never knowingly bettered...5 a word on software much of hmrc’s development for agents is based on...

2

NEVER KNOWINGLY BETTERED

For Quality | For Security | For Service & Reliability

Practice Compliance Outsourcing Final accounts production • Personal tax returns

Corporation tax returns • Cloud Bookkeeping

HMRC-recognised iXBRL tagging services • Payroll

Talk to us about our #seamlessbookkeeping service

University of Warwick Science Park, Sir Williams Lyons Road, CV4 7EZ, UK

T: advancetrack® on +44 (0) 24 7601 6308 E: [email protected]

W: www.advancetrack.com @AdvanceTrack

3

The secure solution that keeps you connected to your clients

Making Tax Digital – what

now?

Rebecca Benneyworth MBE BSc FCA

2020 Webinars

4

This will happen!

Bear in mind that the driver for much of

this is the promised Tax Gap savings

Whether you believe them or not, HMRC

/ HMT / HMG do!

So you should view the exemption long

term as £10,000 or the personal

allowance

Even if we get an interim solution

Modernisation of HMRC computer

systems A very important part of this

A very expensive exercise

BUT offers gains for taxpayers and agents

(ultimately)

5

A word on software

Much of HMRC’s development for agents

is based on API’s

These will pick up data from HMRC’s

back end and display it in your software

But only if your software provider builds

it

◦ Some will not

◦ Some will take a long time

Think about this as you go forward

Overview of consultations

Six consultations in all

A – Bringing business tax into the digital age

B - Simplifying tax for unincorporated

businesses

C – Simplified cash basis for unincorporated

property businesses

D – Voluntary pay as you go

E - Tax administration

F – Transforming the tax system through better

use of information

10

6

What does a digital tax system mean?

For the taxpayer ◦ The end of the tax return

◦ The ability to pay tax based on your business activity during the year

◦ The ability to upload or update your tax account in real time

◦ All of your tax information in one place

For the tax authority ◦ The end of the tax return

◦ Smoother processing of data by removing peaks

◦ Better interaction with taxpayers

◦ Ability to support taxpayers to “get it right first time”

11

The digital tax account

For businesses this means

◦ All of your tax information and interactions are in one place

◦ No separate notifications of change of address or other details

◦ Easy payment, time to pay and other options

◦ Less direct contact with HMRC

◦ The ability to appoint an agent for the services you choose

For HMRC this means

◦ Merging many back end systems to make a seamless front end

◦ The “Customer Golden Record” – all of the information about a business in one place

◦ Therefore the ability to target information and support much more directly

12

7

A – Making business tax digital

The key elements

◦ Businesses REQUIRED to keep digital

records

◦ Businesses to update HMRC quarterly

with summary data

◦ The annual taxable profit calculation

◦ Commencement for income tax from

April 2018 (based on accounting period)

13

Under £10,000 turnover (More?) or gross

rents will be exempt from the

requirement to keep digital records and

update quarterly

The next rank of businesses will have an

extra year to prepare

◦ Don’t know which businesses or how long

14

Small businesses

8

Digital record keeping

Use any internet enabled device – most apps will

be cloud based

Record income and expenditure as near to real

time as possible

◦ The option of free software for the smallest

businesses

Other support from HMRC with transitional

and ongoing costs

◦ What form might this take?

Recent announcement – spreadsheets will

qualify if used with MTD software

◦ Think about your attitude to this 15

Exemptions

Under £10,000 turnover / gross rents (NB added

together) – whether a secondary source of income or not

Charities, CASC’s

Exemption for those who “cannot engage digitally”

◦ Currently defined for VAT – 2 categories

◦ A person who is a practising member of a religious society or

order whose beliefs are incompatible with the use of electronic

communications

◦ Persons for whom online filing is not reasonably practicable for

reasons of disability, age, remoteness of location or any other

reason.

16

9

Quarterly Updating

This is not (and never has been) four returns a year

Rests entirely on digital record keeping

◦ This should be almost automatic once the transactions have been captured

◦ One month to submit, no more than 3 months after the last

◦ More frequent updates possible

Summary level data only – but more detail in transactions

Option to capture accruals, stock, tax adjustments if desired

17

Review or check before submitting?

◦ Or pick this up when finalising profits for the

year?

Will produce a tax calculation and

business can pay early if they want to

Three line account for businesses below

VAT threshold

No penalties for inaccuracy

18

Quarterly Updating

10

Finalising the year

Proposed that this is a stand alone process but

for some could be done with Q4 update

10 months after the end of the accounting

period

◦ Extended as a result of consultation responses

Accounting simplification (see later) might make

this easier

◦ Consider the cash basis – but with caveats (see later)

19

Prompts and nudges

Support for the taxpayer as and when he

completes his accounting records

◦ And when the quarterly update is being put together

by the software

Identifying common errors and highlighting

where the data “looks wrong”

Embedded within accounting software apps

Intended to increase accuracy as early as

possible

20

11

Start thinking about affected clients

Certain for turnover in excess of VAT

threshold

And start date will not move

◦ First accounting period starting after 5 April

2018

Shift to 31 March accounting dates?

