Making Tax Digital

A reminder that from April 2019, HMRC’s much vaunted Making Tax Digital (MTD) scheme will apply to certain businesses.

The April 2019 launch will only apply to VAT registered traders. More specifically, MTD will apply to businesses who have a turnover above the VAT threshold – the smallest businesses will not be required to use the system, although they can choose to do so voluntarily.

Live pilot studies are already being carried out and the first businesses have started keeping digital records and providing updates to HMRC to test and develop the MTD service for income tax and NICs. HMRC is keen to expand this pilot.

HMRC announced in 2017:

We will start to pilot Making Tax Digital for VAT starting with small-scale, private testing, followed by a wider, live pilot starting in Spring 2018. This will allow for well over a year of testing before any businesses are mandated to use the system. No business will be mandated before 2019.

From April 2019, businesses above the VAT threshold will be mandated to keep their records digitally and provide quarterly updates to HMRC for their VAT.

We will keep an eye on the results of the pilot studies and monitor the progress of accounting software providers to create the necessary links with HMRC’s digital systems.

If you are registered for VAT, have annual turnover above the current £85,000 limit, and have not yet considered how you are going to cope with MTD, please call so that we can help you research your options.

Construction drawn into VAT reverse charge process

It would seem, that HMRC is keen to plug the apparent drain from VAT receipts when contractors and sub-contractors charge their customers VAT and then go missing, keeping the VAT for themselves. This is described in legislation as “missing trader fraud”.

Their preferred method for dealing with this abuse is to make customers responsible for accounting for the relevant VAT charge rather than the supplier of construction services. This is an extension to the reach of the “reverse charge” scheme.

It has been used in the past to tackle similar VAT avoidance tactics. For example, a reverse charge was introduced for:

  • mobile telephones and computer chips with effect from 1st June 2007,
  • emissions allowances with effect from 1st November 2010.

Further reverse charge measures were introduced for gas and electricity with effect from 1st July 2014 and for electronic communications with effect from 1st February 2016.

The government are considering this extension of the reverse charge process to the construction sector from 1 October 2019.

According to HMRC:

The risk of fraud in the construction industry is principally centred around the supply of construction services between construction businesses in the supply chain and this instrument, therefore, does not require other types of business to apply the reverse charge when receiving construction services and there is also no reverse charge requirement in relation to building and construction materials that are supplied separately and independently of construction services.

They conclude:

Reverse charge accounting makes it impossible for fraudsters to perpetrate missing trader fraud because the customer rather than the supplier accounts for the VAT direct to HMRC. The introduction of the reverse charge in this business sector will mean that businesses will need to adapt their systems and manage their cash flow differently. Due to the large number of small businesses potentially affected by a reverse charge for construction services the government has given a long lead-in time to help businesses adjust, having announced in Autumn 2017 the intention to introduce legislation which will come into force in Autumn 2019.

Unmarried couples to qualify for spousal tax breaks

In a landmark decision, the Supreme Court has ruled that discriminating on the basis of sexual orientation, or a decision to live together rather than marry, is a breach of human rights.

Presently, couples need to be in a formal civil partnership or married to be able to claim the raft of tax benefits available. These advantages include:

  • Transfers of chargeable assets between civil partners and married couples is free of capital gains tax and inheritance tax.
  • In appropriate circumstances spare personal allowances can be transferred from one partner to the other.

In the case taken to the Supreme Court, a heterosexual couple who had decided not to marry considered that denial of rights given to same sex couples (via civil partnership arrangements), and married partners, was an infringement of their basic human rights, and the Supreme Court agreed.

Readers interested in this topic can watch a video recording of the Court’s decision here:

Although the case does not directly impact changes to the tax system it will be interesting to see how the government responds to this ruling. It would be a fairly simple matter to grant heterosexual couples to right to enter into a civil partnership, and therefore gain access to the present tax status of same-sex civil partners and married couples.

Why don\’t they join up the dots

According to HMRC, around three million couples across the UK have boosted their finances by claiming the Marriage Allowance, but more than a million married and civil partnered couples are still eligible for the free tax break worth up to £238 a year.

Thanks to the start of the new tax year couples can backdate their claim and boost a potential tax refund to a possible £900.

HMRC further announced:

Applying for Marriage Allowance is quick and easy and once an application is complete it’s processed immediately. The new online form takes fewer than ten minutes to fill out and eligible customers will receive backdated claims of up to £662 as a lump sum. Over 300,000 couples have signed up for the Marriage Allowance tax break since March 2018.

Which is all very well, but if HMRC can estimate the numbers of couples that are still eligible to make a claim – the 1 million referred to above – then why don’t they simply re-allocate the allowances automatically? Obviously, HMRC would need the permission of the partner who was transferring their spare personal allowance but HMRC could set up a much slicker digital process to cope with the formalities?

Surely most of the one million taxpayers will not have access to HMRC’s press releases, and this is precisely why there are still one million couples who have not claimed?

Perhaps the department that is tasked with developing the Making Tax Digital technology should get involved?

If you are reading this post and either you or your civil partner/spouse have income below the personal tax allowance (£11,850 for 2018-19, and equivalent amounts for earlier years) then follow this link to make a claim: