Member Since: 18th Jun 2009
24th Sep 2021
Yes, but you are missing the point. The MTD for ITSA requires extracts from the accounting system five times a year. Accountants carry out many adjustments to produce accounts once per annum for what will be the fifth submission. The other four quarterly submissions won't have these adjustments and will be nonsense. This problem would exists with manual or spreadsheet records too. Clients are not going to adjust capital allowances, prepayments, accruals, depreciation, asset disposals, VAT adjustments for the various schemes and correct bookkeeping errors.
12th Mar 2021
I agree that this is a fantastic summary. I was working for Bang and Olufsen at the time and our sales were subject to 33% Purchase Tax. With the looming change to VAT, our sales slowed as the public began to realise with the advent of 10% VAT that there was a big cost saving about to happen. Unfortunately the Danish Kroner was also moving adversely squeezing our margins. We increased our prices to coincide with the VAT introduction so there was no change in retail prices. This lead to a storm of protest and most of the accounts department were drafted into the sales team to cover the large volume of calls!
12th Mar 2021
Let's take the new reverse charge procedures in construction as an example. At the heart of it was VAT being charged and paid to sub contractors, who then disappeared without paying the VAT over to HMRC.
When this is changed to reverse charge, the next contractor up the chain can't deduct the sub contractor's input tax and so they are paying over just the output VAT on their sales to HMRC. The overall VAT take is the same. As an example, if the sub contractor's VAT was £200 and the main contractor £300, now what happens is the subbie pays nothing and the main contractor pays £500.
The main reason for reverse charge is there will be contractors who have VAT Exempt output tax, for instance if they are also involved in property ownership with VAT Exempt rentals. These contractors won't be able to recover all of the reversed charge VAT, so simply abolishing VAT between contractors won't solve all of the problem.
I have long believed the the system of Partial Exemption is an unnecessarily complex way to run a tax system. If this could be solved then this begs the question as to why bother with reverse charge? Why not just have the main contractor pay over the VAT on their sales and have sub contractors not charge VAT to any contractor who is CIS registered.
On the other hand, why not abolish VAT Exemption for VAT registered businesses and just call it zero rated. This would allow reclamation of all input tax and reduce complexity. VAT Exemption would then apply just to un-registered businesses operating in Exempt sectors. I can't believe the reduction in tax take from abolishing partial exemption would be that great. Anyone seen any statistics on this?
2nd Mar 2021
I was going to respond on this article, buy I can't put it any better than you have, so thanks!
The article seems to think the resistance is from luddite accountants when most practices use and deal with far more sophisticated software than HMRC can ever dream of seeing.
The fundamental point is that MTD for VAT has failed at the HMRC end and that does not give them much chance of succeeding with MTD for Income Tax, which is potentially far more complex.
19th Feb 2021
I thought all you needed to know was debits nearest the window and credits nearest the door?
I too have had that problem of explaining away the bank statement. Happily with bank feeds and the subsequent posting, most people don't now they are posting debits and credits or that it is double entry bookkeeping underneath the bonnet.
This is OK until something goes wrong and then you do need to know what is beneath that bonnet!
All accounting systems add up to Zero, a point well understood by Xero, whose name I don't think arose by accident.
An amusing article, thanks for posting.
8th Dec 2020
What about the "glance at the email and delete from phone" clients or the ones who are useless at all paperwork, not just to do with their finances. It is always the same people who respond late. Take VAT Returns and say I have ten in a given month. Six will give me the information straight away and the usual four will wait until just before the deadline. So what I do is send those four the same reminder email as the first six and then leave them alone until just before the deadline. It is the thought of a fine that motivates and nothing that I say or do.
1st May 2020
Have you read the report? It so easy to generalise on something like this. The House of Lords report is excellent and so is the article above.
29th Apr 2020
I have just finished reading the whole sobering report from the House of Lords committee and it is excellent. Anyone ignoring the contents is just sticking their head in the sand. The usual culprits in the continuing IR35 20 year saga are HM Treasury and HMRC. Both only focus on tax and by ignoring the wider impact on the economy, I'm afraid their heads are well and truly in the sand.
The wider picture demands a status of 'worker' (or any equivalent name), similar to the self employed. The self employed, the gig economy workers and contractors have long enjoyed an NI advantage over the employed and the gap is too large. All that is required is to narrow this gap whilst, providing a discount for loss of employment and benefit rights.
The self employed pay 20% tax and 9% NI. Contractors pay 7.5% dividend tax and 19% Corporation Tax. Employees pay 20% Tax and 12% NI plus their employer pays 13.8% NI. When reaching the higher rate tax threshold, self employed NI drops to 2% and tax doubles to 40%, Dividend tax increases to 32.5%. Employees also have their NI drop to 2%, but their tax also doubles to 40%.
For someone earning less than £50000, there is an advantage being self employed over being a contractor. When incomes rise to £100000 as a contractor, this advantage disappears completely. The differences either way at varying levels of income could be smoothed out.
As an example, if the self employed paid 12% NI and Contractor's paid 12% dividend tax that would level up the field between them. Maybe the engaging client could also pay a levy, say 5%, to cover the lack of employer's NI, but respect the lack of employment rights. Alternatively the self employed and contractors could pay a higher level of NI, say 17% up to the standard rate limit.
The introduction could be phased over three to five years, as happened with Auto Enrolment. I hasten to add that this is only an example and there are many ways of solving this problem without the nonsense of reforming the broken IR35 model. And that is the conclusion of the House of Lords committee, not just mine.
31st Mar 2020
I am sure like all practices you have a mix of clients in terms of their financial strength.
There are those that are prudently managed and have the resources to survive for at least three months without any government intervention. There are those that have always been tight for cash and who have now seen their turnover fall off a cliff. Others work from home or have started to work from home and can continue, so are not unduly affected at the moment (maybe until their clients pull the plug on their work). Some clients have never managed their finances well, whatever advice is being given and they may not survive.
One thing all of these client groups have in common, is that despite all of the announcements, none of them have yet received a penny of the promised grants. No £10K grants for small business rates, or £25K hospitality etc grants yet. No 80% furlough money and no self employed support. As for director/shareholders who survive on low salary and dividends, well they are on their own.
We have given cancelled fees for three months to those most in dire need, but that won't help them survive. We have also provided free time to advise clients and to disseminate the government announcements. I'm not sure what else we can do in these harrowing times?
31st Mar 2020
Liberty Accounts have given a free fee period to all of their charity clients until the end of May, when they will review it. Got to applaud that action, because charities are being hit hard.