Re-enrolment in a workplace pension

For many employers, the aggravation of setting up auto-enrolment of staff into a workplace pension was over years ago, but it’s not a task that can be done once and forgotten.

All employees who opted out of the workplace pension must be re-enrolled in that pension after three years. You do this by writing to each staff member who should be re-enrolled within six weeks of the re-enrolment date.

You choose your own re-enrolment date, but it must fall within a six-month time frame based on the date you had to start auto-enrolment for the first time. Once you have re-enrolled all the employees to whom this rule applies, you must submit an online declaration of compliance to The Pensions Regulator within five months of the re-enrolment date. We can help you with that statement.

Those individuals who are automatically re-enrolled into the pension can immediately opt out again if they choose to do so. Individuals with very large pension pots may be advised to do this if they have taken steps to protect the level of their pensions lifetime allowance.

Preparing for Brexit

The Government is urging businesses to prepare for changes to customs, excise and VAT procedures when the UK leaves the EU. This is expected to happen at 11pm on 31 October 2019, but there could be a further delay until 31 January 2020.

If there are no arrangements in place to temporarily keep the UK within the customs union (no-deal Brexit), import and export procedures will change immediately. Goods that travel over international borders will need to clear customs twice:

when the goods leave the UK (exported goods)
when the goods enter the territory in which they are received (imported goods)
The customs declaration on export is normally done by the exporter, the customs declaration on import is normally done by the importer who receives the goods.

In order to clear UK customs, either for importing or exporting goods, a UK-based business will need an Economic Operator Registration and Identification (EORI) number issued by the UK. This is a 12-digit number starting with GB which includes the business’s VAT registration number.

If a UK business imports goods into an EU country – say it sends goods from its UK factory to its branch in Germany – it will also need an EORI number issued by the EU for the import side of that movement.

HMRC is allocating EORI numbers to VAT-registered traders which it believes have traded with EU countries and don’t already have an EORI number. You may have received a letter about your new unique EORI number.

If your business is not VAT registered it will still need an EORI number if it moves any value of goods across the UK border. There are special arrangements in place for moving goods between Northern Ireland and the Republic of Ireland, so businesses won’t require an EORI number for most types of goods which are moved across that Irish border.

In addition to clearing customs, the UK business will have to pay VAT on any goods imported from the EU into the UK. A trader can register for transitional simplified procedures (TSP), which is an additional process to the EORI number. There may also be tariffs to pay on certain goods, and health and safety certificates to acquire.

You can apply for grants for training to complete customs declarations, and for the IT changes you will need to cope with all the customs filings. However, if your tax returns have been submitted late you won’t be eligible for either type of grant.

Pay tax on gains in 30 days

When non-resident owners sell UK land or property (of any type), they must pay any Capital Gains Tax (CGT) within 30 days of the completion date of the sale, and submit an online report to HMRC by the same date.

This 30-day payment deadline is being rolled out to all UK owners of residential property for sales made on or after 6 April 2020.

From that date, if you make a gain on selling a home, any CGT due will have to be paid in full within 30 days. You will need to estimate whether or not you will be a higher-rate taxpayer for the tax year, in which case the CGT is due at 28%, otherwise at least some of the CGT is charged at 18%. However, those tax rates could be changed before April 2020.

This is a massive acceleration on the current payment date for CGT, which is currently 31 January after the end of the tax year in which the property was sold.

Say you sell your buy-to-let property on 1 October 2019, the CGT will be payable by 31 January 2021. If you wait until 1 May 2020 to sell the same property, the CGT will be payable by 31 May 2020.

We will need to know about your property sales as soon as they are agreed, so we can help you calculate the tax due and submit the property disposal return to HMRC within 30 days of the completion date.

You will also have to report the capital gain on your self-assessment tax return after the end of the tax year, and at that stage you may be due a refund of CGT if you have made any other disposals generating capital losses in the year.

Overseas landlords

Living overseas and managing a let property in the UK is never easy, but HMRC has just made the task a little more difficult by sending disturbing letters to overseas landlords and to their tenants.

