MTD FOR ITSA DELAYED FOR TWO MORE YEARS

The Treasury has announced that Making Tax Digital for income tax self assessment (MTD for ITSA) will be delayed for two more years until April 2026.

MTD for ITSA was due to take effect from April 2024 and would have required all self-employed individuals and landlords with income over £10,000 to report earnings quarterly through the MTD for ITSA system.

However, in a Written Statement, Victoria Atkins, Financial Secretary to the Treasury, confirmed that the mandation of MTD for ITSA will now be introduced from April 2026. Businesses, self-employed individuals and landlords with income over £50,000 will be required to join first. From April 2027, those with income over £30,000 will be mandated to join, the Treasury said.

Ms Atkins said:

‘The government understands businesses and self-employed individuals are currently facing a challenging economic environment, and that the transition to MTD for ITSA represents a significant change for taxpayers, their agents and for HMRC.

‘That means it is right to take the time needed to work together to maximise those benefits of MTD for small business by implementing gradually.’

The Treasury said that the government now intends to review the needs of smaller businesses in regard to MTD for ITSA, and will consider how the initiative can be shaped to meet their needs.

Once the review is finalised, the government will outline plans for any further mandation of MTD for ITSA.

The Treasury also stated that the government will not extend MTD for ITSA to general partnerships in 2025, saying that the government ‘remains committed to introducing MTD for ITSA for partnerships at a later date‘.

Internet link: UK Parliament website

TAX NON-COMPLIANCE DURING PANDEMIC

Tax non-compliance during the pandemic cost the UK government £9 billion, according to a report from the National Audit Office (NAO).

HMRC redeployed around 1,350 workers to Covid-19 support schemes throughout 2020/21, shrinking the number of those working on tax compliance, the NAO said.

This reduced the tax authority’s capacity to investigate people and businesses not paying the correct levels of tax, according to the NAO.

Before the pandemic, tax revenues from HMRC’s compliance work were on average 5.2% of its total revenues. This dropped to 4.2% between 2020 and 2022 causing a £9 billion reduction in revenues.

Gareth Davies, Head of the NAO, said:

‘HMRC had to move swiftly to reallocate resources to Covid-19 schemes, as the circumstances of the pandemic demanded. However, this directly affected its ability to investigate cases of people and businesses not paying the right tax.

‘There is now a risk that more people ultimately fail to pay the right tax or escape investigation or prosecution. It is concerning that HMRC’s planning indicates that non-compliance may grow following the pandemic. The next two years are critical, and swift action is likely to be needed to stem potential losses.

‘There is little doubt that HMRC’s compliance work offers good value for money, but it needs to evaluate its performance more consistently. Improving the effectiveness of HMRC’s compliance work can help maximise the amount of money available for public services in a challenging economic context.’

Internet link: NAO website

BANK OF ENGLAND RAISES BASE RATE

It is the ninth consecutive increase and takes the base rate to its highest level for 14 years as the Bank battles to stem soaring prices.

The Bank’s Monetary Policy Committee (MPC) voted 6-3 in favour of putting rates up by 0.5%. The BoE also warned that further increases may be necessary to tackle what it fears may be persistent domestic inflationary pressures from prices and wages.

Commenting on the rise, Alpesh Paleja, Lead Economist at the Confederation of British Industry (CBI), said:

‘Another big interest rate rise from the BoE doesn’t come as a surprise in the face of historically high inflation.

‘However, with global price pressures starting to wane along with the economy set to fall into recession, it is likely that we’ll see smaller interest rate rises for the foreseeable future. Nonetheless, high inflation and weakening activity will continue into 2023, putting strain on many households and businesses.’

Internet link: Bank of England website

AUTO-ENROLMENT HAS HELPED WORKERS SAVE £114 BILLION INTO PENSIONS

Workers have saved more than £114 billion into their pension pots since pensions automatic enrolment was implemented ten years ago, according to data published by the Department for Work and Pensions (DWP).

The data showed that more than 10.7 million employees were paying into a workplace pension in 2021. The proportion of young people saving into a pension has more than doubled since the introduction of pensions auto-enrolment in 2012, according to the statistics.

The government says it intends to continue work to further boost the amount of people in a workplace pension. It says it will explore how auto-enrolment can ‘go even further to help more people save more, sooner‘ by abolishing the Lower Earnings Limit for pension contributions and reducing the eligible age to 18.

Laura Trott, Minister for Pensions, said:

‘Automatic enrolment has completely transformed how people save – with staggering results. In the ten years since its introduction, 10.7 million people have started saving for their pensions with this easy-to-use scheme. We have also seen a huge and much needed increase in women and young people being enrolled into a pension.’

Internet link: GOV.UK

MERRY CHRISTMAS AND A HAPPY NEW YEAR

Merry Christmas and a Happy New Year from all at Gareth Hughes & Co.

Our office will close at 1pm on Friday 23 December 2022 and re open at 9am on Tuesday 3 January 2023.

TAX BURDEN RISES FOLLOWING AUTUMN STATEMENT

The UK’s tax burden will rise after Chancellor Jeremy Hunt reduced the threshold on the top rate of tax and announced freezes on other taxes in the Autumn Statement.

The threshold for the top 45% additional rate of income tax was cut to £125,140 from £150,000.

The government is also fixing other personal tax thresholds within income tax, NICs and inheritance tax for an additional two years, until April 2028.

The Dividend Allowance will be reduced from £2,000 to £1,000 next year and £500 from April 2024.

In addition, the capital gains tax exemption will be reduced from £12,300 to £6,000 next year and then to £3,000 from April 2024.

