Author: Tony Hardy

We’ve Moved

We’re pleased to announce that Beach Accountants have moved into a new premises.

You can now find us at:

Beach Accountants Limited
Chartered Certified Accountants 
10 Blue Sky Way
Monkton Business Park South
South Tyneside
NE31 2EQ

Our telephone number stays the same: 0191 427 7773

And you can email us as always on:

Spring Statement

The Chancellor of the Exchequer delivered his Spring Statement on 13 March 2018. There was a little about tax in the speech, though several new consultations were announced. 

VAT: registration threshold

Last year’s review of the VAT system by the Office of Tax Simplification identified a ‘bunching’ of businesses below the VAT threshold, with businesses deliberately avoiding further growth therefore avoiding coming within the VAT regime. In the Autumn Budget, the government therefore announced that the threshold would be frozen at its current level (£85,000) pending a consultation on potential changes to the threshold. The Spring Statement has brought a call for evidence to start this process. It sets out several, broad-ranging, options for reform, including ‘administrative smoothing’ such as giving businesses a longer period to submit their first VAT returns and ‘financial smoothing’ for example having VAT rates gradually increase as turnover grows, to avoid the current cliff-edge position.

VAT: split payments

Another proposal with its roots in the challenges of the digital economy is that to introduce a split payment mechanism for certain transactions. Broadly, the government is proposing that VAT is deducted at the payment stage – for example by the merchant acquirer or, where relevant, by the online platform hosting the transaction – and paid direct to HMRC.

The current proposals would apply only to overseas businesses selling online, but the government is open to expanding this to cover UK online sellers in the future.

Self-funded training

The tax system currently gives tax relief for some training costs – for example, those reimbursed by an employer, or those incurred by a self- employed individual in maintaining their existing skills – but not others. The government is considering expanding the relief available, with an emphasis on supporting individuals needing to retrain or upskill.

Taxation of the digital economy

A key issue in the taxation of multinational groups is determining to what extent overall group profits should be taxed in each company. This is achieved through transfer pricing, and currently transfer pricing theory assigns group profits by looking at the ‘value chain’. It might be argued a company creates most of its value in the US, where the company has very significant technology expenditure and R&D, and very little in the UK, where it mainly operates a sales force.

The government has published a new paper setting out its developing thoughts in this area, proposing a change in the way that transfer pricing operates to take account of the fact that digital platforms derive some of their value from their communities of users.

Entrepreneurs’ Relief – gains before dilution

Currently, Entrepreneurs’ Relief (ER) on shares requires, in most cases, the vendor to hold at least 5% of the ordinary share capital of the company for at least one year prior to the sale. Therefore, entitlement to ER can be lost where a company issues shares to raise capital, and in doing so dilutes an individual’s holding below the 5% threshold for relief.

To avoid this acting as an unintentional brake on business growth, the government is proposing to allow individuals to crystallise a gain immediately before such a share issue. This was announced in the Autumn Budget, but we now have more details concerning their proposed solution.

Enterprise Investment Schemes: knowledge intensive funds

Enterprise Investment Scheme (EIS) funds have been available for many years and are typically nominee structures, similar in approach to a discretionary investment portfolio account. The nominee invests the funds on the individual’s behalf, and EIS certificates are issued on an asset by asset basis. There are also ‘approved EIS funds’, although these offer mainly administrative benefits only and are relatively rare.

The government is considering the introduction of a new EIS fund structure aimed at encouraging investment specifically in knowledge- intensive companies (KICs). KICs are companies which have beneficial status under the EIS rules, being able to take on additional levels of investment and have higher annual investment limits.

Under the proposals, funds would need to be approved by HM Revenue & Customs (HMRC), and would be restricted to investing “nearly entirely” in KICs

Autumn Budget

The Chancellor of the Exchequer is looking to make the taxation announcements in this Budget rather than in a Spring Statement, ensuring taxation changes only occur once a year and therefore giving businesses and individuals stability. This is expected to be in November 2018.

GDPR Update

When the General Data Protection Regulation (GDPR) came into force on 25 May 2018 it will tighten up the law in many ways.

