With strikes and cancellations affecting trains and planes across the UK and Europe this summer, employers need to be prepared in case an employee can’t travel to work or gets stuck overseas.

While the disruption is frustrating enough for holidaymakers, the knock-on effect on employers is also causing strain – from rescheduling annual leave to having to operate with absent employees.

If your business hasn’t experienced this type of scenario before, you might be unsure about your company policy regarding these situations. So, what are your options if staff can’t get to work?

This blog explains what you should know from the perspective of employment law.

Commuters affected by bus and rail strikes

As most people in the UK will know, rail workers participating in industrial action have reduced train services to just 1/5 of their normal capacity in recent weeks.

In some places, there are no trains running at all – and people might not even be able to turn to bus services, as bus companies are also going on strike this summer.

The ongoing strikes are a result of unions attempting to resolve disputes over inadequate pay and working conditions, with employees wanting more job security in the face of soaring inflation.

It’s not just limited to the UK, though – both British and international European airlines have also seen strikes affect their flights, while lengthy queues and delays have also been holding things up at the Dover port and the Eurotunnel as a result of staff shortages and post-Brexit regulations.

As inconvenient as they are, there’s usually enough notice given of an impending strike for people to make alternative plans. If you’re lucky enough to operate a hybrid working model, with employees able to work from home on some days and work in person on others, then it might be as simple as allowing affected employees to work from home on strike days (with advance notice).

If working in person is a requirement and it’s not possible for an affected employee to work from home, you can expect their journey to work to be longer and/or costlier than usual. If you don’t want to deal with lateness or absences from this, you may have to take further steps like rearranging shifts or finding out if employees working the same hours might be able to carpool, for example.

Holidaymakers stranded by flight cancellations

Flight disruptions have also been dominating the headlines for the last few months, as under-staffed and over-booked airlines struggle to recover from the pandemic. The aviation industry was one of the worst hit when COVID-19 shut everything down, and now that demand for international travel is returning, airlines are finding that they don’t have the staff to service all of the flights they’ve sold.

This has resulted in chaos involving dramatically long delays, a rise in lost luggage, and consistently last-minute cuts and cancellations. Many holidaymakers have spoken to publications about their struggles with sudden flight cancellations leaving them stranded abroad, missing work and school.

This is obviously trickier than an employee being unable to catch a bus or train, as there are other options in such a scenario. When it comes to an employee being stuck in another country until they can catch another flight home, it can be much harder for an employer to manage the situation.

What can employers do if workers are stranded abroad?

The first option is to ask the employee if they want to take the extra day (or days) out of their annual leave. This allows them to extend their holiday and still receive pay, even if you were expecting them back on the previously agreed date. It’s not ideal, and it depends on the employee having leftover annual leave
allowance, but it’s the easiest route.

If taking more annual leave isn’t possible, they might ask to take unpaid leave instead. They can then get on with making alternative arrangements to get home without having to worry so much about being absent from work. Employees don’t actually have a legal right to unpaid leave, so granting such a request is at the employer’s discretion.

On the off-chance that the employee’s job can be done remotely, and they have the equipment they need with them there, then the employee might prefer to work from wherever they are. However, most people don’t take their work laptop on holiday with them, and clocking in from a hotel room is probably the last thing on their mind when they’re busy stressing over booking another flight home.

Before you take any action, be sure to check your company’s policy thoroughly for any provisions relating to emergency situations – does your business allow time off in lieu, or does the employee’s contract allow flexible working so they can make up the lost hours later?

It’s best for employers to act as sympathetically as possible, as disciplinary action for out-of-control circumstances could turn working relationships sour – and an unfair dismissal could see your business facing an Employment Tribunal
case.

Employer obligations to staff with transport challenges

While a good employer always does their best to work with employees to resolve issues like this, some things come down to the employee’s contract and the overall company policy. For example, if flights get cancelled and a staff member wants to cancel and rearrange their annual leave, you don’t necessarily have to allow it. Similarly, you won’t technically be obligated to allow unpaid leave.

Of course, there are some exceptions where you would be obligated to pay the employee as normal. If they were travelling on a business trip on your company’s behalf when they got stuck abroad, it would be unfair to expect them to use annual leave or take unpaid leave. On the other hand, it’s likely they’ll have their work equipment with them, and be able to work remotely for the time being.

