Blog | Bright Bookkeeping Services

Making Tax Digital for Income Tax April 2023 (Jan 2021 Update)

What is Making Tax Digital for income tax?

If you are a VAT registered business then you will likely have already heard of Making Tax Digital. Making Tax Digital is where a business is required to keep their records digitally and submit your financial information to HMRC on a quarterly basis. Digital records mean that you have stored your records in a computerised format, this can be within an accounting software, or within a spreadsheet. If you use a spreadsheet you will still need to use a software to transmit the date from your spreadsheet to HMRC.

How do I keep digital records?

Most businesses are already keeping records digitally, either within a spreadsheet or within the many available accounting software. It means that each business transaction is detailed within your records. You can still keep paper copies of receipts, however many of the available software allow you to attach receipts to transactions, relieving you of this need too. As mentioned above, if you are using spreadsheets you will still need a software to make the submission to HMRC, so you may as well cut out the middle man and go for an accounting software. This will make the whole record keeping process a lot easier. There are many cost-effective software solutions and as we get closer to the deadline there will be many more!

Who is affected by Making Tax Digital?

If you are a sole trader with a turnover (total sales income) of more than £10,000.00, if you are a UK landlord with a turnover (total sales income) of more than £10,000.00, or if you are both a sole trader and a UK landlord with a combined turnover (total sales income) of more than £10,000.00 then as of April 2023 you will be required to sign up for making tax digital for income tax. You can also sign up to the pilot from now, but there are some limitations with the system right now, you can only sign up if you have one business and have not received any COVID financial support. These limitations will not affect sign up in April 2023 – it will be mandatory for all sole traders and UK landlords with a turnover that exceeds £10,000.00.

Making Tax Digital for Income Tax

How often do I have to submit my Making Tax Digital summary to HMRC?

You are required to submit a summary to HMRC every three months. If you are VAT registered you can align the summary submissions with your VAT returns to make this more convenient. Once you have made your summary submission you will receive an estimated tax calculation from HMRC. This is great to help you budget for your annual tax bill.

Do I still need to fill in an Annual Tax Return at the end of the financial year?

Yes, you will still need to submit your annual tax return and all tax due will need to be paid by 31^st January of the year following the end of the financial year you are submitting for. The good news is, that having made your quarterly summaries to HMRC you will be right on top of your records and preparing and submitting your tax return will be a doddle!

How do I register for making tax digital?

You can register by visiting the HMRC website here.

You don’t need to do this until nearer the time, unless you want to sign up to the pilot.

Do you have any questions? Feel free to get in touch by emailing contact@brightbookkeepingservices.com and I will happily help!

If you need help keeping on to of your records, you can find out about our bookkeeping services here.

Coronavirus Job Retention Scheme Update

On the 29^th May 2020 the Chancellor provided us with an update to the Coronavirus Job Retention Scheme (CJRS) that outlines the contributions that both employers and the Government will make to the scheme costs as it draws to an end on October 31^st 2020.

Here are the key points:

Flexible Furlough Pay

From 1^st July 2020 the CJRS will allow employees to return to work on a part time basis whilst remaining in the scheme. So you can bring your employee back to work for part of their contracted hours and they can remain furloughed for the part of their contracted hours they don’t work.

This means if you have a full-time employee you could bring them back for three days per week and keep them furloughed for two days per week. You would pay their wages for the 3 days (full pay) and the government would continue to pay the furlough costs for the remaining two days.

The aim of this is to allow businesses and employees to gradually return back to normal.

Increased Furlough Cost Contributions for Employers

Throughout June and July the scheme will remain the same. The Government will pay 80% of furloughed employees wages and the associated employer national insurance and pension contributions.

From 1^st August 2020 employers will be required to contribute to the costs of furloughed employees. The employers will need to pay the employer national insurance and pension contributions.

From 1^st September 2020 the government will pay 70% of the furloughed employees wages and the employer will pay the remaining 10% and associated national insurance and pension contributions.

From 1^st October 2020 the government will reduce the amount of furloughed wages they pay to 60% before the scheme closes on 31^st October 2020.

No New Entrants to CJRS After 30^th June 2020

After the 30^th June 2020 the CJRS will close to new entrants. The employee will need to have been furloughed for a minimum of three weeks before this date. This means if an employee is not furloughed before the 10^th June 2020 they cannot be furloughed at all.

