As the next step in abolishing tax returns and replacing them with individual digital tax records, on 15 August 2016 HMRC published a series of consultation documents.  These set out some of their ideas and timings, but were open for responses by professionals and businesses until 7 November 2016.  The undermentioned points are subject to any amendments which might be made as a result of the consultations.

MTD will be introduced in three stages.  Income tax and national insurance will start in April 2018; VAT in April 2019; and corporation tax in April 2020.  Those individuals with business and/or property income totalling less than £10,000 per annum will be exempt from MTD and those who genuinely cannot use digital tools will not have to do so.  Suggested reasons for this are disability, age or remoteness of location.  Charities will also not be forced into MTD.  Some smaller businesses/landlords may be given an extra year to get their records in order.

Those who are “caught” by MTD will need to introduce digital tools to enable them to report details of their business/property income electronically to HMRC on at least a quarterly basis.  HMRC recognise that this will involve a real cost to some businesses and they are consulting with commercial software providers with a view to them providing free or low-cost software.  HMRC are not proposing to provide their own free software!

Under the current system businesses have a very long time in which to provide their account details to HMRC.  For instance, a business with an accounting year ending on 30 April 2016 would have until 31 January 2018 in which to file a tax return with those details.  Under the new proposals they would have just 14 days in which to report the quarterly details and nine months in which to finalise their annual figures.

Coupled with these much tighter time limits, HMRC are proposing to change the penalties system more in line with driving offences.  One possibility is that a penalty point will be “awarded” for each failure to meet a quarterly or annual filing deadline and a penalty will be imposed once four points have been accumulated.  Further penalties would be incurred for each subsequent failure and the slate would not be wiped clean until a full two years of compliance had been achieved.

As well as penalties for late submission, HMRC are proposing to change the interest charges for late payment.  There are currently no plans to change the tax payment dates of 31 January and 31 July, but the current system of charging interest (currently at 3% per annum) from the due date plus a 5% penalty on tax still unpaid after 31 days, would be replaced by a penalty interest system which would kick in after just 14 days at a suggested rate of 10%.  Taxpayers would, however, have the opportunity to try to negotiate a “time to pay” arrangement within that 14 days without incurring penalty interest.  Taxpayers would also have the option to “Pay as you Go” if they wished to do so.

In an attempt to make reporting simpler HMRC are suggesting that taxpayers should be able to adopt the cash basis of accounting where their turnover is higher than the currently permitted level of £83,000.  They have suggested possible limits from £100,000 to £166,000.  Under the cash basis any qualifying capital expenditure can be claimed as though it were an expense of the business, whilst any capital sales will be treated as income.

Partnerships would be dealt with in a similar way to individual businesses but the information provided to HMRC by the partnership would be automatically transmitted to each individual partner’s Digital Tax Account, thus avoiding the need for the present duplication of reporting.

There is a lot of reliance in the new arrangements for information provided by third parties.  At the moment HMRC receives information from employers, banks, building societies and government departments.  From April 2017 HMRC will be using some of this information on a real-time basis to try to ensure that the right amount of tax is being deducted under PAYE, with bank and building society interest being included from April 2018.  In respect of this additional information taxpayers will, as at present, have the right to opt out of the automatic adjustment and pay the tax separately if they wish.

By 2020 the objective is to have taken almost everyone out of the need to file a tax return.  Access will be looked for to other sources of income such as dividends, peer-to-peer lending and property income.

In order to ensure that third party information is accurate, HMRC will provide the taxpayer with a list of income sources with multiple bank accounts shown separately so that the individual figures can be checked.  It is hoped that any queries will be able to be resolved through the Digital Tax Account or an alternative route, but it may be necessary for the taxpayer to approach the third party direct to resolve some issues.

HMRC have announced their intention to allow taxpayers to authorise an agent to access their Digital Tax Account, but no timeline for this has yet been suggested.

We will be considering our response to the consultation documents and will update our report once the various matters have been resolved.

Did you know that there are a whole host of tax benefits currently available for UK entrepreneurs? If you’re just starting out on a new business venture it’s highly advisable to research tax tips for UK entrepreneurs to not only ensure you are following best practice when it comes to your financial accounts, but you are also making the most of any tax benefits available.

7 tax tips for UK Entrepreneurs in 2016

1. Working from home?

If you are a UK entrepreneur the chances are that you will be running your business from home.  Did you know that you can claim tax relief on a proportion of your home expenses such as heating, lighting, council tax, home insurance and mortgage interest?  You need to be realistic about the claim and you should also make sure you don’t use any room exclusively for business, as this could cause capital gains tax problems if you sell the property.  You start by apportioning the expenses over the number of rooms in the property to get the amount relating to the room you use mainly as an office.  Then you need to look at the amount of time you spend using the room for business purposes as against private use and scale down the amount accordingly.  You can also claim for business use of telephone and broadband.

2. Company transport? It pays to pick up

Many people find twin cab pick-up trucks almost as desirable as SUVs.  If you are one of those people it would be worth getting your company to buy one of these for your company vehicle.  Provided the vehicle payload is more than 1,000 kg. it is treated as a van for tax purposes and you get the use of it at a much lower tax cost than a “normal” SUV.  You can also write off the full cost of the vehicle against company tax, whereas you would only be able to write off 8% of the cost of a car each year.  On a £20,000 vehicle this means the company benefits from a tax saving of about £3,500 and the director saves about £1,500 (assuming personal tax at 40%).  If the company pays for all fuel for both private and business use, the further tax saving can be up to an astonishing £8,500.