The letters are targeted at landlords who hold the property through a corporate structure or a trust. HMRC has been reminding the landlord that it may need to pay the Annual Tax on Enveloped Dwellings (ATED) for periods when the property was not commercially let. We can help you check if the ATED is due for your property, or if a relief should be claimed.

Non-resident companies currently pay Income Tax on profits from letting UK property instead of Corporation Tax. This will change from 6 April 2020. HMRC is telling landlords that the company must register for Corporation Tax in the UK from April 2020. We can help you with that.

Some tenants of overseas landlords have also received letters from HMRC. These letters imply that the tenant should deduct tax from their rent and send that tax to HMRC.

This is alarmist, as the obligation to deduct tax lies with the letting agent, if there is one. Where the landlord is already registered with HMRC through the non-resident landlord scheme to receive rent gross, there is no obligation to deduct tax from the rent at all.

The best approach is to reply briefly to HMRC giving contact details of the landlord or their letting agent. It is not the tenant’s responsibility to tell HMRC about their landlord’s ownership structure.

Uncertain times

We are living in a state of unprecedented uncertainty. We don’t know if the UK will leave the EU on 31 October 2019 or not, although at the time of writing the current Prime Minister insists that this is the immoveable Brexit date. There may also be a general election before the year is out.

As a business it is sensible to prepare for all likely outcomes, so gearing up for Brexit can no longer be put off. This newsletter contains some advice about what you need to do if you are an importer or exporter, or if you sell electronic services across international borders.

HMRC has diverted staff to help with the Brexit preparations, and this is having a knock-on effect for other tax projects. The introduction of the VAT reverse charge system for businesses in the construction industry, which was due to come into effect on 1 October 2019, has been postponed for a year to October 2020.

If your business has already made changes to prepare for the construction industry reverse charge, such as altering your VAT period from quarterly to monthly, you can easily alter your VAT periods back to quarterly through your business tax account, or we can do that for you. If you have requested to leave the VAT flat rate scheme on 30 September, that decision can also be changed. HMRC will be sympathetic to businesses who need to make changes because of the short notice given for postponement of the reverse charge.

The Making Tax Digital (MTD) regulations came into play for most VAT registered businesses for the VAT period that began on 1 April, 1 May or 1 June 2019. However, some complex businesses have a start date for MTD for VAT as the period beginning on 1 October, 1 November or 1 December 2019. This may be another reason why the reverse charge for the construction industry has been deferred for a year.

Start right for MTD

Under the Making Tax Digital (MTD) rules, businesses must use software to submit their VAT returns unless their annual turnover is less than £85,000.

If you have acquired new accounting software to comply with MTD for VAT, it’s worth checking whether it’s been set up to reflect the circumstances of your business. For example:

  • Have the opening balances for debtors and creditors been correctly entered?
  • Does the software recognise the use of the cash accounting scheme?
  • Is the software using the correct percentage to calculate the VAT due under the flat rate scheme?
  • Is the software correctly identifying which purchases are zero-rated or standard rated from bank feeds?

Before you submit your first VAT return using your new software, review the draft return for obvious errors and inconsistencies. We can help you with that.

Penalties arising from inaccurate VAT returns apply at up to 100% of the VAT underpaid as a result of a careless or deliberate error. A problem with setting up new accounting software may be accepted as a reasonable excuse for submitting a VAT return containing an error, but you need to correct any mistakes as soon as they are discovered.


VAT penalties

If you don’t submit your VAT return on time, or fail to pay the VAT due on time, HMRC will put your business on the fiscal naughty step. HMRC should tell you that your business is on its watch list by sending you a Surcharge Liability Notice (SLN), and a help letter if this is your first offence.

If you repeatedly file VAT returns late or pay VAT late, the SLNs will carry on arriving and penalties will be charged. These start at 2% of the late-paid VAT (minimum of £400), and the percentage rises each time an SLN is issued until it reaches 15% of the VAT that was paid late. If HMRC receives the VAT payment even one day after the due date, this still counts as ‘late’.

The key to this process is the receipt of an SLN. If the business does not receive an SLN, any default surcharge (i.e. a monetary penalty) issued on the back of that SLN is invalid. HMRC doesn’t keep copies of all the SLNs it issues, but it should keep an accurate list of the address each was sent to and when it was issued.

