Making Tax Digital Archives - Stepping Stones Accountancy

Why do we need quarterly updates with Making Tax Digital (MTD)? https://steppingstonesaccountancy.co.uk/wp-content/uploads/2021/11/quarterly-updates-mtd.jpg 758 513 Stepping Stones Accountancy Stepping Stones Accountancy //steppingstonesaccountancy.co.uk/wp-content/uploads/2017/01/stepping-stones-acountancy-icon.png 11 October 2021 1 November 2021

Why do we need quarterly updates with Making Tax Digital (MTD)?

As the Making Tax Digital (MTD) scheme continues to gather momentum there are many business owners still unsure of their commitments. However, the requirements can be broken down into 4 key measures which determine why taxpayers (even those who may have a small turnover as little as £10k) are required to provide a breakdown of income and expenses. This needs to be done via an online accounting platform which is approved by MTD and submitted every quarter.

Keeping up to date

By submitting a quarterly return, a business is keeping up to date with their returns and complying with their commitments to MTD. The regulations state that a quarterly filing deadline needs to be submitted online.

More accurate provision for tax payments

Any profit which is reported within the quarterly updates will allow the HMRC to provide an estimate of the tax payments a business might have to make during the tax year. The clear benefit of this is that a business will know how much tax they need to pay and when they will need to pay it, thus allowing for accurate budgeting.

Vital business analysis

Whilst a small business might think their quarterly tax return is only important to them, it is also a very useful tool for the HMRC. Being able to evaluate the data received from tax returns enables them to provide some informed and critical business analysis in relation the state of the economy.

Penalties for late submissions

To ensure businesses recognise the importance of quarterly submissions, HMRC will be implementing penalties to anybody who fails to comply. Penalties will be based around a points system, where any late submission means points added to an account. When a designated number of points are accrued a fine will be issued. Points will stay on record for 24-months after which they will be wiped from the record. To find our more please follow this link – https://www.gov.uk/government/publications/penalties-for-late-submission/penalties-for-late-submission

If you have any questions in relation to Making Tax Digital our team would be happy to help. Please call us on 01173 700 079 or e-mail hello@steppingstonesaccountancy.co.uk.

Overdrawn directors loan accounts: Don’t forget tax! https://steppingstonesaccountancy.co.uk/wp-content/uploads/2021/08/overdrawn-directors-loan-accounts-min.jpg 758 513 Stepping Stones Accountancy Stepping Stones Accountancy //steppingstonesaccountancy.co.uk/wp-content/uploads/2017/01/stepping-stones-acountancy-icon.png 23 August 2021 26 August 2021

Overdrawn directors loan accounts: Don’t forget tax!

A director’s loan account (DLA) documents the transactions that occur between a director and a company. It includes salary, dividends, expenses, director’s personal bills paid for by the company and reimbursements.

If the DLA becomes overdrawn by more than £10,000 and the company is a close company, there is a potential for a benefit-in-kind charge on the director and a Class 1A National Insurance charge for the company.

There are, however, some exceptions to this including:

If the loan is used for a ‘qualifying’ purpose such as buying an interest in a partnership
If the director is charged interest by the company

For these loans, there is normally no interest charged however the director will be taxed on any interest that would have been payable if they had borrowed from another source. Sometimes though it can be cheaper for the director to just pay the benefit in kind charge and the company to pay the NICs.

To replay an overdrawn DLA, it is preferable to use dividends from the company so that no NICs are payable. If there are insufficient accumulated profits though, and a dividend is still paid, this may be deemed to be ‘illegal’ and so a salary or bonus should be used.

If the overdrawn DLA is not repaid with 9 months and 1 day after the accounting year end then a charge, taxed at the higher dividend rate is payable. This is refundable after the loan has been cleared or written off.

If the loan is repaid within the required 9-month period, this charge is not physically paid, although it is still declared in the tax return.

If the loan is written off, then it is liable for income tax and Class 1 NICs with the NICs being deducted via payroll and the tax via self-assessment.

It is likely that under Making Tax Digital, overdrawn DLAs and illegal dividends will be an area that HMRC will focus on as the 3 monthly returns will make them highly visible. Thus, it is important to be aware of the regulations and implications surrounding DLAs in order to prevent action from HMRC.

Should you need any support then our team would be delighted to help. Please feel free to call us on 01173 700 079 or e-mail hello@steppingstonesaccountancy.co.uk.

