Hey computer, here are my accounts. Please tell me something:
Computer: ok, thanks for the accounts, please wait...
...You should incorporate, it will save you £350 a year, you should stop being a sole trader.
OK, I'll do that, thanks.
18 months later: I incoporated, and its cost me thousands in extra admin costs and taxes.
I am a pub landlord, I am no good at admin, so I now have to pay someone else through the nose to do the accountants and bookkeeping with a full P&L and Balance sheet, my director's loan account is overdrawn with s.455 tax to pay, its all costing me much more than me just me doing my own much more simpler income/expense self assessment tax return.
Also, I live above the pub and as I've incorporated, I now have to pay P11d living accomodation which is an extra £5k in tax a year, thanks computer!!!!
I've pondered a little more your problem of having to otherwise file previously submitted quarters as well as new returns. I am sure that HMRC will allow the filing of late data on the next return, as it would be impractical otherwise, as you have pointed out. Imagine: you have your last quarter to file, and your client gives you data also fitting into the last three quarters. You'd then have to re-file the prior three quarters and the new quarter as well -which is quite ridiculous. Legally, you aren't meant to rely on the annual adjustment filing according to the law for in year adjustments, though practically you could. Therefore, we shall accordingly allow both quarterly amendments, and additionally the flow of transactions missed off a prior quarterly filing in the next return on the spreadsheets we are developing.
Well, re-filing quarterly returns isn't your only answer. Instead, as my post suggested, there is the option to file a single annual adjustment.
Here is what you could do:
1 Do all the quarterly filings, with the information you have;
2. After the tax year has ended, but before 31 Jan the following year, you obtain all missed information from your client and file a single annual adjustment, the "Adjustment Business Summary".
You are likely to make such an adjustment after the tax year in any case, when you did an annual review of the data, before filing an end of period statement.
The article above includes a paraphrased interpretation of SI1076 s.17, it is not a direct quote.
SI1076 s.17 does not say: the error must be included in the next quarterly filing submission.
The law is not absolutely clear, which is why some have interpreted SA1076 to have a different meaning that one might expect, when considering the MTD APIs that HMRC have available.
In the round, taking HMRC's API guidance into consideration, I propose the following as the most practical interpretation of the law, until such times as the ambiguity in the law is removed, or HMRC radically changes its APIs and the meaning of an EPOS:
The law says the "...person must provide the correct or complete information to HMRC when the person next provides:
(a) a quarterly update; or
(b) an EPOS"
"next provides" does not mean "as part of the next filing submission". Indeed, option (b)"an EPOS" doesn't include the filing of any financial data at all, it is just a declaration that the data already submitted for the year is now full and correct. It is the submission of an "Adjustment Business Summary" that provides annual adjustments to quarterly submissions, not an End of Period Statement. Therefore the law cannot be interpreted in the way it has, unless HMRC change what an EPOS is in its APIs. If an EPOS has to be changed by HMRC to mean the filing of new data, the law would have to be changed in any case, as it would no longer be a just a "statement" (The "S" in EPOS), but rather an "Adjustment" or similar.
Instead, I read the legislation (admittedly with the hindsight of HMRC's API guidance) that the person is expected to send in updated information on the erroneous quarter at the time they next do a filing, by doing the following:
Firstly, they send in an amended quarterly submission for the incorrect period, as HMRCs MTD API allows.
Secondly, they file either their next quarterly submission, or the EPOS, which ever is the next filing.
I think the law shouldn't be interpreted in such as way as to include the data from an old period, onto a different filing obligation. ITSA is about Income Tax, not VAT.
A VAT Return can have correction data put on the next return, as there is no such thing as filing an amended VAT Return. However, Income Tax has always allowed the filing of an amended return, as data from one tax year should never be just slotted into the next tax year - the same is true for quarterly Income Tax Filings I believe.
Therefore, if a mistake has been made on a quarterly spreadsheet, the user just uploads the corrected original spreadsheet to the quarterly period already filed - as an amended submission, as the API allows. The user doesn't have to start fiddling with errors across different quarterly spreadsheets. In any case, that is what a user would have to do with VAT now, and Spreadsheets are already allowed for VAT.
