HC Quarterly News Bulletin: May 2023 | HaesCooper – Chartered Accountants & Chartered Tax Advisers
26/05/2023
Latest HMRC newsworthy items: Making Tax Digital | UK Tax Compliance Frauds | Sole Trader Survey Results | Changes to Investment Capital for start-up SMEs
Making Tax Digital
As reported previously, HMRC recently announced that the start date for making tax digital for self assessment (MTD for ITSA) is deferred until April 2026. It will now only apply to sole traders and landlords with an annual turnover of more than £50,000 (was £10,000). From April 2027, the £50k annual turnover limit is to be reduced to £30,000. At this time HMRC also said that they planned to widen the scope for use of their MTS ITSA pilot scheme – this pilot scheme has come under criticism as it is only available to a narrow group of taxpayers.
HMRC have now announced that it has paused the above-mentioned MTD ITSA pilot scheme with only 115 taxpayers using it. There have been a number of problems for HMRC setting up the pilot scheme, not least the further testing that had to be introduced as more taxpayers registered to use the scheme.
Clearly, HMRC have remaining problems to solve before the pilot scheme is reinstated prior to the deferred MTD ITSA start date of April 2026. However, despite this delay we recommend that sole traders and landlords with £50k+ annual turnover should plan to switch to a digital recording system for their businesses so that the MTD ITSA start date of April 2026 is met.
If you need help with this switch to digital records please contact us.
UK tax compliance
Frauds: the latest HMRC strategy
HMRC have recently announced that there has been a significant increase in the average length of prison sentences for UK tax fraud, rising to 5.3 years from 3.2 years in 2018. This is as a result of the disastrous handling of the recent pandemic financial support which resulted in a loss to the UK taxpayers of billions of pounds in fraud under the Government’s bounce back loan scheme.
HMRC is focusing on the most serious types of tax fraud with a good deal of success which is good news for the law abiding taxpayers which form the vast majority of the total UK taxpayers.
HMRC services to the UK taxpayers
It has been well publicised over a number of months, years even that it is very difficult for a UK taxpayer to speak to a HMRC representative on the telephone, let alone a trained tax inspector. Even the HMRC services on the dedicated telephone number for use solely by tax agents has in recent times been curtailed with continuing requests from HMRC for the online services to be used. It is understandable that HMRC want to reduce the number of telephone enquiries which are time consuming and require adequate staffing numbers and costs for HMRC. However, there are some matters that just need that telephone discussion such as tax debt management and also when HMRC owe the taxpayer money in the form of a tax repayment.
The current way that HMRC are dealing with tax repayment claims requires a detailed review. As recently reported, where a taxpayer’s Tax Return as filed to HMRC has correctly declared all of the income and gains, and all necessary entries have been made to show that a tax repayment is due (including bank account details), then HMRC ignores this information and places a “security check” flag on the file. This then means the taxpayer (or their agent at the tax payer’s cost) needs to go online and repeat the bank account details to HMRC. In theory, this then enables HMRC to process and issue the tax repayment to the taxpayer or their agent – but this all seems an unnecessary step.
It is fully understood that, following recent cases of fraudulent agents claiming taxpayers’ tax repayments to which they are not entitled, further HMRC checks should be in place. However, it is the time being taken by HMRC to process the ‘security checked’ tax repayments – some reports show that it can several months for HMRC to complete their so called ‘security check’ which in some cases can result in financial hardship to the waiting taxpayer.
Something needs to change and soon, including a review of HMRC staffing levels if confidence in the HMRC ability to provide a service to the UK taxpayers is to remain in place.
So if you believe that HMRC owe you money in the form of a tax repayment for the 2022/2023 tax year then we suggest you complete your Tax Return for the tax year to 5 April 2023 and file it to HMRC sooner rather than later! If you require help with this, please contact us.
Surprising survey results from 800 sole traders
A recent survey of 800 sole traders showed that 75% of them did not have basic UK Income Tax knowledge – how it would affect them and their businesses – including not knowing the annual income threshold for the 40% tax bracket (22/23 & 23/24 tax years -£50,270 per tax year). Only one in ten knew what happens if they did not pay their tax bill to HMRC by the due date – one in fifty thought nothing would happen. Also, there was a considerable lack of knowledge of the current annual income threshold for VAT Registration (£85,000).
If you’re a sole trader looking to learn more, we’d be happy to help.
REMINDER: changes to help ‘start-up’ SMEs to raise investment capital
As from April 2023 there are favourable changes to the Seed Enterprise Investment Scheme (SEIS). SEIS was introduced by the Government over 10 years ago to stimulate start-up SMEs trading companies. Most SMEs trading companies qualify for SEIS provided they have been trading for less than 3 years (was 2 years before April 2023). However, there some exclusions from the SEIS qualifying trades e.g. dealing in land, running a hotel or nursing home. For a complete definition of a qualifying SEIS company please refer to:- https://www.gov.uk/guidance/venture-capital-schemes-raise-money-by-offering-tax-reliefs-to-investors
The Finance Bill 2023 proposed main SEIS changes as from 6 April 2023 are:
- An individual’s maximum SEIS investment increases from £100,000 to £200,000.
- The maximum SEIS funds that can be raised over the three year period is £250,000 (was £150,000).
- Qualifying companies can raise SEIS capital within the first three years of trading (was two).
- As at the date of the SEIS capital investment a qualifying company’s gross assets can be up to £300,000 (was £200,000).
Provided you retain ownership of the SEIS shares for three years, the main Income Tax relief for the cost of the SEIS capital investment remains at 50% of the capital investment made to obtain the SEIS shares. The relief from CGT also remains namely no CGT on disposal of the SEIS shares provided, as mentioned above, the SEIS shares are owned by you for 3 years. If you do not own the SEIS shares for 3 years the above Income Tax and CGT reliefs are withdrawn and any tax relief obtained is repayable to HMRC.
We’re here to help if you need to make an application to HMRC for your SMEs trading company to qualify as a SEIS company and obtain the favourable SEIS investment capital.
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