Category Archives: Latest News

Director’s ban is a warning to others to keep proper company records

A payroll services boss has been banned for orchestrating a multi-million-pound tax avoidance scheme.

The case puts a spotlight on company owners and should serve as a reminder that they are subject to strict conditions over keeping records.

The High Court issued a disqualification order lasting 11 years to the sole director of Magnetic Push Ltd.

The company was purportedly operating as a payroll services company and entered voluntary liquidation within a year of being formed.

However, the liquidator found the director completely uncooperative when requesting the company’s statutory records.

This was reported to the Insolvency Service, which investigated and found that the company was acting as an umbrella company in part of a tax avoidance scheme.

He had declared a VAT liability of just £609 but the tax authorities claimed more than £4 million from Magnetic Push in the liquidation.

Failure to keep accounting records can lead to a £3,000 fine and/or disqualification from acting as a director, as this case indicates.

If you haven’t reviewed your record keeping in a while, now is a great opportunity to do so.

Key points for company and accounting records

You must keep:

  • Records about the company itself
  • Financial and accounting records
  • HM Revenue & Customs (HMRC) may check your records to make sure you are paying the right amount of tax.

You must also keep details of:

  • Directors, shareholders and company secretaries
  • The results of any shareholder votes and resolutions
  • Promises for the company to repay loans at a specific date
  • Promises for payments if something goes wrong and it is the company’s fault
  • Transactions when someone buys shares in the company
  • Loans or mortgages secured against the company’s assets.

Limited companies have to keep a register of ‘people with significant control’ (PSC), which must include details of anyone who:

  • Has more than 25 per cent shares or voting rights in your company
  • Can appoint or remove a majority of directors
  • Can influence or control your company or trust.

When it comes to accounting records you must be able to evidence:

  • All money received and spent by the company, including grants and payments from Coronavirus support schemes
  • Details of assets owned by the company
  • Debts the company owes or is owed
  • Stock the company owns at the end of the financial year
  • The stocktaking you used to work out the stock figure
  • All goods bought and sold
  • Who you bought and sold them to and from (unless you run a retail business).

Link: Running a limited company – Company and accounting records

Don’t miss the deadline for renewing tax credits

Unlike other benefits, tax credits usually have to be renewed each year by 31 July to continue receiving payments from HM Revenue & Customs (HMRC).

If you are claiming tax credits, it is really important to look carefully at the information you receive.

Even if you have stopped getting tax credits, you still need to check that all your details are correct and respond if required to do so.

Each year you will be sent a renewal pack that tells you how to renew. If it has a red line across the first page and says ‘reply now’ you will need to renew.

If it has a black line and says ‘check now’, you will need to check your details are correct and if they are, you do not need to do anything and your tax credits will be automatically renewed.

If you miss the deadline your tax credits payments will stop. You will be sent a statement and will have to pay back the credits you have received since 6 April 2021.

From 6 April, you will get estimated (‘provisional’) payments from HMRC until you renew. Your payments may have changed based on information from your employer or pension provider.

If you miss the deadline for renewing, you will be sent a statement (TC607). If you contact HMRC within 30 days of the date on the statement your tax credit claim may be restored, and you will not have to pay anything back.

However, if you contact HMRC later than 30 days of the date on the statement, they will ask you to explain the reasons for the delay – known as ‘good cause’ – before they consider restoring your claim.

If HMRC stops your payments, you cannot make a new claim for tax credits.

How to renew

You can renew tax credits online or renew tax credits by phone or post.

You will need:

Link: How to renew tax credits

A helping hand with the cost of children’s summer activities

Parents faced with the financial headache of childcare over the long school summer holidays are reminded they can get support from the Government.

HM Revenue & Customs (HMRC) is reminding working families that they can use Tax-Free Childcare to help pay for their childcare costs over the summer.

Tax-Free Childcare – a childcare top-up for working parents – has been available for some time.

It can be used to help pay for accredited holiday clubs, childminders or sports activities, giving parents and carers that extra peace of mind during the school summer holidays and saving them money.

The scheme is available for children aged up to 11, or 17 if the child has a disability.

