Do we really think MTD is off the table?

I wrote the following article for Informanagement recently. A discussion of the likelihood that MTD is permanently shelved.

National events

It’s not often that national events impact the work of a tax advisor, with the exception, of course, of the annual changes imposed by the Finance Bill.

But now, we do have an additional event to factor into the advice we give clients – the surprise election in June and the consequent cull of a good part of the Finance Bill 2017.

In parliamentary parlance, a large section of the Finance Bill has been “washed up”, the idea, to shorten the Bill so it can be passed before the June election.

Unfortunately, one of the more significant sections of the Bill, dealing with MTD, has been deferred. Or has it been cancelled, or as Rebecca Cave’s article on the Accounting Web is titled “MTD law is shelved in wash-up”.

What do we say to clients? Glory be, HMRC have abandoned MTD, or nothing has changed, the legislation will be reintroduced after the election. Obviously clients, and many practitioners, will be hopeful that shelved means scrapped. But the evidence seems to point to a straight forward timing issue. If, as is likely, Mrs May returns to Downing Street after the election, will we see a Finance Bill (No2) 2017, restating the “wash-up” clauses and schedules, and any other items that Philip Hammond wants to throw into the mix?

HMRC are presently trialling MTD with a number of tax payers and their advisors, the code is written, the systems deployed. The aim, presumably, to fine tune the processes before the expected launch for over-VAT-limit unincorporated business from April 2018.

Again, what do we say to clients? Accountants tend to be a conservative bunch, so our guess is a steady as you go approach. We should definitely not be driven by media platitudes, “shelved”, “withdrawn” etc. Nothing is certain apart from death and taxes, but taxes are determined by legislation and until we see MTD firmly planted in a Finance Act there will always be uncertainty. For now, surely clients should proceed on the basis that MTD will be implemented as scheduled, as we await the outcome of the election and future tax legislation to clarify matters.

For practitioners that are still looking for a sense of direction on the implications of MTD, my support pack is still available.

Half-price subscription offer

I have created an online repository where you can download a copy of all my support packs and calculators for 2017-18.

It’s called the LANDMARK TAX LIBRARY 2017-18.

TAKE A SUBSCRIPTION NOW AND PAY LESS THAN 50% OF THE OVERALL VALUE – THE ANNUAL SUBSCRIPTION TO THE LIBRARY IS JUST £297 PLUS VAT

A list of the current contents are displayed below.

 

  1. TAX PLANNING ROAD MAP 2017-18This is our comprehensive tax planning bundle for 2017-18. Multiple planning issues that will need your client’s and staff’s consideration before 6 April 2018. Each section of the planning material is split into a short introduction and a detailed planning check list – all written in an easy to read style. We have also extracted all the planning check lists and created a “Tax planning check lists 2017-18” that can be used as reference material by staff. This booklet contains over 70 planning points (3,500 words).
  2. TAX CALCULATOR BUNDLE 2017-18We have created eleven tax and business development calculators for 2017-18. They include a mix of business tax, business development, personal tax and property tax issues and can be used to estimate liabilities and illustrate the benefits or otherwise of options available. The bundle is consolidated into an Excel file.
  3. MAKING TAX DIGITAL – be preparedWe now know that MTD will be happening from April 2018. The implementation timetable has been relaxed, all-be-it slightly, but we need to ready ourselves for the transformation from self assessment. This support pack will take you through the consultations, responses and legislation to identify what needs to be done before 6 April 2018, and outlines the opportunities to re-imagine and provide relevant support services for clients from this date.
  4. BUSINESS STATUS PLANNING 2017-18This support pack provides backup material to advise clients with business status choices: for example, sole trader vs limited company alternatives. If you are looking for material to present to clients, or inform your partners and staff regarding these issues, this bundle of documents should provide what you need. BONUS ITEM a spreadsheet calculator to workout the best-fit status for your clients.
  5. COMPANY PROFIT EXTRACTION STRATEGIES 2017-18The mechanics of the calculations are well known, basically, even with the reduction of the dividend allowance next year, a low-salary high dividend approach usually minimises tax and NIC costs for director shareholders. What is not so easy is demonstrating these benefits in an easy to absorb format for clients. Our support pack on this issuse provides a client facing booklet and the use of our 2017-18 “salary vs dividend” calculator.
  6. 20 QUESTIONS BOOKLET 2017-18Solving clients’ problems by providing appropriate services is a win-win outcome: it’s how we build our practices and help our clients prosper. Take a closer look at the opportunities this publication offers. The 20 questions were sourced from ideas provided by over 80 firms.
  7. WHAT HMRC WON’T TELL YOU ABOUT YOUR TAXThis short booklet will remind clients why they should seek professional advice. It highlights the age old conundrum that it’s what you don’t know that you don’t know that has a radical adverse affect on your situation. HMRC will inform taxpayers, but only if asked!
  8. SPRING BUDGET 2017 – CLIENT BOOKLETThis booklet does not list the various budget changes by rote, rather, we have attempted to focus on those issues that highlight opportunities or challenges for small businesses, property rental businesses and higher rate tax payers.
  9. CLIENT INFORMATION BOOKLETS 2017-18We have bundled all the client booklets for 2017-18 and made them available in this offering.

