Don’t miss out on the Brexit opportunity

I have just read Philip Fisher’s post on the Accounting Web entitled “The accountants guide to Brexit”. It’s a good read. In his intro Philip says:

Like almost everybody else in the country, the vast majority of accountants have been sticking their heads into the sand on the basis that leaving Europe was a long way off.

Well, it’s no longer a long way off and if the politicians on both sides of the Channel continue making progress at their present rate, we seem to be heading for a no-deal Brexit. Even if we succeed in achieving an agreed withdrawal process the exact details of our future trading relationship with the EU may not be thrashed out for years.

And in the meantime your clients will be uncertain about their supply lines and changing export processes to the EU.

In my opinion, this apparently “glum” outlook is a significant opportunity for UK businesses and their advisers. Philip continues:

While smaller practices with little or no international spread and work-forces who are British born and bred may feel that for them this is only a storm in a teacup that is unlikely to be the case in the longer term.

But if nothing else, there will inevitably be changes in legislation as a direct result of the decision made in June 2016. In addition, the economy will take an initial hit and that is likely to lead to indirect consequences including attentional tax hikes, difficulties in retaining and recruiting members of staff and the risk of client losses.

As there is now significant opinion that the UK economy is heading for a dip, however temporary, shouldn’t we be contacting business clients and suggesting that they consider two planning options before Brexit starts to bite:

  1. Undertake a formal impact assessment if a business currently buys goods from EU suppliers or exports to the EU, and
  2. Undertake a business fitness review.

There are no downsides to either of these activities. What they will do is place your clients in the best possible position to weather any Brexit discomforts and hit the ground running.

I’ll leave the last word to Philip:

As this series is likely to repeat on a constant basis, going into times of change with your eyes open is a major part of operating successfully. If your competitors are taking no action, while you can be seen as a leader at the time of great insecurity, then this could be a chance to succeed while others are struggling if not actually going bust.

Therefore, to reiterate, please make sure that you are ahead of the game so you can make the most of what need not be a threat and could be a fantastic opportunity.

Take a look at the Landmark Brexit Resource page

Help your clients and create a new income stream for your practice

Like to design your own Xero app?

Last year I created an app for Xero partner firms – Scoop – that allows practitioners to gather all of their clients’ Xero data and present it in a summarised format on one screen.

This year I’d like to develop the idea and to make it relevant to practitioners that use Xero with clients. Here’s what I propose:

Be party to the development process

Most of my clients use Xero and I have ideas for the information I would like to see on a regular basis to help me manage their businesses. But I don’t claim to have exclusive insights to what is useful in this regard so I’d like to open up the debate.

I’ve set up a questionnaire that lists a number of my development ideas. It will only take a couple of minutes to complete. It ends with a comment box so if you have ideas to share you can do so.

Development partners’ bonus

Every practitioner that completes the questionnaire will be offered a chance to beta test the new version of Scoop on a complimentary basis. As an additional thank you for you help in the development process we will extend this offer for three months free use of the finished product once the development changes are completed and Scoop plus is launched.

Tax and Xero

One of the issues I have with Xero, especially with corporate clients, is that it’s difficult to judge solvency – especially, if dividends are being taken without regard for the balance on reserves and corporation tax for the current year.

Accordingly, one of my ideas for improving the data provided by Scoop is to calculate a realistic estimate of current period CT liabilities and factor this information into the reports displayed by Scoop.

The existing version of Scoop will advise if a client is not registered for VAT and perhaps should be, based on current turnover. I intend to extend the VAT alerts to include a warning that continued use of a VAT special Scheme is compromised due to a possible breach of turnover exit levels.

Take a look at the Landmark Brexit Resource page

Help your clients and create a new income stream for your practice

SURVEY – Scoop diagnostic APP for Xero

survey questions

Help us develop the right product for you.

Tell us which features you would find most useful for our Scoop diagnostic APP for Xero

Xero survey

Scale: 1 = not at all useful to 5 = very useful

What’s next? Life after the SA deadline

MTD, Brexit, year end tax planning 2018-19, what’s next? I’d like to offer a few suggestions.