Claims that relate to any period before 30^th June 2020 must be submitted before 31^st July 2020.

Help and Support for Business’ and the Self-Employed During the Coronavirus Crisis

The government has announced a range of support for business to help them overcome the coronavirus crisis. There will also be support for the self-employed and freelancers announced soon. It is expected that the support for self-employed and freelancers will be announced on Friday.

Here is an outline of what has been announced and what is expected:

Rate-relief & Grants

If your business was in receipt of rate relief, or had a rateable value of less than £15,000 on the 11^th March 2020 you will receive a cash grant from the government of £10,000.

This is being distributed by local councils, so if you are eligible check their website to see how they are distributing grants. If you have had to close your business it may be worth putting a mail redirect from your business premises to your home address as it is likely many will send a letter.

If your business is in the hospitality, leisure and retail sector and your rateable value was more than £15,000 and less than £51,000 on 11^th March 2020 then you will receive a grant of £25,000.

Businesses in the hospitality, leisure and retail sector now eligible for 100% rate relief.

Employers

Employers are required to pay sick pay for any employee that is self-isolating from day one of absence. The government will repay the first two weeks of this sick pay. It is still unclear how the sick pay will be refunded, and as far as I am aware your payroll software won’t have the capability to do this for you because it is so new. If you are using a software you will have to manually override the sick pay so that the waiting days are paid. Check with your software provider for advice on how to do this.

Keep a record of the dates of isolation, the employee name and the amount of sick pay paid to them. I expect this will be reclaimed in a similar way to SMP, but again HMRC have not announced how this will be done yet.

You can now furlough employees and reclaim 80% of wages from HMRC. Again, how this will be reclaimed is still unclear. If you have made redundancies, this scheme is available from the 1^st March, so you may be able to reconsider this, you will need to check with HR as to how this will work. This scheme is set to run for three months from 1^st March 2020, however it will be extended if necessary.

VAT

If your VAT falls due between 20^th March 2020 and 30^th June 2020 you can defer this, it must be paid before 31^st March 20201.

If you have a direct debit set up to pay your VAT, then you will need to cancel this in order to defer your payment. If you don’t then you just don’t pay. VAT returns do still need to be filed.

Self-Employed

Self-employed people will receive 80% of their average income up to £2550 per month.

You are eligible if:
You have profit of less than £50,000.
The majority of your income is through self-employment.
You completed a 18/19 tax return.

You now have 4 weeks from today to submit a 18/19 tax return if you haven’t done so already.

HMRC are hoping to have this in place by start of June and you should receive a letter from them asking you to complete an online form if you are eligible.

I know for a lot of you that are just growing your businesses this support will not be enough. Remember, if you are renting you can speak to your landlord, perhaps consider paying just half of your rent until we are all back on our feet. If you have a mortgage consider taking a mortgage holiday.

You can also try to apply for universal credits to see if you can get additional support and speak to your local council and see if they can help in any way.

I know there are still several people that won’t get the support that they need. We can only hope that more help will be announced in the coming days and weeks.

Stay safe!

Budget March 2020

As expected, the budgets main focus was on how we can overcome the corona virus, by providing extra funding to the NHS and supporting the economy, which will inevitably suffer as a result of the outbreak.

Here are the key points from the budget:

Coronavirus

Additional funding for the NHS
Sick pay will be paid to all who self-isolate or contract the virus without qualifying period
Businesses that employ less than 250 staff members will be reimbursed for sick pay paid to employees as a result of coronavirus
Small business rate relief will be abolished for all eligible businesses with a rateable value of less than £51000
Businesses that are already eligible for small business rate relief will receive a £3000 cash grant
Businesses can defer tax payments to HMRC to help them manage cash flow if they struggle as a result of Coronavirus

All in all this looks like a great way to protect our economy from the threats the coronavirus poses. There are gaps, and it will still be a struggle for business on the whole. Extra money for the NHS is always a bonus, I hope they can find the extra staff and resources they will need. I think the NHS should always be a priority in any budget.

Business rates! Yey! Business rates have always been a strain for smaller business and a massive barrier to entry for new businesses too. This is a temporary measure, to help with cash flow, however the chancellor has launched a review into business rates and the results will be shared in autumns budget. Lets hope these changes are here to stay.