You can find the UK government’s guide to holiday entitlement here, explaining the legal obligations of employers and the rights of employees regarding time off work.

If you need any help with managing payroll, including holiday pay, or if you’d like to upgrade your cloud accounting services
to facilitate remote working, be sure to contact GBAC, accountants in Barnsley.

When you dispose of a private residence and make a profit from its sale, you won’t have to pay Capital Gains Tax (CGT) on it if the property was your main residence throughout the time you owned it – known as the ‘period of ownership’.

But what exactly qualifies? How do you know whether you’re liable to pay Capital Gains Tax or not, and how do you calculate such an exemption? Let’s look at some examples, and run through the basics of Private Residence Relief for CGT.

HMRC takes couple to First-Tier Tribunal

Recently, the First-Tier Tribunal came up with a favourable interpretation of the ‘period of ownership’. The case covered a married couple who purchased and rebuilt a house over 2.5 years, who then moved in, but sold the house on 1 year later for a profit of £500,000+ per spouse.

When this couple claimed Private Residence Relief on their total gains, HMRC argued that they weren’t eligible for the full exemption, since they hadn’t lived in the house from the time it was originally purchased. The case went to a First-Tier Tribunal to decide which party was in the right.

Though HMRC might appeal the decision, the Tribunal sided with the couple. This is because the natural reading of the law is that the ‘period of ownership’ applies to the house being sold – and since the original house had been demolished, it wasn’t possible for the couple to have lived in it from when they purchased the land 2.5 years before they moved into the new finished house.

Therefore, the couple’s gains from the sale of the house a year after moving in were fully exempt.

What is Private Residence Relief?

Normally, you must pay Capital Gains Tax (CGT) on any profits you make upon disposing of:

However, you could be entitled to a full CGT exemption if you meet the following conditions:

If you don’t meet the conditions for a full exemption, you may still be eligible for partial CGT relief., but you’ll have to complete the Capital Gains Tax summary part of your tax return. However, you won’t be entitled to any Private Residence Relief if you purposefully acquire a dwelling to make a profit on its disposal, or if you sell the garden/grounds separately to your disposal of the home.

What is the ‘period of ownership’?

For the purposes of Private Residence Relief (PRR), the ‘period of ownership’ begins when you acquire the dwelling and ends when you pass ownership of it to someone else. This period starts on the date of acquisition, or on 31st March 1982
if you acquired the dwelling before this date.

It can seem complicated, but if you sell a property that wasn’t always your main dwelling, you’ll have to split the gains to calculate the portion that’s eligible for CGT relief. This means multiplying the profit by a percentage equal to the total period of ownership (excluding the period of absence).

However, a ‘period of absence’ could still qualify for PRR under certain conditions. For example:

1) You buy a home in 1998, but due to refurbishment requirements, you cannot move in until a year later. This dwelling then remains your primary home until you decide to sell it in 2018. You’re then entitled to full Private Residence Relief.

2) You buy a home in 2000, but your employer requires you to work away from home for a few years, so you don’t return to live in it as your main residence until 2003. You remain in this primary dwelling until you sell up in 2020. You’re also entitled to full Private Residence Relief.

In any case, the absences must not last for more than 3 years in total, or your PRR eligibility will be affected. You’ll usually be allowed to count up to 24 months
of non-occupation after acquisition as actual occupation if you were unable to live in the house due to building work or other alterations.

Regardless of how a property is used in the final 9 months of ownership, it should still qualify for CGT relief, as long as it was your primary dwelling before that.

How does Private Residence Relief work?

Homeowners who dispose of their main dwelling receive Private Residence Relief, meaning they don’t have to pay Capital Gains Tax on any gains made when disposing of the residence.

If you sell a secondary home that isn’t your main residence, but you did live in full-time at some point, you may be eligible for partial relief instead of the full exemption.

People with an additional dwelling that might be eligible for PRR – such as a house or flat that you use as a holiday home or rent out during your absence – need to decide which residence they want to nominate as their main home that can then be fully exempt from CGT.

They’ll have 2 years to nominate the main home that they spend the most time living in, or else HMRC will decide for them, based on voter registration, vehicle registration, and similar factors.

If a property has been your only/main residence at any point, the last 9 months of ownership will not be liable for CGT
– so, if you move out of your house into a new one before selling the old one, you’ll have up to 9 months to sell the original home before it becomes liable for CGT.

