Items covered in this issue…
Does your accounts system comply with MTD for VAT?
New data protection rules
Changes to tax relief for residential landlords
Minimum workplace pension contribution will soon be increasing
National minimum wage will increase
Cash basis for landlords
Fee protection service information
2018 Self-Assessment Tax Returns
Please advise us of any change to your address, telephone
number or Email so we can ensure that our records are kept up to date
Imagine a cloud where your entire book keeping information is held securely. This information can be retrieved by either you or your accountant as and when needed 24/7. In a nut shell, this is Cloud Accounting!
You have probably used similar...
If you’ve used online banking, then you’ve used a similar service to Cloud Accounting. You log into online banking to view and maintain your bank accounts, from anywhere with internet access. Cloud Accounting is just using a different cloud in which you categorise all the money you’ve received and spent.
Does your accounts system comply with MTD for VAT?
Making Tax Digital (MTR) 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 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 regulation 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 digital linked in the draft notice.
One example is a business which uses one piece of accounting software to record all sales and purchase, 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. Note that MTD for VAT will not be mandatory where turnover is below the VAT registration limited, currently £85,000 per annum.
New data protection rules are currently in the pipeline
GDPR – General Data Protection Regulation is going to start from May 25th 2018
There will be an increase in obligation of all businesses to safeguard the personal information of individuals that is stored by the business – whether they are suppliers, customers or employees
In a nutshell – if you are already subject to the Data Protection Act you are very likely to have to comply with the GDPR
Preparing for the General Data Protection Regulation (GDPR) – 12 steps to take now:-
You should make sure that decision makers and key people in your organisation are aware that the law is changing to the GDPR. They need to appreciate the impact this is likely to have.
Communicating privacy information
You should review your current privacy notices and put a plan in place for making any necessary
changes in time for GDPR implementation
Subject access requests
You should update your procedures and plan how you will handle requests within the new timescales and provide any additional information.
You should review how you seek, record and manage consent and whether you need to make any changes. Refresh existing consents now if they don’t meet the GDPR standard.
You should make sure you have the right procedures in place to detect, report and investigate a personal data breach.
Data Protection Officers
You should designate someone to take responsibility for data protection compliance and assess where this role will sit within your organisation’s structure and governance arrangements. You should consider whether you are required to formally designate a Data Protection Officer.
If your organisation operates in more than one EU member state (ie you carry out cross-border
processing), you should determine your lead data protection supervisory authority. Article 29 Working
Party guidelines will help you do this.
Data Protection by Design and Data Protection Impact Assessments
You should familiarise yourself now with the ICO’s code of practice on Privacy Impact Assessments as well as the latest guidance from the Article 29 Working Party, and work out how and when to implement them in your organisation.
You should start thinking now about whether you need to put systems in place to verify individuals’ ages and to obtain parental or guardian consent for any data processing activity.
Lawful basis for processing personal data
You should identify the lawful basis for your processing activity in the GDPR, document it and
update your privacy notice to explain it.
You should check your procedures to ensure they cover all the rights individuals have, including how
you would delete personal data or provide data electronically and in a commonly used format.
Information you hold
You should document what personal data you hold, where it came from and who you share it with. You may need to organise an information audit.
Minimum workplace pension contributions will soon be increasing
The minimum amount paid into your workplace pension, both by you and your employees, is going to increase. This is a nationwide change, involving millions of people and their employers across the country. Changes will take place in April 2018, and again in April 2019 – it’s the law.
The table below shows what the base contributions are, and the dates they will rise. You can also choose to give more than the minimum amount should you wish.