I think there are gaps, the self-employed without a brick-and-mortar premises will only receive employment and support allowance and the employed SSP. Whilst this will be paid from day one of self-isolation or sickness as a result of coronavirus, it is only £94.25 per week, and when you compare this to the average salary for £29009 it’s still a long way off and individuals will struggle with bills.

Tax

Personal allowance to remain at £12500 for the 20/21 financial year
National insurance threshold to rise from £8630 to £9500 from April
Corporation tax is frozen at 19% for the 20/21 financial year
A business rate review has been launched today with the results being shared in the Autumn budget

The personal allowance is remaining the same, which is slightly disappointing, it has risen consistently over the past few years, however the NI threshold is rising so there will still be a benefit to our pockets all be it small!

Corporation tax remains at 19%, which it has been at since 2019. This was expected as Boris Johnson pledged to keep it the same in his election campaign.

The review of business rates is promising, I hope this means the government is recognising the strain these rates put onto small business and how it makes it really difficult for new businesses to find a premises.

Nov, 2019

Taking on your first employee

Taking on your first employee is both exciting and daunting! You are excited because your business has grown enough for you to employ someone else, this means you are doing well! But it is also daunting, the extra admin and making sure you are doing things correctly can be stressful. But don’t panic, we are here to help!

Registering with HMRC as an employer

The first step you will need to take once you have recruited your employee is to register with HMRC as an employer. You need to register at least one week before the first payday. It usually takes up to 5 working days for your employers PAYE reference number to arrive and it makes it easier to run your first payroll if you have this number first.

You can register here: https://www.gov.uk/register-employer

Choosing a payroll software

There are a variety of software providers available for payroll with a variety of different prices! You will need to work out which one works best for your business.

My personal favourite is Sage, it has some brilliant functionalities. However some smaller businesses may find this a costly option and wont receive the full benefit of the functionalities until they are employing a larger amount of people.

HMRC offer a basic payroll software for free if you have fewer than 10 employees. This is great for starting out, but it is what is says on the tin – basic. There are a few other free payroll software providers, you can see a list here.

Other paid for providers worth mentioning are Quickbooks, Xero & Clear Books. These are all great payroll providers with various functionalities to suit multiple businesses. There is a full list of payroll providers on HMRC’s website, you can access this here.

It is important to find one that works for you and that you are comfortable with.

Collecting and Keeping Records

You need to keep records of:

Employee details, such as Name, address, NI no, DOB, right to work in the UK
What employees are paid and any deductions made within each pay period
Reports you send to HMRC and any payments you make to them
Employee leave and sickness
Tax code notices
Taxable expenses or benefits

Registering Employees

Employees are registered using FPS (full payment submission) that is sent to HMRC each pay period. You will need to collect information from your employee to set them up correctly. You need the information mentioned above, along with either the employees P45 from their previous role or you will need to ask the employee to complete HMRC’s starter checklist. You can find this here.

Input the information you have collected into your payroll software and once you have processed the payment you can send the FPS to HMRC, this is how employees are registered.

Recording Pay

Your payroll software will record pay made to your employees. You will need to keep copies of reports from each pay period. You need to send the FPS to HMRC on or before each payday. Keep records of your FPS submissions. If you need to claim back any statutory payments or claim and small business relief you will need to send an EPS to HMRC before the 19^th of each month.

Paying HMRC

You will have to pay tax and national insurance to HMRC.

You can log into your employers account on the 6^th of each month and view the tax and NI due. This must be paid by the 22^nd of each month.

Your payroll software may have a report you can run to check the amount HMRC have requested against the figures within your payroll software.

Other Things to Consider

You will also need to consider your business insurance, you will need employers liability insurance. You will also need an employee contract, it will be worth your while contacting a HR support company and having one created for you, professionals really are worth their weight in gold!

How We Can Help

Bright bookkeeping services offer a comprehensive payroll support package from just £25.00 per process date for the first 3 employees and then an additional £5 per process date for any additional employees.

Have a look at the payroll section on our website here: https://www.brightbookkeepingservices.com/services/payroll/ Or send an email to contact@brightbookkeepingservices.com

Sep, 2019

What is included in Limited Company Accounts?

