January 2023 News Bulletin

HC Quarterly News Bulletin: January 2023 | HaesCooper – Chartered Accountants & Chartered Tax Advisers


Latest HMRC newsworthy items: Spring Budget 2023 | MTD ITSA | HMRC Interest Rate Hiked | New Penalty / Interest Charges AND news for local businesses

Spring Budget 2023

The Office for Budget Responsibility (OBR) has been asked by the government to prepare a forecast to accompany the Chancellor of the Exchequer’s proposed Spring Budget 2023 on 15 March 2023.

Making Tax Digital for Income Tax Self Assessment (MTD ITSA)

The government’s treasury department has announced that the MTD ITSA start date is to be deferred, yet again, and is to be mandatory from 6 April 2026 (it was to be 6 April 2024 with the original start date being 6 April 2018!).

In addition, HMRC are to review whether individuals being self-employed and/or landlords with annual gross income/turnover of less than £30,000 (estimated to be some 2.6m taxpayers) will ‘not’ be mandated to join the MTD ITSA as from 6 April 2026.

Likewise, no date has been set for partnerships to be included within MTD ITSA, although the government remains committed to including partnerships within MTD ITSA at a future date.

The government has also agreed that for individuals who are self-employed and/or landlords (taxpayers) with annual gross income/turnover above £30,000, MTD ITSA will be introduced in phases. Those taxpayers with annual gross income/turnover above £50,000 will be mandated to join MTD ITSA as from 6 April 2026, with those taxpayers with annual income/turnover above £30,000 but below £50,001 being mandated to join MTD ITSA from 6 April 2027.

While the above changes and the further deferment of the start dates for MTD ITSA are welcomed – following the advice previously given to the government by the UK professional accountancy bodies – there nevertheless remains a long list of problems with digitalising the filing of UK Tax Returns. In this time of UK business economic downturns, the looming recession and also the cost of living crisis, is it the right time for the government to introduce to taxpayers fiscal filing complexities and more importantly, additional commercial software costs in order to introduce MTD ITSA? Probably not.

The UK professional accountancy bodies will continue to advise the government of the remaining areas of concern, not least the costly tax filing commercial software requirements for taxpayers to accomplish the requirements under MTD ITSA. In this respect it is considered by the UK professional accountancy bodies that serious consideration should be given by the government to review the need for MTD ITSA, particularly the intended ‘quarterly filing’ of tax reports by taxpayers to HMRC. It was seven years ago that MTD ITSA was first agreed as a policy decision by the government – perhaps it is no longer appropriate and concentration should now be on businesses keeping quality digital accounting records.

HMRC interest rate hiked!

The HMRC’s interest rates for unpaid taxes are linked to the Bank of England’s (BOE) base rate. As we all know, the BOE base rates has increased many times of late. The latest increased BOE base rate is to 3.5% as from 15 December 2022. This has therefore increased the HMRC interest rate on late payment of taxes to 6% pa as from 6 January 2023 (previously 5.5% pa). Additionally, the HMRC repayment supplement rate is now 2.5% pa as from 6 January 2023 (previously 2% pa).

HMRC new penalty / interest charges

We’ve covered this new penalty regime in a past HaesCooper Bulletin – this is a reminder to all VAT registered businesses that for all VAT Return periods that begin on or after 1 January 2023, there is a new HMRC penalty/interest charge for late VAT Returns/payments. The objective of the new HMRC penalty regime is to penalise those persistent late payers of VAT.

The above-mentioned objective is to be achieved by splitting the HMRC charges into a penalty for late filing of the VAT Return and penalty and interest charges on the late payment of the VAT liability. So even if a VAT registered business cannot afford to pay its VAT liability to HMRC, they should ensure that their relevant VAT Return is filed to HMRC on time!

The penalty charge, for VAT Return periods beginning after 1 January 2023, on VAT Returns filed late to HMRC is to be based on a points system. HMRC will issue a point for each time a VAT Return is filed late, but no penalty charge is levied until the points reach the penalty points threshold. The penalty points thresholds for late VAT Returns are:

If you reach your points threshold, then HMRC will levy a penalty charge of £200 ‘each time’ you file a VAT Return to HMRC late (the filing deadline is 1 month and 7 days after the end of the period covered by the VAT Return).

Watch out though, as the above-mentioned new late VAT Return filing penalty points/charge system will apply to ‘all VAT Returns’ filed late whether showing a VAT liability or a VAT repayment! So make sure you file your VAT Returns on time!

The pre-1 January 2023 penalty provisions enabling a VAT registered business to claim to have a reasonable excuse for a late filing of a VAT Return and the HMRC discretionary powers as to not levying a penalty, will continue to apply under the new HMRC penalty regime.

