Making Tax Digital (MTD) is a government initiative to modernise HMRC’s tax system, with the aim of making the whole process of administrating tax simpler and more efficient. All of your tax information will be in one place (your digital account) and you will be able to pay tax based on your business activity during the year. You can upload and update your tax account in real time.
Will it affect me?
If you own a business, you are self-employed and you pay income tax, national insurance, VAT or corporation tax then it is quite likely you will be affected. This means you could be required to keep track of your tax affairs digitally using MTD compatible software, and to update HMRC at least quarterly via your digital tax account. Eventually this will abolish the annual tax return. This will be the law and there will be penalties for non- compliance. For the time being, HMRC are starting with VAT and this came into effect on 31 March 2019.
What do I have to do?
You will need to open and log into your digital account. Everyone will be allocated one through the current Government Gateway. Then you will need to ensure your accounting software can update this account at least quarterly. For most businesses, this means a move away from desktop and onto Cloud based accounting software. You are required to choose digital (Cloud) software to maintain your business records and to provide updates of information to HMRC. You will be prompted to send summary updates directly to HMRC – quarterly updates will need to be submitted within a month of quarter end, and an end of year activity report will be due within nine months of the end of the accounting year. As your accountant and tax agent, we can advise you on the software you will need and how to comply with the new quarterly reporting requirements.
When is all this happening?
MTD starts with businesses above the VAT threshold limits (currently £85,000) for accounting periods commencing on or after 6 April 2019. Those affected will be required to keep digital records for VAT purposes. By 2020 it is most likely all other businesses will have to comply.
We have contacted all of our clients to prepare them and get them ready for Digital Tax well in advance. We held a joint seminar with Xero for all our clients in 2019. If you want to discuss how this affects you and your business please contact us.
European data protection laws have changed and came into force on 25 May 2018. These new laws affected all businesses in the UK and the current Data Protection Act (DPA) will be updated to reflect the GDPR obligations.
The GDPR is a framework with greater scope, much tougher punishments and judicial remedy for those who fail to comply with new rules around the storage and handling of personal data, be it in physical or electronic format.
Why are these new laws being introduced?
Since the DPA was introduced in 1998 technology and the internet have developed at such a rapid rate that these rules are now deemed to be ineffective. Nowadays, the ease and sophistication of data collection means that thousands of SMEs not only collect personal details, but store, move and access them online. Personal data is used in everything from sales to customer relationship management to marketing. Cybercriminals are now much more common. In 2016, companies in the UK lost more than £1billion to cybercrime. Major data breaches have given criminals access to names, birthdates and addresses and even social security and pension information.
A recent report from the Federation of Small Businesses (FSB) claims that SMEs are now more likely to be targeted by cybercriminals than their large corporate counterparts and cybercriminals consider SMEs softer targets!
The GDPR is considered a necessity for the protection of data in a modern internet based society.
It is also a chance to take a fresh look at your data security as data breaches may impact on your business reputation.
What does the GDPR mean for SMEs?
Businesses must keep a detailed record of how and when an individual gives consent to store and use their personal data. This means a positive agreement and cannot be inferred from a pre-ticked box. Customers or individuals have the right to withdraw consent. Details must be permanently erased.
This means businesses should review their existing data and delete any that they do not have a valid reason to hold it. The GDPR sets out the legal bases available for processing personal data such as needing it to perform a business contract. Businesses should review what data they hold, have they got consent and do they need to keep it?
Data should be kept secure and this will require a review of current practices to prevent data breaches.
Personal data is a key tool for SMEs looking to target and retain customers: GDPR means it must be handled with the utmost care.
You should start planning for the GDPR now and consider an information audit and, for many businesses, a change in culture.
How can we help?
We have produced a checklist of actions you should undertake before 25 May 2018 to ensure you have a policy for compliance to ensure you have the correct permissions and data is stored as securely as possible. For a copy of this checklist please get in touch.
The Charity Commission has recently published the new Statement of Recommended Practice (SORP). The SORP provides framework for charity accounting and reporting and all charities that prepare their accounts on a true and fair basis must follow it. There have been 2 SORPs developed; one based on the new FRS102 and the other on the FRSSE. Larger charities will use the FRS102 with smaller charities making use of the FRSEE.
This is the first new draft of the SORP since 2005, it has been completely redesigned and is now written in a modular format. This new format is to enable charities to easily navigate the SORP and quickly identify only the relevant parts that will apply to them. There are very few changes in terms of accounting policies; however there are changes to accounting treatments and disclosures.