You can purchase these items individually from the landmark website, or you can access them all for £297 plus VAT, a 50% discount. Any new items added during the tax year will be included.

Finance Bill wash-up

The CIOT have produced an excellent listing of what’s in and what has been dropped in order to process the Finance Bill 2017 before parliament dissolves for the summer election. The table of changes is reproduced below. Although the clauses enacting MTD are in the “dropped list”, I see this as a temporary blip on the MTD horizon; no doubt these excluded items will be reintroduced as a No2 Bill after the election.

CIOT’s full article can be seen here https://www.tax.org.uk/media-centre/blog/media-and-politics/government-drop-majority-finance-bill

The full list of what is in and what is out of the Bill follows –

PART 1  
DIRECT TAXES  
CHAPTER 1  
CHARGE AND PRINCIPAL RATES  
Income tax charge and rates  
1 Income tax charge for tax year 2017-18 IN
2 Main rates of income tax for tax year 2017-18 IN
3 Default and savings rates of income tax for tax year 2017-18 IN
4 Starting rate limit for savings for tax year 2017-18 IN
5 Dividend nil rate for tax year 2018-19 etc OUT
6 Corporation tax charge for financial year 2018 IN
CHAPTER 2  
INCOME TAX  
Employment income  
7 Workers’ services provided to public sector through intermediaries  (+ schedule 1) IN
8 Optional remuneration arrangements (+ schedule 2) IN
9 Taxable benefits: time limit for making good OUT
10 Taxable benefits: ultra-low emission vehicles OUT
11 Taxable benefits: asset made available without transfer IN
12 Pensions advice OUT
13 Legal expenses etc OUT
14 Termination payments etc: amounts chargeable on employment income OUT
15 PAYE settlement agreements OUT
Pensions  
16 Money purchase annual allowance OUT
17 Overseas pensions (+ schedule 3) IN
18 Pensions: offshore transfers (+ schedule 4) IN
Trading and property businesses income  
19 Calculation of profits of trades and property businesses (+ schedule 5) OUT
20 Trading and property allowances (+ schedule 6) OUT
Investment income  
21 Deduction of income tax at source (+ schedule 7) IN
22 Life insurance policies: recalculating gains on part surrenders etc OUT
23 Personal portfolio bonds OUT
Reliefs relating to investments  
24 EIS and SEIS: the no pre-arranged exits requirement OUT
25 VCTs: follow-on funding OUT
26 VCTs: exchange of non-qualifying shares and securities OUT
27 Social investment tax relief  (+ schedule 8) OUT
28 Business investment relief OUT
CHAPTER 3  
CORPORATION TAX  
Corporation tax reliefs  
29 Carried-forward losses  (+ schedule 9) OUT
30 Losses: counteraction of avoidance arrangements OUT
31 Corporate interest restriction  (+ schedule 10) OUT
32 Museum and gallery exhibitions  (+ schedule 11) OUT
33 Grassroots sport OUT
34 Profits from the exploitation of patents: cost-sharing arrangements OUT
Hybrids and other mismatches  
35 Permitted taxable periods of payees and deductions for amortisation OUT
Northern Ireland  
36 Trading profits taxable at the Northern Ireland rate (+ schedule 12) OUT
CHAPTER 4  
CHARGEABLE GAINS  
37 Exemption from attribution of carried interest gains OUT
38 Elections in relation to assets appropriated to trading stock OUT
39 Substantial shareholding exemption OUT
40 Substantial shareholding exemption: institutional investors OUT
CHAPTER 5  
PROVISIONS RELATING TO MORE THAN ONE TAX  
Domicile, overseas property etc  
41 Deemed domicile: income tax and capital gains tax (+ schedule 13) OUT
42 Deemed domicile: inheritance tax OUT
43 Settlements and transfer of assets abroad: value of benefits  (+ schedule 14) OUT
44 Inheritance tax on overseas property representing UK residential property (+ schedule 15) OUT
Employee shareholder shares  
Clauses 45-47 IN
Disguised remuneration  
48 Employment income provided through third parties (+ schedules 16 & 17) IN
49 Trading income provided through third parties  (+ schedule 18) OUT
50 Disguised remuneration schemes: restriction of income tax relief OUT
51 Disguised remuneration schemes: restriction of corporation tax relief OUT
Capital allowances  
52 First-year allowance for expenditure on electric vehicle charging points OUT
Transactions in UK land  
53 Disposals concerned with land in United Kingdom OUT
Co-ownership authorised contractual schemes  
Clauses 54-56 OUT
PART 2  
INDIRECT TAXES  
VAT  
57 VAT: zero-rating of adapted motor vehicles etc (+ schedule 19) IN
Insurance premium tax  
58 IPT: standard rate IN
59 IPT: anti-forestalling provision IN
Landfill tax  
60 Landfill tax: taxable disposals OUT
Air passenger duty  
61 Air passenger duty: rates of duty from 1 April 2017 IN
62 Air passenger duty: rates of duty from 1 April 2018 OUT
Petroleum revenue tax  
63 Petroleum revenue tax: elections for oil fields to become non-taxable OUT
Vehicle excise duty  
64 VED: rates for light passenger vehicles, light goods vehicles, motorcycles etc IN
Alcohol duties  
65 Alcoholic liquor duties: rates IN
Gaming duties  
66 Gaming duty: rates OUT
67 Remote gaming duty: freeplay OUT
Tobacco products  
68 Tobacco products duty: rates IN
69 Tobacco products duty: minimum excise duty IN
70 Tobacco products manufacturing machinery: licensing scheme OUT
PART 3  
SOFT DRINKS INDUSTRY LEVY  
71-107 (+ schedules 20-23) IN
PART 4  
FULFILMENT BUSINESSES   
108-119 (+ schedule 24) OUT
PART 5  
ADMINISTRATION, AVOIDANCE AND ENFORCEMENT  
Reporting and record-keeping  
120 Digital reporting and record-keeping for income tax etc  (+ schedule 25) OUT
121 Digital reporting and record-keeping for income tax etc: further amendments OUT
122 Digital reporting and record-keeping for VAT OUT
Enquiries  
123 Partial closure notices (+ schedule 26) OUT
Avoidance etc  
124 Errors in taxpayers’ documents OUT
125 Penalties for enablers of defeated tax avoidance (+ schedule 27) OUT
126 Disclosure of tax avoidance schemes: VAT and other indirect taxes (+ schedule 28) OUT
127 Promoters of tax avoidance schemes: threshold conditions etc IN
128 Requirement to correct certain offshore tax non-compliance (+ schedule 29) OUT
129 Penalty for transactions connected with VAT fraud etc OUT
Customs enforcement powers  
130 Power to enter premises and inspect goods OUT
131 Power to search vehicles or vessels OUT
Information  
132 Data-gathering from money service businesses OUT
PART 6  
FINAL  
133 Northern Ireland welfare payments: updating statutory reference OUT
134 Interpretation IN
135 Short title IN