The HMRC charges on late VAT payments as from 1 January 2023, is based on penalties and interest. The first penalty charge is levied by HMRC at a flat rate 2% of the VAT remaining unpaid at day 15 after the VAT payment due date, and a further flat rate 2% charge for any of the VAT remaining unpaid at 30 days after the VAT payment due date. A second penalty charge is levied if any of the VAT liability remains unpaid on day 30 after the VAT payment due date. The second penalty charge is at an annual rate of 4% of what VAT is still outstanding at day 30 as charged for every day from day 31 until the balance is paid in full.

Example of how the new first and second penalty charges work:

The company owes £15,000 in VAT pays the VAT they owe 51 days after the date it is due.

HMRC charges a first late payment penalty of £600, calculated at:

2% of the amount outstanding at day 15 (2% of £15,000 = £300)

2% of the amount outstanding at day 30 (2% of £15,000 = £300)

HMRC also charges a second late payment penalty calculated daily at an annual rate equivalent to 4% on the outstanding amount of £15,000.

HMRC charges 4% from day 31 of the payment being overdue up to and including day 51 when the company pays in full.

This works out as 21 days (£15,000 x 4% x 21/365 days) = £34.50

The total penalty that the company is charged for paying 51 days late is £634.50 from the:

first late payment penalty of £600

second late payment penalty of £34.50.

In addition to the above penalties, HMRC will also charge interest for the late payment of the VAT at the BOE base rate, plus 2.5% (currently this adds up to 6% pa).

To mitigate the above HMRC penalty charges, agreeing a Time to Pay (TTP) with HMRC is treated as a payment so long as the TTP arrangements are not subsequently broken. In short, requesting a TTP within 15 days of the VAT due date will ensure that HMRC will not charge the penalties as from the date of the TTP application date.

Some relief from the new penalty regime is available for the first year (called the ‘period of familiarisation’) of the new penalty rules i.e. through to 31 December 2023. The first flat rate 2% penalty charge will be waived by HMRC provided the VAT liability is paid within 30 days of the VAT payment due date, but late payment interest – currently at 6% pa – will still be charged by HMRC as detailed below.

In addition to the above-mentioned penalties, HMRC will charge interest on late payment of VAT. The late payment interest is to be charged at 2.5% above the BOE base rate making a current late payment interest charge of 6% pa. This being in line with the HMRC interest charged on the late payment of other taxes. However, for some unknown reason, as from 1 January 2023 the repayment supplement rate for VAT will be less generous than for other taxes. The VAT repayment supplement rate is to be at the BOE base rate ‘less’ 1%-giving a current rate of 2.5% pa – with a minimum rate at 0.5% pa.

In short, to avoid the new HMRC VAT penalty charges regime make sure your VAT Return is filed to HMRC on time with any resultant VAT liability paid on time or that within 15 days of the VAT payment due date either the VAT liability is paid to HMRC or a TTP arrangement is applied for to HMRC.

News for local businesses

Digital Sector Growth Campaign in West Sussex

A new campaign has been launched by West Sussex CC and West Sussex Districts & Boroughs to promote and discover the range of digital roles available in West Sussex and connect local businesses with this local talent – Digital Sector Growth Campaign.

During 2023 it is proposed to hold 20 events across West Sussex to include road shows and pop-up info hubs in town centres with the objective of connecting jobseekers with trainers and businesses within the digital jobs market.

Kent independent food & drink businesses

Produced in Kent has obtained government funding to provide business support to 125 Kent based independent food & drink businesses that have been adversely impacted by Covid. The government funding is to enable Produced in Kent to arrange an events programme via their existing ‘Boost Your Business’ campaign in order to identify and provide to 125 Covid hit Kent based independent food and drinks businesses marketing and promotional support, including advice on business grants/funding options.

In addition, a range of networking events will be held in order to connect independent food and drinks producers and hospitality venues. The Boost Your Business (BYB) programme has been operating for the last 5 years, and so this government funding will not only enable the BYB programme to continue, but also to expand its business support to the selected 125 Kent based independent food and drinks businesses that have been adversely impacted by Covid.

East Sussex County Council recently launched a further version of its business funding programme

East Sussex Invest (formed in 2013 by East Sussex CC) has launched ‘East Sussex Eight’ being the eighth version of its business funding programme for qualifying businesses. The fund offers grants and loans for capital investments to encourage job creation and growth of businesses within the county of East Sussex. Since 2013, some 247 businesses have benefited from nearly £9 million in funding.

There are two parts to the East Sussex Invest Eight Fund:

  1. Loans (with a maximum repayment term of 5 years) of between £10k and £25k with a 50% matching funding requirement. The interest charge on the loan is at a lower than the usual commercial loan interest rate, and a repayment holiday can also be agreed.
  2. Grants of between £10k and £25k with a 60% matching requirement.

An applicant for this funding programme has to satisfy a set of criteria.

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