Essentially, you don’t have to pay Capital Gains Tax
when selling a main dwelling for any time that you spent officially living in that residence. Whether you lived in the house or not during the last 9 months, or even rented it out, you can still receive Private Residence Relief for that time.

That said, if you sell a primary residence while letting out a part of it, you’ll only be eligible for PRR on the part of the home you actually occupied.

How to calculate Private Residence Relief

Depending on your situation, this is the main formula you should follow for calculating PRR:

Alternatively, you can multiply the total gain (£) by the percentage of ownership (%) – for example, if you only live in 70%
of the property, or you have a 50/50 split with a spouse.

Need help with Capital Gains Tax on private residence disposal?

While the case mentioned earlier in this article suggests that there’s some tax-planning scope allowed for anyone with a plot of land who can build a house on it and live there before selling up to claim Private Residence Relief, it’s important to remember that First-Tier Tribunal
decisions don’t set a legal precedent. You should still consult the PRR guidance provided by HMRC.

Or, if you still find the rules around periods of ownership for Private Residence Relief to be confusing, and need help calculating your Capital Gains Tax exemptions and submitting your CGT tax returns, why not hire a professional tax consultant? The experts at GBAC, Barnsley accountants, are on hand to take your call on 01226 298 298, or respond to email enquiries sent to info@gbac.co.uk.

‘No fault’ divorce went from a legal possibility to a reality in April 2022. Though there have been no connected changes to tax rules, this type of divorce still has financial implications for the divorcees.

Now that ‘no fault’ divorces allow estranged couples in England and Wales to end their marriage without having to assign blame, each person has more time to focus on finances and tax efficiency.

Here’s what you need to know about the tax implications of no fault divorces in England and Wales.

What is a no fault divorce?

Under the previous divorce laws in England and Wales, couples had to prove that their marriage had broken down. Unless a couple had been separated for at least 2 years before applying for divorce, the person filing was required to assign blame for the breakdown to their spouse’s behaviour.

Even if the couple were in mutual agreement over the separation, one would still have to make allegations about the other’s behaviour to validate the divorce application. This often leads to emotional finger-pointing, forcing children to witness mud-slinging arguments, and even spouses contesting the divorce purely out of vindictiveness – trapping people in unhappy relationships.

The Divorce, Dissolution and Separation Act (2020), in force since 6th April 2022, removes the need for apportioning blame for misconduct during the marriage. This makes communication easier and allows individuals to focus on the more practical decisions relating to the divorce proceedings.

The new laws allow people to apply for divorce in a more straightforward way:

With a minimum timeframe of 26 weeks (6 months) for proceedings, the law allows enough time for applicants to change their mind if they want to reconcile, or to sort out important administrative arrangements regarding children and shared property if they don’t.

A couple will still be treated as married for tax purposes until the Final Order is issued after 26 weeks. Depending on the time of year that proceedings start, and possible administration delays, this means that the transferring of assets from a divorce might be pushed into the next tax year.

Which taxes are affected by no fault divorces?

There are no new tax regulations for no fault divorces, so tax concerns are essentially the same as divorces under previous laws. Transferring assets through divorce settlements is not usually subject to Income Tax, and maintenance payments generally come from income that’s already been taxed.

However, if you receive income-producing assets from your former spouse, any income generated from such shares, bonds, or dividends is likely to have taxable interest from the date of its transfer.

When it comes to property, such as a shared family house, the departing spouse is considered a resident. If the home is transferred or sold as part of the divorce when the spouse leaves, Private Residence Relief (PRR) could apply. This means it’s likely that no Capital Gains Tax (CGT) or Stamp Duty Land Tax (SDLT) will be payable if the transfer occurs within the last 9 months of ownership.

As for Inheritance Tax (IHT), asset transfers from a divorce settlement may be liable, depending on when the transfers occurred. These are usually referred to as Potentially Exempt Transfers (PET), as they should be exempt from IHT, unless the person who transferred the asset dies within 7 years.

It’s also important to remember that finalised divorces don’t revoke existing Wills. So, if your divorce will affect your chosen beneficiaries and asset distribution, you should review and update your Will.

How does a no fault divorce affect Capital Gains Tax?

The biggest tax issue for most couples getting a divorce will be Capital Gains Tax. Transferring assets is almost unavoidable as part of a divorce, and it’s only possible to avoid paying CGT if the transfers happen before the end of the tax year of the separation.