The Statement of Financial Activities (SOFA) looks different from before. The activity basis of accounting whereby charities should classify their income and expenditure by activity has been retained but the income categories of Income from Generated Funds, Income from Charitable Activities and Other Incoming Resources that were introduced for the first time in SORP 2005 have been replaced by four broad headings of Donations, Earnings from Charitable Activities, Earnings from Other Activities and Investment and Other Income. Previously under SORP 2005 expenditure was organised into the headings of Costs of Generating Funds, Charitable Activities and Governance Costs. The new draft SORP now requires governance costs to be included in the heading of Expenditure on Charitable Activities with Cost of Raising Funds and Other Expenditure forming the other two categories. The rest of the SOFA remains unchanged. The balance sheet format is unchanged but the SORP does now provide more guidance and detail on accounting for two types of fixed asset – heritage assets and social investments.
The Charity Commission has also agreed that all charities that submit accruals accounts under the SORP must disclose staff pay in bands over £60,000 with larger charities disclosing their pay and remuneration policy for senior staff in their Trustees Annual Report.
The new arrangements will become effective for accounting periods commencing on or after 1 January 2015.
The Charity Commission has developed a micro-site as guidance for users of the SORP which can be found at www.charitysorp.org/.
We will be providing a training session on this new SORP in due course but in the meantime we would be happy to answer any questions you currently have.
For owner managed businesses it is often difficult to differentiate between what is a company expense and what is a private expense. However the implications of getting it wrong can be severe. Any private bills that are paid by the company are effectively earnings for tax and NI purposes unless they are transferred to your directors loan account. There are P11D issues here.
The level of tax on company cars and in particular petrol means that, in most cases, it is highly inefficient to own your car through the business. The most tax efficient way of dealing with business mileage is keeping the car as private and claiming 45p per business mile for the first 10,000 miles (25p per mile thereafter).
Telephone bills are another area of difficulty when paid by the company. Only business calls avoid tax and NI, line rental and private call costs are liable. However, if you in an owner managed business, if you have a private mobile phone which is in the company name it is actually a tax/NI tax free benefit. There are few tax free benefits out there for owner managed businesses and this is another way to effectively extract funds out of your business in a tax free manner. You can use this for personal calls without being taxed. It is crucial however that the contract is the business’ name.
Another area that can be tricky is entertaining. All client entertaining is not allowable for tax purposes however it is crucial that directors note down on the dinner receipt who they entertained on each occasion. Otherwise HMRC will assume entertaining is private and again there are implications with that.
There can be a fine line between business and personal expenses in an owner managed businesses. If you would like any advice on what qualifies as a business expense and what the tax implications of different expenses are please get in touch with our tax expert at email@example.com
HMRC have launched the Second Incomes Campaign, providing an opportunity for individuals to bring their tax affairs up to date if they have additional income that is not taxed through their main job or another PAYE scheme. As with the other campaigns, HMRC are offering people with undeclared income a chance to get up to date with their tax affairs 'in a simple, straightforward way and take advantage of the best possible terms'. The HMRC guidance includes the following examples of income people may receive that if undisclosed makes them suitable to take advantage of the campaign:
- fees from consultancy or other services such as public speaking or providing training;
- payment for organising parties and events or providing entertainment;
- income from activities such as taxi driving, hairdressing, providing fitness training or landscape gardening;
- profits from spare time activities such as making and selling craft items; and
- profits from buying and selling good, for example regular market stalls, boot sales, etc.
People who want to take advantage of the campaign can do so by completing a notification form on the HMRC website, or by speaking to one of partners here at Rogers Spencer, who will be happy to offer the required assistance.
There is currently no end date for this campaign, but once a person has notified HMRC of their intention to make a disclosure, they must disclose within four months of the date they received their notification acknowledgment.
For help and advice on this matter please call the Rogers Spencer office on 0115 9608412 or drop us an email.
The law on workplace pensions has changed. The new regulations are already impacting some employers and are rapidly approaching for others. This new legalisation means that every employer must provide a workplace pension scheme and automatically enrol their employees into that pension scheme.
A company’s ‘staging date’ depends on the size of their payroll scheme, so larger employers (over 250 employees) must already comply with the legalisation, while medium sized employers must comply between April 2014 and April 2015 and smaller companies between June 2015 and April 2017. To find out your exact staging date please get in touch with us.
Employers will need at least 12 months to prepare prior to their staging date and we understand penalties for non-compliance will be immediate and severe. There are options for both setting up the pension cheme and the ongoing monitoring of the scheme and we would be happy to discuss these options with you.
To find out your staging date and more information in general about auto enrolment please call the Rogers Spencer office on 0115 9608412 or drop us an email.