Road trip 2019

I have opened up a number of slots in my diary and I’d like to visit and brain storm ideas with you, developing new ideas for your practice during 2019. In my experience there is no better way to open up new opportunities than allocating time to see what possibilities there are to increase practice earnings and improve client services.

What’s in this for you?

Having had almost thirty-five years in full time practice I could hopefully inject a little objectivity into your planning? Sometimes it’s hard to see the wood for the trees, compliance is a hard task master.

Hopefully, at the end of our discussion, you will have a number of ideas that you can start to implement immediately. Specifically, you could identify:

  • cross-sales opportunities with clients,
  • new products and services you can offer clients and prospects,
  • new ideas for selling and marketing these options,
  • upcoming changes in legislation that offer scope for increasing the range of recurring “compliance” services.

What’s in this for me, for Landmark?

As you have probably noticed most of my marketing activity revolves around my Insights newsletter. Whilst this is effective in reaching large numbers of practitioners, and quickly, there is no substitute for a face-to-face conversation.

It is much easier for me to demonstrate the relevance of what Landmark offers by linking our services to specific practice issues: over reliance on compliance activity, no time to think about practice development, and so on…

How much would a visit cost?

On the basis that our initial conversation may or may not produce a positive outcome for your practice I am offering my time free of charge.

However, I am based in North Yorkshire, so depending on your location, and depending on how many other practitioners I can visit in your area, I would ask for a contribution to my travel costs. I would agree a figure with you prior to fixing a date and time.

How do I organise a visit?

Call me – 07879 896073 – or email a time when you would be free to speak and I’ll call you.

Do you provide services for other practitioners?

If you provide specialist services on tax or other matters, that may assist other practitioners in resolving complex issues for their clients, you may be able to increase your fees in this area by advertising your specialisms on the Landmark Support Directory.

Become a Landmark Partner firm

The benefits of becoming a partner:

  • Display ad on the Landmark Partner page linking to an information page about your firm

  • Information page copy will be based on text provided and can include testimonials from your practitioner clients

  • Partner firms can present articles for publication to the Landmark blog on topical issues. Articles will include accreditation and contact links. At least one article a month is guaranteed for publication

  • Where appropriate, Partner links will be added to Landmark publications that cover relevant specialist topics

To find out more about this service visit the “Become a Partner” page.

Current Partner firms and links to their support directory entries are:

The Capital Allowance Review Service – support available to solve those tricky, property related, CA claims

GDPR Auditing Limited – provide advice and support to achieve compliance with the GDPR

MLRO Support Ltd – resolve difficult reporting issues by contacting the well-known MLR guru, David Winch FCA

Edwards Pearce & Co Ltd – contact Laura Pearce to see how EP Co can help you achieve your marketing goals

Professional Indemnity.co.uk – provide PI cover to professional firms

Register your interest here

To register for this opportunity please complete the form on our website available from this link.

Are you claiming the new Structures and Building Allowance for clients?

The following post is provided by one of our Partner firms The Capital Allowance Review Service (CARS). It has been edited for the benefit of professional readers. See more about the services offered to practitioners on CARS’ Partner Page. The article that follows covers the structures and buildings allowance and was posted to CARS’ website December 2018.

Introduction

As even failing businesses have come to understand, allowances and tax credits allow a business to survive even when they’re not profitable. By claiming the credits the government allows for the investments you’ve made in building commercial or business related structures, you can save on costs. With structures and buildings allowance, you get tax relief to grow and expand your business, even helping to fund building new structures later on.

Here is everything you need to know when putting together your claim for structures and building allowance.

Understanding Your Qualifications

The structures and buildings allowance (or SBA) is one of the most significant changes in capital allowances in many years. Since the end of the industrial buildings allowance era, there has not been anything significant that could replace that allowance. The structures and buildings allowance is acting as a direct replacement for this previous allowance in several regards.

New construction on non-residential buildings is the primary qualifier for this kind of allowance. The allowance is offered over the course of 50 years at an annual rate of 2%. It’s available for new properties that meet a specific kind of criteria, with the land element being ineligible for this allowance.

Assets such as plant, machinery, fixtures and fittings are not eligible for SBA, nor are integral features.  These items continue to qualify for capital allowances, including the Annual Investment Allowance (AIA) and will continue to be calculated separately.

