Read. Review. Recruit. Recruitment Newsletter, Autumn 2016
Salary Sacrifice Benefits Soon to be Limited
Employing Illegal Staff WILL Cost you Thousands
Digital Reporting Uncovered
The government’s ‘Consultation on salary sacrifice for the provision of benefits-in-kind’ was released in August 2016.
The government has released the Immigration Act 2016, which aims to impose stronger sanctions on employers for non-compliance.
HMRC is Making Tax Digital and with six consultations now released, here we review the key points you should be aware of.
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Contents
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PP
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Welcome and Partners
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Special Feature Salary Sacrifice Benefits Soon to be Limited
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FCSA Research Shows Public Sector Contractors will not be Railroaded into Becoming Employees
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Apprenticeship Levy: Impact on Staffing Companies
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Looking for a Bean Counter or a Business Mentor?
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Is Gamification the Way Forward for the Recruitment Sector
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Raffingers Foundation
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Events
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Employee Spotlight
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Employing Illegal Staff WILL Cost You Thousands
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Five Easy Mistakes Recruiters Make
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Enterprise Management Incentives (EMI’s)
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Partner Perspective Digital Reporting Uncovered
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Welcome to our AUTUMN Newsletter As we bid farewell to the lovely, warm summer, we bring you our autumn newsletter. In this quarter’s edition, we explore and evaluate the latest updates and information for the recruitment sector, and assess how these changes may affect you and your business. This quarter we take a look at the government’s ‘Consultation on salary sacrifice for the provision of benefits-in-kind’, which was released in August 2016. The consultation is set to explore the potential impact on employers and employees should the government decide to ‘change the way the benefits code applies when a benefit-in-kind is provided in conjunction with a salary sacrifice or flexible benefit scheme’. More information on this is available on page 5. In addition, with further information released on the Apprenticeship Levy, we take a look at the impact this ‘payroll tax’ is going to have on staffing companies from April 2017. With recent media reports uncovering companies that are unknowingly employing illegal staff, we also delve into the effects this is having on businesses and what can be done to prevent your business from coming under scrutiny. If you would like to contribute to our next edition, or have any suggestions for topics that you would like to see discussed, please contact us.
Raffingers Partners
Gary Inglis Managing Partner gary@raffingers.co.uk
Andrew Coney Partner andrew@raffingers.co.uk
Lee Manning Partner lee@raffingers.co.uk
Adam Moody Partner adam@raffingers.co.uk
Suda Ratnam Partner suda@raffingers.co.uk
Barry Soraff Partner barry@raffingers.co.uk
The Partners at Raffingers Paul Dell Partner paul@raffingers.co.uk
Digital Reporting Uncovered - Page 14
Salary Sacrifice Benefits Soon to be Limited SPECIAL FEATURE
The government is making good on its plan to limit the tax advantages of some benefits-inkind (BIK) when provided as part of a salary sacrifice arrangement. This will affect benefits, such as mobile phone contracts and workplace parking, but not those more traditional benefits, such as pensions and health care. The government’s ‘Consultation on salary sacrifice for the provision of BIK’ was released in August 2016. The consultation is set to explore the potential impact on employers and employees should the government decide to ‘change the way the benefits code applies when a benefit-in-kind is provided in conjunction with a salary sacrifice or flexible benefit scheme’.
So what is salary sacrifice? A salary sacrifice arrangement is when an employer and employee agree to reduce the employee’s cash salary in return for a non-cash benefit. In the past these benefits included pension contributions, childcare vouchers and cycle-to-work schemes. However, more recently benefits have included cars, mobile phones and gym memberships, and it is this increase in benefits provided that has instigated a review by the government. The reason these schemes are so popular is because they benefit employees and employers through reducing the amount of income tax and the employer and employers National Insurance Contributions (NICs) due on the employee remuneration. It is thought that this is unfair as not all employees are entitled to a benefit-in-kind through salary sacrifice and not all employers offer the benefit. The government therefore wish to level the playing field. The consultation also includes an example, which shows that some salary sacrifice schemes can cause the exchequer to lose out on £321 per basic rate payer and £391 per higher rate tax payer per annum.