We need to recall the purpose of MTD ITSA: HMRC want quarterly data to be able to estimate someone's tax liability. This becomes difficult if they are only sent totals for the quarter which include data from a different period. HMRC will perceive that someone's income or expenses are hap-hazard and not predictable, which means they won't be able to estimate taxes if period adjustments are slapped onto the next return. This is why HMRC want corrected individual quarterly filings, not differences stuffed into the next filing.
I don't see the 31 Dec as a year end date is going to work (unless some other changes are made). A lot of self employed retailers are not going to do a stocktake during the New Years sales period. A lot of businesses do various activities straight after year end, or just before, no one is going to want to do that during Xmas. I know some countries do have a calendar year fiscal year-end date, but I think it will just create too many problems in the UK to start that now.
From my experience 80%+ of sole traders already have an accounting year end that matches the tax year (or is 31 March), but no doubt there would be a not insignificant number that change their VAT period end as you suggest. This might be more of a problem for partnerships, but partneriships are far fewer in number than sole traderships at least (for their accountants to worry about).
I think a bigger problem will be for some businesses that have a year-end for a particular reason: eg retailers that have a 31 January year end, so they can do their stock take when the shop is mainly empty: empty of stock and empty of customers. April stock take for many businesses could be a right pain, particularly if they sell Easter eggs or what-have-you. Another example would be for those that work in the education sector: a year end of August makes sense, as often contracts follow school years, also there is no then no deferred or accrued income, and profits can be seen more easily, as accounting periods do not cross academic years. A 31 March year end will fall somewhere in the second term, and with varying Easter holidays... yuk!!!
It may be that those that want to keep a different year end date may just have to incorporate. I would imagine that most businesses that have these sorts of issues, such as stocktakes and educational businesses affected by a change of year end are already incorporated (or some other entity eg: charity or academy).
Your point re: companies I don't think is valid, a company tax year-end normally follows the accounting year end, so there won't be a similar problem for corporates, as they get to effectively choose what tax year end they want themselves, without an imposition. I do think the goverment would impose a tax year end date on corporates, it really would create too much havoc!!!
I recall reading somewhere a few weeks ago, there is a consultation also on simplifying the tax year for individuals so as to end on a month-end, no doubt 31 March would be good: it would then tie in with many company year end dates and also about 50% of VAT Return period ends.
My answers
Example:
Hey computer, here are my accounts. Please tell me something:
Computer: ok, thanks for the accounts, please wait...
...You should incorporate, it will save you £350 a year, you should stop being a sole trader.
OK, I'll do that, thanks.
18 months later: I incoporated, and its cost me thousands in extra admin costs and taxes.
I am a pub landlord, I am no good at admin, so I now have to pay someone else through the nose to do the accountants and bookkeeping with a full P&L and Balance sheet, my director's loan account is overdrawn with s.455 tax to pay, its all costing me much more than me just me doing my own much more simpler income/expense self assessment tax return.
Also, I live above the pub and as I've incorporated, I now have to pay P11d living accomodation which is an extra £5k in tax a year, thanks computer!!!!
I've pondered a little more your problem of having to otherwise file previously submitted quarters as well as new returns. I am sure that HMRC will allow the filing of late data on the next return, as it would be impractical otherwise, as you have pointed out. Imagine: you have your last quarter to file, and your client gives you data also fitting into the last three quarters. You'd then have to re-file the prior three quarters and the new quarter as well -which is quite ridiculous. Legally, you aren't meant to rely on the annual adjustment filing according to the law for in year adjustments, though practically you could. Therefore, we shall accordingly allow both quarterly amendments, and additionally the flow of transactions missed off a prior quarterly filing in the next return on the spreadsheets we are developing.
Well, re-filing quarterly returns isn't your only answer. Instead, as my post suggested, there is the option to file a single annual adjustment.
Here is what you could do:
1 Do all the quarterly filings, with the information you have;
2. After the tax year has ended, but before 31 Jan the following year, you obtain all missed information from your client and file a single annual adjustment, the "Adjustment Business Summary".
You are likely to make such an adjustment after the tax year in any case, when you did an annual review of the data, before filing an end of period statement.
The article above includes a paraphrased interpretation of SI1076 s.17, it is not a direct quote.
SI1076 s.17 does not say: the error must be included in the next quarterly filing submission.
The law is not absolutely clear, which is why some have interpreted SA1076 to have a different meaning that one might expect, when considering the MTD APIs that HMRC have available.