 

Also worth noting is that the Government has tabled some amendments. Leaving aside a few related to clauses being deleted from the Bill, these cover –
Schedule 2 (Optional remuneration amendments) – amendments 11-12
Schedule 3 (Overseas pensions) – amendments 13-29
Schedule 4 (Pensions: offshore transfers) – amendments 30-56
Schedule 16 (Employment income provided through third parties) – amendment 57

What is Blockchain?

If you ever wondered what Blockchain is, read this article reproduced from a UK Business Insider article posted October 2016

It’s a technology conceived by the mysterious creator of bitcoin — the digital currency championed by a motley crew of privacy-obsessed libertarians, social activists, and some criminals.

Bank of AmericaAP Photo

Now the idea of blockchain has gripped Wall Street’s biggest institutions.

Its enthusiasts think it could change the world. Sure, it would make contracts more enforceable and speed up the settlement of stock trades — hence the interest from big banks. But some see it going much further, cracking down on sex trafficking, music piracy, and child labor.

And the key to all that — what attracts these different factions — is something that, on the surface at least, sounds rather banal: a digital ledger, like the one in your checkbook.

“Blockchain is a truly extraordinary technology that does really mundane things,” said Paul Brody, Ernst & Young’s global blockchain leader.

But for all the promise, these big questions remain: Who will foot the bill, and is it really as secure as supporters say?

What is blockchain?

