What is “Making Tax Digital”?
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.
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
We will be providing information to our
clients in the coming year via newsletters, blogs or direct emails to prepare
you and get you ready for Digital Tax well in advance. In the meantime, if you
want to discuss how this affects you and your business please contact us.
What are we doing for you?
We have a dedicated page detailing what Making Tax Digital means for businesses. For
those of you who do not currently keep digital records, we are providing
support by helping you convert to one of our packages on the Xero accounting
platform. This is a very simple software
to operate and is fully MTD compliant.
Have a look at our Xero page for a more detailed list of benefits and
then please do contact us and we will build a package that suits you and
business and covers all your needs in the modern environment.
Now that the 2017 finance act has been published we are happy to confirm the tax rates, bands and allowances to be used for individuals, for the current tax year ended 5 April 2018.
The personal allowance has been increased to £11,500 but as in previous years, the allowance is reduced by £1 for every £2 by which income exceeds £100,000 i.e. those with income of £123,000 or more will loose theirs. The marriage allowance, which allows people to transfer 10% of their personal allowance to their spouse/civil partner as long as the recipient is not a higher or additional rate taxpayer, is therefore £1,150. Claiming the marriage allowance is worthwhile where not to would mean personal allowance is wasted. The allowance give a total £230 saving for the one benefiting.
The married couples allowance (which is not the same thing as the marriage allowance) is available to married couples and civil partners where one or both were born before 6 April 1935. The allowance is set at £8,445, but reduced by £1 for every £2 by which income exceeds £28,000 until it reaches £3,260.
The tax-free savings allowance remains at £1,000 for basic rate taxpayers and at £500 for higher rate taxpayers. Those paying tax at the additional rate do not receive a savings allowance.
The new rules for the taxation of dividends (from April 2016) saw all taxpayers being entitled to a dividend allowance regardless of the rate at which they pay tax. This allowance is unchanged at £5,000, however we now know the plan is to reduce it to £2,000 from 6 April 2018.
Moving on to tax rates & bands for 2017/18 it is worth noting that basic rate income tax remains at 20%, higher rate at 40% and the additional rate is still 45%. For the UK (but excluding Scotland) the basic rate band is set at £33,500 and the additional rate of tax applies to taxable income exceeding £150,000.
Finally dividends in excess of the dividend allowance (above) are still taxed at 7.5% where they fall within the basic rate band, 32.5% at higher rate and 38.1% if within the additional rate band.
Capital gains tax
It is good news all around for CGT with the annual exempt
amount increasing to £11,300 for the tax year ended 5 April 2018. In addition to this the new favourable tax rates remain unchanged at 10% to the extent that total income and gains do not exceed the
basic rate band, and 20% where total income and gains exceed the basic
rate band. Unfortunately the higher
rates of 18% and 28% respectively which apply to gains on residential property remain unchanged also.
If you need advice in this area then we are here to help.
During his first Budget on 8th March, new Chancellor Phillip Hammond announced to the world that he would level the playing field between employees and
the self-employed by increasing Class 4 National Insurance Contributions from 9% to 10% from April 2018 and then to 11% from April 2019. In justifying this change he explained that the self-employed are now entitled to more generous State
Benefits than in the past, and thus the NIC rate should be increased towards the
12% Class 1 NIC rate paid by employee's.
was in fact contrary to the Conservative Party manifesto pledge not to raise income tax, national
insurance contributions and VAT during the life of the Parliament and since the announcement the Government
have bowed to political pressure and decided not to proceed with this proposal. However with the next general election set for 8th June we will wait with bated breath for a possible increase shortly after!
announced, flat rate Class 2 NIC contributions, now £2.85 a week, cease on 5