matt will also be assisting on some of our audits, having joined us from a mixed audit and accounts role at a larger firm.
Then, towards the end of 2021, we welcomed two new payroll clerks to the team, Chloe and Anish, who have taken over from Dom, allowing him to move across to our Accounts department as a trainee accountant. Chloe and Anish bring lots of prior payroll preparation experience to their roles.
We also gave a fond farewell to Laura Franklin in November, after 6 years at the firm, during which time she worked her way up from Payroll manager to a fully ACCA qualified Client Manager.
Then soon afterwards we said goodbye to Jessica Moody in December, after 5.5 years at the firm, during which she worked as a bookkeeper to one of our largest clients, while also training to be an accountant.
Expect to see more additions to the team over the year ahead as the firm continues to grow. As ever, while some faces may change along the way, our core values never will, so you can expect the same great service to continue 😊
Key Facts
- Lauren Jones joined us in February 2021 as an ACCA exam qualified Client Manager
- Matt Hayes joined us in April 2021 as a part ACA qualified Client Manager and auditor
- Later in 2021 Chloe and Anish joined us as payroll clerks, with Dom switching to accounts trainee
- We then said goodbye to Laura Franklin and Jessica Moody just before Christmas
For further advice on this matter, please contact me.
One month extension to self assessment tax return filing deadline
Keith Witchell
HMRC confirmed earlier this month that they will waive late filing penalties for Self Assessment tax returns, providing they are filed by 28 February 2022.
In a press release on 6 January 2022, HM Revenue & Customs confirmed that they are waiving late filing and late payment penalties for Self Assessment taxpayers for one month to give taxpayers extra time to file their tax returns and pay any tax owed.
The usual Self Assessment tax return filing deadline is 31 January 2022, with a penalty of £100 for late submission. This year that late filing penalty will only apply if the return is filed after 28 February 2022.
While the due date for paying tax remains to be 31 January 2022, the usual 5% late payment penalty that applies to any 2020/21 tax unpaid by 28 February 2022 is also moved back a month and will only be applied to any 2020/21 tax still unpaid on 31 March 2022.
However, as the due date for 2020/21 tax is still 31 January 2022, interest will be charged on any tax paid after this date in the usual way. So there is no change to that.
Taxpayers are still encouraged to file and pay by 31 January 2022, and our team are still fully focussed on that deadline, but this news give some welcome grace for any clients who are struggling to compile their tax return information, or to get the funds together to pay their tax.
For further information on this measure, please feel free to contact any of our team.
Key Facts
- The £100 late filing penalty for Self Assessment tax returns won’t apply until 28 February 2022
- This gives an extra month to submit 2021/22 tax returns to HMR
- The usual 5% late payment penalty charged on 28 February is delayed until 31 March 202
- However the due date of tax is still 31 January 2022, with interest charged on late payment
- Taxpayers are still encouraged to file and pay by 31 January 2022 where possible
For further advice on this matter, please contact me.
30 day limit to report & pay CGT on residential property now 60 days
Keith Witchell
Anyone selling a residential property since April 2020 has had to report and pay their Capital Gains Tax to HMRC within 30 days of the sale completing. However, the Budget brought news of a welcome relaxation of these rules, which extends the reporting and payment window from 30 days to 60 days from 27 October 2021 onwards.
For further advice on this matter, please contact me.
Company car tax rates frozen from 2022 to 2025
Keith Witchell
Buried in the Budget documents was some welcome confirmation that company car tax rates and bands will be frozen from 2022 through to 2025. This means that electric cars will have a BIK rate of 2% for each of the 2022/23, 2023/24 and 2024/25 tax years, while the BIK for hybrids and other cars will also remain the same for those 3 tax years. However, the van benefit and fuel benefit charges will continue to increase in line with CPI from April 2022.
For further advice on this matter, please contact me.
Recovery loan scheme extended to June 2022
Keith Witchell
The Budget documents confirm that the Recovery Loan Scheme to help businesses get back on their feet following the pandemic, will be extended until 30 June 2022. However, the government guarantee of those loans will reduce from 80% to 70% in order to encourage the lending market to move towards normality as the economy continues to recover.
For further advice on this matter, please contact me.