Abbey

Chartered Tax Advisers
Old Bishops' College
Churchgate
Cheshunt
Hertfordshire
EN8 9XP

T: 01992 642024

E: abbey@abbeyaccountants.com

Smiling businessmen and women

  TAX E-NEWS - February 2018


Welcome to the first monthly tax newsletter of the year. These newsletters are designed to keep you informed of the latest tax issues.

Please contact us if you need further information on any of the topics covered.


Peter McDaid CTA ATT TEP
Director


DOES YOUR ACCOUNTS SYSTEM COMPLY WITH MAKING TAX DIGITAL (MTD) FOR VAT?

Making Tax Digital (MTD) for VAT is scheduled to start in April 2019 which means that your VAT information needs to be submitted to HMRC digitally.
On 18 December 2017, HMRC published draft legislation together with examples of how the business account records might link with the HMRC computer in order to comply with MTD for VAT. The legislation specifies that “functional compatible software” must be used to record and preserve prescribed VAT related data.

What are Digital records?

“Functional compatible software” must be used to calculate the VAT due, report the VAT figures (as per the current VAT return) to HMRC, and to receive information back from HMRC.

VAT related data for each sale and purchase made by the business includes the time of the supply, the value and the rate of VAT charged, or in the case of purchases, the amount of input VAT allowed.

There is no requirement in the draft regulations that the electronic recording of this data must be done at the time the supply is made, or when the purchase is received. As long as the data is recorded electronically by the earlier of the date that the VAT return must be submitted or is actually submitted.

Digital Links in the Trail The business can use more than one piece of software to keep its digital records, but those separate software programmes must be “digitally linked”. HMRC provides examples of what it means by digitally linked in the draft notice.

One example is a business which uses one piece of accounting software to record all sales and purchases, this software then calculates the return and submits it to HMRC. As well as the records in the accounting software the business uses a spreadsheet to keep track of a fleet of cars and work out its road fuel scale charges. The draft guidance suggests that the business can type the adjustment into its accounting software.

We can of course work with you to make sure that your accounting systems will comply with the new VAT rules before they start in 2019. We are recommending Xero a cloud-based book keeping system to all our business clients. We are also recommending that it should be put in place now so that any teething problems can be worked out over the next 12 months prior to the compulsory implementation of MTD.

Note that MTD for VAT will not be mandatory where turnover is below the VAT registration limit, currently £85,000 per annum. This at some point we expect will change but not within the next couple of years.

DID YOU GET A BIG TAX BILL AND NOW WANT SOME BACK?

Many of you will have just paid your 2016/17 tax bill before the 31 January 2018 deadline, and some of you will also have paid 50% of next year’s tax on account.
The 2016/2017 year is the first year where the across the board 7.5% increase in dividend tax has come into force and as a result despite previous warnings many of you have been taken back and even shocked by the size of the personal tax liabilities arising. The corresponding 50% payments on account for the 2017/2018 tax year are also much larger.

Here are a couple of tax planning ideas that can help you obtain a tax refund:

Increase your Pension Savings before 6 April 2018 to reduce payments on account

Unfortunately investing more in your pension now will not reduce your 2016/17 tax liability, however if you invest before 6 April 2018 that payment can be taken into consideration in computing your 2017/18 liability and hence you might be able to claim to reduce your payments on account, if you make them.











The maximum pension contribution is generally £40,000 each tax year, although this depends on your earnings. It is also possible to add to this any unused relief brought forward from the previous three tax years.

Invest in EIS or Seed EIS qualifying companies Before 6 April 2018, individuals may invest in companies that qualify under the Enterprise Investment Scheme (EIS) and treat that investment as having been made in 2016/17. The tax relief is 30% of the amount invested. A £20,000 investment can reduce the 2016/17 tax liability by £6,000. Investing in a Seed EIS qualifying company is even better as there is a 50% tax relief. Such companies tend to be riskier than EIS qualifying companies. You should therefore obtain specialist advice from an IFA if you are considering such investments.

Investing in an EIS qualifying company can also enable you to defer capital gains tax. In order to do so you must reinvest the amount of the gain within the 3 years following the date of the disposal giving rise to the gain. (The investment could also be within 12 months prior to the disposal).

PASSING ON THE FAMILY HOME

New inheritance tax rules for passing on the family home started on 6 April 2017. This new relief should be taken into consideration when drafting your Will and we can work with your solicitor to make sure your Will is tax efficient.

From 6 April 2017 an additional nil rate band of £100,000 is now available on death where your residence is left to direct descendants. This is in addition to the normal £325,000 nil rate band and will increase over the next 4 years to £175,000 in 2020. This additional relief is however restricted If your assets exceed £2 million. The rules are fairly complex, but we can review your personal circumstances to ensure that you take advantage of all the relief that you are entitled to.

What about downsizing to a smaller property?

The new inheritance tax relief for passing on the family home is protected even when you downsize to a smaller property. For example, if a married couple currently live in a large house worth £500,000 and downsize to a flat worth £250,000 they could give away some of the proceeds during their lifetime and yet still benefit from inheritance tax relief based on the higher valued property. They could even sell up completely and move into a rental property and still get the inheritance tax relief.

ADVISORY FUEL RATE FOR COMPANY CARS

These are the suggested reimbursement rates for employees' private mileage using their company car from 1 December 2017. Where there has been a change the previous rate is shown in brackets.

Engine Size

Petrol

Diesel

LPG

1400cc or less

11p

 

 

7p

1600cc or less

 

9p

 

1401cc to 2000cc

14p (13p)

 

9p (8p)

1601 to 2000cc

 

11p

 

 

Over 2000cc

21p

 

13p (12p)

14p (13p)



DIARY OF MAIN TAX EVENTS
FEBRUARY 2018


Date

What’s Due

1/03

Corporation tax payment for year to 31/5/17 (unless quarterly instalments apply)                                                                  

19/03

PAYE & NIC deductions, and CIS return and tax, for month to 5/03/18 (due 22/03 if you pay electronically)



If you have any questions about this newsletter please contact us, we are happy to help.