Enews - February 2017
In this month’s eNews we report on changes for landlords which take effect from April 2017, increased NMW and NLW rates and progress on Making Tax Digital. We also include several announcements from HMRC on tax return excuses, a new Helpline and details of successful prosecutions.
We also include the latest announcements regarding Pensions Auto Enrolment. Please do get in touch if you would like any further guidance on any of the areas covered.
Making Tax Digital
The government published their responses to the six consultations on making tax digital (MTD).
In response to the consultations the government have decided the following:
- businesses will be able to continue to use spreadsheets for record keeping, but they must ensure that their spreadsheet meets the necessary requirements of Making Tax Digital for Business (MTDfB). This is likely to involve combining the spreadsheet with software
- businesses eligible for three line accounts will be able to submit a quarterly update with only three lines of data (income, expenses and profit)
- free software will be available to businesses with the most straightforward affairs
- the requirement to keep digital records does not mean that you have to make and store invoices and receipts digitally
- activity at the end of the year must be concluded and sent either by ten months after the last day of the period of account or 31 January, whichever of these is soonest
- charities (but not their trading subsidiaries) will not need to keep digital records
- for partnerships with a turnover above £10 million, MTDfB is deferred until 2020 due to the complexity of their tax affairs.
The MTD consultations also specifically explored the appropriate level of the initial exemption and deferral for the self-employed, landlords and businesses. Given the range of views expressed on this matter from respondents to the consultation, the government has decided to take more time to consider these issues alongside the fiscal impacts. Final decisions will be made before the law is finalised later this year.
In addition, HMRC will begin piloting digital record keeping and quarterly updates for a full year from April 2017, building up to working with hundreds of thousands of businesses and landlords before rolling the services out more widely. The stated aim of this pilot is to ensure the software is user-friendly and give individuals and businesses time to prepare and adapt. Piloting of the system had been recommended by the Treasury Select Committee.
Select Committee’s findings
The Treasury Select Committee has urged HMRC to implement a series of wide-ranging pilots in order to better test the government’s plans for the new digital tax initiative, Making Tax Digital (MTD), before it becomes compulsory for the majority of taxpayers.
The report found that, while the government had already carried out trials of the new initiative, those businesses which took part had done so at HMRC's invitation.
The Committee stated that comprehensive pilots of MTD are 'essential', and that these need to be designed to collect information over the entire reporting cycle.
It also suggested that an evaluation of these pilots should be carried out before the full implementation of the scheme which is expected, for all but the smallest businesses to be implemented from April 2018 onwards.
Andrew Tyrie MP, Chairman of the Committee, said:
'Without sufficient care, MTD could be a disaster. Implemented carefully, with long transitional arrangements where necessary, and, having drawn on information from fully inclusive pilots, MTD could be designed for the benefit both of the economy and of the tax yield. But with a rushed introduction, it will benefit neither.'
MTDfB will still be phased in from April 2018. We will keep you informed of developments.
Pay the NMW - no excuses
The government has revealed ten of the most bizarre excuses used by unscrupulous business owners who have been found to have underpaid workers the NMW.
These employers used excuses such as ‘only wanting to pay staff when there are customers to serve and believing it was acceptable to underpay workers until they had ‘proved’ themselves’.
The government has launched an awareness campaign to encourage workers to check their pay to ensure they are receiving at least the statutory minimum ahead of the NMW and NLW increases on 1 April 2017.
Employers need to ensure they are paying their employees at least the NMW and NLW.
Rate from 1 October 2016
Rate from 1 April 2017
NLW for workers aged 25 and over (introduced and applies from 1 April 2016)
the main rate for workers aged 21-24
the 18-20 rate
the 16-17 rate for workers above school leaving age but under 18
the apprentice rate, for apprentices under 19 or 19 or over and in the first year of their apprenticeship
This will be the second increase in six months for the NMW rates. Going forward the NMW and NLW rates will both be reviewed annually in April.
In a recent article in the Employer Bulletin, HMRC cite common errors:
- not paying the right rate, perhaps missing an employee’s birthday,
- making deductions from wages which reduce the employee’s pay below the NMW/NLW rate,
- including top ups to pay that do not qualify for NMW/NLW,
- failure to classify workers correctly, so treating them as interns volunteers or self employed and
- failure to include all the time a worker is working, for example time spent shutting up shop or waiting to clear security.
What are the penalties for non-compliance?
