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Larking Gowen weekly digest – latest news on direct/indirect tax, financial reporting and more…

Direct taxes

1. Making Tax Digital – reporting delay for small busineses until 2020: A statement has been released from HM Treasury stating that digital quarterly reporting requirements for small businesses will not be implemented until at least 2020. This is a real change from the original plan of April 2018. Under the revised timeline, the first businesses that will need to start digital reporting will be those VAT registered with turnover above the reporting threshold.

2. HMRC consider release of a revised tax calculation: HMRC are aware of the current issues with the 2016/17 tax return in terms of the ordering of allowances and deductions. Consequently, HMRC have advised software providers that a revised tax calculation to fix some of the online filing issues for 2016/17 tax returns could be released in October 2017.

3. Exclusions from self-assessment online filing: In view of the anticipated number of paper returns that will need to be submitted for 2016/17, HMRC are considering issuing an in-year "fix" for the tax return software standards. It is reported that the fix will cover exclusions numbered 48 to 56, 58 and 59, which all relate to the ordering of allowances. There will be only one in-year fix issued, and HMRC are hoping that this adjustment to the standards for the tax calculation won't generate more problems! The ICAEW has commented that tax agents and individual taxpayers who are about to file 2016/17 tax returns on paper because they fall within the exclusions may wish to delay filing for a few weeks until further details of the possible solutions are available. The list of exclusions has been updated and can be found here.

4. ERS Returns: The deadline for filing employment related security annual returns has been extended to 24 August 2017 for the tax year 2016 to 2017 in light of various technical issues with the HMRC website.

5. CCH Daily: 'Today we are publishing the draft legislation for [second] Finance Bill': Second Finance Act will be pushed into autumn but the measures will be effective from April 2017.

6. Regular tax code changes: Be aware that from 3 July 2017, HMRC will be updating PAYE codes more often to ensure that individuals pay the correct tax throughout the year. Click here for more information on the upcoming changes.

7. Auto enrolment staging dates: There are to be changes to when staging dates are issued. For PAYE schemes set up before 30 September 2017, staging dates will be allocated ie. with a delay of a few months between the PAYE scheme setup and the SD being known. From 1 October 2017, any schemes after that date will have a 'Duties Start Date' (change of terminology there) which will be the first date that they start employing staff. This is going to impact the time frame our clients have to get a pension scheme.

VAT and indirect taxes

1. VAT refunds: HMRC have announced plans to phase out the use of government cheques issued when repayments of VAT are made to taxpayers. VAT registered persons must log bank details online or using form 484 in order to obtain payment.

2. Making Tax Digital: As above, compulsorily VAT registered businesses will be required to keep digital records and update HMRC quarterly, for VAT purposes only, from April 2019. Businesses will not be required to do so for other taxes until at least 2020.

3. Zero rating of construction supplies: In a recent First Tier Tribunal case the taxpayer appealed against HMRC's decision to treat their construction supplies as standard rated.

The building under construction was student accommodation, and classed as being for a 'relevant residential purpose' (RRP) by the main contractor. The main contractor provided a certificate of zero rating to the appellant who was acting as a subcontractor, and in turn, zero rated their supplies. HMRC argued correctly that where an RRP is constructed only the main contractor's work can be zero rated – therefore the taxpayer, as a subcontractor, should have charged VAT at the standard rate.

The subcontractor argued that the student accommodation should be treated as a number of ordinary dwellings, and not an RRP. The court agreed that the RRP rules need not apply, and that supplies made by subcontractors must qualify for zero rating.

4. Practice Point – VAT on Motoring expenses: This is a common area for errors, and for scrutiny by HMRC during an inspection. The key points to remember are:

  • Input VAT recovery is blocked on the purchase of cars
  • 50% of the input VAT on car leasing is blocked
  • 'Pool cars' are not subject to the above blocks on input VAT, however, strict rules apply (certain other vehicles such as those used for driving instruction and ice cream vans are not affected)
  • Different rules apply to commercial vehicles, and it can be contentious whether a vehicle is classed as a car or commercial
  • Fuel scale charges must be applied where input VAT is recovered on fuel for vehicles which are also used privately
  • Input VAT can be recovered in full on repairs and maintenance, as long as there is some business use of the vehicle

Other

HMRC regional hubs: HMRC have confirmed that it will move staff into its first regional hub in Croydon in south London this summer and plan to open the remaining 12 regional centres (none in East Anglia) by 2022, although some staff will be based in six transitional centres until the final relocations are complete. One of these transitional centres will be Ipswich (Haven and St Clare Houses).

Whilst every effort is made to ensure accuracy, information contained in this publication may not be comprehensive and recipients should not act solely on the basis of this information.