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The changes Before looking at the changes in store, it is worth noting that the more traditional salary sacrifice schemes will be unaffected:
• Employer pension contributions • Employer-provided pension advice • Employer-supported childcare and provision of workplace nurseries • Health related benefits, such as cycle-to-work
• Holiday trading schemes However, for other salary sacrifice schemes the government is looking to remove the income tax and NICs benefits. This will be done by making the employer account for the value of the BIK on their P11d or through their PAYE, which will mean income tax and Class 1A NICs will be charged on the BIK BIKs currently offered on top of salary will not be affected by the proposed changes. Despite these changes the consultation makes it clear that it ‘does not prevent employers from providing BIK to their employees through salary sacrifice, but it will remove the tax and NICs advantages that come from doing so’. Salary sacrifices are a great way to incentivise and reward employees. The core schemes will remain unaffected, but it is important that you are aware of your tax liability should you deliver benefits that will now be taxable. Approved changes will come into force in April 2017.
For further information, please contact: Gary Inglis gary@raffingers.co.uk
FCSA Research Shows Public Sector Contractors will not be Railroaded into Becoming Employees Plans to put contractors onto the payroll in the public sector as part of HMRC’s new intermediaries legislation due to come into force in April 2017 have been met with resistance amongst agencies, end-hirers and contractors according to research representing 68,000 contractors conducted by The Freelancer & Contractor Services Association (FCSA). 37% of intermediaries who source (and/or support) contractors for public sector roles believe that endhirers will seek to place their freelancers on agency payrolls, with 23% also suggesting that hirers who source contractors directly will most likely seek to place them on their own payroll as temporary workers. Those contractors being placed on the hirer payroll will be taxed as employees, but will not be entitled to the same statutory benefits as employees despite being taxed as such. 26% of intermediaries also reported the likelihood of the workers they source being placed on fixed-term contracts by the client. However, the poll also revealed that 34% of intermediaries report that contractors will not accept being payrolled, 38% state that individuals will not
accept fixed-term contracts, as they do not want to be employed by the end-hirer. In addition – and crucially, for public sector hirers – 29% are aware that contractors will be actively looking for work outside the public sector as a consequence of the proposed changes. Julia Kermode, Chief Executive of FCSA, the UK’s largest independent trade body whose members provide professional support services to freelancers and contractors said: “Our research has revealed a mismatch in thinking between contractors’ intentions and the options being considered by agencies and public sector hirers. Contractors are simply not going to accept fixed-term contracts or being put on the payroll as temporary workers. We are already seeing contractors not accepting public sector contracts beyond April 2017 due to the proposed changes. They are shunning false “employment” engagement mechanisms which contradict the reality – that the hirers’ needs are contingent so contractors’ skills are sought on a needs basis, therefore employment is a nonsensical solution. Source: FCSA Compliant
We have been shortlisted!
Lee Manning, Partner Practitioner of the Year British Accountancy Awards 2016
Raffingers Medium Practice of the Year Practice Excellence Awards 2016
2016 has been another tremendous year for Raffingers and we are pleased to have been shortlisted for yet another two prestigious awards. A huge thank you goes to all of our team and clients, without which this just would have been possible. www.raffingers.co.uk
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Apprenticeship Levy: Impact on Staffing Companies As of 6 April 2017 all businesses that have an annual wage bill exceeding £3million will be required to contribute towards the training of apprentices. The Apprenticeship Levy is essentially a payroll tax. The aim of the levy is to help fund three million places for apprentices and streamline the cost associated with training. Furthermore, the levy will give businesses and organisations the opportunity to access both government and contributed funds through a digital account that can be used to train apprentices from May 2017 onwards. The key points you need to be aware of are:
• Only UK companies with an annual wage bill over £3million will be liable • Liable companies will have to contribute 0.5% of their annual wage bill, which will be payable monthly through PAYE • All employers will receive a £15,000 allowance • All eligible employers will be able to draw down from the levy fund and pay for apprenticeship training and assessment through the digital apprenticeship service All employers need to be aware of the Apprenticeship Levy so that they can begin implementing planning strategies, and this is especially true for staffing
companies. On average, payrolls run by recruitment agencies are higher than those run by other businesses, which means even small staffing companies are at risk of paying a hefty tax, especially those that are involved in the temporary staffing market and those that run multiple payrolls. At this point there is not a lot that can be done, some agencies have considered taking temporary workers on as apprentices, but with the criteria this can be tricky and not a sustainable solution. More lobbying will be done as it is expected that recruitment companies will be hit the hardest. For now, the most important thing is that you are aware of the changes. We also advise that you carry out an audit of your payroll to see whether you will be required to pay the levy and if so how much. From this you will be able to ensure you will have the financial means to pay the levy and if not, begin to put planning processes in place. Planning in advance will help to mitigate the impact of the levy when it is introduced, it also allows you to see if any changes can be made to your contracts or operating model to reduce your liability. To find out more Information, please go to Gov. uk.