In the non-blockchain world, we keep separate records of transactions. If you write your friend a check, you balance your own checkbook and your friend does the same when they deposit it. But things can go wrong. They might forget to update their checkbook ledger. And each bank has no way to know immediately if the person has enough in their bank account to cover it.

checkbook, checks, writing a check Flickr / oblivion9999

With a blockchain, instead of two separate checkbooks with two records of debits and credits, you’d both look at the same ledger of transactions. It’s private (encrypted, in computer-speak), and decentralized, so neither of you controls the ledger.

This “distributed ledger” operates on consensus. Both of you can look at the ledger. Each transaction gets put into a block. If you both say that block is valid and correct, it’s added to a chain. And that chain is protected by sophisticated cryptography: No one can change the chain after the fact.

Now imagine this in a more complex form. This is what gets people in finance and technology excited.

Say you want to buy a stock. Right now, your bank, brokerage, the stock exchange, and the company you’re buying all have separate, private records of transactions. They can’t see each other’s ledgers. Nor can they verify that everything is accurate among all involved.

With blockchain, they can all be on the same page — literally.

Your bank can verify that you have enough money to transfer to your brokerage. That transfer is added to the ledger of transactions that everyone involved can see. Then your broker executes a trade for 100 shares. That gets added to the blockchain, too. Everyone involved verifies it’s legitimate.

The exchange receives the order — also added and verified. And then the company’s shares end up in your account. You could see the record of all the shares you buy and sell in the permanent record. If you decide to sell the shares later, that transaction gets added to the blockchain.

And because it’s a consensus model in which every party confirms a transaction, “it gets more secure the more people you add” to the blockchain, Brody said. “When a transaction is completed, everyone has to get a copy of the transaction.”

That’s blockchain in its purest form. In reality, however, different companies are experimenting with different forms. A blockchain used in financial services could be private, or a hybrid model between the decentralized vision and a more traditional centralized model that bankers are used to. A regulator, for instance, could hold the key to a blockchain, and some companies are thinking about how to maintain a middleman.

Mysterious beginnings

No one knows who invented blockchain. The idea for it came from a paper published online eight years ago that unveiled bitcoin, the digital currency. The author, Satoshi Nakamoto, is thought to be using a pseudonym. The true identity remains a mystery, and there’s debate over whether it was created by an individual or group.

At first, bitcoin got all the attention. The idea of a secure, private currency, divorced from a specific government, captured the imaginations of technologists, libertarians, and people concerned about the power of big banks and government regulation. Bitcoin transactions occur peer-to-peer, meaning no government or third party is involved.

Goldman Sachs recruiting videoGoldman Sachs YouTube/Goldman Sachs

Today, bitcoin and blockchain still attract privacy-minded and antigovernment types. But it also increasingly appeals to people like Grainne McNamara. She spent years building out technology at banks like Morgan Stanley and Goldman Sachs. Now she’s a leader of PricewaterhouseCooper’s blockchain for financial services. And that means she spends a lot of time attending and hosting blockchain conferences.

At one, a speaker showed a picture of a shed in his presentation. McNamara remembers him jokingly saying, “Take the bankers behind the shed and kill them.” He didn’t know his audience.

McNamara was sitting next to former bankers, who found the whole thing humorous, she said.

Despite the shed metaphor, “it’s a peaceful cohabitation,” McNamara told Business Insider. “People genuinely appreciate the disruptive element to spawn innovation.”

A contract with a brain

One area blockchain proponents get excited about is the idea of a “smart contract.” While most bank agreements are still paper documents — banks are awash in paper, even in 2016 — a smart contract is a computer program that helps keeps everyone accountable.

video gamesPeople play a video game on the stand of Acer at the IFA Electronics show in Berlin, Germany, Sept. 2, 2015. Reuters/Axel Schmidt

Let’s say you’re a company that designs and sells video game consoles. You work with suppliers and shipping companies, and have a number of serious concerns. You want to make sure they’re manufactured well and on time. You want to make sure there are no labor violations, such as children working on the assembly line. And you want to make sure everyone gets paid on time.

In the old way of doing things, numerous contracts might be involved to manufacture one video game console. And each side may have its own paper copies.

Smart contracts provide automated accountability.

 

 

 

bi graphics a smart contractSamantha Lee / Business Insider

Because this is blockchain, everyone involved looks at the same contract; no one can change it without the permission of most others.

Here’s an example: When a truck picks up finished video game consoles from a factory in, say, China, the shipping company scans each box. Those are added to the blockchain, triggering a release of funds from the video game company’s bank account. No one has to invoice and chase a payment.

“You can marry up the delivery and payment of services,” Brody said.

It can go beyond getting paid, too. Each worker on the assembly line could scan their identification card, which is then verified by multiple sources such as government agencies and third-party auditors, ensuring the workers are not underage or overworked. And because it’s a blockchain, no one can alter the record later.