Previously, spouses could avoid CGT under the ‘no gain, no loss’ principle, whereby one partner receives the asset at the original cost to the other partner. This means no CGT is applicable if the transfer happens during the same tax year when the couple was still living together.

Now, after separation, partners are considered ‘connected persons’ for CGT purposes, so any transfers will be at market value, regardless of proceeds paid – so the person making the transfer could be liable for CGT, even without receiving profits to pay the tax with.

This is why divorce settlements require such careful tax planning. Private Residence Relief (PRR) only applies to the main family home, so couples with multiple properties, high-value assets, or company shares could find themselves in trouble.

Of course, you can try to mitigate Capital Gains Tax
from divorce by agreeing to wait until the following tax year to transfer assets, but this still requires planning and co-operation. CGT allowances
and thresholds can also vary from year to year, so it’s crucial to stay on top of your tax bracket information and relevant liabilities.

Do you need tax advice for a no fault divorce?

Taxes aren’t always the priority when dealing with a divorce settlement, which can be extremely stressful even when there’s no fault assigned. That said, it can lessen the stress significantly to have expert tax guidance while you’re negotiating your divorce.

HMRC has updated their online help-sheet with information on the CGT implications of no fault divorce, which you can read through here. If you’re planning to apply for a no fault divorce, or are already in the process, and think you would benefit from tax consultancy services, feel free to contact GBAC, accountants in Barnsley, who also cover Leeds and Sheffield, on 01226 298 298 or at info@gbac.co.uk.

We’ve been covering the ongoing developments with the Making Tax Digital roll-out for a while here on the GBAC blog, and now we’re back to discuss the latest issues with MTD.

Currently, the biggest concerns for many are the pilot scheme for MTD for Income Tax and the expansion of MTD for VAT. Here’s the latest information on both of these parts of MTD.

MTD for Income Tax pilot scheme

Before Making Tax Digital becomes mandatory for Income Tax in 2024, there’s an official pilot scheme testing the system. Users can provide feedback on how it works in practice.

As the pilot scheme for Income Tax is still evolving, HMRC is only allowing small numbers of users to sign up. Taxpayers can join the pilot from July 2022 if they earn over £10,000 from:

Clients can sign up through their MTD-compatible software if their accounting period aligns with the tax year (6th April to 5th April). You can find out more about eligibility and how to join here.

In the coming months, new functionalities should be added, which will allow users to claim Income Tax relief on the marriage allowance and personal pension contributions.

It should also soon be possible to make voluntary Class 2 National Insurance contributions and student loan repayments through this system, as well as reporting capital gains.

MTD for VAT-registered businesses

Making Tax Digital for VAT became a requirement for all VAT-registered businesses from 1st April 2022. Not every eligible business needed to sign up immediately, as their first filing might not be required until 2023, depending on their annual accounting period.

However, the earlier your business registers and sets up MTD accounting software, the better. You should give yourself time to get used to keeping digital records and submitting documents to HMRC this way, especially if you choose to invest in brand new software.

You should also be aware of new VAT penalties coming in January 2023, as interest charges and fines for late submission or late payment will be changing next year. HMRC should be publishing more detailed information about these changes by December 2022.

There are limited Making Tax Digital exemptions when it comes to VAT-registered businesses, so don’t assume that you’re exempt just because you’ve never filed tax returns online before. If you apply for an MTD exemption, your age, ability, location, and religious practices will be taken into account. HMRC may simply allow you more time to adjust to MTD.

Need help taking your taxes digital?

The responsibility for handling tax matters, including MTD registration and compliance, lies with the taxpayer (i.e. the company director). If you’re not sure about your company’s Making Tax Digital status, you might prefer to hire an accountant to handle it on your behalf.

Digitalisation is beyond overdue for the old tax system, so don’t be left behind and risk financial penalties down the line for failing to comply with MTD filing. If you haven’t registered already and need help getting started with HMRC-recognised digital accounting software, we can help.

With plenty of experience in software set-up and training, providing tax advice, and managing accounts for businesses of all sizes, you can trust GBAC, accountants in Barnsley, to do what’s best for you and your company. Give us a call on 01226 298 298 or email info@gbac.co.uk today to get started.

Users of HMRC’s interactive PDF service for submitting up to 150 P11D forms may be surprised to find that it’s now being decommissioned.