Get Prepared Now

This relief and allowance program has come into effect for projects that commence after the end of October 2018. Take the time to research the measure because the provisions for commencement are complex and unique. There are anti-avoidance measures that keep taxpayers from manipulation of the relief.

If you’re thinking of moving a few statements in your contract around to fall within the window for relief, pump the brakes! You could end up in trouble or disqualifying yourself from future relief.

If you entered into your contract before October 29, 2018, including any preparatory work, you might be disqualified. The physical construction works need to be agreed upon after that date if you want to ensure that you can qualify for this relief.

The relief becomes available from when the building or structure is bought into use.  There are further rules to consider if the building ceases to be used for a period of time.

The Features of Relief

If you want to see relief from this allowance, you need to get to know what the main features are. If you haven’t signed off on your next contract yet, you can consider this allowance before you start a new project.

Be aware that new commercial structures and buildings can fall under the terms of this relief. If you’re creating a new conversion or doing some renovations, you might be able to claim SBA.

The UK construction industry is seeing some huge changes. If you’re building in the UK or overseas, you can still potentially make a claim as long as you pay UK taxes.

Your 2% over a 50-year period will be limited to what it costs you to actually build the structure or the building. However, these costs can extend to demolition, land alterations, and any direct costs that create an asset in the first place. Whatever it takes to bring the asset into existence, that could apply.

The Limitations of Relief

When you want to make your claims, you need to be aware that there are some limitations to this relief.

A claim begins from when the building or structure is bought into use.

The rights over your land or any land costs aren’t eligible for relief. The costs that you pay to get planning permission aren’t covered either.

You may be asked to show documentation of your interest in the land you have. If there’s no purchase over the land that your building is constructed on, you might not able to claim relief.

Don’t expect residential dwellings to qualify for this relief. Even if you’re holding a mixed-use property where most of the structure is used as commercial, the part that is residential is prohibited and an apportionment will apply.

Renovating or converting a structure or building makes things complicated. If you’re doing so to make it a qualifying asset under these terms, you may end up qualifying for a separate relief.

If you’re unsure about the kind of relief that you’re going to qualify for, speak to us!

Structures and Buildings Allowance Brings Growth to Cities

With the help of the structures and building allowance, investing in cities has never been easier. Former booming urban environments can once again come to life with this kind of investment.

This allowance allows a lucrative return on investment. It encourages growth and risk-taking where it matters in the commercial sector. A growing number of small-scale investors see this allowance as an opportunity to get involved in the construction industry and invest in new ways.

Need help with a client Capital Allowance claim?

See more about the services offered to practitioners on CARS’ Partner Page.

It all boils down to a lack of confidence

Brexit resource centre example website page

And as far as Mrs May is concerned, quite literally so.

There is a limit that you can ask any living organism to hold its breath and we have been holding our breath on Brexit issues for over two years.

From a business perspective, this manifests as an unwillingness to invest. Why would you, when the terms of our future trading relationship with the EU remain unclear?

What can we be confident about?

You don’t need to be an economist to figure out that Brexit of whatever shade will likely cause a downturn in business activity. In the case of a no-deal Brexit, the supply chain disruption, at least initially, will be significant.

Planning for a worst-case scenario is not only prudent, it will improve business fitness. Even if things work out to be better than expected any time spent increasing liquidity and financial efficiencies will not be wasted.

Time for accountants to stand out from the crowd

Whatever your preference, surely we have a duty to keep clients up-to-date with the worst-case scenario – probably a no-deal outcome – and help them prepare by taking a close look at supply chain issues. For example, are you preparing impact assessments for vulnerable clients and revising business plans for 2019-20 and beyond?

What should we be doing now?

Without interfering with your present obligations, primarily to meet the SA deadline next month, there are a few basic, inexpensive things we can do:

  1. Send your business clients an easy to read summary of the issues they may have to deal with.
  2. Send your non-business clients an easy to read summary that covers how Brexit may affect their  relationship with the EU after 29 March 2019.
  3. Add accessible information to your website and keep it up-to-date.
  4. Visit or call clients that you know will have supply chain issues and offer to help them plan for any possible disruption.

No time to deal with this?