Some have discussed blockchain as a possible tool to help prevent sex trafficking and other scourges. And there are other uses for it that may become big parts of our lives.

Healthcare

bi graphics possible uses for blockchainSamantha Lee / Business Insider

Smart contracts in healthcare could do things such as trigger an insurance payment to a doctor when a patient undergoes a CT scan.

A blockchain could also be a secure place to store electronic medical records.

It would detail all patient-doctor communication, illness and treatment information, vaccination records, medical bills etc. Every subsequent doctor visit or treatment would be added to the blockchain, including those in different cities and countries, creating a complete, historical record of the patient’s health.

In this case, the blockchain is private, and only certain participants would have the encryption keys to see the record.

Music and media

Musicians may wish there had been blockchain when Napster undermined music sales around the turn of the century through file-sharing.

MusicBlockchain could prevent music piracy Flickr/Kelsey

Now some are thinking blockchain could prevent piracy and help boost sales. Artists could provide their music directly off a ledger, and smart contracts might ensure the right people are paid and only those with rights play the tracks.

A similar model could help fund news outlets and other media organizations.

Property records

Some companies’ whole job is tracking down property records. Blockchain could change that.

If property deeds were on a blockchain, the other participants (known as “network nodes”) that validate the transaction could be real-estate agents, financing banks, and a land registry authority.

Once the transaction is validated, it is added to the blockchain, and the updated state of the blockchain is broadcast to the participants in real time. As the blockchain maintains the history of all transactions, the entire history of the property and its owners is on the blockchain.

Trading and banking

The Australian Securities Exchange — ASX — plans to decide by mid-2017 if it will replace its post-trade clearing and settlement system with a blockchain version. This could be a turning point for blockchain and potentially a catalyst for widespread adoption.

Bank of EnglandBank of England Jim Edwards

Central bankers are also getting in on the action. The Bank of England and the People’s Bank of China are discussing issuing their national currencies — the pound and the renminbi, respectively — on blockchain. If successful, the technology would make the currencies more traceable, allowing the banks to track them through the financial system in real time.

Right now, this use of blockchain is limited to discussion and research papers, but if implemented, other central banks are likely to follow suit. The US Federal Reserve is closely following developments as well, with Fed Gov. Lael Brainard in charge of keeping an eye on the new technology.

It’s also rumored that other items such as diamonds, art, and food could be put on blockchain so the entire history of the items could be traced.

Buzz vs. reality

There are over 120 blockchain projects spanning a variety of industries, and the annual budget for blockchain initiatives in 2016 is estimated to be $1 billion.

In financial services, Goldman Sachs, JPMorgan Chase, and Bank of America are among the big names that have partnered with R3, a startup trying to bring blockchain technology to the finance world.

But if blockchain is going to work, it needs an industrywide standard. For the first bank to adopt this digital system and overhaul existing infrastructure, it could mean a risky and expensive investment, and that bank would have to hope others follow suit. No one wants to be the first to test that theory.

That’s why this is one of the few cutting-edge technologies that is generating a lot of talk but not a lot of action among banks. While they are dabbling in the technology, attending conferences and partnering with R3, no bank is taking the lead and going from proofs of concept to using it in the real world.

“To get the true value, you need the network effect,” said Graham Warner, head of global transaction banking product development in the Americas at Deutsche Bank. The more people and companies use blockchain, the more valuable the technology becomes.

Other challenges

For all its promise, some major impediments could prevent blockchain’s widespread deployment, including regulation, cost, and security issues.

Implementing and standardizing blockchain could cost in the billions of dollars, and it would mean an overhaul of legacy systems that people are used to and understand. Today’s technology works, and replacing it with something unproven is seen as an expensive risk.

Blockchain technology would also potentially mean a huge number of job losses, especially in middle- and back-office functions. Banks would have to get the remaining employees up to speed on the new technology, and using it would initially be a trial-and-error process.

Security and privacy issues

ethereumEthereum

In August, hackers stole $72 million worth of bitcoin from accounts at the Hong Kong cryptocurrency exchange Bitfinex. And in June, hackers stole $55 million worth of ether, a bitcoin rival. The nonprofit that runs ether, Ethereum Foundation, just rolled back the chain. It’s as if the hack never took place, and business returned to normal. But that worries purists.

The Ethereum hack — and the response to it — led Accenture to create an “editable blockchain model,” to “resolve human errors, accommodate legal and regulatory requirements, and address mischief and other issues,” according to a news release.

Blockchain enthusiasts say this threatens the very nature of the blockchain itself. One of the fundamental benefits of blockchain technology is its immutability — the blockchain represents a “golden record” of transactions, a complete, historical record that technically cannot be interfered with or undone.