If you have chosen to set up your business as a LTD company the accounting requirements upon you are more than if you were a sole trader. You are still required to fill an annual self-assessment tax return for your personal income as you would if you were a sole trader, but you also have to file company accounts.

Company accounts consist of your annual corporation tax return and your annual statutory accounts; balance sheet, profit and loss account, any notes and in most cases a director’s report. For larger companies you may have to submit an auditors report too, you can find out if you need to include one here: https://www.gov.uk/audit-exemptions-for-private-limited-companies

You need to file your corporation tax with HMRC and your statutory accounts with Companies House, although if you company does not require an auditor you can do this at the same time via HMRC or accounting software.

Corporation Tax Return

When filing you corporation tax return you will need to include details of your turnover, profits and expenses. The information submitted on this return is used to calculate any corporation tax due.

You will most likely need to submit two corporation tax returns within you for your first accounting period. This is because your first accounting period ends at the end of the month in which you registered your company. For example, if you registered your company on the 7^th August 2019 your first accounting period will end 31^st August 2020. Your corporation tax return cannot contain more than one years worth of information so you would need to file a corporation tax return for the period 7^th August 2019 – 6^th August 2020 and then 7^th August 2020 – 31^st August 2020. After this your accounting period will run 1^st September – 31^st August, and you will be able to file your corporation tax and company accounts together.

Company Accounts

Balance Sheet

A balance sheet consists of a list of your:

Assets – cash, prepaid expenses, accounts receivables, inventory, fixed assets and marketable securities.

Liabilities – accounts payable, accrued liabilities, customer prepayments, taxes payable and debts.

Shareholders Equity – Stock, additional paid in capital, retained earnings and treasury stock

The exact items on a balance sheet vary from company to company.

Profit and Loss Account

A profit and loss account is a financial report that shows your companies income and expenditure. It first lists you income, then expenses showing both gross profit and net profit.

Director’s Report

Director’s report is from the directors and outlines the financial performance of the company.

These are all the elements of company accounts, be sure to check your filing deadlines with Companies house. Companies are also required to submit a conformation statement annually confirming the SIC code chosen at registration are correct.

Sep, 2019

Domestic Reverse Charge for VAT Explained

UPDATE: Friday 6th September 2019

The Government has today announced that this legislation will be delayed until October 2020.

The domestic reverse charge is a big change to the way that VAT is accounted for within the construction industry and is effective as of 1^st October 2019. The reverse charge has been introduced for businesses that fall under the scope of CIS and are VAT registered, the reverse charge does not apply to consumers. The reason for the reverse charge is to eliminate VAT fraud within the construction industry. This charge aims to prevent companies from setting up and then closing before VAT is paid to HMRC.

The reverse charge will affect you if you supply or receive specified services that fall under the Construction Industry Scheme (CIS).

If your business is not VAT registered and/ or you do not fall under the scope of CIS the reverse charge does not apply to you. The reverse charge only applies when VAT is charged at the standard rate.

So what does reverse charge mean?

Lets start with individuals or businesses that do fall under the scope of CIS and are VAT registered but the reverse charge will not apply.

End User and /intermediary Supplier Criteria:

If you are classed as an end user or an intermediary supplier the reverse charge does not apply to you.

To meet the criteria of end user you must be the final customer of building and construction services. An end user is a business or group of businesses, that do not make onward supplies of the building and construction services in question. For example a building contractor using services from a range of sub-contractors to build a housing estate that upon completion will be sold on as finished products.

To meet the criteria of intermediary supplier you must be connected or linked to the end user by either sharing relevant interest in the land where the construction is taking place or be a part of the same company as defined under section 1161 of the Companies House Act 2006.

If you meet the criteria for either intermediary supplier or end user you will need to notify your customers and relevant suppliers to let them know your position and that standard VAT accounting rules will continue to apply.

Please be aware that whilst you may meet either of the criteria above for one project, it may not be the case for every project and therefor you should monitor your position for each new project you undertake and with each current customer and supplier relationship you have.

If you are a supplying services that fall within the scope of CIS:

If the services you supply fall within the scope of CIS and the business/ individual you are supplying them to are CIS registered and you are both VAT registered then the reverse charge applies, providing your customer does not meet the end user criteria.