For example:
• It introduces the “accountability principle” which puts a burden on businesses to be able to demonstrate compliance.
• It makes it harder to rely on consent as a ground for processing personal data.
• It raises the penalties for non-compliance.

Publicity about the new law is also making individuals and businesses more aware, and so more likely to question what you do with personal data.
Even so the basic principles have not changed much. The Information Commissioner’s Office (ICO) describes this as evolution, not revolution. So, in most organisations it should be possible to comply with the GDPR without massive changes or enormous amounts of time being invested.
There are several actions you can take such as:

• Decide who oversees data protection in your organisation
• Determine what material you hold
• Assess risk
• Take action
• Evaluating Your Current Practices
• Privacy Notices and Contract Terms
• Clients and Prospective Clients
• Notices to Staff
• Data Processors
• Checking Third Parties
• Data Protection Policy (including guidance for staff)
• Information Asset Register (separate Excel file)

If you are in doubt, ask Beach Accountants and we will be able to guide you or refer you to the appropriate websites and documentation.

Making Tax Digital (MTD)

Introduction to Making Tax Digital

Making Tax Digital is a key part of the government’s plans to make it easier for individuals and businesses to get their tax right and keep on top of their affairs – meaning the end of the annual tax return for millions.

Businesses will not now be mandated to use the Making Tax Digital for Business system until April 2019 and then, only to meet their VAT obligations. This will apply to businesses who have a turnover above the VAT threshold – the smallest businesses will not be required to use the system, although they can choose to do so voluntarily.

We expect many of these businesses to take the opportunity to provide quarterly updates for other taxes too, but there will be no mandatory requirement to do so.

Similarly, businesses that are not VAT registered and those below the VAT threshold who have voluntary registered for VAT can opt to join Making Tax digital for Business.

The government remains committed to ensuring we can deliver a modern digital tax system for all businesses and their agents, supporting them to get their tax right and reducing the amount of tax lost through avoidable error.

Four foundations of Making Tax Digital

1. Better use of information

Making Tax Digital presents significant benefits for our customers. It will mean that they will not have to give HMRC information that it already has, or that it is able to get from elsewhere – for instance from employers, banks, building societies and other government departments.

Digital tax accounts for all will mean that customers can see the information that HMRC holds and be able to check at any time that their details are complete and correct. HMRC will use this information to tailor the service it provides, according to each of our customers’ individual circumstances.

2. Tax in real time

Our customers should not have to wait until the end of the year or longer to know how much tax they should pay. HMRC will collect and process information affecting tax as close to real time as possible, to help prevent errors and stop tax due or repayments owed building up.

3. A single financial account

Most taxpayers cannot see a single picture of their liabilities and entitlements in one place – we are changing that. By 2020, customers will be able to see a comprehensive financial picture in their digital account, just like they can with online banking.

4. Interacting digitally with customers

Our customers (and their agents) will be able to interact with HMRC digitally and at a time to suit them. They already have access to a digital account which will present them with an increasingly personalised picture of their tax affairs, along with prompts, advice and support through webchat and secure messaging. And digital record keeping software will be linked directly to HMRC systems, allowing customers to send and receive information directly from their software.

Next steps

The first businesses have already started keeping digital records and providing updates to HMRC as part of a live pilot to test and develop the Making Tax Digital service for income tax and NICs and we will continue to expand this pilot.

The government will re-introduce the legislation to give effect to Making Tax Digital for business that was published in the Finance Bill after the Spring Budget.

We will start to pilot Making Tax Digital for VAT by the end of this year, starting with small-scale, private testing, followed by a wider, live pilot starting in Spring 2018. This will allow for well over a year of testing before any businesses are mandated to use the system. No business will be mandated before 2019.

From April 2019 businesses above the VAT threshold will be mandated to keep their records digitally and provide quarterly updates to HMRC for their VAT.

Beach Accountants Limited

Beach Accountants have already started the process of ensuring that it is prepared for Making Tax Digital by becoming Certified and Trainers for several Cloud accounting software and processing clients data digitally so that there is a smooth transition for the new government reporting system to be introduced.