If you’re one of the small employers who relied on the convenience of this Online End of Year Expenses and Benefits service, you might wonder what your options are now.

It’s important to note that P11D returns are not going away completely – it’s just the way you report benefits in kind
that’s going to be different from now on.

This blog explains how P11D submissions are changing in 2022 and the alternative methods for reporting taxable benefits and expenses.

What’s happening to the P11D form?

Though the P11D return has been around since the 1960s, long before the creation of HMRC as we know it today, the time has apparently come for HMRC to retire its ‘legacy’ reporting method.

To clear up any confusion about what a P11D is, it’s a form used by employers and company directors to declare ‘benefits in kind’. These are taxable perks from the business that aren’t a part of the employee’s or director’s salary – such as company cars, health insurance, or relocation expenses.

Employers need to submit a P11D to HMRC for every employee and director receiving these benefits, and a P11D(b) form
to summarise the total. The business can then pay any outstanding Class 1A National Insurance contributions.

Previously, companies with up to 150 employees could use the Online End of Year Expenses and Benefits Service to create and send P11Ds and P11D(b)s electronically, which could also be printed and posted if the business preferred to submit them that way.

However, the February 2022 Employer Bulletin announced that HMRC would be retiring this service from April 2022. Unfortunately, this means that employers won’t be able to use it when filing P11Ds for the 2021–2022 tax year – for which the deadline is 6th July 2022.

With the move towards Making Tax Digital, where all tax returns can be submitted digitally through the same portal for convenience, it’s not that surprising for HMRC
to discontinue the older service – but with many businesses still using it, the transition may be rockier than they anticipated.

While HMRC says they’ll still accept limited P11D paper returns from businesses who can’t file online or set up payrolling for valid reasons, this is likely to be phased out, too.

What are the alternatives for filing P11Ds?

Now that HMRC’s End of Year Expenses and Benefits service
is out of commission, there are two ways left to submit electronic P11D returns. Of course, there’s no need to complete these forms if there are no benefits in kind for you to declare – but if there are, here’s how to do it.

Firstly, if you’re already using payroll software, it makes sense to use it for P11Ds, too. The problem for many businesses is that not all such software has features for benefits and expenses, and it might not be a good time to change providers. Getting new software can be expensive and disruptive, after all – even with payroll software guidance from HMRC.

However, employers needing to submit more than 500 forms
are required to do so using payroll software, anyway. It can still be much faster than using the old PDF or paper return services.

Secondly, you have the option of moving to the PAYE Online Service. This shouldn’t be a difficult switch if you were using the online PDF service – PAYE
has even more functionality. All your business needs to access it is your Government Gateway ID, the same as before.

HMRC’s PAYE Online Service caters to companies with 150 to 500 employees, and also allows you to check payments and file P46 (Car) reports for company cars. It’s much easier to access, as you don’t need a specific browser or the latest version of Adobe Reader to do so.

Though the February announcement didn’t give much notice, businesses must decide which of the remaining options works best for them.

Should you payroll taxable benefits?

Though it’s not an option for the 2021–2022 or 2022–2023
tax years, bookkeepers might be interested in the potential of payrolling benefits in kind.

When the taxable value of a benefit or expense is put directly through payroll software, there’s no need to file a P11D
separately for the employee. The tax liability is applied for each pay period (usually monthly) rather than making an annual declaration of the total.

There’s more frequent administration involved with payrolling taxable benefits this way, but you’ll have the advantage of only having to submit a P11D(b) for all benefits and National Insurance contributions instead of submitting individual P11Ds as well.

You’ll just have to register online with HMRC to let them know that you’ll be payrolling taxable benefits in kind. Since the deadlines for registration have already passed, it’s too late to apply for the next tax year, but you have until 5th April 2023 to register for the 2023–2024
tax year.

Once you’ve registered and begin operating this way, you should find that there’s less paperwork, fewer HR enquiries, and more accurate monthly tax deductions with simpler tax codes.

Get P11D advice from GBAC

We’re well aware of the fast pace of financial digitalisation here at GBAC, where our highly trained team of accountants likes to be ahead of the curve. We’ve been helping businesses of varying sizes overhaul their payroll and tax systems for years – so we’re well-placed to help yours, too.

Whether you need professional guidance on payroll software, keeping accurate accounts, or filing P11D forms correctly, GBAC, accountants in Barnsley, can provide a range of financial services. Just get in touch by calling 01226 298 298 or emailing info@gbac.co.uk
to get started on updating your business.