This means that as of 1^st October 2019 you need to stop applying VAT to invoices that you issue to your customer. Your customer will be responsible for accounting for the VAT.

It is advisable to contact your customer to let them know that as of 1^st October 2019 you will no longer be applying VAT to invoices and the accounting responsibility for VAT will lie with them. Your customer may respond by informing you that they are an end user and therefore standard VAT rules apply. In which case it is recommended you keep a record of this and continue as normal.

If you meet the criteria for intermediary supplier you will need to notify your customers of your position and confirm that you will continue to charge VAT as normal.

If you are receiving specified services that fall within the scope of CIS, and you are CIS registered yourself:

If you are receiving services under the scope of CIS then the service providers will stop charging you VAT on their invoices as of 1^st October 2019 and you will be responsible for accounting for the VAT.

You should expect to receive correspondence from the service provider to confirm they will no longer charge you VAT, it may even be worth you contacting them to clarify your position.

If you are the end user of the services then you need to issue a letter to the service provider to inform them of this and standard VAT rules will continue to apply.

You may find that both of the above apply, in which case you will have VAT liability on behalf of suppliers but none on behalf of customers.

You may also find that some customers / suppliers fall within the scope of the scheme and some don’t and therefor have to vary the way you account for VAT according to who you are accounting for.

What should you do to prepare for the Reverse Charge?

You need to consider how the scheme will effect you. If you are the end user or intermediary supplier then you will need to issue letters to anyone who you have a business relationship with that will be effected by the reverse charge to state your position.

You will need to consider each business relationship you have to see if the same applies to each relationship. For example a scaffolding firm providing scaffolding to a large building development may find that the building contractor on this project has end user status and therefore standard VAT rules apply and VAT is charged on services. The same scaffolding firm providing scaffolding for a roofing contractor whose work will be falling under the scope of CIS will fall into the reverse charge scheme and therefore will not charge VAT on services provided.Domestic Reverse Charge for VAT Explained

Mar, 2019

Workplace Pension Re-enrolment

Most businesses will be entering their first re-enrolment window soon, if not already. So what is workplace pension re-enrolment?

Workplace pensions are mandatory for all businesses with eligible employees. Employees can decide to opt out of making pension contributions, if they do you don’t make contributions on their behalf either. Every three years you are required to re-enrol any eligible employees who have opted out or ceased making contributions.

Below are the steps you need to follow when re-enrolling your employees.

Step 1 – Choosing your re-enrolment date

You should receive a letter from The Pensions Regulator explaining when your re-enrolment window opens. Your re-enrolment window is a 6-month period. This period will cover 3 months before the third anniversary of your staging date, and three months after.

You can choose any date within your re-enrolment window as your re-enrolment date.

Your re-enrolment is specific to your pension staging date, and not specific to when each employee opted out.

Step 2 – Ascertain which employees need to be re-enrolled

You need to assess each employee that has opted out or ceased making contributions to their workplace pension to see if they are still classed as an ‘eligible job holder’. This means they are over 22 and below state pension age, and meet the earning requirements of the workplace pension.

You do not need to re-enrol anyone who has not yet been enrolled into your pension scheme. For example if you have a new employee and have postponed their contributions so they will not have joined the scheme before your re-enrolment date they do not need to be assessed.

You may not have any employees that need to be enrolled, this is fine you can proceed to the final step!

Step 3 – Re-enrol your employees

After finding out who you need to re-enrol, the next step is to get your employees re-enrolled into your pension scheme. This will vary depending on how you process your pensions.

If you submit your pensions manually to your pension provider then on your re-enrolment date you will need to make a submission to them containing the details on the employees you need to re-enrol.

If you use payroll software to submit your pension data then you will probably use the same method to submit your re-enrolments. Please speak to your payroll software provider.

If you use a payroll company to process your pensions then they should have all the information they need, get in touch with them to make sure they have it in hand. It is your responsibility as the employer to ensure re-enrolment requirements are met.

Step 4 – Inform your employees they have been re-enrolled

Send your employees that have been re-enrolled a letter explaining that they have been put back into the workplace pension, and if they wish to opt out again they can. You should explain how they could opt out, and also the benefits a workplace pension offers. Your pension provider may have template letters on their website that you can use.