Take a look at the material I am making available from the Landmark site – BREXIT RESOURCE CENTRE – simply identify the clients you want to contact and send them the material I have written. Likewise, send your developer the code to add a Brexit video, risk assessment tool and/or other copy to your website.

Bored with Brexit?

Be careful not to drift into a victim stance with this process. How can you be bored by an event that will likely change the trading dynamics of the UK for years to come?

There is no point in blaming anyone. We are not powerless. We know what the basic downside Brexit risks are and we are still the right side of the 29 March withdrawal date to plan for these issues.

All it will take is a couple of hours planning.

Accountants Brexit resources

Reminder for clients re MTD

I included copy this week in Landmark’s Online Copy service that reminds VAT traders that we are getting close to the MTD filing deadline, April 2019.

If you still have clients that are dragging their feet feel free to use the article, no copyright restrictions.

Brexit may be in limbo, but Making Tax Digital is not

As we have highlighted in many posts to this blog, from 1 April 2019, ALL VAT registered businesses with turnover above the £85,000 VAT registration threshold will have to submit their VAT returns from within software that can link with HMRC’s networks. In techno- speak, your data will need to be transferred using a designated API (HMRC’s application programming interface).

The fact that you have always prepared your VAT returns electronically, for example, by using a spreadsheet to record transactions and create the data for your VAT returns, will not be enough. Your spreadsheet will not have the functionality to link with HMRC’s API. In these circumstances you will need to acquire bridging software that will draw data from your spreadsheet and forward it the HMRC in the required format.

HMRC have now clarified that only businesses with taxable turnover that has never exceeded the VAT registration threshold (currently £85,000) will be exempt from Making Tax Digital (MTD). You will therefore need to keep an eye on your taxable turnover, especially if you think it is close to the VAT registration threshold.

Additionally, you may be excused from applying the MTD filing obligations if:

  • your business is run entirely by practicing members of a religious society whose beliefs are incompatible with the requirements of the regulations (for example, those religious beliefs prevent them from using computers);
  • it is not reasonably practicable for you to use digital tools to keep your business records or submit your returns, for reasons of age, disability, remoteness of location or for any other reason; or
  • you are subject to an insolvency procedure.

For the rest of us that are required to observe the MTD regulations, we should be using accounts software that will be MTD compliant come 1 April 2019. If you have consulted us on this issue you can be confident that any software that we have recommended will pass muster.

If you are still unsure which way to jump, please call so that we can help. As far as we can tell HMRC are on track to convert to this new filing process and the clock is ticking.

Like to subscribe to weekly copy written by Bob Edwards?

If you are short of ideas, or the time to create useful material for your website or newsletters each month, take a look at our Online Copy service. Monthly subscription, no long term tie-ins.

This week’s puzzle

A bit of light relief. See if you can solve this classic logic puzzle:

5 pirates of different ages have a treasure of 100 gold coins. On their ship, they decide to split the coins using this scheme:

  • The oldest pirate proposes how to share the coins, and ALL pirates (including the oldest) vote for or against it
  • If 50% or more of the pirates vote for it, then the coins will be shared that way. Otherwise, the pirate proposing the scheme will be thrown overboard, and the process is repeated with the pirates that remain.

As pirates tend to be a bloodthirsty bunch, if a pirate would get the same number of coins if he voted for or against a proposal, he will vote against so that the pirate who proposed the plan will be thrown overboard.

Assuming that all 5 pirates are intelligent, rational, greedy, and do not wish to die, (and are rather good at math for pirates) what will happen?

Answer to last published puzzle:

The man picks up a piece of wood and lights it from the fire on the west end of the island.

He then quickly carries it near the east end of he island and starts a new fire. The wind will cause that fire to burn out the eastern end and he can then shelter in the burnt area.

The man survives the fire, but unfortunately dies of starvation, with all the food in the forest burnt.

 

 

Less is more say HMRC

tax return preparation

I thought practitioners would find the following comments instructive. They arose from a recent exchange between me and the Let Property Campaign team this last week.

The story so far

We submitted a declaration on behalf of a client under the Let Property Campaign. HMRC wrote to me to query three items:

  1. That the interest calculations were incorrect,
  2. That the penalties offered were incorrect, and
  3. There was an error in the rate of income tax used in one year’s calculations.