For more advice or for help planning for the levy, please contact: Adam Moody 020 8418 2683 adam@raffingers.co.uk
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Looking for a Bean Counter or a Business Mentor? Starting up a business is one of the toughest decisions and undertakings anyone can make, but yet it can potentially prove to be one of the best, and most rewarding. Statistics unfortunately show that 20% of new businesses formed in the UK will fail in the first year alone, rising to nearer 50% within two years. There are a number of reasons a business will fail, but many of the risks could be reduced, or even avoided altogether, if any new venture is approached in the right way, and with the correct support and professional advisors behind you. A new business owner should, but will not always, consider the following key areas:
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A well thought out business plan
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Detailed knowledge of your market and competition
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Strength of business management skills and support lines
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Business structuring and other legalities
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Full utilization of social media and online marketing
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Cash flow forecasts and financial management
The true cost of bureaucracy and regulation
No matter how strong a concept you think you have, coming across hurdles that your experience just does not allow you to deal with, and not fully considering any of the key core areas listed above, could cost you
your business before it has even had a chance. Running a business can be a lonely existence and struggle at times. Therefore, having someone who is not directly involved, but who can be objective, able to discuss technical issues, to bounce ideas around with, and also more importantly, ask the questions that nobody else will ask, is invaluable. Business mentoring can provide this crucial support line to help strengthen both your business and your own skill set, and prove to be invaluable in getting a new business off the ground, with strong foundations to give it every chance to accomplish and fulfil its potential to succeed in the long term. A business mentor must be honest, with an unbiased view, in that they want to support your vision, but will provide a challenge to your thinking and ideas. This means they will look to understand your goals, but also question and challenge to assist you to achieve them. A good accountant will have all of these attributes and be able to provide the expert advice required. An accountant should be more than a bean counter, but someone who will actively seek to take an interest in your business, to listen, understand and provide an objective view and opinion. Not to put obstacles in front of your vision, but to help steer a course through the hidden dangers that being in business will inevitably bring. In summary, they will ensure the key areas have been thought through and considered in full, they will seek to help business owners achieve their goals by assisting to remove any barriers to performance, and releasing the potential in your ideas and concept.
For further information, please contact: Roy Butcher 020 8418 2673 roy@raffingers.co.uk
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Is Gamification the way Forward for the Recruitment Sector? Although gamification is not the newest technique to be used in the recruitment process, it is certainly becoming one of the most unique ways to attract quality candidates. With traditional interviews and assessments it can be difficult to accurately evaluate a candidate’s personality and skill set. Often in interviews, candidates feel that they do not get the opportunity to show employers ‘the real them’ and employers are left to question whether they have been given ‘true’ responses. Gamification is enabling recruiters to implement a more efficient recruitment process. Instead of organising interviews in the first instance, candidates are given games, which simulate the work environment and test their hard and soft personality traits, enabling employers to see upfront how a candidate reacts to different circumstances. These games also provide an excellent analysis of how a candidate thinks. Through getting a better understanding of a candidate and how they work means that a better match can be made and when it comes to the interview, employers know that whoever is in front of them has the capability to carry out the job in question. Whatever skill a role requires a candidate to have, gamification can target its content around those attributes. Recruiting in this way not only saves time, but also reduces the risk of a candidate dropping out of a role. Games can be developed in such a way that
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they set a candidate’s expectations and ensure they are well informed about a company before they begin the recruitment process. Employers are also able to use gamification to optimise and progress their existing teams. Through carrying our regular scenarios and tests, gamification can be used to assess each team member and their suitability for a senior role. Being able to evaluate how a candidate would adapt to a higher level position within a company is invaluable to employers and enables them to get the most out of their existing talent. It can also lead to happier work forces as team members know that they will not be overlooked for a role and can actively play a part in their progression. In regards to attracting new candidates to a company, gamification provides a great way to sell a company to a prospective candidate. By enabling candidates to find out relevant information about a company in a fun and efficient way, means that a ‘buzz’ can be created around the company’s brand and the company will appear more attractive to future employees. In a ‘digital-first society’, gamification is certainly an avenue that should be explored, particularly if you are looking for savvy, quality candidates. The process will evidently work better for some roles more than others, but is certainly a great way to streamline the recruitment process and ensure that your clients are provided with the best possible candidates.