For every £8 deposited into an account, families will receive an additional £2 in Government top-up, capped at £500 every three months, or £1,000 if the child is disabled.

Parents and carers can check their eligibility and register for Tax-Free Childcare on GOV.UK.

They can apply for an account at any time and start using it straight away.

By depositing money into their accounts, families can benefit from the 20 per cent top-up and use the money to pay for childcare costs when they need to, especially during the summer holidays.

More than 282,000 working families used their account in March 2021, the highest recorded number of families in any one month since the scheme was launched in April 2017. These families received a share of more than £33 million in Government top-up payments.

Tax-Free Childcare is also available for pre-school aged children attending nurseries, childminders or other childcare providers.

Families with younger children will often have higher childcare costs than families with older children, so the tax-free savings can make a difference.

Childcare providers can also sign up for a childcare provider account on GOV.UK to receive payments from parents and carers via the scheme.

Link: Tax-Free Childcare

Tax system overhaul – The Government’s response

Earlier this year, the House of Commons Treasury Select Committee released a new report called ‘Tax After Coronavirus’, which called for landmark changes to the UK’s tax system to deal with the impact of the COVID-19 pandemic.

This 80-page document was packed with recommendations for the Government to consider, put together and agreed by the cross-party group of MPs, which looked at how the nation could increase tax revenues without stunting economic growth.

Among the recommendations agreed by the Committee in its report were:

  • Taxing Income from Work – Calls to reform this old, complex system and the interaction of different taxes, including greater alignment between Income Tax and National Insurance.
  • Limited Companies – If the tax advantages of self-employment are to be reduced, then so should the tax advantages of operating through a limited company, relative to the taxation of employees, the report said.
  • Digital Services Tax – The Committee said more work is needed in this area, and that it should be monitored to see the impact of the current levy on businesses and tax collection.
  • Capital Gains and Inheritance Tax – These forms of taxation should be reformed and balanced with the need that any significant increase could damage future business investment in the UK, particularly in light of Brexit.
  • Retail Sales Tax – The Committee said there is not enough evidence to support retail sales tax as an alternative to VAT and it could potentially be very complex given trade deals and how other jurisdictions would still charge VAT.
  • Stamp Duty Land Tax – Described as economically inefficient and damaging to the economy and should be treated as a priority area for review so that the Government could set levels to encourage homeownership.

Whilst the Government does not have to act on these recommendations, it was given until May to provide an official response to this report – although elements of the recommendations were incorporated into the March Budget by the Chancellor.

However, the Government has now published its findings to the report in a response to the Treasury Committee.

Within its response, the Government said it is committed to supporting jobs, businesses and livelihoods.

It pointed to several measures undertaken already to support businesses based on the Committee’s recommendations, including:

  • Extending the carry back rules from one to three years for both incorporated and unincorporated businesses.
  • Creating additional capital allowances in the form of the super deduction and an extended first-year allowance, which it said went beyond the recommendations of the Committee to lengthen the current timeline for the £1 million Annual Investment Allowances beyond January 2022.

The Government said it had even gone further by extending a number of the existing support schemes, such as business rates relief and the VAT reduction for the UK’s tourism and hospitality sector, which were both linked to calls from the Treasury Committee in its report to continue helping businesses affected by the pandemic.

As a result of the Government’s actions over the past year and the measures announced at Budget, the Office for Budget Responsibility now expects the economy to return to its pre-crisis peak two quarters earlier than previously forecast.

Of course, in the original report, the Committee also called on the Government to maintain public spending at a sustainable level, which the Government claims it has done in its most recent actions.

In its statement to the Treasury Committee, the Government said: “The Chancellor has also been clear with taxpayers about the need to get the public finances back on track once the recovery is durably under way.

“The Budget also set out steps to repair the public finances once the recovery is well under way.”

The Government said in order to do this it would:

  • Increase the main rate of Corporation Tax from 2026 under a new tapered system.
  • Follow the recommendations of the original report to freeze personal taxes.

However, the latest response fell short on many of the major reforms to tax strategies laid out by the Committee, particular an overhaul of the Stamp Duty Land Tax and VAT systems.

