Making Tax Digital
HMRC's dream is that every business will use software to record income and expenses by loading the data manually or by scanning receipts and then every quarter submit a summary of that information to HMRC, this is called Making Tax Digital (MTD). They plan to implement it by 2018!
Under MTD every business owner large or small, VAT registered or not, including landlords, will submit quarterly returns or 'updates and if any are late by more than one month then penalty points will be levied.
Below we have outlined some of main points;
Deadlines - No more than nine months after the accounting year end the business will be required to make a final submission. This will confirm the previous submissions and include claims such as capital allowances, if they have not already been included in the previous submissions. So in effect there will be five 'updates' in all.
Agent free - In HMRC's dream agents will only get involved in the preparation of the final accounts. HMRC thinks taxpayers will do the quarterly submissions themselves with agents (maybe) coming in at the end of the line or do the whole lot - bookkeeping and all .
DIY tax assessment - The taxpayer will log onto his own digital tax account where some information will already be loaded. So far this this will be bank interest, P60 figs and CIS income. Later on dividends from PLCs and rental income from properties let via letting agents will be included. The taxpayer will submit the business's total figures.
HMRC's tax computer will instantly calculate the taxpayer's potential tax bill and at the same time remind the taxpayer to put some money aside for payments (which, invariably, they won't).
HMRC believes that in this way the liability won't come as such a shock when the final demand is issued. The intention is to remind ('prompt') the dates of payment at the time of submission of accounts information. In HMRC’s ideal world taxpayer's knowing their tax bill will immediately lead to accurate tax payments and the instances of late or non-payment will be reduced.
There are many issues to be decided upon and we will keep you posted over the coming months
From April 2016 the Dividend Tax Credit will be replaced by a new tax-free Dividend Allowance.
The Dividend Allowance means that you won’t have to pay tax on the first £5,000 of your dividend income, no matter what non-dividend income you have.
The allowance is available to anyone who has dividend income.
Headline rates of dividend tax are also changing.
You’ll pay tax on any dividends you receive over £5,000 at the following rates:
- 7.5% on dividend income within the basic rate band
- 32.5% on dividend income within the higher rate band
- 38.1% on dividend income within the additional rate band
This simpler system will mean that only those with significant dividend income will pay more tax.
If you’re an investor with modest income from shares, you’ll see either a tax cut or no change in the amount of tax you owe.
HMRC proposes to send a Simple Assessment (S-Ass) notice to taxpayers setting out their tax liability without the need for them to submit a self-assessment return. Measurs are included in draft legislation in the 2016 Finance Bill 2016.
S-Ass is intended to be used for taxpayers with simple affairs, when HMRC believe that they have already received all of the information needed to calculate the taxpayer's liability either from the taxpayer themselves or from third parties.
- An individual who receives an S-Ass does not need to notify HMRC of chargeability to tax unless there are chargeable income or gains which are required to be declared under Self Assessment (SA).
- HMRC can withdraw a notice to file a Tax Return if they intend to issue an S-Ass.
- An individual will not be subject to a late filing penalty if they have received a withdrawal notice.
- The S-Ass will set out
- The amounts which are chargeable to income tax and capital gains tax
- The amount payable
- How the amount has been calculated
- How the amount should be paid
- The payment due date, which will be no earlier than it would have been had a self-assessment Return been submitted.
- HMRC can withdraw an S-Ass once it is issued, and issue more than one S-Ass relating to the same tax year.
- An individual who disagrees with an S-Ass should notify HMRC within 30 days of the date of issue.
The measure is intended to be used for the 2015/16 tax year, although notices to file will not be withdrawn, nor will S-Ass be issued, until after the date of Royal Assent.
The government's plans to make all the self employed report to HMRC on a quarterly basis are proving to be deeply unpopular with taxpayers. A petition against the measure has attracted over 102,000 signatures in a matter of weeks.
Once the petition reaches 100,000 signatures it must be debated in the House of Commons.
The announcement of new digital tax reporting for the majority of small business in the UK was made by the chancellor in his Autumn Statement in November 2015. The idea is part of HMRC's plans to go fully digital.
The key issues are cost, both in terms of time in extra adminstration and financially and poor technology.
Whilst larger businesses that are VAT registered are already obliged to file VAT returns quarterly online, this process takes time and many small business will be forced to outsource their quarterly reporting to accountants at a considerable cost.
The Petition: Scrap plans forcing self employed & small business to do 4 tax returns yearly is here: https://petition.parliament.uk/petitions/115895
What now for the Digitally Excluded?
The Low Incomes Tax Reform Group (LITRG) has also called on HMRC to respect the rulings of the courts and make proper provision for those who find it difficult or impossible to use computers.
Anthony Thomas, LITRG Chairman, said:
“We are entirely supportive of HMRC’s efforts to develop ways in which taxpayers can interact with them digitally. Proposals for a digital tax account for individuals and businesses have much to commend them.
“However, every public authority in a democracy must respect the rule of law, and HMRC are no exception. The courts have previously found that digital mandation can infringe the human rights of older or disabled people, or those who cannot access broadband easily because of where they live, if it makes no provision for their needs. Furthermore, the burdens placed on the taxpayer and businesses to provide quarterly accounting data to HMRC is huge, in spite of HMRC’s comments to the contrary. It is simply wrong to ride roughshod over the citizen and we would never support such action.”
In LH Bishop Electrical Co Ltd and Others v HMRC Commissioners  UKFTT 522 (TC), three of the appellants ran their own small businesses. Two of the appellants experienced disabilities which made it excessively difficult or impossible for them to use a computer, and a third lived in a remote area of the country where broadband access was absent or unreliable. All three were of an age which made learning how to use a computer particularly difficult and they would have had to incur the cost of instructing an agent.
The judge held that the regulations which required online filing of VAT returns without providing exemptions for older people, those with disabilities or who lived in parts of the country which were too remote for broadband access, were in breach of the appellants’ human rights and were unlawful under the EU Treaty. In response, HMRC introduced regulations which allowed VAT payers whose human rights would be breached by being forced to use computers and go online to submit telephone or paper returns for VAT, and for PAYE purposes those for whom it was not reasonably practicable to use electronic means of reporting were permitted to submit paper returns.
Anthony Thomas said:
“We strongly urge HMRC to consider the needs of all taxpayers, vulnerable and otherwise, when drafting regulations about making tax digital. They cannot act in isolation without regard for the human rights of taxpayers and other provisions of the general law of the land; when making policy and promulgating regulations HMRC, like all other public authorities, must obey the rule of law.”
The government is proposing to introduce new tax penalties, offences for tax evasion and new powers for data collection. All measures are proposed to apply from 2016/17.
HMRC to extend data gathering powers
HMRC are seeking to extend their existing data collecting powers to keep up with changing technology and payment methods.
New GAAR penalties
New proposals to impose an additional 60% penalty for using arrangements which come within the scope of the General Anti Avoidance Rules (GAAR).
Penalties for serial users of tax avoidance schemes
HMRC proposes to penalise taxpayers who repeatedly enter into defeated tax avoidance schemes, and potentially to deny them access to certain tax reliefs.