If you receive a VAT penalty out of the blue, and you weren’t aware your business was in default with VAT payments or VAT returns, you can appeal against the penalty. There have been several cases recently where the tax tribunal has overturned VAT penalties because HMRC couldn’t prove that the SLN was correctly issued.

Tip: if you have problems submitting your VAT return under MTD, make sure you pay your VAT on time, as that will neutralise any fiscal penalty.


Why deregister from VAT?

There are two valid reasons to cancel your VAT registration:

  • you have ceased trading and have no intention of making future sales
  • your sales in the next 12 months are expected to be less than £83,000

If your turnover for the last 12 months has been above the VAT registration threshold of £85,000, you will be required to submit VAT returns for periods starting on or after 1 April 2019 using MTD compatible software, until and unless you cancel your VAT registration.

Where you are winding down your business, it may make sense to cancel your VAT registration sooner rather than later, to avoid having to buy new software to comply with MTD.

You can only ask HMRC to cancel your VAT number from a future date. From that date you must not charge VAT on your sales and you can’t reclaim VAT on purchases.

Don’t delay the deregistration date because you are waiting for some purchase invoices to arrive. Any VAT paid on costs relating to the period while your business was VAT registered can be reclaimed later on form VAT427. We can help you with that.


Digital records needed for MTD

VAT registered businesses who need to file VAT returns under the Making Tax Digital (MTD) rules, also need to keep all of their VAT records in a digital format. This can be in a spreadsheet or in accounting software.

You don’t have to take a picture of every purchase receipt, but you do need to record these three data points:

  • Date of the purchase
  • Net value of the purchase
  • Amount of VAT to be reclaimed

Where you buy a lot of items from a supplier, you can record the totals from the supplier as a statement instead of all the individual purchase invoices. This helps you match your accounting records to your bank statement where you make one payment per period to each supplier. You can only use the supplier statement totals where all the invoices on the statement fall into the same VAT period, and the amount of VAT charged at each rate is recorded.

Petty cash transactions can also be a pain, as there tend to be a lot of small amounts. You can record all the petty cash expenditure as a single digital record, if the total amount is no more than £500, and the individual purchases were each no more than £50.

Where the purchase invoice is received digitally as a PDF or word file, you don’t have to suck that information into your accounting system digitally, you can retype the key details. However, once the data is within your accounting system it needs to be digitally transferred to the VAT return via digital links, without further retyping, or by cut-and-paste, or copy and paste. There is a relaxation of this rule for the first 12 months of MTD.

We can help you set up your accounting system so it complies with the MTD regulations.


Changes to IR35

Changes to IR35

If you provide your personal services through your own company you may be familiar with the IR35 rules, which have been around for nearly 20 years.

Those rules are designed to discourage avoidance of PAYE and NIC by organisations who engage workers through personal service companies or other intermediaries, rather than taking them on to the payroll. Who makes the decision about whether the worker is inside or outside the IR35 rules is changing.

For private sector contracts, the worker currently makes that decision. Where the worker is caught by the IR35 rules, their personal service company must pay PAYE and NIC on a deemed salary payment once a year.

For contracts in the public sector, the engager must decide whether the worker is caught by the IR35 rules, and deduct tax from the payments to the personal service company, if required.

From 6 April 2020 the operation of the IR35 rules, will be standardised for large organisations in the public and private sectors. ‘Large’ in this context means having net assets worth over £5.1m, or annual turnover of over £10.2m, and over 50 employees.

If you provide your personal services through your own company or partnership, you should review the working relationships with your customers, particularly for contracts which are expected to extend beyond 6 April 2020.

If your customer is not a large organisation, the IR35 rules will continue as now; you will decide whether your contract falls within them or not. If your customer is ‘large’ it will be your customer’s responsibility to decide whether your contract is caught by IR35. In that case your customer will be required to deduct Income Tax and NIC under PAYE from your invoice before paying the net amount to your company.

You will not become an employee of your customer, but you will be taxed as if you are one.