As energy prices continue to drive inflation, the Chancellor confirmed that the Energy Price Guarantee will be extended for a year from April 2023. However, the level at which typical bills are capped will increase to £3,000 a year from £2,500.

The windfall tax on the profits of oil and gas firms was increased from 25% to 35% and extended until March 2028.

The Chancellor also announced a £13.6 billion package of support for business rates payers in England. To protect businesses from rising inflation, the multiplier will be frozen in 2023/24, while relief for 230,000 businesses in the retail, hospitality and leisure sectors was also increased from 50% to 75% next year.

Mr Hunt also confirmed the National Living Wage (NLW) will rise from £9.50 to £10.42 an hour, while the triple lock on state pensions was protected.

The Chancellor said:

‘There is a global energy crisis, a global inflation crisis and a global economic crisis. But today with this plan for stability, growth and public services, we will face into the storm. Because of the difficult decisions we take in our plan, we strengthen our public finances, bring down inflation and protect jobs.’

Internet links: GOV.UK

NEW PM MUST RESTORE CONFIDENCE, SAY BUSINESS GROUPS

The UK’s new Prime Minister Rishi Sunak must restore confidence in the country’s economy, say business groups.

Mr Sunak will have to deal with a range of issues stemming from inflation and the cost-of-living crisis.

Business groups say he will need to set out plans to deal with soaring energy bills, labour shortages, spiralling inflation, and climbing interest rates.

Shevaun Haviland, Director General of the British Chambers of Commerce (BCC), said:

The new Prime Minister must be a steady hand on the tiller to see the economy through the challenging conditions ahead.

We cannot afford to see any more flip-flopping on policies – the UK’s businesses need a sustainable, long-term economic plan they can believe in.

We need a clear long-term vision of how the new Prime Minister will deal with the challenges ahead and create the business conditions that allow firms, and the communities that rely on them, to thrive.’

The BCC says business need more certainty on the energy support package for businesses and how the system will work from April.

In addition, it says the government must set out a strategy to boost international trade and exports.

Tony Danker, Director-General at the Confederation of British Industry, said:

‘The new Prime Minister can lose no time in easing the impact of market turmoil on households and firms, and helping to restore fiscal credibility.’

Internet links: BCC website CBI website

SELF ASSESSMENT CLOCK TICKS DOWN TO UNDER 100 DAYS

HMRC has reminded taxpayers that they are now less than 100 days until the deadline for self assessment online return submission.

Self assessment taxpayers have until 31 January 2023 to submit their online return for the 2021/22 tax year.

According to HMRC, more than 66,000 taxpayers beat the clock and filed their tax return on 6 April – the first day of the new tax year.

HMRC is now encouraging others to complete their return as soon as they can so they know what they owe and can budget to make the payment by 31 January 2023. This also means that if a repayment is due, it can be claimed back sooner.

Last year, more than 95% of taxpayers filed online and those who submit their returns early still have until 31 January 2023 to pay.

Speaking on 24 October, Myrtle Lloyd, HMRC’s Director General for Customer Services, said:

‘With 100 days to go until the online deadline, there’s still time to complete your tax return, to budget and look into the range of payment options if you need to.’

Internet link: HMRC press release

GOVERNMENT PUSHES BACK ECONOMIC STATEMENT

Chancellor of the Exchequer Jeremy Hunt has delayed the announcement of the government’s economic plan until 17 November.

The Medium-Term Fiscal Plan was due to be delivered by the Chancellor in the Commons on 31 October, along with a forecast from the Office for Budget Responsibility.

This had been brought forward because of the market turmoil that followed September’s Mini Budget.

But it will now be put back by more than two weeks and be turned into a full Autumn Statement – expanding its remit and providing longer term plans.

The delay followed the reversals of most of the measures announced in the recent Mini Budget.

Mr Hunt announced that the following tax policies will no longer be taken forward:

  • cutting the basic rate of income tax to 19% from April 2023. The basic rate of income tax will remain at 20% indefinitely.
  • cutting dividend tax by 1.25 percentage points from April 2023. The 1.25 percentage point increase, which took effect in April 2022, will remain in place.
  • repealing the 2017 and 2021 reforms to the off-payroll working rules (also known as IR35) from April 2023. The reforms will remain in place.

The changes follow decisions not to proceed with proposals to remove the additional rate of income tax and to cancel the planned rise in the corporation tax rate.
Mr Hunt said:

‘Our number one priority is economic stability and restoring confidence that the United Kingdom is a country that pays its way. But it is also extremely important the statement is based on the most accurate possible economic forecasts and forecasts of public finances.’

Internet links: GOV.UK

VAT BUSINESSES MUST BE READY FOR MAKING TAX DIGITAL FILING BY NOVEMBER

HMRC is reminding businesses that they will no longer be able to use their existing Value Added Tax (VAT) online account to submit VAT returns from 1 November.

By law, all VAT-registered businesses must now sign up to Making Tax Digital (MTD) and use compatible software to keep their VAT records and file their returns.

According to HMRC, more than 1.8 million businesses are already using the MTD for VAT service. Over 19 million returns have been successfully submitted through MTD-compatible software so far, the tax authority adds.

From November, businesses who file their VAT returns on a quarterly and monthly basis will no longer be able to submit them using their existing VAT online account, unless HMRC has agreed they are exempt from MTD.

If businesses do not file their VAT returns through MTD-compatible software, they may have to pay a penalty. Even if a business currently keeps digital records, they must check their software is MTD compatible and sign up for MTD before filing their next return.

Richard Fuller, Economic Secretary to the Treasury, said:

‘MTD can help businesses get their tax right first time, which cuts the administration burden and frees up time for them to get on with what matters most to them – growing their business.’