Last reviewed 3 October 2016
John Davison, writer, lecturer and accountant, keeps you up to date with news and current trends — as they happen and affect the smaller business.
Get ready for tax chaos
HMRC is closing 160 offices to open 13 regional hubs. The aim is to reduce staff numbers perhaps to 41,000. It is difficult to know how a 60% reduction from the 105,000 employed 10 years ago can be managed. HMRC is putting its faith in “smart data” and moving taxpayers onto digital accounts and electronic returns.
The problem is, HMRC has a poor record of managing IT and customer service. Difficulties have arisen with the tax credit system, live PAYE and self-assessment — to name a few. Surprisingly, it is difficult to send an attachment of any size to HMRC as it gets stripped out of emails. When HMRC cuts staff by only 5600 in 2015, call time waiting trebled. Twenty-eight per cent of calls went unanswered as callers gave up. HMRC sets a low bar of answering 80% of calls within five minutes but only managed 50%.
Businesses need to protect themselves from the potential for chaos. Complete returns early. If a query needs to be raised, HMRC’s helplines are very busy near to deadlines. Try to resolve contentious issues as soon as possible, if funds are short contact HMRC to make arrangements to pay and do not delay in seeking advice. Delays by HMRC become problematic if an issue is urgent, so approaching HMRC early is essential.
In 2017, apprentice funding will change. All UK employers with a wage bill in excess of £250,000 a month will pay a levy of 0.5% of their wage bill (the amount subject to Class 1 NI). This is paid to HMRC through Pay As You Earn (PAYE), less an allowance of $1250 a month. Payments are deductible for corporation tax. The levy does not replace other levies charged for training or collective schemes.
Levy paying employers can benefit from the levy to fund apprenticeship training and assessments; this is through the digital apprentice scheme in England. Scotland, Wales and Northern Ireland have their own arrangements. Registration for the digital account will start in January 2017; the PAYE scheme used must be linked to this digital account. The amount shown in the digital account is the amount available to fund training; it will be the levy plus 10%. These funds can only be used with approved trainers or assessors.
By 2020, all employers will be able to use the digital apprentice service to pay for training.
Employers that do not pay the levy can use the digital apprenticeship service to select an apprenticeship standard or framework, choose a training provider and assessment organisation, and post apprenticeship vacancies. By 2018, employers not paying the levy will be asked to use the digital account to pay for apprenticeships.
Further information is available at www.gov.uk.
Digital tax returns
The way tax will be dealt with is to be transformed by 2020. Each taxpayer will have a digital account with information uploaded automatically or provided through accounting software. It is hoped this will simplify tax administration and significantly reduce the number of tax returns that need to be submitted.
Two million small businesses and some individuals already use digital tax accounts, by 2016 all individuals and small businesses will have digital accounts. These allow a taxpayer to register, file, pay and update their details; it shows all taxes the taxpayer is liable to pay and will also provide prompts, advice and support.
HM Revenue & Customs (HMRC) will obtain information from third parties (such as banks and building societies) to help populate tax returns. Also, information HMRC already has (such as employment income) does not need to be re-entered. Furthermore, by 2019 small businesses will be required to provide quarterly updates through their accounting software for VAT and landlord’s rental income. Capital gains on residential property sales will need to be paid within 30 days. Larger businesses will be required by 2020 to update the digital account quarterly through their accounting software.
Some professional bodies have requested that the implementation date is put back to allow for greater testing, consultation and more information to be provided to taxpayers. Further information can be obtained from www.gov.uk.
Pensions — an unmeasurable liability?
BHS and TATA Steel have been in the news regarding pension shortfalls; but many other employers may also have shortfalls. There are more than 11 million members of defined benefit schemes and employers are required to cover any shortfalls. Due to increasing life expectancy and falling bond yields, it is thought that there is a deficit of £935 billion (Hymans Robertson) with Brexit, quantitative easing and negative interest rates potentially increasing deficits.
The pension regulator can take action to force employers to make contributions or provide financial support. Employers must also be aware of the statutory debt that may arise if there are no employees left in the company (for example, where employees are transferred within groups, on takeovers or where business are being wound down). This triggers an immediate liability to make up any shortfall. The regulator can also require the restoration of money or property that has been transferred at an undervalue from a pension scheme in the two years before an insolvency.
A further issue is the ever-changing pension rules. A recent change impacting small businesses is the requirement to enrol staff into a workplace pension scheme. The staging date (the date employers are required to enrol employees) depends on the number of employees and the PAYE reference number. Enrolment started on 1 July 2016, so it is possible enrolment may have been missed. Further details are available from the HMRC website.
All businesses can make a mistake. When it is a VAT or Excise error, HMRC will impose a penalty of up to 100%. This can be reduced where there is a disclosure and assistance is given in calculating the shortfall. There is no penalty where there is a reasonable excuse, the error is not deliberate and there is prompt disclosure. Further information can be obtained from the HMRC’s website.
Rather than make an error and incur a penalty, VAT records should be regularly reviewed. HMRC have issued tools to help reduce the risk of input tax mistakes (the VAT incurred on expenses) or with partial exemption. Partial exemption is where a business has sales that are subject to VAT and other sales that are exempt from VAT (such as insurance, financial supplies, health supplies, education, etc). Common errors made in respect of input tax include claiming VAT where none is incurred, arithmetic errors, input tax claimed on costs proper to third parties, or claiming VAT on cars or business entertainment when it is not permitted, etc. Click here for the input tax toolkit and on this link for the partial exemption toolkit.
Brexit will mean significant changes to the imports and exports of goods and services and opportunities to change VAT. There is significant uncertainty and some of the questions are answered here. If you have any other questions, please contact me at Croner-i Business Essentials, email: email@example.com and they will be answered in future issues.
Living in a digital world…
As if Brexit was not enough, the digital working environment is changing fast. A recent survey commissioned by Exact Cloud Solutions has found that only 2% of small and medium-sized enterprises (SMEs) have adapted to meet digital demands. Despite this, online sales are the biggest focus among SMEs to boost income. Exact have stated that digitisation is the key to ensuring efficiency and remaining competitive. See the ResponseSource website.
One digital change is HMRC’s ability to collect details of all credit and debit card transactions — big brother is watching. These are analysed to identify businesses that have not paid as much tax as they should. Businesses have four months to pay back tax owing if HMRC is voluntarily informed using a notification form or by calling 0300 123 9272. Those that do not make declarations face higher penalties or criminal prosecution.