3. Kids on wheels

If you have a teenager who has just learned to drive, you will know that car insurance can be very expensive.  Why not get the company to buy a very low emission car (75 g/km or less) and let them use it.  The company will be able to write off the full cost of the car against tax as well as all the running costs except fuel.  You will have to pick up the tax cost of the car benefit but, even if you pay tax at 40%, on a car costing (say) £12,000 this would only cost you about £500 a year.

4. 5^th April … put it in your diary

From the 5^th April, the government is making big changes to the dividend route for businesses. As a UK entrepreneur, if you’re already in business it’s recommended to bring forward your dividend payment to save on tax and take less in the next financial year. If you decide to bring forward your dividend payment before the new financial year just double check that this doesn’t take you into the income tax bracket of over £100,000 as this could impact the level of tax taken against your income.  This is not a ‘one size fits all’ so you need to take advice on this.

5. Saving for your family

As a UK entrepreneur success can also come down to how financially savvy you are with your money outside of your business investment too. Bedding down for the long term with a plan for financial security will give you that reassurance that your family life is taken care of whilst you are building your business. Have teenagers? Set them up with a First Time Buyer ISA to help them prepare to get onto the property ladder. With a Help to Buy ISA the government will top up any savings you add to this account by 25% (tax-free) up to a maximum of £3,000.

6. Saving for the future

As a UK Entrepreneur it’s also worth noting that as soon as you start to employ people within your company you will be legally obliged to provide employee contribution pensions otherwise referred to as ‘auto-enrolment’ by 2018. Failure to do so could lead to fines of up to £2,500 daily depending on how many members of staff you employ.

A business owner can put up to £40,000 per year into a pension tax free via an employer based pension. If you decide to take the alternative route and save personally the government would charge National Insurance and Employer National Insurance. A business receives tax relief on pension payments and also avoids National Insurance – so consider contributing via the business rather than personally if you can.

7. Digital Tax Returns

On a final note, it’s worth having on your radar government plans to introduce digital tax accounts.  The move will allow UK Entrepreneurs who have started to generate revenue from their business to manage their tax returns in real-time and submit accounts throughout the year rather than in one go. In addition, by 2020 your business should be able to link in your accounting software and bank accounts directly to your digital tax account. The benefit? If your account information is submitted regularly your tax bills will be more closely related to your overall performance.

If you’re a UK entrepreneur and are looking for financial advice from approachable specialists please get in touch, the HB Accountants team would love to see how we can help build your future business.

As responsible professionals, we always advise seeking professional advice on your unique circumstances before proceeding with any of the points raised in this article.

From experience, expert tax advice for UK small business owners is always welcomed when delivered but more often than not, it is infrequently asked for. As a small business owner it’s more than understandable that other priorities can sometimes take precedence over company accounts. After all, there is always so much to do such as building brand awareness, gaining new customers and growing your customer base.

Small business owners are often time-poor but company accounts, including cash flow management, late payments, bad debts and business tax should all be at the top of your list of priorities. What’s a business if your finances are not in order and working hard for you?

Helpful expert tax advice for UK small business owners in 2016 …

• 5th April … put it in your diary

From the 5th April, the government is making big changes to the dividend route for businesses. As a UK small business, and assuming you are making a profit, we would recommend you consider bringing forward your dividend payment to save on tax. Naturally, this will mean that your expected dividend will be less in the next financial year but the tax saving could well be worth it.  This is not a ‘one size fits all’ so you need to take advice on this.

• Assess your personal situation

If you do decide to bring forward your dividend payment just double check that this doesn’t take you into the income tax bracket of over £100,000 as this could impact the level of tax taken against your income and may not be advantageous in your circumstances.

• Saving for the future

As a UK small business owner, you will soon be legally obliged to provide employee contribution pensions otherwise referred to as ‘auto-enrolment’. Failure to do so could lead to fines of up to £2,500 daily depending on how many members of staff you employ.

A business owner can put up to £40,000 per year into a pension tax free via an employer based pension. If you were to take the alternative route and save personally, the government would charge National Insurance and Employer National Insurance.  So what’s the best route for your business?  A business receives tax relief on pension payments and also avoids National Insurance – do it via the business rather than personally if you can.

• Digital Tax Returns

The government has announced that from 2016 they will be introducing digital tax accounts.  The move will allow small business owners to manage their tax returns in real-time and submit accounts throughout the year rather than in one go at the end of the year. By 2020, your business should be able to link in your accounting software and bank accounts directly to your digital tax account. The benefit? If your account information is submitted regularly your tax bills will be more closely related to your overall performance – no nasty surprises.

• Be wary of Phoenixing

Companies have used the Phoenix route to avoid obligations such as onerous leases or large tax liabilities by going into liquidation and buying the business back from the liquidator, but without the liabilities.  This has been known as a “pre-pack”.  The other reason for doing this is where a company has built up substantial profits and wishes to extract them tax-efficiently.  In this case the company is liquidated and the money comes out as a capital gain taxed at 10% rather than as income taxed at a much higher rate.  The business starts up again the next day in a new company.  There is existing legislation to stop this but HMRC have apparently been reluctant to use it.  However, from 6 April the monies will be taxed as income rather than as capital gains if a similar business is started up within 2 years.

Are you a small business owner looking for tax advice for the new financial year? Get in touch, the HB Accountants team would be happy to connect with you to see how we can help your financial planning and accounts.

As responsible professionals, we always advise seeking professional advice on your unique circumstances before proceeding with any of the points raised in this article.