In late May 2022, the Chancellor of the Exchequer announced a new set of measures to counter soaring living costs. With consumer prices hitting a 40-year high of 9.1% inflation and the already astronomical energy price increases expected to rocket to £3,000 a year this autumn, the previous package – based on estimates that were much lower than real-life price rises – was not enough.

For individuals, families, and businesses alike, the financial squeeze is getting tighter. So, what kind of support is now available, and what does it mean for the people of Britain and our economy?

Initial economy support measures for 2022

First announced in February 2022, the Chancellor initially announced a limited package designed to reduce the negative impact of Ofgem’s energy price cap increasing in April 2022. This included:

Where measures are applied to England only, the Treasury uses the Barnett formula to adjust them for the constituents of Scotland, Wales, and Northern Ireland.

These measures initially had a value of around £9 billion, but it soon became apparent that they wouldn’t be enough to keep up with rising inflation and Ofgem’s price cap. Eventually, by the end of May 2022, the Chancellor had to update this package with a further £15 billion in support measures.

New approach to the cost of living crisis

After much speculation about windfall taxes, the new cost of living measures were revealed to be:

These one-off payments are tax-free, non-repayable, and do not count towards benefits caps – so they won’t affect existing benefit claims. The same applies for the previous £150 council tax rebate, which should have been issued by English councils by now.

While the energy bills grant will be paid to energy suppliers, the government will make Cost of Living Payments directly to recipients, and Household Support Fund payments will be provided to eligible people by local councils.

Where is the money coming from?

Since the cost of living crunch is so severe, you might be wondering where the £15 billion for this new package will come from. The government plans to finance these measures with a temporary levy on energy profits for oil and gas companies, increasing the amount of tax they have to pay.

The Energy Profits Levy aims to address the inappropriately high profits that energy companies are making at the expense of UK consumers, and will be phased out when energy prices fall back to historically acceptable levels. The levy will be in force from 26th May 2022
until the start of 2026.

It currently doesn’t apply to the electricity generation sector, but the Energy Profits Levy will add 25% tax to the existing 40%
for oil and gas companies. It will be calculated in a similar way to the existing taxes that make up the 40% (the Ring Fence Corporation Tax
and Supplementary Charge).

This measure is expected to raise around £5 billion
in the first year. Companies cannot offset losses or decommissioning expenditures against their profits to reduce the levy – but as an incentive, the Investment Allowance will encourage companies to reinvest their profits for at least 80% tax relief.

Will these measures be enough?

The new measures are certainly an improvement on the woefully inadequate package announced in February, but are they good enough? After all, the energy support payments don’t come close to offsetting energy prices that more than double.

That said, since the majority of the money will go to the most vulnerable households in the UK, it’s sure to give billions of struggling people at least a little more breathing room.

Additionally, the Chancellor suggested that the social security rates from April 2023
will be based on the Consumer Price Index from September 2022, which is predicted to be higher than the average inflation rate for next year. This could mean an increase of 10% in social security payments.

If you’re concerned about managing your money more effectively in these difficult times, you might benefit from our expert financial services here at GBAC, accountants in Barnsley. Call us on 01226 298 298 or write to us at info@gbac.co.uk and we’ll do our best to assist you.

We’ve covered the Making Tax Digital scheme before on the GBAC blog, but are you staying on top of the latest MTD updates that could affect your business?

Tax automation using digital accounting systems and cloud accounting software is revolutionising the way businesses are run in the UK, so you don’t want to be left behind.

While VAT-registered businesses have been keeping records and filing tax returns digitally since 2019, this became a requirement for all VAT returns in April 2022.

Now, a few months on, all liable businesses should be running MTD-compliant software and following the new rules – with the risk of financial penalties if they don’t.

What about other types of tax, though? Do self-employed people and landlords need to worry about MTD yet when it comes to filing self-assessment income tax returns?

Read on for the latest information about Making Tax Digital in 2022.

How to sign up for Making Tax Digital

Businesses liable for VAT should have already signed up for MTD, or had an agent register them on their behalf. If this applies to you, then you should be keeping digital records after choosing MTD-compliant accounting software and registering through your Government Gateway account.