Step 5 – Make a declaration to the pension regulator

Once you have fulfilled all of your obligations as an employer you need to log into your account with the pensions regulator and make a declaration to inform them all eligible employees have been re-enrolled.

Then you are finished! If you have any questions or feel unsure then get in touch and we will see if we can help you.

Mar, 2019

MTD For Income Tax

Who will MTD for Income Tax affect?

MTD will affect businesses. By businesses HMRC means anyone that that runs an unincorporated business, including sole traders, people who are self employed and landlords.

What is MTD for income tax?

Making tax digital for income tax is part of the change that HMRC are making to how taxes are managed. Businesses (as defined above) will have to keep digital records and submit quarterly summaries to HMRC. The self-assessment return required for the end of each financial year will become an End of Year Submission.

How does it work?

Businesses will need to start keeping their financial records digitally and submissions need to be made using API enabled software. At this point in time there are not many software providers offering this, but as we get closer to the change there will be many different options to choose from. You can check the list of HMRC approved software providers here: https://www.gov.uk/guidance/find-software-thats-compatible-with-making-tax-digital-for-income-tax.

These quarterly summaries are not subject to compliance checks by HMRC but will be used for forecasting income tax figures. Once a quarterly submission has been made, if you find an error you can still change the data accordingly using the API enabled software and the change in data will be reported in your next summary.

Summaries must be submitted within 30 days of the end of the quarter. For example if your business’ financial year runs with the tax year from the 6^th April to the 5^th April then your first quarter will end on the 5^th July and your submission will be due by the 5^th August.

The deadline for the end of year submission will remain the same as the self-assessment deadline, the 31^st January following the tax year end.

When will MTD for income tax be rolled out?

HMRC have not given a specific date for MTD for income tax going live yet. What they have said is that it will not go live before April 2020. It can be speculated that the go live date will depend on the success of the MTD for VAT which goes live April 2019, and the MTD for Income Tax pilot which is open now.

If you are interested in joining the pilot, please do get in touch and we can discuss this in detail and see if it is right for you.

Feb, 2019

Registering For VAT – All You Need To Know

When do I need to register?

The current VAT threshold is £85,000 (18/19) and it is set to remain the same until at least April 1^st 2022. This means that if within any 12-month period your earnings reach £85000 you need to register for VAT. This 12-month period is not necessarily your business’ financial year, it is a rolling total.

It is advisable that if your monthly turnover is over £6500 that you check your data for the past 12 months and look at your whole turnover figure, and keep a running total so you can see when you cross the threshold.

Do consider your registration, if the bulk of your purchases do not come from VAT registered sources then you may be better off signing up to the VAT flat rate scheme. There is more information about the flat rate scheme here: https://www.gov.uk/vat-flat-rate-scheme.

How do I register?

You will need to visit the HMRC website here: https://www.gov.uk/vat-registration/how-to-register. You can do this yourself or you can ask your accountant or bookkeeper to do this for you. You will receive a VAT certificate within 30 days of registering.

You can reclaim VAT on business expenses leading up to your registration. What you can reclaim is as follows:

VAT on services that have been paid for within 6 months prior to your registration
Purchases for items you still have or that have been used to make something you still have within the last 4 years.

Please note that you will need to have the VAT receipts for these payments and have information about how these relate to your business now.

You may need to provide the figures for these expenses when you register.

What happens next?

You need to start charging VAT on your products or services (that are not VAT exempt) from the date of registration. You will not receive your VAT number until your certificate arrives which can take up to 30 days. In the meantime you will not be able to issue a VAT invoice, but you will need to account for (and charge) VAT. You may need to reissue VAT invoices/ receipts to customers once your certificate arrives. How you do this will depend on the type of business you are have and what procedures would be convenient for you and your customers.

Your first VAT Return

HMRC give you one month and seven days from the end of your VAT period to file your return. Your VAT return periods will be stated on your registration certificate. For example if your first period-end date is 1^st April 2019 your first return will need to be submitted between 2^nd April 2019 and 9^th May 2019.

VAT returns for periods beginning after 6^th April 2019 will need to be submitted digitally under the new MTD rules. It would make sense if you are registering now to sign straight up to MTD and start using a software that can submit returns. HMRC have a list of all MTD compliant software on their website, you can view this here: https://www.tax.service.gov.uk/making-tax-digital-software