In the round, taking HMRC's API guidance into consideration, I propose the following as the most practical interpretation of the law, until such times as the ambiguity in the law is removed, or HMRC radically changes its APIs and the meaning of an EPOS:
The law says the "...person must provide the correct or complete information to HMRC when the person next provides:
(a) a quarterly update; or
(b) an EPOS"
"next provides" does not mean "as part of the next filing submission". Indeed, option (b)"an EPOS" doesn't include the filing of any financial data at all, it is just a declaration that the data already submitted for the year is now full and correct. It is the submission of an "Adjustment Business Summary" that provides annual adjustments to quarterly submissions, not an End of Period Statement. Therefore the law cannot be interpreted in the way it has, unless HMRC change what an EPOS is in its APIs. If an EPOS has to be changed by HMRC to mean the filing of new data, the law would have to be changed in any case, as it would no longer be a just a "statement" (The "S" in EPOS), but rather an "Adjustment" or similar.
Instead, I read the legislation (admittedly with the hindsight of HMRC's API guidance) that the person is expected to send in updated information on the erroneous quarter at the time they next do a filing, by doing the following:
Firstly, they send in an amended quarterly submission for the incorrect period, as HMRCs MTD API allows.
Secondly, they file either their next quarterly submission, or the EPOS, which ever is the next filing.
I think the law shouldn't be interpreted in such as way as to include the data from an old period, onto a different filing obligation. ITSA is about Income Tax, not VAT.
A VAT Return can have correction data put on the next return, as there is no such thing as filing an amended VAT Return. However, Income Tax has always allowed the filing of an amended return, as data from one tax year should never be just slotted into the next tax year - the same is true for quarterly Income Tax Filings I believe.
Therefore, if a mistake has been made on a quarterly spreadsheet, the user just uploads the corrected original spreadsheet to the quarterly period already filed - as an amended submission, as the API allows. The user doesn't have to start fiddling with errors across different quarterly spreadsheets. In any case, that is what a user would have to do with VAT now, and Spreadsheets are already allowed for VAT.
We need to recall the purpose of MTD ITSA: HMRC want quarterly data to be able to estimate someone's tax liability. This becomes difficult if they are only sent totals for the quarter which include data from a different period. HMRC will perceive that someone's income or expenses are hap-hazard and not predictable, which means they won't be able to estimate taxes if period adjustments are slapped onto the next return. This is why HMRC want corrected individual quarterly filings, not differences stuffed into the next filing.
No, just self-employment, and property rental info quarterly. All other income sources and deductions are done at the year end stage.
I don't see the 31 Dec as a year end date is going to work (unless some other changes are made). A lot of self employed retailers are not going to do a stocktake during the New Years sales period. A lot of businesses do various activities straight after year end, or just before, no one is going to want to do that during Xmas. I know some countries do have a calendar year fiscal year-end date, but I think it will just create too many problems in the UK to start that now.
From my experience 80%+ of sole traders already have an accounting year end that matches the tax year (or is 31 March), but no doubt there would be a not insignificant number that change their VAT period end as you suggest. This might be more of a problem for partnerships, but partneriships are far fewer in number than sole traderships at least (for their accountants to worry about).
I think a bigger problem will be for some businesses that have a year-end for a particular reason: eg retailers that have a 31 January year end, so they can do their stock take when the shop is mainly empty: empty of stock and empty of customers. April stock take for many businesses could be a right pain, particularly if they sell Easter eggs or what-have-you. Another example would be for those that work in the education sector: a year end of August makes sense, as often contracts follow school years, also there is no then no deferred or accrued income, and profits can be seen more easily, as accounting periods do not cross academic years. A 31 March year end will fall somewhere in the second term, and with varying Easter holidays... yuk!!!
It may be that those that want to keep a different year end date may just have to incorporate. I would imagine that most businesses that have these sorts of issues, such as stocktakes and educational businesses affected by a change of year end are already incorporated (or some other entity eg: charity or academy).
Your point re: companies I don't think is valid, a company tax year-end normally follows the accounting year end, so there won't be a similar problem for corporates, as they get to effectively choose what tax year end they want themselves, without an imposition. I do think the goverment would impose a tax year end date on corporates, it really would create too much havoc!!!
I recall reading somewhere a few weeks ago, there is a consultation also on simplifying the tax year for individuals so as to end on a month-end, no doubt 31 March would be good: it would then tie in with many company year end dates and also about 50% of VAT Return period ends.