But there “isn’t one blockchain to rule them all,” Warner said. “It will be an evolutionary, Darwinian process” to figure out which version of the blockchain applies to which use case.

What’s next

When McNamara learned about blockchain, she said she was “a little bit of a skeptic. But I’ve been proven wrong.”

The ecosystem is evolving, she said, and people involved, whether they’re activists or bankers, are getting together and talking about “shared values and pain points.”

ASX Australia Stock Exchange TraderASX AP

While some big players like the ASX may be using some form of blockchain as early as next year, some issues are holding blockchain back.

Different versions of blockchain are in development, and there’s little agreement on what’s the best or purest version to deploy. And dozens of startups are working on their own takes on blockchain. Innovation is happening, but all the competing ideas makes big companies cautious to commit to any one type.

But most proponents think everything will be worked out in due time, and that in the next few years, blockchain and its smart contracts would improve our lives, even if it operates quietly in the background, invisible to most people.

More: Blockchain Bitcoin BIQ Explainer

11 tax and business calculators for 2017-18

I have created eleven, easy to use calculator tools for 2017-18 that I am making available as a composite Excel file. The tools cover planning issues as well as the usual computational needs for practitioners.

The spreadsheet has a menu and works like an app, you can also print off results to show clients. They are designed to be used by staff and partners to illustrate the advantages, or otherwise, of planning choices. In a nut-shell they cover:

 

 

 

PROPERTY TAX:

  • Buy-to-let planning tool
  • Buy-to-let loan interest changes
  • Stamp duty

PERSONAL TAX:

  • Profit extraction, salary vs dividend
  • Income Tax planner
  • CGT planner

BUSINESS TAX & PLANNING:

  • Business break even point
  • Profit improvement
  • Sole trader vs incorporation comparison
  • Business use of home calculator
  • VAT Flat Rate Scheme planner (updated for 2017-18 changes

Download a copy from this page…

Driving test changes from 4 December 2017

Learner driver

Driving instructors will need to accommodate changes to the driving test later this year. The Driver & Vehicles Standard Agency have issued the following press release:

The driving test will change from Monday 4 December 2017 to include following directions from a sat nav and testing different manoeuvres.

What is a benefit in kind?

There is a really useful A to Z list of benefits in kind on HMRC’s web site at https://www.gov.uk/expenses-and-benefits-a-to-z

For example, the first entry is for Accommodation and reads:

1. Overview

As an employer providing accommodation for your employees, you have certain tax, National Insurance and reporting obligations.

What’s included

As well as the costs of the accommodation itself, this includes:

  • Council Tax
  • water and sewerage charges
  • heating, lighting and cleaning
  • repair, maintenance and decoration
  • furniture for daily use
  • staff for upkeep of accommodation, eg gardeners and cleaners

2. What’s exempt

You don’t have to report or pay anything to HM Revenue and Customs (HMRC) on the cost of certain types of accommodation.

If it’s domestic or personal

Accommodation is exempt if both:

  • you’re an employer who’s an individual, eg a sole trader
  • you’re providing it for someone because they’re a close relative – even if they happen to work in your business

It won’t be exempt if either:

  • you’re a company or partnership
  • you’d be providing the same sort of accommodation to an employee who wasn’t a family member

If it’s provided by a local council

Accommodation is exempt if a local council provides it on the same terms that it provides housing to non-employees.

If it’s necessary or usually provided for the job

Accommodation at the place of work is exempt if:

  • your employees can’t do their work properly without it, eg agricultural workers living on farms
  • an employer is usually expected to provide accommodation for people doing that type of work (eg a manager living above a pub, or a vicar looking after a parish)

If you provide the accommodation to company directors, they have to be either full-time or work for a non-profit or charity organisation and hold less than 5% of the shares.

If it’s needed for security

If you need to provide accommodation to protect an employee because the type of work they do means there’s a special threat to their security, this is exempt.

Other charges and costs

If the accommodation you provide is exempt, you don’t have to report Council Tax, water and sewerage charges to HMRC, or pay National Insurance and tax.

3. What to report and pay

If the accommodation you provide isn’t exempt, you must report it to HM Revenue and Customs (HMRC). You may have to deduct and pay tax and National Insurance on the accommodation and any related costs, eg Council Tax or upkeep.

Accommodation

This includes any accommodation you provide, even if the employee doesn’t actually use it (see technical guidance for details).