Raffingers Foundation Summer saw our team transform into superheroes and pick their fantasy football league team, helping us reach a total of £3,299. All of which will be split equally between Pancreatic Cancer Research Fund and Ovarian Cancer Action. However, our fundraising does not stop there and we are pleased to confirm that we have set a date for our 2017 Charity Ball. Our ball will be held on Saturday 16 September 2017 and we would love for you to be there. Further details can be found by visiting the web page below:
£3,299 Raised so far
www.raffingers.co.uk/community
Superhero Day We know our team are already superheroes, but on Friday 22 July 2016 they donned their best superhero outfits to help raise a total of £240.
Events Cloud Drop-ins Where: Raffingers, 19-20 Bourne Court, Southend Road, Essex, IG8 8HD When: 2pm - 6pm Drop in to our offices on the last Friday of every month to receive free, one-to-one support on your cloud accounting software.
Annual Tax Update Where: Prince Regent, Chigwell, London, IG8 8AE When: 9am (8:30am arrival) Following the 2017 Budget, join us for breakfast to discuss the latest changes and what you can do to mitigate your tax liability following the update. As always, we will delve into pensions, dividends and all things tax, helping to ensure your affairs are up-todate and you are in the best possible position.
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Employee Spotlight
In this slot we introduce you to a valued member of our team, allowing you to put a face to a name. This quarter we speak to our Audit Senior, Ansa Archibong
Employing Illegal Staff WILL Cost you Thousands A recent case involving Byron Burger unknowingly employing 35 illegal employees has gained media coverage and also highlighted the negligence of some employers. Coincidently, on 12 May 2016 the government introduced the Immigration Act 2016 to replace the Immigration Bill, with the intention to make it harder for illegal and rogue stayers to work in the UK by imposing stronger sanctions and penalties. The changes to the act will be enforced periodically over the coming year. Consequently, as of 12 July 2016, two offences are now enforceable:
• The law on employing migrants who are Name: Ansa Archibong Email: ansa@raffingers.co.uk Career: Accountancy is my second career after a graceful period working within the shipping industry and being part of the family business. After graduating from the Maritime Academy of Nigeria, the obvious choice was to work within the Maritime Sector where I got involved in cost accounting as a Marine Transporter and Shipping Executive. It was an amazing experience, but I later decided to pursue a career in Accountancy and Finance. In the UK, I graduated from the University of West London, with a 2.1 in Accountancy and Finance. After several years of experience with many different entities, including KPMG, PK Group Partners, Richmond Gatehouse LLP and a few others, I gained ACCA Membership and obtained my General Practising Certificate in early 2016. I joined Raffingers in April 2016 as an Audit Senior, to broaden my audit experience. Interests: I am an avid fisherman, extremely passionate motor biker and enjoy boxing, as well as martial arts. My other passion is travelling and seeing remarkable parts of the world as this gives me a much better appreciation of the universe. You only live once! Partners Report: Since joining in April, Ansa has hit the ground running. Not only is Ansa instrumental in our audit process, but through his drive and his eagerness to learn, he has already contributed significantly to our IT and marketing departments. 10
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illegal: The offence of “knowingly” will apply where employers have “reasonable cause to believe” that a worker is illegal. Failure to take proper precautions could leave the employer with harsh sanctions. • The introduction of a new offence: “The illegal working” offence will punish those who have breached the act by working illegally. Failure to carry out thorough checks, can lead to:
• For the employer: Depending on the severity of the case, employers can expect to face a custodial sentence of up to five years and potentially a fine of £20,000 for every illegal worker. An Immigration officer will also have the right to shut down the premises for up to 48 hours. Furthermore, if your establishment sells alcohol, you may risk losing your licence. • For the employee: Depending on the severity of the case, the employee can expect to face a custodial sentence of up to six months, face criminal prosecution and deportation. The worker can also expect all their of earnings made during the duration of their employment to be seized under the Proceeds of Crime Act.