Date effective - Currently until 5 April 2018
Employer minimum contribution 1%
Employee minimum contribution 1%
Total minimum contribution 2%
Date effective - 6 April 2018 to 5 April 2019
Employer minimum contribution 2%
Employee minimum contribution 3%
Total minimum contribution 5%
Date effective - 6 April 2019 onwards
Employer minimum contribution 3%
Employee minimum contribution 5%
Employee minimum contribution 8%
From April 2018, the minimum wage will increase
YEAR 25 AND OVER 21 TO 24 18 TO 20 UNDER 18 APPRENTICE
2018 £7.83 £7.38 £5.90 £4.20 £3.70
2017 £7.50 £7.05 £5.60 £4.05 £3.50
National Minimum Wage 2018
The National Minimum Wage (NMW) is the minimum wage per hour a worker is entitled to in the United Kingdom. These rates are reviewed yearly by the government and are advised by the independent body Low Pay Commission (LPC).
Cash Basis for Landlords
Under the cash basis, accounts are prepared simply by reference to money received and money paid out. By contrast, under Generally Accepted Accounting Practice (GAAP) profits must be worked out using the accruals basis (sometimes referred to as the ‘earning basis’) which recognises income earned in a period and expenditure incurred in a period, regardless of when the income is received or the payment made.
From 6 April 2017 onwards, the cash basis will be the default basis for most unincorporated landlords where rental income is less than £150,000 a year. However, if the landlord wishes to continue to prepare accounts on the accruals basis, he or she will need to elect to do so. By contrast property letting companies will need to continue to use the accruals basis to prepare accounts.
The rules for the treatment of capital expenditure under the cash basis have also been reformed from 6 April 2017 onwards. The new rules allow landlords using cash basis accounting to deduct most capital items from rental income and computing profits. However, a deduction is not available in this way for all capital expenditure – notable exceptions include land and cars.
Contact us to discuss what cash basis accounting means for your property rental business
Changes to tax relief for residential landlords
The tax relief that landlords of residential properties get for finance costs will be restricted to the basic rate of Income Tax, this began phasing in from April 2017.
The changes will:
- affect you if you let residential properties as an individual, or in a partnership or trust
- change how you receive relief for interest and other finance costs
- be gradually introduced over 4 years from April 2017
Finance costs won’t be taken into account to work out taxable property profits. Instead, once the Income Tax on property profits and any other income sources has been assessed, your Income Tax liability will be reduced by a basic rate ‘tax reduction’. For most landlords, this’ll be the basic rate value of the finance costs.
Who’ll be affected?
You’ll be affected if you’re a:
- UK resident individual that lets residential properties in the UK or overseas
- non-UK resident individual that lets residential properties in the UK
- individual who let such properties in partnership
- trustee or beneficiary of trusts liable for Income Tax on the property profits
All residential landlords with finance costs will be affected, but only some will pay more tax.
You won’t be affected by the introduction of the finance cost restriction if you’re a:
- UK resident company
- non-UK resident companies
- landlord of Furnished Holiday Lettings
You’ll continue to receive relief for interest and other finance costs in the usual way.
What’s included under the finance cost restriction?
The finance costs that will be restricted include interest on:
- loans - including loans to buy furnishings
Other costs affected are:
- alternative finance returns
- fees and any other incidental costs for getting or repaying mortgages and loans
- discounts, premiums and disguised interest
If you take a loan for both residential and commercial properties, you’ll need to use a reasonable apportionment of the interest to work out your finance costs for the residential properties. Only the finance costs for the residential property business are restricted. This also applies if your loan was partly for a self-employed trade and partly for residential property.
Phasing in the restriction
The restriction has been phasing in since 6 April 2017 and will be fully in place from 6 April 2020.
You’ll still be able to deduct some of your finance costs when you work out your taxable property profits during the transitional period. These deductions will be gradually withdrawn and replaced with a basic rate relief tax reduction.
You’ll be able to use some of your finance costs to work out your property profits and use your remaining finance costs to work out your basic rate tax deduction.
Fee Protection Service Information
The New body HMRC
Tax and VAT investigations are now instigated by a new single Revenue Department HMRC (HM Revenue & Customs).
HMRC Officers now have access to more information concerning individuals and companies than ever before.
Chappell Associates have for many years been able to protect clients against the cost of representing those who are subject to detailed enquiry by this new body and its predecessors.