I decided to call HMRC to resolve the issues

In like order the resolution of the various matters was:

  1. We had used HMRC’s online calculator to estimate interest due and were informed that this sometimes produced inaccurate results. The officer spoken to was helpful and with the use of a separate “special” calculator, that only he had access to, it was agreed that interest charges paid were marginally higher than they needed to be.
  2. Regarding penalties, I was prepared for a time-consuming appeals process, but my fears were groundless. The officer confirmed that penalties offered in year one of the disclosure were too high, and in years two and three required an upward adjustment of just 5%.
  3. For the tax year 2016-17, we had applied the higher 40% income tax rate to rents disclosed and deducted a small basic rate tax credit based on disallowed finance charges. Accordingly, if the tax offered was expressed as a percentage of income disclosed the percentage rate was marginally lower than 40%. HMRC’s algorithms were not happy. To move matters along I agree to adjust the numbers so they would pass muster.

The outcome

The upshot of the conversation was an agreement to resubmit the client’s offer at an amount that was £40 more than the tax initially offered.

It is difficult to estimate the cost to HMRC of this seemingly pointless process. If systems have been designed to check Let Property Campaign submissions, then surely it would have been a simple matter to quantify a de minimis limit, say a £200 error level, below which submissions should be accepted?

What this experience does highlight is how driven HMRC have become by online system checks, and how their staff are powerless in the face of these controls.

A business would not be run in this way. When and if human intervention becomes necessary, the costs of reaching agreement with taxpayers or their advisers can quickly outpace any recovery of additional revenue.

This does not bode well in my opinion for the roll-out of MTD.

 

Expanded VAT return or MTDfB?

Office-of-Tax-Simplification-logo

I wasn’t in my bath when I had this particular Eureka moment, I was actually discussing the MTDfB changes with HMRC’s implementation team. In a nut-shell, it occurred to me that with a few changes (inexpensive changes!) the humble VAT return, which is already filed online, could be changed to accommodate the requirements of MTDfB, and in particular, the quarterly upload of profit data. My report, which was sent to HMRC some time ago, is reproduced in full below.

Obviously, this seemingly inexpensive change to provide data required by MTD has not been taken up and we trundle along with HMRC’s plan. I say no more…

A report on an alternative approach to Making Tax Digital

Report written by Bob Edwards FCCA – 21 July 2017

Introduction

Last week, an announcement on the future roll-out of Making Tax Digital for Business (MTDfB) was posted on the Gov.uk website, it said:

Under the new timetable:

  • only businesses with a turnover above the VAT threshold (currently £85,000) will have to keep digital records and only for VAT purposes
  • they will only need to do so from 2019
  • businesses will not be asked to keep digital records, or to update HMRC quarterly, for other taxes until at least 2020

Making Tax Digital will be available on a voluntary basis for the smallest businesses, and for other taxes.

This means that businesses and landlords with a turnover below the VAT threshold will be able to choose when to move to the new digital system.

As VAT already requires quarterly returns, no business will need to provide information to HMRC more regularly during this initial phase than they do now.

Source: https://www.gov.uk/government/news/next-steps-on-the-finance-bill-and-making-tax-digital

Like many UK tax professionals, I greeted this announcement with a mixture of relief (previous implementation announcements had mandated that every business with turnover of more than £10,000 would need to comply with the MTDfB quarterly filing obligations, and the reporting process would start April 2018) and itchy feet, for goodness sake let’s get on with it.

But on reflection, the final part of the above announcement opened my eyes to other possibilities, and, as we have more time, are we not missing a trick or two? This paper discusses my ideas as a contribution to the wider debate on the scope and impact of MTDfB.

 

VAT, Income Tax, CGT, Corporation Tax place holders

At present, three labels are attached to these taxes:

  1. All VAT registered businesses have a VAT registration number.
  2. All self-employed Income Tax (IT) and CGT payers who file a tax return have a Unique Tax Reference number (UTR).
  3. All companies and other organisations subject to Corporation Tax (CT) have a CT UTR.

My first suggestion, is that VAT registration numbers are abolished and replaced by adding a “V” to businesses’ UTR.