Checking employees: It is important to thoroughly check the status of all of your employees prior to them working with you in order to protect yourself from penalties. As best practice, you should only ever accept original documentation that is in date and is a “like-to-like” representation of the potential employee. Always take as much precaution and as many reasonable steps to ensure validity, but also photocopy documents; this will prove helpful when carrying out repeat checks on employees with limited leave. Lighter punishments will be given to the employer if you have been defrauded but failed to correctly do thorough checks.
Five Easy Mistakes Recruiters Make To find the right candidate for the right role is always going to be a challenge. Yet, many recruiters are making the process even more difficult than it needs to be, by repeating the same mistakes again, and again. To ensure you do not fall into this trap, here are the five mistakes recruiters make.
Not seeing the bigger picture When recruiting for multiple roles it is important to not solely focus on one vacancy at a time. Recruiting in this way is short-sighted; often, many gifted and talented candidates are not considered for a position as they do not possess a quality that an employer requires for a specific job role. This is fair enough. However, they may possess a quality required for another role you are recruiting for or may be suitable for jobs further down the line. Therefore, it is important to build a good rapport with these candidates and keep a note of the qualities they possess. This can save a significant amount of time later on and means you will have a quality database of prospective candidates to draw upon.
Jumping to conclusions Receiving a large influx of CVs should always be expected. With this in mind, it is of no surprise that recruiters are spoilt for choice when it comes to finding quality candidates to fill a position. However, often qualified candidates are overlooked because they do not have a prestigious educational background or as much work experience as an employer might desire. Therefore, when recruiting, it is advised to keep an open mind and if a candidate possesses the right skills, but a little less experience, hold an informal interview to see if they are a match.
Offering too much A particularly easy mistake to make is offering a high-end salary, especially for managerial level positions. Although an attractive salary will capture the attention of a candidate, it does not guarantee a long-term employee. Starting a candidate out on a high salary leaves little room in a budget to reward hard work with a raise or promotion, and so a candidate may be quicker to leave a company. Instead, recruiters should encourage employers to offer a slightly lower salary and allow the opportunity to use raises and promotions as an incentive to motivate candidates.
Focussing too much on the process Often, recruiters are too focused on the task at hand of fulfilling their client’s materialistic needs that a communication barrier begins to form. A recruiter’s job is to guide employers and candidates through the recruitment process as smoothly and efficiently as possible. Yet, occasionally recruiters have a tendency to focus too much on filling the role and not on listening to their prospective hires and clients. Try not to predict outcomes of interviews and conversations and remain as personable as possible. You do not want to miss out on a candidate because you failed to keep in touch or were over confident in your abilities.
Being complacent When recruiting for multiple roles, it is easy to lose sight and to stop viewing candidates individually. Before recommended a candidate to a client, you need to fully understand the candidate’s desires and fears regarding a position. You do not want to push a candidate for a role if they are not comfortable and if they pulled out of a position further down the line, this would only reflect badly on you. The same is true for your clients, make sure you are on the same page and fully understand the type of candidate they are looking for, pay attention to detail and listen intently to what your clients and candidates have to say.
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Enterprise Management Incentives Employers can help attract and retain employees by rewarding selected employees with a tax favoured scheme - an Enterprise Management Incentive (EMI). This scheme is mainly targeted at small trading companies. An EMI scheme gives employees the option to purchase shares within the company. The employees would usually buy shares at the market value on options that are first offered (grant) and therefore, giving the opportunity for the employee to profit from any growth in the company. The option must be exercised within 10 years in order to receive tax advantages. It is important to note that there are a number of conditions that need to be met and that the scheme must first be registered and approved by HM Revenue and Customs (HMRC).