If you have not availed yourself (or your company) of this service in the past we strongly urge you to do so now as HMRC investigations are becoming more wide ranging and therefore more costly each year.
Fee Protection Service – Nature of the Plan
The plan takes the form of an insurance contract between us and Ageas Insurance Ltd and is administered by Copperfield Professional & Taxation Services Ltd.
The cost is billed as a SERVICE from us to the client and claims are made directly by us to the Insurers.
The plan enables us to represent each client for professional fees (including specialist external support if necessary) to a limit of £12,000 per claim in respect of each of the following categories:
a) HMRC In-Depth Tax Investigation / Inspections
b) PAYE Compliance Inspections / Disputes
c) PAYE Audit Inspections / Disputes
d) HMRC VAT Inspections / Disputes
e) Aspect Enquires (to a limit of £3,000 per claim)
Uniquely this plan does not include an ‘Honesty Clause’ so that payment does not depend on the outcome of the investigation and is not affected by errors or omission identified by HMRC, late submission of account, or by the level of penalties imposed following the investigation.
Liability of Clients
The plan DOES NOT protect clients for any payment of tax, interest or penalties arising from the investigation. What is does do however is give us the best chance to fight the investigation as effectively as possible on your behalf by removing the worry about the costs in the process.
Clients remain liable for any costs which, in their absolute discretion, the insurers refuse to cover and for any excess over the £12,000 limit. We have hardly ever experienced an investigation which cost more than £12,000 to complete and claims will only be refused or reduced in exceptional circumstances. This might include for example excessive costs incurred where a client insists on a meeting to review every letter written in the course of an investigation, or in the case of a new client of our practice coming on to the scheme who has committed a ‘time offence’ such as late notification of a new source of income.
The facility is provided as soon as clients have paid the relevant fee for the service. In the majority of cases we will bill the Fee Protection Service at the same time as we bill for your annual accounts or tax return (ie before the accounts are submitted to and examined by HMRC). If you are concerned to obtain our service earlier against any of the other categories of risk listed above please let us know.
Renewal of Service
Assuming that the scheme continues to operate satisfactorily, no formal renewal will be required each year. We will simply bill you for the Fee Protection Service as a supplement to our normal invoices.
The cost and basis for charging
The cost is calculated at 15% of the accountancy fees to a maximum of £350 plus VAT.
The above rate may vary in future depending on the intensity of bureaucratic activity and hence the level of claim.
This method of charging has the benefit of being completely fair as it relates directly to the level of each client’s accountancy fees.
2018 Self-Assessment Tax Returns
The tax year ends on 5 April 2018; please supply us with your paperwork
Information needed to complete a self-assessment tax return:-
For the period from 6 April 2017 to 5 April 2018 –
1. Tax deduction certificates or details of interest received on all bank and building society accounts held.
2. Tax deduction certificates or details of all other interest received.
3. Dividend vouchers or details of all dividends received in respect of all shares held.
4. Annual statements of all interest received on National Savings Income Bonds/Pensioners Guaranteed Income bonds and ordinary and investment accounts.
5. Certificates or details of all pension contributions made.
6. Forms P60 and P11D in respect of all earnings from employment.
7. Details of all rental income and associated expenses.
8. Contract notes for all shares bought and sold in the year and full details of all other capital acquisitions and disposals.
9. Details of all outgoings such as gift aid donations, enterprise investment scheme payments or qualifying loan interest.
10. Any gifts made in the year which in total exceeded £3,000.
11. Details of all cash payments or shares from building societies, life assurance companies, and other organisations which have been taken over.
12. Chargeable event certificates or details of all cash withdrawals from life assurance policies or investment bonds.
13. Details of all income from Estates, Wills or Settlements.
14. Details of all business income for accounting periods ending in the period, if not already provided.
15. Full details of all other income and gains – regardless of whether it has already been taxed.
16. Details of child benefit received if your individual income is over £50,000 in the tax year.