There is an OECD convention that controls the use and changes to Tax Identification Numbers (TINs), see https://ec.europa.eu/taxation_customs/tin/pdf/en/TIN_-_subject_sheet_-_2_structure_and_specificities_en.pdf for a list of current TINs across Europe. However, Cyprus and Spain use TINs with a combination of numbers and letters so I am assuming there would be flexibility here to adopt my suggested approach.

Transforming the VAT return into an MTDfB Tax Return

There is already a collection system in place to file and pay a quarterly VAT return (unless Annual Accounting is adopted) in which case see later comments. For now, it is sufficient to say that the data collected does the job, and most accounting software suppliers (if not all) provide an adequate system for tagging accounting transactions to populate the form. The present Boxes 1-9 are:

Box 1 VAT due this period on sales and other outputs
Box 2 VAT due in this period on acquisitions from other EC Member States
Box 3 Total VAT due (the sum of boxes 1 and 2)
Box 4 VAT reclaimed in this period on purchases and other inputs (including acquisitions from EC)
Box 5 VAT to Pay Customs
Box 6 Total value of sales and all other outputs excluding VAT (including supplies to EC)
Box 7 Total value of purchases and all other inputs excluding VAT (including acquisitions from EC)
Box 8 Total value of all supplies of goods, excluding any VAT, to other EC Member States
Box 9 Total value of all acquisitions of goods, excluding any VAT, from EC Member States

Transforming these numbers into a profit statement is remarkably easy. In my opinion, it can be done by adding three new lines to the VAT return.

Most accounting software has a “No VAT” or “Outside the scope of VAT” or “Exempt” category. Transactions tagged with these codes would not be drawn into the VAT return, specifically, boxes 6 and 7. Obviously, income and revenue expenditure items that are subject to VAT are accumulated in boxes 6 and 7 together with sales and purchases of capital items that are subject to a VAT charge.

I propose adding a Box 10, 11 and 12 to the return, to complete the data required to produce a realistic, pre-tax profit figure:

Box 10 Sales and other outputs not subject to VAT
Box 11 Purchases of goods, services and other costs not subject to VAT
Box 12 Purchase of assets not subject to AIA or FYA

 

To facilitate the collection of the Box 10, 11 and 12 data, software producers would need to standardise the treatment of none VAT transactions. I suggest:

  1. All businesses should enter their UTR into their accounts software.
  2. If the UTR entered does not have the “V” suffix – 12345616780V – then all transactions that involve the sale or purchase of costs and services will automatically be treated as non-VAT and allocated to Box 10 or Box 11. This would include wages and other revenue costs not published to a VAT return, but would exclude non-revenue costs such as proprietors or partners’ drawings. Nominal coding tags in accounts software could easily be adapted to achieve this result.
  3. Any journal entries to introduce accounting only adjustments, depreciation, reserves for taxation and so on, would auto-generate a code that would not be added to Box 10 or Box 11. For the sake of this report, let’s call this code NP (Not taxable profit related).
  4. If posting capital acquisitions that do not qualify for the AIA or a FYA, then software suppliers would need to add a category that included the purchase in Box 7 and in Box 12.

This return is now primed to produce a realistic estimate of taxable profit. The calculations are simple enough:

Box 6

+

Box10

+

Box 12

Box 7

Box 11

No doubt there are further tweaks required to take more obscure transactions into account, but in my opinion this revamped MTDfB tax return would provide data for the quarterly VAT return and the quarterly upload for MTD purposes with very few changes to government or client software.

All that is required to remove any unwanted coding errors or other mistakes, is the ability for taxpayers or their agents to file a fifth return addressing add backs, capital allowance claims, or other matters before certifying that the return for a tax year is complete. This, I would suggest, is where tax practitioners can step to add value to the whole process and ensure that their clients only pay taxes to the limit imposed by legislation. There is a more wholistic feel to this annual audit as it will, of necessity, include a review of all taxes charged in the year: VAT, IT, NIC, CGT and/or CT.

VAT special scheme complications

But what about VAT traders registered for Cash Accounting, or the Flat Rate Scheme, or Annual Accounting, or special retailer schemes? My observations are set out below.

