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One Month in a Minute: April 2019

Making Tax Digital (MTD) update(s)

HMRC updated guidance on keeping digital records for MTD for VAT

HMRC has issued new guidance on what it deems legally necessary for compliance with the new requirement to keep records digitally, for MTD for VAT.

It confirms that businesses under MTD will NOT need to keep digital records in relation to

  • anything that is not needed for a VAT return, but also
  • any adjustments of VAT due (presumably because of the complexity and diversity of some of the adjustments required – eg, partial exemption annual calculations).

There has been some concern over exactly what level of detail is required in order to comply with the new regulations. The guidance confirms that alongside certain standing data, such as the business name and address, certain details of the supplies made and received must also be stored digitally.

Supplies made by a business

A digital record must be kept of:

  • the time of supply;
  • the value of supply (net value excluding VAT);
  • rate of VAT charged.

It is permissible to combine the total value of supplies in one record if the supplies were:

  • on one invoice;
  • made at the same time (note that the regulations refer only to the same prescribed accounting period);
  • charged at the same rate of VAT.

However, if a sales invoice has supplies at different rates of VAT, the supplies at different rates must be shown separately.

Supplies received by a business

A digital record must be kept of the:

  • time of supply;
  • value of supply - including any VAT that the business cannot claim;
  • amount of input tax claimed.

If there is more than one supply on an invoice, the business can record the details from the invoice in one record.

Use of third parties

If a business uses a third party that provides a single invoice for multiple supplies made to or on behalf of the business, all supplies may be treated as being on a single invoice.

Reverse charges

Depending on the sophistication of the software used, such supplies may need to be entered twice.

VAT schemes

Key points include:

  • flat rate schemes do not need to record purchases unless they relate to specific assets on which an Input VAT claim has been made;
  • retail schemes can record daily gross takings instead of individual sales;
  • margin schemes do NOT have to keep the additional records or calculations digitally.

PERSONAL TAXATION

STEP warns more than a million taxpayers could breach pension lifetime allowance

The Society of Trust and Estate Practitioners (STEP) has covered a study by the Royal Life insurance company which warns that far more people will be affected by the pensions lifetime cap than HM Treasury predicted when it reduced the cap three times under the previous government.

The pensions lifetime allowance (LTA), first introduced in 2006, stood at £1,800,000 in 2010. It was reduced to £1,500,000 in April 2012, to £1,250,000 in 2013, and then to £1,000,000 in April 2016. It is now £1,055,000 having been increased along with inflation since 2016. That sum will apparently buy an annual pension of about £25,000.

The Royal Life study reportedly found that almost 300,000 workers already have pension rights above the current limit, and a further 1.25 million are at risk of breaching the limit by the time that they retire. Fewer than half of those are understood to have applied for transitional protection, to prevent the large tax charge that will otherwise arise on retirement. Worse, many of them are still paying into their pension, so the tax charge will only increase.

STEP warns that the two main groups at risk are

  • Senior public sector workers with long service in defined benefit pension schemes.
  • Workers earning between £60,000 and £90,000 a year in defined contribution arrangements where their employers also make substantial contributions to their pension provision. (Those earning larger amounts are likely to see their contributions restricted under the new ‘tapered allowance for high-income individuals’ at FA 2004, ss 228ZA /ZB, introduced by F(No 2)A 2015).

Many advisers with medical and dental practitioner clients operating within the NHS pension scheme will be aware that breaches of the annual allowance can arise relatively frequently, and it follows that the Lifetime Allowance will potentially be problematic when the pension matures.

For more information on the pensions annual allowance, click here.

BUSINESS TAXATION

Some self-assessment returns not showing Class 2 NICs warns ATT

The ATT has warned that some 2018/19 SA returns will not have had their self-employed Class 2 NICs pre-populated if they were filed by 8 April this year (ie, they were filed very early). Revised SA302 calculations will be sent out in due course. It seems likely that this will result in an apparent discrepancy between agents’ calculations and those made by HMRC’s own software.

Returns filed after 8 April 2019 should now see the Class 2 NIC charge duly populated.

Apparently, HMRC has apologised for any inconvenience caused.

The ATT has also issued a useful summary of ongoing problems with Class 2 NICs and HMRC’s NI records, which potentially put at risk taxpayers’ state pension entitlement.

For more information on Class 2 National Insurance Contributions, click here.

TRUSTS, ESTATES AND INHERITANCE TAX

New probate fee increases postponed

The Institute of Chartered Accountants in England and Wales (ICAEW) has reported that the new probate fee structure, originally scheduled to be implemented from 1 April, has been postponed because the relevant statutory instrument – the Non-Contentious Probate (Fees) Order 2018 – has not yet been approved by Parliament, thanks to a lack of time to attend to anything other than Brexit.

As we reported in the December 2018 issue of Month in a Minute, numerous parties were opposed to the introduction of the new and much higher rates, arguing that they bore no relation to the cost of processing the application, and looked very like a tax. They should therefore be subjected to full Parliamentary scrutiny, rather than being brought in through a statutory instrument. It is nevertheless expected that the SI will be approved in due course.

TAX ADMINISTRATION

HMRC says birthdays must be accurate!

The ICAEW has reported that HMRC has told its Tax Faculty that there has been a ‘spike’ in the number of returns submitted by agents with incorrect dates of birth. HMRC has pointed out that the date of birth on SA tax returns is used by HMRC to update ‘at least’ 16 different systems, and may affect state pension records, and the ability of clients to access digital tax accounts. HMRC wants agents to check that the dates of birth on tax returns are correct.

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