You must:

Council Tax, water and sewerage charges

If your employee covers the cost and you reimburse them, you must:

  • add the amount you reimburse to their earnings
  • deduct and pay Class 1 National Insurance and PAYE tax through payroll

If you cover the costs directly, you must:

  • report on form P11D
  • deduct and pay Class 1 National Insurance (but not PAYE tax) through payroll

Furniture, heating, lighting, maintenance

This covers:

  • heating, lighting, cleaning
  • repair, maintenance, decoration
  • furniture for daily use
  • staff for upkeep, eg gardeners, cleaners

You don’t need to report furniture, heating, lighting and maintenance costs if the accommodation is for a close relative and it’s not related to their job.

Don’t deduct costs for any structural alterations or repairs that you legally have to make as a landlord.

If your employee covers the cost and you reimburse them, you must:

  • add the amount you reimburse to their earnings
  • deduct and pay Class 1 National Insurance (but not PAYE tax) through payroll

If your employee arranges the supplier contracts but you cover the costs, you must:

  • report on form P11D
  • deduct and pay Class 1 National Insurance (but not PAYE tax) through payroll

If you arrange the supplier contracts and cover the costs directly, you must:

4. Work out the value

To work out the value of living accommodation follow these steps:

  1. Use the greater of the ‘annual value’ (as shown in the table below) or the rent you pay.
  2. If you provide the accommodation only part of the year use that proportion.
  3. Deduct any rent you get from your employee.
  4. If the accommodation is shared or only partly used for business use that proportion.

The annual value to use depends on where the property is.

Country Annual value
England and Wales 1973 gross rating value
Northern Ireland 1976 gross rating value
Scotland 1985 gross rating value divided by 2.7
Outside the UK Annual rental value on the open market

Use HMRC’s P11D working sheet if you need help working out the cash equivalent of accommodation benefits.

Properties over £75,000

You must add an additional charge to the standard value.

To start with you have to calculate the ‘cost of the accommodation’:

  1. Add anything you spent on improvements to the original buying price.
  2. Deduct any reimbursements by employees from these amounts.

If you held an interest in the property 6 years before your employee occupied it and they first occupied it after March 1983, use the value of the property at the time your employee moved in, rather than the original buying price.

To calculate the additional charge do the following:

  1. Deduct £75,000 from the cost of the accommodation.
  2. Multiply what’s left by the official rate of interest – if you only provide the accommodation for part of the year, use that proportion.
  3. Deduct any rent you get from the employee.

Example
Buying price: £175,000
Gross rating value: £1,000
Employee rent: £1,250
Interest rate: 4%

The standard reportable value is £0, because the rent is more than the annual rating value.

Additional charge is £3,750:
£175,000 – £75,000 = £100,000
£100,000 x 4% = £4,000
£4,000 – £250 (left over rent from standard value) = £3,750

Total value to report is £3,750:
Standard value (£0) + additional charge (£3,750)

There are also technical guidance notes…

MTD – the way forward

It seems pretty clear that HMRC have set the commencement dates for implementation of their Making Tax Digital for Businesses program. They say:

“…self-employed people and landlords will be required to start using the new digital service from:

  • April 2018 for income tax and National Insurance contribution (NICs) purposes if your turnover is over the VAT threshold
  • April 2019 for income tax and NICs purposes if your turnover is below the VAT threshold
  • April 2019 for VAT purposes for everyone who is VAT registered
  • April 2020 for Corporation Tax (CT) purposes for everyone who pays CT

Businesses, self-employed people and landlords with turnovers under £10,000 are exempt from these requirements.

Those in employment who have secondary income of more than £10,000 per year through self-employment or property will also be required to use the digital service.”

Like all major changes to tax compliance, MTDfB will demand attention – a steep learning curve – and the opportunity to devise and sell new services to clients. Many small businesses that I have spoken to in the past few months were completely ignorant of the changes. My guess is, most clients will want to leave the grunt work associated with MTD to their advisor,  the key is to ensure they appreciate the value of this extra work and don’t expect you to do it for pre-MTD fees.

I have written an MTD handbook, updated for recent changes, that sets out the MTD compliance framework and offers a few ideas for developing new services. I think there is plenty of scope to arrive at a win-win outcome.

Take a look.

In the introduction to the MTDfB handbook I say:

From April 2018, tax professionals will need to consider a number of far-reaching adjustments to their working practices. January 2019, could be the last time that small business clients can amble into our offices with their bag of bank statements and receipts for the previous tax year and expect that their filing and reporting obligations will be met before the 31st January deadline.

The reason for this is Making Tax Digital (MTD), which will probably come to be seen as one of the most radical changes to UK taxation practice since the advent of self-assessment (SA) in April 1996. Eventually, MTD will oust SA and will require taxpayers, and their agents, to change their approach to recording, storing, filing and uploading accounting data.

The ultimate aim of MTD, as the name implies, is to fully digitise the collection and reporting of tax-payers’ income and other tax-relevant information so that their liability to UK tax can be assessed and managed in real time. This is a formidable project, one that will stretch the resources of the UK’s small businesses, their advisors and HMRC. Digital accounting, already a flourishing industry, will be boosted by MTD. The developers at Xero and similar providers will be rubbing their hands together as all businesses, including buy-to-let landlords, will be required to submit quarterly accounting data by electronic upload to their tax account. The present timetable for full implementation starts April 2018 and is expected to be completed before the end of the current parliament’s term in 2020.

We have all suffered the January SA filing deadline for many years, but imagine that filing pressure multiplied by four! For example, HMRC intends to require clients with a 31 March (5 April) accounting year’s end date to upload accounts data for each quarter end date: 31 March, 30 June, 30 September and 31 December. The proposal is to give taxpayers a month to send the data. Accordingly, April, July, October and January will require practices who complete this upload for clients (with March year’s ends), to have additional resources on call every three months.

The stated objective of MTD is to dispense with the requirement to submit an annual tax return. All of a taxpayer’s financial data will be “pushed” to their personal digital tax account (PTA). In some respects, this makes good sense. At present, employers, pension payers, banks and other institutions inform HMRC of income (and where applicable, tax deducted), and this same information is then reported to HMRC by individuals via their SA filing. Under MTD, information will build during the course of the tax year, from third party data streams or by direct upload – by taxpayers or their agents – to the individual’s personal digital tax account (PTA). Accordingly, the need to report this same information, by submitting a return, will be unnecessary.

This does raise interesting processing issues for tax advisors. For instance:

  • Accounting software, adjusted (according the consultation documents) for usual addbacks and allowances (CAs etc.) will drive a client’s liability to income tax and related NICs. Does this mean that our tax software is now redundant? Or will its future use be to duplicate a client’s PTA so we can check to see if HMRC’s stated position is correct? In any event, tax software per se will no longer upload tax data to HMRC, this will all be handled by accounting software. What on earth is going to happen to Iris, Sage and the rest of compliance software suppliers to the profession?
  • Will Xero and other “bookkeeping” software providers take the opportunity that MTD offers to provide users (your clients) with formatted annual accounts, that can be generated at the click of a mouse and emailed direct to bank managers et al?

Preparing and filing tax returns, the provision of income tax estimates via our tax software, together with the preparation of annual accounts, are services at risk.

Many tech-savvy firms are already preparing themselves for the challenges and opportunities that MTD will open up. The report that follows takes a hard look at the changes tax professionals will need to embrace to avoid unnecessary loss of earnings and to capitalise on the opportunities to create new levels of client service.

 

R & D for small companies

HMRC have published a really well-presented PDF booklet “Research & development tax relief” – it was updated November 2016.

It covers most of the basics and could be used in a variety of ways:

  1. Distribute a copy to staff who may become involved in advising clients.
  2. Add it to you own CPD reading list.
  3. Send a copy to clients who may qualify and follow up with a visit or phone call.

This is still seen by most advisers as “beyond their ken…” which is a shame as there are real win-win benefits for clients and your firm. The case studies are particularly instructive – pages 34 to 40 – for example:

 ICT  – The computer games industry provides particularly good examples of innovative projects that do meet the requirements of the R&D schemes and also examples of projects which do not.

No matter how original and inventive the game storylines are, these are not scientific or technological advances. The important criterion is not ‘what’ is produced but ‘how’.

A company realised that each object on a game’s screen had to be programmed in respect of its interaction with all the other objects. As the game became more complex, more objects were introduced and the amount of code required rose exponentially. The solution was to programme the properties of each object. When the objects interacted, a separate code was no longer required as the inherent properties produced the outcomes. The qualifying expenditure on developing this innovative code qualified for R&D relief.

The ICT sector is so fast-moving that further advances overtake new and ground breaking developments very quickly. What is important is that a project represents an advance at the time of development. New encryption and security techniques are being developed regularly and in many cases give rise to further advances. Even if the technique is quickly rendered redundant it will probably qualify for relief. The same applies to new search engines using new search methods.

Many advances are in the software field but advances in hardware are not unusual and will qualify for R&D relief if they are designed to overcome a scientific or technological uncertainty. Equally, very small companies dealing in subcontracted work may qualify if the work undertaken is sufficiently innovative, even if the larger contractor’s project does not qualify.

The booklet can be downloaded at http://www.hmrc.gov.uk/gds/cird/attachments/rdsimpleguide.pdf

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