July 2019 Tax Update
Welcome to our monthly tax update, helping to ensure you’re always in the know…
In this month's Enews we report on the tax gap, preparing employees for EU exit and the latest on MTD for VAT.
We also update you on the latest guidance for employers, proposed measures to ensure small businesses get paid on time and self assessment payment on account confusion.
Finally, we look at the new online tool for international investors and the consultation on the operation of insurance premium tax.
- Tax gap remains low
- Preparing the workforce for EU Exit
- MTD for VAT latest
- Employer Bulletin - latest guidance
- New measures to ensure small businesses get paid on time
- Payment on account confusion
- UK Investment Support Directory
- Consultation on the operation of Insurance Premium Tax
HMRC has published a report showing that the UK tax gap in 2017/18 is estimated to be £35 billion. This is 5.6% of total theoretical tax liabilities, and a small increase of 0.1% from 5.5% in 2016/17. HMRC therefore secured 94.4% of all tax due.
The tax gap is the difference between the amount of tax that should be paid to HMRC compared to what is actually paid. Further details in the report show:
- the overall tax gap has fallen from 7.2% since 2005/06
- the duty-only excise tax gap has reduced from 8.4 % in 2005/06 to 5.1% in 2017/18.
- the corporation tax gap has reduced from 12.5% in 2005/06 to 8.1% in 2017/18.
Jesse Norman MP, Financial Secretary to the Treasury, said:
'The UK's low tax gap underlines both how the vast majority of people are paying the correct amount of tax, and how effective HM Revenue and Customs has been in its efforts to clamp down on tax evasion and avoidance.'
The report advises that the majority of taxpayers want to get their tax right, but many are still finding this hard, with avoidable mistakes costing the Exchequer over £9.9 billion a year. HMRC advise that £3 billion of this is attributable to VAT alone.
With the introduction of Making Tax Digital (MTD) for VAT, HMRC anticipates that the tax lost due to avoidable errors will be reduced because of the improved accuracy that digital records provide.
Internet link: GOV.UK news
Over two thirds of EU citizens that are currently in the UK are here for work. The government is advising that if these individuals plan to remain living and working in the UK, after it leaves the EU, they can now apply to the EU Settlement Scheme (EUSS).
EU, EEA, or Swiss employees, and their family members, can apply to the EUSS if they want to continue to live, work, and study in the UK after 31 December 2020. This applies whether UK leave the EU with a deal or with a 'no deal'.
Under the scheme, successful applications will be granted either settled or pre-settled status. Status depends on how long they have been living in the UK when they apply. In both cases, they can continue to work in the UK, use public services like the NHS, and access public funds such as pensions. Irish citizens do not need to apply.
The government has created an employer toolkit to help EU citizens with their application. The toolkit includes items such as posters and videos and information on how to apply. Employers do not have any obligation to share any information or even check whether employees have applied. However, they may wish to offer reassurance to their employees and make sure they have the right information.
However, employers have a duty not to discriminate against EU citizens with regards to the UK's decision to leave the EU, both as a prospective and current employer.
Internet links: Agent Update 72 GOV.UK EUSS
HMRC is phasing in its landmark Making Tax Digital (MTD) regime, which will ultimately require taxpayers to move to a fully digital tax system.
Under the rules, businesses with a taxable turnover above the VAT threshold (currently £85,000) must keep digital records for VAT purposes and provide their VAT return information to HMRC using compatible software.
The rules have effect from 1 April 2019 where a taxpayer has a 'prescribed accounting period' which begins on that date, or otherwise from the first day of a taxpayer's first prescribed accounting period beginning after 1 April 2019.
However for some VAT-registered businesses with more complex requirements the rules do not take effect until 1 October 2019. Included in the deferred start date category are VAT divisions, VAT groups and businesses using the annual accounting scheme.
Businesses in the deferral group should have received a letter inviting them to join the MTD for VAT scheme. The scheme will be mandatory for the first VAT return period starting on or after 1 October 2019. The letter encourages businesses to join early in order to be prepared for 1 October 2019. However, it does highlight that once a business has joined MTD for VAT, the old system of filing VAT returns can no longer be used.
HMRC has announced that those entities that use the GIANT service for VAT will have their deferral period for MTD further extended. A mandation date has not yet been confirmed.
GIANT is the 'Government information and NHS Trust' service, a special online system that is used by the public sector bodies, such as the NHS trusts and government departments, to file additional information with their VAT returns.
