Mark Blayney Stuart asks: what do accountants need to know about the latest updates in tax?
With Britain’s first official Spring Statement now behind us – but a new financial year around the corner, it seems an appropriate time to take stock as to how the landscape is currently looking.
Making Tax Digital – the current state of play
Making tax digital (MTD) dominates the current scene – partly because the planned rollout has been somewhat altered and not all the proposed changes will be introduced as previously expected.
“If you go back a couple of years, the Government was gung-ho about MTD – they saw it as a key way of addressing the tax gap,” says Michael Steed, head of tax at BPP Professional Development. Currently estimated to be about £34bn, it’s thought that SMEs represent around 50% of the tax gap – predominantly from avoidable error, it should be emphasised, rather than suspecting fraud – but an issue that the Government wants to address nonetheless.
“The problem though is that the very people being targeted are those least able to cope with lots of increased admin,” adds Steed. “So, there is a realisation that this needs to be looked at, but the proposed changes have been met with a chorus of disapproval. Some of the proposed amendments have thus been delayed.”
Rather than rolling out quarterly income tax returns for all businesses, the changes will now only affect businesses who are already registered for VAT and will take effect from April 2019. “So it will only affect people who are already doing online submissions for VAT returns,” Steed continues. “The impact you need to advise your clients on is that at that point, they may have to invest in some proprietary software or add bolt-ons to their existing software.” Smaller companies can, if they want to, make the change voluntarily.
The original plan to roll out quarterly returns for everyone should happen eventually, according to Steed.
“I don’t think anyone’s against electronic submissions in principle; the quarterly element is the sticking point. Yes, it is where it’s heading ultimately – I would say it will happen by about 2022-3. Accountants will have to drive their clients into the fold four times a year and that’s a severe culture change.”
The advice is simply to be ready for it – and there are advantages for accountants from quarterly reporting because it means you can spread your workload over the year instead of having an annual spike.
Tax devolution is the second big area for accountants to know about at the moment, especially if you have clients in different regions of the UK or companies that work near the borders.
Scotland has had the power to break away from Westminster on income tax since 1998, but this is the first time these powers have been invoked. “In essence,” says Steed, “the difference is that the number of tax bands in Scotland will be significantly different to the rest of the UK. From April 2018 there will be five tax bands instead of three; the broad outcome is that the lowest taxpayers will be somewhat better off in comparison and highest earners will pay more.”
The alert for accountants here is that “if you are on the border, or if you have income in both countries, that can cause problems.” For Steed, “it’s not yet clear for example how things like gift aid relief and pension relief will work out – they are potentially going to cause confusion.” In Wales, partial control of income tax is being devolved from April 2019 – details are to be announced and will be an area to focus on next year.
There will be more tax devolution to follow, according to Steed. “It does make the system more complex, so the advice to accountants is simply to be aware of the changes. It’s a political decision as to how to redistribute wealth – there will be winners and losers in that, and the accountant’s job is to keep up to speed.”
In the Spring Statement, the Chancellor made few tax or spending changes. However, he did commit to looking at how digital-only businesses are taxed. “This is driven by concern about the tax gap,” says Steed. “There may be businesses trading on platforms like Amazon and eBay who are turning over significant sales but not paying appropriate rates of tax.”
How might this be addressed, I ask Steed? “One method would be to introduce split payments. If you buy something for £80 on an electronic platform, the software subtracts the tax contribution which goes straight to HMRC and only the net sum goes to the trader. That would be a very effective way to increase cash flow to the Treasury and ensure more tax take. This is going to be an ongoing issue the Chancellor is likely to look at further.”
Other impacts from the Spring Statement
One notable announcement that may affect accountants is the intent to review the level for VAT registration and examine how VAT is collected as a whole.
“It’s worth noting that the current VAT threshold of £85,000 is the highest by a long way in the EU,” Steed comments. “We’ve just got used to it. But the EU average is around £29,000, some are very low and some are zero.” Changing it brings complexities.
“I suspect he will freeze it and let fiscal drag bring it down in real terms. There are choices here – Brexit has changed the landscape in terms of it potentially being seen as a ‘Brussels tax.’ This is the first time the Chancellor is saying he’s going to take a view on it. The Treasury won’t drop VAT altogether – it brings in about 18% of total tax take – but the approach in future will change, if still cautiously.”
There was some very welcome news on self-funded training, Steed adds. “Currently, if you learn to drive in order to get a job (for example) you would get no tax relief on that; the Chancellor has signalled that this system needs changing.”
Michael Steed is speaking at the AAT Tax Update on several forthcoming dates across England in March and April. At this full-day course, you’ll get the opportunity to understand in full the latest changes in taxation, how they may affect your business and clients – and learn how to prepare fully for the shift to digital taxation.
About Mark Blayney Stuart
Mark Blayney Stuart is business journalist of the year, Wales Media Awards 2017 and former head of research at the Chartered Institute of Marketing.