The penalties imposed on employers that are in breach of the minimum wage legislation are 200% of arrears owed to workers. The maximum penalty is £20,000 per worker. The penalty is reduced by 50% if the unpaid wages and the penalty are paid within 14 days. HMRC also name and shame employers who are penalised.
If you would like help with payroll issues please contact us.
Internet link: GOV.UK NMW news
Landlords to receive less tax relief on interest
In a change that will impact residential landlords, the amount of income tax relief available on residential property finance costs will be restricted to the basic rate of income tax. This change will mean that landlords will no longer be able to deduct all of their finance costs from their property income. They will instead receive a basic rate reduction from their income tax liability for their finance costs.
The restriction in the relief will be phased in over a four year period as follows:
- in 2017/18, the deduction from property income will be restricted to 75% of finance costs, with the remaining 25% being available as a basic rate tax reduction;
- in 2018/19, 50% finance costs deduction and 50% given as a basic rate tax reduction;
- in 2019/20, 25% finance costs deduction and 75% given as a basic rate tax reduction;
- from 2020/21, all financing costs incurred by a landlord will be given as a basic rate tax reduction.
These rules do not apply to residential properties held in companies.
In addition rules may further restrict the relief which is due where the individual’s property income or total income is less than the amount on which basic rate relief is due. The computation is complex so please do get in touch if you would like us to review your position.
Internet link: GOV.UK guidance
More silly taxpayer excuses from HMRC
HMRC have released more unusual excuses from taxpayers who failed to complete their self assessment tax return on time. These include:
- ‘My tax return was on my yacht…which caught fire’
- ‘A wasp in my car caused me to have an accident and my tax return, which was inside, was destroyed’
- ‘My wife helps me with my tax return, but she had a headache for ten days’
- ‘My dog ate my tax return…and all of the reminders’
- ‘I couldn’t complete my tax return, because my husband left me and took our accountant with him. I am currently trying to find a new accountant’
- ‘My child scribbled all over the tax return, so I wasn’t able to send it back’
- ‘I work for myself, but a colleague borrowed my tax return to photocopy it and lost it’
- ‘My husband told me the deadline was the 31 March’
- ‘My internet connection failed’
- ‘The postman doesn’t deliver to my house’
With the self assessment submission deadline of 31 January now past and an automatic penalty of £100 for failing to submit your return on time, please contact us if you need help bringing your affairs up to date.
Internet link: GOV.UK news
Tax cheats – HMRC’s criminal case highlights of 2016
HMRC have revealed their top ten most significant fraud and organised crime cases of the last year.
Simon York, Director of HMRC’s Fraud Investigation Service, said:
‘Day in, day out, HMRC is coming down hard on tax cheats. As these cases show, we’ll tackle anyone committing tax fraud, regardless of how well resourced, well advised, or well organised. These ten prosecutions are among the most significant cases we’ve handled this year, and they reflect the wide range of work carried out by HMRC.’
Internet link: GOV.UK news
Tax helpline for people affected by severe weather and flooding
HMRC have made available a telephone helpline (0800 904 7900) for anyone affected by severe weather or floods. The helpline allows anyone affected to get practical help and advice on a wide range of tax problems they may be facing. These could be financial issues regarding making payment, issues regarding lost or damaged records and may include cancelling penalties where deadlines are missed due to severe weather and flooding.
Internet link: GOV.UK helpline
Pensions auto enrolment
The Department for Work and Pensions has confirmed the thresholds for pensions automatic enrolment for 2017/18.
The main qualifying threshold or ‘trigger’ for employees to be automatically enrolled will be maintained at £10,000 per annum. The lower limit of the qualifying earning band and will be £5,876 and the upper limit £45,000.
The written statement also includes:
‘Automatic enrolment has been a great success to date with almost 7 million people enrolled by more than 293,000 employers. It will give around 11 million people the opportunity to save into a workplace pension and we expect this to lead to around 10 million people newly saving or saving more by 2018, generating around £17 billion a year more in workplace pension saving by 2019/20.’
With over a million micro (1 - 4 employees) and small (5 - 49 employees) employers reaching their staging date for auto enrolment in the last quarter of 2016/17 and throughout 2017/18 it is important to ensure employers comply with their obligations. The Pensions Regulator has confirmed the exceptions which apply to employers which can be found at on their website (see the TPR link below).
Please contact us if you would like help with auto enrolment compliance or to determine whether or not your business is exempt from auto enrolment.