Conditions 1. The company must carry out a qualifying trade. 2. Excluded trades include:
• • • •
Financial Legal Farming Property Development
3. Company total gross assets are < £30 million. 4. Total value of shares are < £3 million. 5. The company can be either listed or unlisted. 6. The company has < 250 employees (working at least 25 hours per week). 7. An individual cannot have a material interest in company (> 30% share capital). 8. Maximum value of shares held by an employee within either a CSOP or EMI < £250,000. Any doubt on whether the conditions might not be met, can be dealt with by obtaining a tax clearance from HMRC.
Tax Implications No PAYE/ NIC when shares are granted.
exercise less cost of shares to employee. Class 1 NIC will only be payable if the shares are readily convertible assets (usually listed shares or unlisted shares if a buyer is in place). If shares are exercised within 10 years from grant of option No PAYE/ NIC payable provided that the option shares were not sold at a discount. If the shares had been discounted, PAYE will be operated on the lower market value at date of exercise or date of grant, less the cost of the shares.
When shares are sold Capital Gains Tax will be payable on disposal of the shares. Income tax paid on exercise (if any) will be an allowable deduction.
Entrepreneurs’ relief (a reduced rate of Capital Gains Tax Available if the following conditions are met: 1. Shares have been held for at least 1 year starting from the date of exercise 2. The shares are in a trading company 3. Individual owned at least 5% of ordinary and voting shares; and 4. Was an officer or employee of the company There are different rules where shares were exercised on or after 6 April 2013 and were exercised within 10 years.
Tax Charges from disqualifying events The below will mean that a company no longer qualifies for EMI: 1. A loss of independence 2. Company no longer meets the trading requirements 3. Employee no longer works for company 4. Employee no longer works the required hours 5. Employee has exceeded the share value limit (£250,000)
If shares are exercised after 10 years from grant of option
If the shares are exercised within 90 days from the disqualifying event
PAYE will be operated on the market value at date of
No tax is charged if this is within the 10 year period
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from date of grant and the shares were not sold at a discount.
If the shares are exercised after 90 days from the disqualifying event PAYE/ NIC will apply on the increased value between date exercised and disqualifying event.
Company checklist 1. Check the articles of association: • ensure that the operation of the EMI scheme is permitted • can new classes of shares be issued • whether shares can be restricted for rights to dividends • needs to be passed by a special resolution (a 75% majority) • record details in the minutes • filed to Companies House within 15 days of amendments taking effect 2. Carry out a company valuation to ensure that the exercise price is of a true value. 3. Valuation will need to be approved by HMRC by completing a VAL231 form. 4. Once agreed, employees will need to be provided with an ‘option agreement’, approved by the board. Important to take minutes at this point as well. 5. Notify HMRC within 92 days of the grant of an EMI option in order for it to qualify under EMI. 6. Each tax year an annual return will need to be submitted online by 6 July following the end of the tax year. 7. Instructions must be provided to an employee on how and when the shares can be exercised and how to carry this out.
For further information, please contact: Barry Soraff 020 8418 2663 barry@raffingers.co.uk
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Partner’s Perspective
Digital Reporting Uncovered From 2018, the UK will have a digital tax system, which means most businesses, self-employed and landlords will need to use software or an app to keep their records digitally and update HMRC quarterly. This is all part of HMRC’s Making Tax Digital and with six consultations now released, here we review the key points you should be aware of. (If you are a small business or landlord you may be particularly interested in the exemptions section of Consultation One).
Consultation One: Bringing business tax into the digital age This consultation focuses on the practicalities of digital record keeping, including:
• Acquiring and transitioning to digital tools. HMRC considers the practical implications of moving to a digital system and what guidance and support – both practical and financial – it will need to deliver. This includes making free products available for small businesses with straight forward tax affairs and enhancing the support HMRC already offers. • Process for updating HMRC. Businesses will be expected to use their software or app to record and categorise their day-today activity, such as copies of their receipts and expenses. From this information data summaries will then be created, showing the totals of categorised income and expenditure (not transaction records). Businesses will then be required to submit these summaries directly to HMRC from the software when prompted. • Simplifying partnership reporting. HMRC proposes to abolish the current requirement on partners to report their individual profit share in an annual tax return. • End of year activity. HMRC recommends that all businesses get nine months from their year-end to complete a review of all of the data summaries they have submitted to HMRC, before they make a final declaration.
