The introduction of Making Tax Digital (MTD) will fundamentally change the way businesses, the self-employed and landlords interact with HMRC. The new regime will require businesses and individuals to register, file, pay and update their information using a new online tax account.

The new regime is due to start in April 2019 for VAT purposes only, when some 1 million businesses with a turnover above the VAT threshold (currently £85,000) will be required to keep their records digitally and provide their VAT return information to HMRC using MTD compatible software.

HMRC is also allowing a number of taxpayers and agents to use software to make Income Tax updates. This is part of a live pilot to test and develop the MTD service for Income Tax. As part of the MTD pilot taxpayers (or their agents) may be able to send Income Tax updates to HMRC on using software, instead of filing a Self Assessment tax return.

The introduction of MTD was first announced as part of the March 2015 Budget measures, and will ultimately see HMRC move to a fully digital tax system. An official launch date for the MTD service for Income Tax has yet to be announced, but it is unlikely to be before April 2020.

We are here to ensure the transition is as easy as possible, and are contacting all our effected clients.  To assist our clients, we have been working closely with software providers and a number of our accounts team are Xero accredited advisers.  We are also pleased to announce the launch of the Bespoke App, which has been designed to make record keeping easier with receipt and income manager, enabling you to photograph and record expenditure and income digitally. For more information on our App, please visit:

https://bespoketax.com/the-bespoke-app-after-launch/

You can download the App completely free by following these easy steps:
• Search for MyAccountants in the Apple or Play store
• Once downloaded, you will need the unique access code: BESPOKE
• Make sure you update your personal details and allow for push notifications, to get personalised reminders of key dates

The High Income Child Benefit Charge (HICBC) came into force in January 2013. It applies to taxpayers whose income exceeds £50,000 in a tax year and who are in receipt of child benefit. The charge claws back the financial benefit of receiving child benefit either by reducing or removing the benefit entirely.

HMRC has confirmed that it is reviewing cases where a failure to notify penalty was issued for the tax years 2013-14, 2014-15, and 2015-16, to taxpayers who did not register for HICBC. HMRC will review cases for these years and consider issuing penalty refunds to taxpayers that had a reasonable excuse for not paying the HICBC. Under normal circumstances, HMRC would only entertain a claim for a reasonable excuse directly from a taxpayer. However, in this case, HMRC are proactively reviewing these cases.

This will include families who made a claim for Child Benefit before High Income Child Benefit Charge was introduced, and where one partner’s income subsequently increased to over £50,000 on or after the 2013-14 tax year. This is because the higher earner in a household is the person who pays the charge and may not be the person claiming Child Benefit on behalf of the household.

HMRC is also writing to taxpayers who might be liable to the charge in 2016-17 and 2017-18, to help them meet their tax obligations in time and thus avoid paying a penalty.

An HMRC spokesperson said:

‘HMRC is listening to customers and stakeholders, and reviewing our approach to HICBC to ensure we are treating everyone fairly. Customers do not need to ask for a penalty refund or contact HMRC. We will issue the refunds, where due, over the next six months.’

The Chancellor has confirmed that from 2019-20 the personal allowance will increase to £12,500 (an increase from the current £11,850 allowance) and the basic rate limit to £37,500. As a result, the higher rate threshold will increase to £50,000 from April 2019.

These increases deliver on the government’s manifesto commitment to increase the basic personal allowance to £12,500 and the higher rate threshold to £50,000 by the end of the current Parliament a year ahead of schedule. The Chancellor also set the personal allowance at £12,500 and basic rate limit at £37,500 for 2020-21 and confirmed that from 2021-22 onwards, the personal allowance and basic rate limit will be indexed with the Consumer Price Index (CPI).

The changes to the basic rate limit will apply to non-savings and non-dividend income in England, Wales and Northern Ireland and to savings and dividend income in the UK. Since April 2017, the Scottish Parliament sets the basic rate and higher rate thresholds for non-savings and non-dividend income in Scotland.

For high earning taxpayers the personal allowance is gradually withdrawn by £1 for every £2 of adjusted net income over £100,000 irrespective of age. Adjusted net income is total taxable income before any personal allowances, less certain tax reliefs such as trading losses and certain charitable donations and pension contributions. Any taxpayers with an adjusted net income of between £100,000 and £125,000 in 2019-20 will pay an effective marginal rate of tax of around 60% as the tax-free personal allowance is gradually withdrawn.

A recent Upper Tribunal case examined whether a sole trader operating a skip hire business was entitled to Income Tax relief on irrecoverable loans made to a company. The company was owned by the sole trader’s father. HMRC had rejected the claim for Income Tax relief on the basis that the loans were capital investments and were not wholly and exclusively laid out for the purposes of trade.

The sole trader appealed this decision to the First-tier Tribunal (FTT) where his appeal was dismissed. The sole trader was then granted permission to appeal the FTT’s decision to the Upper Tribunal. In an unusual turn of events the Upper Tribunal agreed that the appeal should be remitted to the FTT for a re-hearing by a different panel. That re-hearing took place in April 2016 more than 2 years after the original hearing and the sole trader’ appeal was once again dismissed.

The Upper Tribunal finally heard the taxpayer’s appeal earlier this year. The Upper Tribunal examined a number of factors relating to the decisions of the FTT. The Upper Tribunal found that the sole trader was unable to satisfy the burden of proof as to the existence or amount of the loans in question and whether the loans were capital or revenue in nature and made wholly and exclusively for the purposes of his skip hire business.

Further, on the basis that the loans were capital in nature. any associated losses should be considered a capital loss. The sole trader’s contention that the loan was intended to ensure that the company could continue to provide him with essential business facilities was rejected. The Upper Tribunal dismissed the taxpayer’s appeal.

The 2017-18 tax return deadline for taxpayers using a paper self-assessment return is 31 October 2018. Late submission of a self-assessment return will become liable to a £100 late filing penalty. The penalty usually applies even if there is no liability or if any tax due is paid in full by 31 January 2019.

There are many advantages to filing online that include an extra three months (until 31 January 2019) in which to submit a return and pay any taxes due. Taxpayers also receive instant confirmation that a return has been filed and do not need to rely on the vagaries of the postal system. Any taxpayer due a refund will usually receive a quicker repayment when they file online.

Taxpayers with certain underpayments in the 2017-18 tax year can elect to have this amount collected via their tax code (in 2019-20), provided they are in employment or in receipt of a UK-based pension. The coding applies to certain debts and the amount of debt that can be coded out ranges from £3,000 to £17,000 based on a graduated scale. The maximum coding out allowance only applies to taxpayers with earnings exceeding £90,000.

Daily penalties of £10 per day will also take effect if the tax return is still outstanding three months after the filing date up to a maximum of £900. If the return still remains outstanding further higher penalties will be charged from six months and twelve months late.

Taxpayers that received a letter informing them that they have to submit a paper return after 30 July 2018 have an extended deadline which runs for three months from the date they received the letter to submit a paper return.