A simplified tax reporting for small businesses https://steppingstonesaccountancy.co.uk/wp-content/uploads/2021/08/simplified-tax-reporting-for-small-businesses.jpg 758 513 Stepping Stones Accountancy Stepping Stones Accountancy //steppingstonesaccountancy.co.uk/wp-content/uploads/2017/01/stepping-stones-acountancy-icon.png 9 August 2021 26 August 2021

A simplified tax reporting for small businesses

As part of the Government’s Making Tax Digital (MTD) plans to simplify the tax system and to speed up the time it takes for self-employed professionals and small business owners to complete their tax returns, the Government are proposing changes to the existing tax reporting rules.

The changes, planned by 2023, would mean that any business not incorporated would be taxed on profits arising in the tax year as opposed to profits on accounts ending in the tax year.

In short, the changes will see all businesses having to align their basis period with the 5/6^th April tax year. Whilst the majority of businesses already do this, there are about 7% of sole traders who choose not to as it fits better with their business model.

For example, a business who runs their accounts to the 30^thof June each year, their income tax for 2023/24 would currently be based on profits for the year ending 30^th June 2023. Under the new rules the income tax for 2023/24 would be based on 3/12 of the income for the year ending 30^th June 2023 in addition to 9/12 of the income for the year ending 30^th June 2024.

The Government estimates that around 3% of sole traders and 15% of partners will face an increase in costs as a result of these proposed changes but believes that they will reduce errors and overpayments and bring tax returns in line with other assessments such as property income.

Whilst the changes are broadly welcomed and the consensus is that it will simplify life for business owners, the consultation period is due to conclude on 31^st August. Some claim that this is too quick and businesses need more time to prepare and propose a delay of 12 months in order for business to provide proper feedback and ensure that the scheme works for everyone.

If you have any questions or would like to discuss this further please feel free to call us on 01173 700 079 or e-mail hello@steppingstonesaccountancy.co.uk.

An Update on MTD | Making Tax Digital | Advice on Making Tax Digital | Accountancy Support with MTD | What is MTD

An Update on Making Tax Digital (MTD) https://steppingstonesaccountancy.co.uk/wp-content/uploads/2021/01/update-on-mtd.jpg 758 513 Stepping Stones Accountancy Stepping Stones Accountancy //steppingstonesaccountancy.co.uk/wp-content/uploads/2017/01/stepping-stones-acountancy-icon.png 14 January 2021 21 January 2021

An Update on Making Tax Digital (MTD)

Making Tax Digital (MTD) was first introduced during the Spring Budget of 2015, its aim was to completely negate the need for an annual tax return. Instead, taxpayers would have all their information loaded directly onto a digital tax account. Alongside this, businesses would only have to worry about paying one simple business tax. The other key benefit announced was the simplification of tax for self-employed people along with the complete removal of the class 2 national insurance contribution.

Despite lots of discussion and various communications from HMRC, including a number of consultation papers that addressed various aspects of the MTD project, none of these objectives have been met. Indeed, back in July 2017 there was an announcement that the scheme would be delayed with MTD for income tax being introduced in 2020 and MTD for VAT being introduced in 2019.

As planned the MTD for VAT did commence in April 2019 but with the exclusion of specific businesses (classed as complex), who were delayed until October 2019. It was also decided that specific public sector bodies would also not be joining the scheme until sometime in 2022. The final implementation of the scheme will see a compulsory digital transfer on all VAT data to happen by April 2021 and the mandating of all VAT registered businesses to comply with MTD by April 2022.

If we look at income tax, this digitalisation involved a far more complex structure. The result is that a taxpayer will have to adopt four quarterly reports and a final report that in most cases will replace the annual self-assessment return. A pilot scheme for this was initiated in April 2018 however, there are currently only a small number of taxpayers and agents participating in this pilot and also only 6 of the major software companies (compliant with MTD) that have provision for recording this.

Although planned for 2017, the MTD for corporation tax and complex businesses (defined as large partnerships with income of over £20m or mixed partnerships that include companies, LLP’s and individuals) has yet been introduced. The HMRC issued a specific consultation documentation in November 2020 (https://www.gov.uk/government/consultations/making-tax-digital-for-corporation-tax), however this consultation will run until 5^th March 2021, so in reality it is likely that developments within this field will not be seen until later this year.

The final item to note on MTD is that the reporting of corporation tax will be very similar to that of income tax rather than VAT. There will be a quarterly reporting structure for both income and costs. Companies will still need to assign all their accounting totals for iXBRL when submitting annual accounts to HMRC. Therefore, companies within MTD will have to submit 5 reports to HMRC for their annual accounts, along with the standard 4 quarterly VAT returns and relevant PAYE returns

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