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• Exemptions. HMRC suggests making ALL incorporated businesses and landlords with a turnover below £10,000 exempt of the new obligations. And for those small businesses and landlords with a turnover above £10,000 and below a threshold to be determined, they will be given the option to defer the start of Making Tax Digital by one year. Side note – those that genuinely cannot use digital tools will not be forced to do so and will be protected and helped. Charities and Community Amateur Sports Clubs are exempt and proposals are being sought on other groups that should be exempt.
Consultation Two: Simplifying unincorporated businesses
tax
for
For Making Tax Digital to work, HMRC is aware that it needs to reduce the work involved for businesses to comply with all of the current tax obligations. Its proposals are:
• Cash
Basis Entry Threshold. HMRC proposes simplifying the way businesses with trading income calculate profit. Currently, businesses enter cash basis if their turnover is below the VAT threshold (£83,000). HMRC is seeking views to raise this threshold to anywhere between £100,000 and £166,000. • Reforming the distinction between capital and revenue expenditure within cash basis. It is common for businesses to adjust profits for tax purposes, including distinguishing between capital expenditure (one-off expenditure) and revenue expenditure (day-to-day costs). Therefore, to make it easier for businesses to determine which costs can be deducted when calculating taxable profits, HMRC proposes to provide upfront relief for all types of expenditure (other than excluded assets, such as property). • Reforming reporting periods. It is hoped that in the long-term businesses will be able to
choose an accounting period and pattern that suits them. Through more regular updates, either quarterly or more frequently, if the business desires, people will be able to view their tax affairs in a ‘near real time’ basis.
Consultation Three: Simplified cash basis for unincorporated property businesses The third of the consultations looks at letting certain landlords pick whether they would like to account on a cash or accruals basis. It is thought this will simplify the process for landlords and, by proposing no turnover limit, means every landlord will be able to choose their preferred accounting option.
Consultation Four: Voluntary Pay As You Go (PAYG) Making Tax Digital will give everyone the opportunity to make voluntary payments throughout the year towards their tax liabilities. This will be of benefit to most as it will give everyone more control over their cash flow and how much and how often they make payments to HMRC. This consultation looks at how these payments would be managed and how the payments will be allocated across the different taxes.
Consultation Five: Tax administration HMRC is looking at how it will adapt its current tax administration legislation to Making Tax Digital. As part of this they are proposing new penalty methods that will be easier to understand and will give people the chance to rectify mistakes before they are penalised. These include:
• Late Submission Penalties. HMRC proposes a graduated model where points will be given for each non-deliberate failure and a penalty will only be given after several failures. Those that are deliberately non-compliant will face stronger sanctions. It is also worth noting that HMRC will take a softer approach to penalties in the first year of a business’s Making Tax Digital obligations. • Late Payment Penalties. HMRC are looking
for a fair response for late payment of tax and suggests a new penalty interest regime, which gives leeway to those that have accidentally under paid or overlooked their tax liability.
Consultation Six: Transforming the tax system through the better use of information Here HMRC looks at how it can use the information it already gets from third parties (employers, banks, building societies) to give a more accurate account of an individual’s or businesses tax liabilities. It is thought that a better use of this information will reduce customers who build up under or over payments. HMRC is also looking at ways to use the account to get additional income information from individuals. In this way it is hoped that customers will never have to update HMRC about information it already has. Once HMRC has an efficient process set up for third party data, new sources of information will then be looked into, such as how to get information of investment income (including dividends and shares, peer to peer lending and income from property) into the digital tax account. It is important to note that HMRC will release a consultation on how to obtain and use this additional information before it comes into fruition. Making Tax Digital is the future and all businesses, self-employed and landlords will need to abide by the new rules. To be prepared for the changes, I advise that you begin getting your affairs in order now and get used to keeping regular records. You should also be speaking to your accountant on a regular basis to ensure that they are up-to-date with all of your financial information.
For further information, please contact: Lee Manning lee@raffingers.co.uk
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