◦ Delays start by 12 months

◦ Release overlap profits

21

Your next steps

Software for accounting

You will need a minimum of the SA

categories

Similar for landlords – categories from

Land and Property pages

Even if filing three line account

Design standard template?

Flex for individual clients?

Cloud based?

◦ Looks like the way to go

22

12

Photo capture software

Frequently inaccurate

Can use scanner based software

Need “ideal conditions”

◦ Light, level, A4

But there is a place for it

Digitises the content and posts to

accounts

Bank streaming software

“Screen scraper” approach

◦ May have compromised bank security

◦ Banks not keen

Direct feed – Bankstream as was

◦ Others now have this too

◦ Lloyds bank unable to support

◦ Most banks charge a monthly fee

◦ Santander does not

13

What is your role?

Increase bookkeeping support

Staffing?

Pricing?

The Australian example!

No more clients turning up in January

with their accounting records!

The overlap!!

April 2018

April 2019

April 2020

SA returns 2017-18

Prepare clients for change

Quarterly filing for early starts Quarterly filing for all

VAT returns filed in MTD

First year end updates

SA returns 2018-19

Companies join MTD

14

B - Simplification

4 Elements of the proposals

◦ Increase turnover threshold for the cash basis

◦ Reforming basis periods

◦ Simpler reporting outside the cash basis

◦ Reforming the capital / revenue divide within the cash

basis

Some merit in these proposals

27

Responses

Cash basis limit increased to £150,000

Exit limit £300,000

Changes from April 2017

Do you want to move clients to cash

basis?

28

15

The cash basis – issues to consider

Much simpler and a more natural fit with MTD

BUT

◦ Ability to tailor capital allowance claims to retain benefit

of personal allowance is lost

◦ Interest and related costs capped at £500

◦ No loss relief other than carry forward

Delay in paying tax for many businesses – but this

is temporary

◦ Will it reverse when the business is paying higher rates

of tax?

◦ Incorporation / cessation / exceed upper threshold?

29

Basis periods reform

Policy aim – to eliminate overlap periods and allow

much more flexibility

Suggestion provided but open to any other ideas

◦ Choose any accounting periods you desire, with a

maximum length of 12 months (and consecutive – no gaps!)

◦ Tax for a year is based on the accounting periods ending in

that year

◦ But business can end accounting periods on any date they

choose – there is no fixed “year end”

More thought to be given

Proposal did not cover partnerships

Await further consultation

30

16

Simpler reporting outside cash basis

Reducing the GAAP adjustments required – to

make reporting easier but outwith the cash basis

◦ No closing stock adjustment – care needed as this may

distort profits

◦ Contracts with length up to one year – no need to

recognise until billed

◦ No bad debt provisions (just write off the debt when

irrecoverable)

◦ No adjustment for accruals / prepayments if they relate

to a maximum of one year

More thought and further consultation

31

The capital / revenue divide in the

cash basis

General disallowance of capital expenditure to be replaced

by a more specific disallowance of expenditure on the

provision, improvement or disposal of:

◦ Real property (including fixtures within) (new fixtures would be

allowed)

◦ Intangibles unless there is a definite fixed life of 20 years or less

◦ Another business including goodwill

◦ Financial instruments

◦ Any other asset which does not have an effective limited life or

cannot reasonably be expected to reduce in value over the time

it is used

Welcomed by responses – this will go ahead

More clarity

32

17

C – cash basis for property businesses

Gross rents limit to be set at cash accounting limit for traders

◦ Default is cash basis

◦ Opt for accruals basis

No restriction on interest costs other than announced previously – compare to the cash basis for traders

Tenant deposits not regarded as income until end of the lease

Cash basis is when rent is paid to agent

◦ Not when agent passes rent over

33

D – Voluntary pay as you go

Offered as an option

No current plans to change payment dates

Some businesses have requested this

Voluntary payments at a time chosen by the

taxpayer

◦ In line with quarterly updates?

◦ Regularly by direct debit?

◦ Variable as and when?

Design principle – simple, flexible, voluntary

HMRC providing good clear information on

likely liabilities

34

18

Voluntary payment Suggested screen layout

Period 1 Estimated tax and NIC due for the year 31.3.xz £1,200 Make Vol Payment

20xx/xy Second Payment on account becoming due 31 July £1,500 Make Payment

This amount must be paid by the due date, or an application made to reduce payments on account. This liability relates to your profits for the year ended 31 March 19xy.