Those affected should have received a letter in June from HMRC informing them of the extension to their deferral period. HMRC will write again later in the summer with details of the revised timetable.
Please contact us for help with MTD for VAT.
Internet link: GOV.UK MTD for VAT
HMRC has issued the June 2019 edition of the Employer Bulletin. This includes articles on a number of issues including:
- labour supply chain fraud
- using loans to avoid Optional Remuneration Rules
- re-enrolment of staff back into a workplace pension scheme
- GDPR fees
- contractors operating CIS – new VAT reverse charge on building and construction services
- using Tax-Free Childcare to make school holidays easier.
If you have any queries on payroll matters please contact us.
Internet link: Employer Bulletin
The government has announced a package of measures to ensure small businesses get paid on time. Under the proposals large businesses could be fined for failing to pay smaller suppliers on time as part of a robust package of measures.
The measures include:
- proposed new powers for the Small Business Commissioner to tackle late payments through fines and binding payment plans
- company boards to be held accountable for supply chain payment practices for first time
- the introduction of a new fund to encourage businesses to use technology to simplify invoicing, payment and credit management.
The government has also announced that responsibility of the voluntary code of best practice, the Prompt Payment Code, will be moved to the Small Business Commissioner.
Small Business Minister Kelly Tolhurst said:
'The vast majority of businesses pay their bills on time, with the amount owed in late payments halved over the last five years. But as a former small business owner, I know the huge impact a late payment can have on the ability of a small business to plan, invest and grow.'
'Small businesses are the backbone of our economy and through our modern Industrial Strategy we want to ensure the UK is the best place to start and grow a business. These measures will ensure that small businesses are given the support they need and ensure that they get paid quickly - ending the unacceptable culture of late payment.'
Internet link: GOV.UK news
Under self assessment taxpayers are required to make payments on account of their tax liabilities. The payment on account installments consist of two payments on account of equal amounts:
- the first on 31 January during the tax year and
- the second on 31 July following the end of the tax year.
These are set by reference to the previous year's income tax liability and Class 4 NIC if any.
A final payment (or repayment) is due on 31 January following the tax year.
Payments are not due where the previous year's liability is less than £1,000 or where 80% of the previous year's bill was met by tax deductions at source.
The Association of Taxation Technicians (ATT) has warned that 'some people may not receive the tax demands they expect by the end of July' for their self assessment, even if it may be due.
ATT has issued a press release saying that the HMRC system did not correctly process all the payments on account information for 2018/19. As a consequence, the demand for the first payment on account for January 2019 may not have been issued.
Unless those taxpayers contacted HMRC, the next demand for payment on account, due on 31 July 2019, may also not be issued. HMRC has confirmed that if it has not issued a demand for payment on account, the full amount will be requested in January 2020.
Making a voluntary payment may not be processed correctly. If you want to make a payment on account that is due, then taxpayers or their agents are advised to contact HMRC.
Jon Stride, Co-Chair of the ATT's Technical Steering Group, said:
'If a taxpayer does not make any payments on account during 2019, then their tax bill in January 2020 could be significantly larger than they are expecting and could come as quite a shock. We are concerned that taxpayers may not realise what has happened and might not set aside enough money to meet their full tax bill in one amount next January.'
Internet links: AAT press release GOV.UK self assessment bills
International investors who wish to set up and expand their operations in the UK can now benefit from an online tool launched by the Department for International Trade (DIT).
The new tool, termed the UK Investment Support Directory, enables international investors to connect with a range of businesses across the UK. Potential investors can find an expert in their specific industry or region.
According to the DIT, the UK Investment Support Directory has been created to make information about the investment process 'more accessible', and is part of a wider initiative to 'generate more foreign direct investment in the UK'.
Graham Stuart, Minister for Investment, said:
'The launch of the new UK Investment Support Directory is one of many ways in which the DIT is helping to drive investment to every corner of the UK. We hope this new directory will be an invaluable resource for investors thinking of setting up operations in the UK.'
Internet links: Investment Support Directory GOV.UK news
HMRC has launched a consultation to review the extent to which the emerging practices are leading to 'unfair tax outcomes' in the administration and collection of Insurance Premium Tax (IPT). HMRC's consultation document states:
'We have been made aware of business practices involving administration and arrangement fees which may be leading to unfair tax outcomes in the insurance industry.'
'This involves the artificial manipulation of insurance and broker structures to create different tax outcomes. IPT is chargeable on the gross premiums, whereas fees are not subject to IPT or VAT.'
The consultation is open until 17 July 2019.
Internet link: Consultation
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