Cash Accounting (CA)

If HMRC are content that businesses who are registered for CA, pay VAT based on money received and expended, then why not simplify assessment of tax (IT/NIC/CT) to apply the same criteria. In this way, the data reported on the VAT return would also apply to the calculation of taxable profits on a cash basis.

Instead of having a separate Cash Basis for VAT and tax, why not use the same?

Flat Rate Scheme (FRS)

As far as I can tell, two changes are required:

  1. To show Box 6 as VAT exclusive, not inclusive, and
  2. To include all VATable purchases in Box 7 and not limit this to capital purchases.

Annual Accounting (AA)

As MTD for businesses over the VAT registration threshold will possibly be obligatory from April 2020, then I see no future for this scheme. Leaving matters as they are would mean AA traders having to report MTD data quarterly and VAT data annually.

Better to offer all VAT traders the option to pay by monthly DD for 9 months, with a balancing payment once a year (this balance, by the way, could be displayed in the business owners or company’s Personal Tax Account (PTA), so no surprises), and scrap the AA scheme.

Retailer schemes (RS)

Most retailer schemes concentrate on quantifying the amount of output VAT included in mixed rate sales, so the quarterly reporting should be acceptable for VAT and MTDfB purposes with no changes.

Advantages of the combined VAT and MTDfB tax return

I have summarised the advantages that I can see from adopting my suggestions set out in this paper. At this stage, they are purely speculative and obviously subjective, my opinion has, after all, shaped the narrative.

Benefits claimed are:

  1. Radical government cost savings.
  2. Simplification by merger of VAT and MTD reporting.
  3. Huge cost savings for the accounting software industry. For example, there is no need to adapt software to use an exclusive MTD API link, the present VAT API will do the trick.
  4. Easy to understand user changes, basically, the VAT return is being adapted to incorporate MTDfB reporting.
  5. Simplification and unification of VAT special schemes and assessment for other taxes.

I’ve no idea how much government have invested in MTD technology and systems changes. I have a sneaking suspicion that it will be £ millions.

 

 

Will 2019 be a hit or a miss?

The outlook for business in 2019 is at best steady as you go with the likelihood that the UK economy may dip into recession. And according to many pundits on all sides of politics it’s all thanks to Brexit.

The political uncertainties continue and with them building frustration in the business community as we try and grapple with landscape we are being directed towards.

Challenges for 2019

Leaving aside the chaos in parliament, the challenges for the accountancy profession as we move into 2019 are becoming clearer.

Who would have guessed when Making Tax Digital (MTD) was first proposed that its first steps towards implementation would be at the same time as our formal divorce from the EU? Let’s hope that HMRC have sorted out any wrinkles in their computer systems before the first MTD filed VAT returns hit their servers after 1 April 2019.

An alternative point of view

Ironically, there is an alternative way to view these significant changes.

All change processes create challenges, and those faced with these challenges either sink or swim. Advisors, therefore, can sit by and blame politicians for the decline in their fee income or they could re-engineer the situation as an opportunity.

Addressing Brexit supply chain risks

If there are risks that present importers from, or exporters to the EU will be adversely affected by Brexit, then shouldn’t accountants be assisting those businesses to produce an impact assessment regarding the changes in their supply chains?

Improving business fitness and reviewing business plans

And if there is a possibility that trading conditions generally will be difficult as we work through the Brexit transition, then shouldn’t accountants be working with their business clients to increase their business fitness? There is also an argument for revisiting existing business plans and forecasts for 2019.

Will 2019 be a hit or a miss?

The outcome may depend more on our perception of risk and our reactions to those perceived risks, than any lack of action by parliament or the EU.

Landmark’s solution, hit the ground running

Accountants Brexit resourcesBob Edwards has created an online tool, video and a range of documentation that you can use to support your clients. Take a look at our Brexit Resource Centre. It will save you time and enable you to cope with the current compliance challenges and start the process of supporting your clients through the Brexit transition.

 

Can you solve this puzzle?

A bit of light relief. See if you can solve this classic logic puzzle:

A man is stranded on an island covered in forest.

One day, when the wind is blowing from the west, lightning strikes the west end of the island and sets fire to the forest. The fire is very violent, burning everything in its path, and without intervention the fire will burn the whole island, killing the man in the process. There are cliffs around the island, so he cannot jump off. How can the man survive the fire? (There are no buckets or any other means to put out the fire)

Clue: the puzzle has Brexit overtones!