20xy/xz tax year

19

Estimated tax and NIC due for the year £2,200 Make Vol Payment

Period 2

Payment made so far (Credits) £1,200

20xy/xz tax year

Estimated tax and NIC due for the year £3,200 Make Vol Payment


Period 3

20xx/xy Final payment becoming due on 31 January £ 250 Make Payment Apply credits

20xy/xz First payment on account becoming due on 31 January £1,625

The Payments on account made in January 20xy £1,500 and July 20xy £1,500 have been set against the total amount due of £3,250. If you prefer, you can allocate some of your voluntary payments against the amount due. Choose “Apply credits”.

The voluntary payments you have already made cover this amount. There is no need to pay anything further to cover this liability.

20xy/xz tax year

20


Period 4 Estimated tax and NIC due for the year £3,950 Make Vol Payment

The payments you have made so far this year (shown as credits) have been reduced to cover the final payment for the 20xx/xy year of £250.

20xy/xz tax year

Estimated tax and NIC liability for the year - awaiting year end declaration £3,950

Make Vol Payment

20xy/xz Second Payment on account becoming due 31 July £1,625

20xy/xz tax year


There is no need for you to make a payment on account in July, as your voluntary payments cover the liability due.

20xz/ya tax year

Period 1 Estimated tax and NIC liability for the year ended 31.3.ya £1,000

21

Make Vol Payment

20xy/xz tax year

20xz/ya tax year

Period 2 Estimated tax and NIC liability for the year £1,900


Estimated tax and NIC liability for the year - awaiting year end declaration £3,950 Payment made so far (Credits) £3,950

Make Vol Payment

20xy/xz tax year


20xz/ya tax year



Year end update. Final liability for the year £4,060

Final payment for the 20xy/xz tax year due 31 January £ 110 Make Payment

20xz/ya First payment on account becoming due on 31 January £2,030 Your current submissions indicate that the profit for 20xz/ya will be lower than for 20xy/xz. Click “Reduce” to set payments on account to the amounts shown by your quarterly submissions. Alternatively, to cover both this and the final amount show above you need to pay £ 240

Apply credits

Make Payment

Reduce

If you prefer not to pay this amount, you can use the voluntary payments you have already made. Choose “Apply credits”.

22


Period 4 Estimated tax and NIC due for the year £3,420 Make Vol Payment

The payments you have made so far this year (shown as credits) have been reduced to cover the final payment for the 20xy/za year of £110.

20xz/ya tax year

Make Vol Payment

20xz/ya tax year


There is no need for you to make a payment on account in July, as your voluntary payments cover the liability due.

20ya/yb tax year

Period 1 Estimated tax and NIC liability for the year ended 31.3.ya £1,400

Estimated tax and NIC liability for the year - awaiting year end declaration £3,420

23

Make Vol Payment

20xz/ya tax year

20ya/yb tax year



Estimated tax and NIC liability for the year - awaiting year end declaration £3,420 Payment made so far (Credits) £3,420

Make Vol Payment

20xz/ya tax year


20ya/yb tax year



Year end update. Final liability for the year £3,180

You have overpaid. Would you like this amount repaid or £ 240 it can be carried forward against next year?

Make Repayment

20ya/yb First payment on account becoming due on 31 January £1,590

Your payments so far are sufficient to cover this amount, so you have nothing to pay.

Carry forward

24

E – Tax administration

No new compliance powers to look at quarterly

updating

◦ Tailor existing compliance powers to mesh with the

new regime but not regular updates

◦ Retain all existing taxpayer safeguards

Late submission penalty – move to a points

based system

◦ No immediate penalty

◦ Penalty imposed once a certain level of points accrued

◦ Some recognition of compliance history

Most of this will go ahead

◦ Some design aspects to solve 47

More on penalties

Inaccuracy penalty as now

◦ Triggered after “End of year declaration”, not on quarterly

updates

Determinations etc. unchanged except for wording to

meet the new system

Late payment penalty converted to penalty interest

◦ Applies when the debt is unpaid after 14 days and customer has

not negotiated time to pay or stuck to an agreement

◦ Might escalate at each penalty point

◦ In addition to late payment interest under current rules

48

25

F – Better use of information

Better and more effective use of third party information to

keep the tax collected closer to the correct liability

Taxpayers update their digital tax account regularly –

nearer to real time

From April 2017 digital tax accounts will include

information from employers and pension providers – easier

to allocate allowances across multiple PAYE sources

From April 2018 include savings income (only relevant

where > Personal Savings Allowance) and adjust code

◦ But can choose to opt out of coding adjustment

49

Third party information

Dispute the existence of the income – notify HMRC

◦ Ideally through digital account

◦ Source will not be included in tax calculation until resolved

Dispute the amount of the income shown on the

account

◦ Contact third party and ask them to correct it

Joint accounts – should deposit taker inform HMRC?

After 2018 more sources of third party information

may be sought

◦ Dividends a likely contender – cost to business?

50

never knowingly bettered...5 a word on software much of hmrc’s development for agents is based on...

Documents