The response stated: “The Budget has set out the Chancellor’s medium-term plan for how the tax system will support the Government’s broad economic objectives for the next five years.

“The Government keeps all taxes under review and the Chancellor will outline tax reforms as part of future fiscal events.”

Concluding the Government said it welcomed many of the recommendations made by the Committee, but felt that “the report leans away from measures that would help to repair the public finances in the coming years”.

The Government, while adopting some elements of the Committee’s ‘Tax After Coronavirus’ report, seem to have neglected or perhaps rejected other important elements as they focus more on economic growth instead of a major reform of UK taxation.

It is likely, however, that future Budgets will include measures that seek to recoup the significant spending brought about by COVID-19 and the subsequent recovery.

A full version of the Government’s response can be found here.

If you have any queries about the latest response or the measures recently outlined by the Government, please speak to our team today.

Get ready for the next stages of Making Tax Digital

From 6 April 2023, Making Tax Digital (MTD) initiative is being expanded to include businesses and landlords with a combined total gross income over £10,000 per annum, from the following sources:

  • Income from self-employment
  • Income from partnership
  • Income from UK property
  • Income from overseas property

However, there are exceptions, including:

  • Trusts, estates, trustees of registered pension schemes and non-resident companies
  • Partnerships that have corporate partners and Limited Liability Partnerships are not required to join MTD for Income Tax in April 2023 but will be required to join MTD at a future date.

Under these changes, you will be required to keep digital business records of all your business income and expenses, including income from self-employment or property, at a transaction level.

You will then be required to use MTD compatible software to send updates to HMRC every quarter.

This will mean that there will now be five ‘returns’ a year instead of just one self-assessment tax return.

The deadline for quarterly summary tax information must be with HMRC one month following the quarter-end.

At the end of the tax year, there will then be a final declaration made to HMRC to include details of all other income and any accounting adjustments.

You must submit your final declaration and pay the tax you owe by 31 January the following tax year.

Making Tax Digital for Corporation Tax

A consultation is currently being carried out by HMRC to explore how the core principles of MTD can be applied to Corporation Tax (CT).

Within the consultation document, HMRC made it clear that MTD for CT is a means of tackling the underpayment of tax, especially amongst smaller businesses, where HMRC believes these are significant issues with errors.

The tax authority has indicated that as much as £2.1billion of the tax gap relates to CT.

Along similar lines to the existing MTD for VAT system, the proposals put forward a process that would require companies to maintain their records digitally and the submission of quarterly updates and a year-end tax return using MTD compatible software.

These quarterly submissions will focus on accounting data, with the option of including indicative changes to tax treatment. However, the usual annual tax return will be retained to allow HMRC to take a final decision on tax treatment.

These changes, if implemented, will affect the majority of businesses. Under the current proposals, it will be necessary to link accounting data directly to the tax return submission for all businesses.

HMRC has indicated that it intends to hold a voluntary pilot from April 2024 to test the effectiveness of the system, before rolling it out more widely by 2026 at the earliest.

It is important that businesses prepare themselves for future changes and that VAT-registered businesses continue to comply with the current digital tax rules.

This includes using the correct online accounting software and processes that are compliant with the ever-changing MTD regime.

MTD Penalties

Business owners need to be aware that HMRC’s so-called ‘soft landing’ period for Making Tax Digital (MTD) came to an end recently.

When MTD first came into force in 2019, HMRC allowed businesses additional time to put in place digital links.

The soft landing was due to come to an end in April 2020 but was extended to April 2021 as a result of Covid-19.

From now on, HMRC will issue penalties for not keeping complete and ‘adequate’ digital records for VAT returns each quarter – which means that copying and pasting data from a spreadsheet is no longer sufficient in most cases.

From 1 April 2022, MTD will also apply to all VAT registered businesses for their VAT obligations, including those that are voluntarily registered with a taxable turnover below the VAT threshold (£85,000).

Need further advice?

Download our helpful MTD Roadmap infographic Click here to download our Guide to MTD

If you would like help preparing for MTD or are struggling with the complexities of the current VAT regime, please contact us.