Answer to last week’s puzzle:

Farmer takes Goat across (leaving Wolf and Cabbage behind)
Farmer returns alone
Farmer takes Wolf across
Farmer returns with Goat

* We now have the Farmer, the Cabbage and the Goat on one side and the Wolf on the other side

Farmer takes Cabbage across
Farmer returns alone
Farmer takes Goat across

DONE!

 

Staff Tax Tips – 22 October 2018

specialist accountancy services

Staff tax tips for this week are listed below. We have added links to more detail as appropriate. We will be adding a least two posts a month under this heading so please ask your staff to add their names to our newsletter distribution list that will link to these articles.

What is the relevance of the “going concern” principle for VAT purposes?

When a business is sold each sale of chargeable business assets is a VAT able transaction: the seller is obliged to charge VAT to the purchaser. By concession, HMRC will allow the transaction to proceed with no VAT charged if the business is transferred as a going concern (TOGC).

To qualify as a TOGC, the following principles should be observed:

  • The assets must be sold as part of a ‘business’ as a ‘going concern’*
  • The purchaser intends to use the assets to carry on the same kind of business as the seller
  • Where the seller is a taxable person, the purchaser must be a taxable person already or become one as the result of the transfer
  • Where only part of a business is sold it must be capable of separate operation
  • There must not be a series of immediately consecutive transfers
  • There are further conditions in relation to transactions involving land.

The significance of this concession should not be underestimated. Consider a business selling chargeable assets of £500,000. Without the TOGC rule, the purchaser would have to pay VAT on their purchase of £100,000, they will be able to claim this back on their first VAT return after purchase, but will need to fund the extra cost for up to four months.

According to HMRC the TOGC was introduced to:

  • relieve the buyer of a business from the burden of funding any VAT on the purchase, thereby helping businesses by improving their cash flow and avoiding the need to separately value assets which may be liable at different rates or are exempt and which have been sold as a whole, and
  • protect government revenue by removing a charge to tax and entitlement to input tax where the output tax may not be paid to HMRC, for example, where a business charges tax, which is claimed as input tax by the new business but never declared or paid by the old business.

See VAT notice 700/9 for more information on this topic.

Ames v Revenue & Customs

This case considered a claim for CGT exemption when EIS shares were subsequently sold. HMRC disallowed the exemption as no income tax relief had been claimed by the taxpayer on subscription.

See the case details here.

Non-statutory advance clearance from HMRC

HMRC will offer non-statutory advance clearance for certain transactions. This can be useful to add certainty to a proposed course of action. They will not offer:

  • a clearance on matters of fact, such as if certain activities constitute a business,
  • clearances or advice in respect of the application of the ‘settlements legislation’ in Chapter 5 Part 5 Income Tax (Trading and Other Income) Act 2005, or the tax consequences of executing non-charitable trust deeds or settlements,
  • clearances relating to the venture capital schemes (Parts 5 to 6 of Income Tax Act 2007).

For more details on what is available see here.

 

Taxing question for limited and unincorporated traders

Before I commit hours to creating a suitable tax forecasting tool, has any one come across a simple tax planner that works out the current year tax liability of incorporated or unincorporated businesses and the effects of dividend payouts on the future self-assessment liability of director/shareholders?

Ideally, the report would be updated periodically as part of a monthly or quarterly review process.

Incorporated v unincorporated traders

At least limited company accounts include a reserve for the current year’s CT liability.

There is no such requirement for unincorporated businesses as the IT liability is associated with the sole trader or partners rather than the business. Unfortunately, it is the business that will likely fund the IT and NIC costs.

Consequently, traders are led to believe that they are paying tax as they go, or in some cases, in advance, when the truth of the matter is that current year’s profits are taxed in the current year but the tax may not be paid until some future date.

Surprise, surprise

This time lag usually means that clients are confused if their tax payments are high in a period when profits are falling – as they are paying tax nine months later if incorporated, and later if unincorporated. With the rapid approach of Brexit uncertainties, I am keen to provide my clients with as much information as I can regarding future tax payments so there are no nasty – and unexpected – surprises.

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