Your digital records should cover the start of your usual VAT period, from 1st April 2022 onwards. You can still keep paper copies if you choose, but you must also make digital copies. If you record your VAT information in a spreadsheet, you’ll need bridging software to submit it through MTD.

If you aren’t sure whether you’re complying with current MTD rules, it’s worth getting financial advice. You may want to hire a tax agent, who can register for MTD up to 12 months in advance.

Which Making Tax Digital software to use

Even if you decide to use spreadsheets to record your financial information, you’ll still need bridging software to transfer the data to MTD – and you’ll also be losing out on the benefits of a full digital accounting software package. Bridging software is great as a temporary first step, but in the long run, choosing a suitable accounts software package will be much more helpful for business growth.

So, how can you select the right software for your business? MTD-compliant software
must be:

The government website has a list of HMRC-approved MTD software, including already well-known programmes like Xero, Sage, and QuickBooks. We’re very familiar with these systems ourselves here at GBAC, so our financial advisers can help you to find the best fit for your unique business needs.

Eventually, all non-PAYE taxpayers will have to sign up and file their taxes completely digitally. It’s better to get ahead now and set up a seamless digital reporting system that will make things run more smoothly. You can always test out free trials before committing to purchasing a full package.

When to switch to filing taxes digitally

As explained above, any business charging VAT on their products and services should have made efforts to implement appropriate software and register for MTD. You can only put this off a while longer if your current accounting period began before 1st April 2022 – once this ends, you must have an MTD-compliant digital accounting system in place for the start of the next accounting period.

Aside from VAT returns, the delayed schedule for digital Income Tax returns is set for 6th April 2024 rather than the initially planned date of 6th April 2023. This means that anyone who submits a self-assessment tax return has an extra year before they have to go fully digital – including landlords.

Sole traders and anyone who earns income of more than £10,000 a year from self-employment will be expected to follow the Making Tax Digital system from the 2024-2025 tax year onwards. This will mean switching from one annual return to quarterly returns and one final declaration at the end of the year. The quarterly submission dates will be the 5th of May, August, November, and February.

When it comes to Corporation Tax, general partnerships have a Making Tax Digital start date of 6th April 2025. This only applies to smaller partnerships with individuals as partners – larger partnerships with 20 people or more have not been given a start date yet, but it’s unlikely to be earlier than 2026.

Even if your business hasn’t been legally mandated to switch to the Making Tax Digital platform yet, why not sign up sooner rather than later? Early voluntary registration allows you to get to grips with the new system in advance, giving you time to work out any issues ahead of the enforced start date.

Is your business prepared for Making Tax Digital?

While digital tax submissions make things more efficient for everyone, there’s still a lot of work involved. If you’re not certain about your tax liabilities or MTD compliance, or how to get started with Making Tax Digital in the first place, you can always ask the experts – the team at GBAC, accountants in Barnsley.

Give us a call on 01226 298 298 or email your enquiries to info@gbac.co.uk
for Making Tax Digital advice. We can help you with a range of related problems, from upgrading your software and assisting with training your team to handling all of your tax returns entirely on your behalf.

With financial penalties for non-electronic submissions in the near future, you should definitely prepare your business for the Making Tax Digital transition as soon as possible, if you haven’t yet.

Disclosures are crucial for corporations who want to gain the trust of more business partners and customers. When companies aren’t transparent about their operations and responsibilities, the public is likely to lose confidence in them and takes their support elsewhere – as do investors.

In the world of corporate finance, disclosure means releasing all the relevant information about a business to the public, whether the data is positive or negative. This includes all the facts and figures, procedures, dates, and developments that can influence investor or consumer decisions.

Even smaller businesses may be legally required to publish certain details. After dozens of major companies collapsing has dented the trust of the British people in recent years, the UK government is planning to reinforce the UK disclosure regulations in an attempt to restore faith in the market.

This blog explores what this means for small companies, and how you can prepare for the changes.

What counts as a small company or micro-entity?

The size of your company accounts depends on three factors: your annual turnover, the average number of employees, and the balance sheet total (including both current assets and fixed assets).

Company size

Annual turnover

Balance sheet total

No. of employees

Micro-entity

£632,000

£316,000

10

Small company

£10.2 million

£5.1 million

50

To qualify as either a micro-entity or small company, your business must not exceed at least two of the three thresholds. Both were previously able to submit abridged balance sheets to Companies House, with less information than the balance sheets they provide for members and shareholders.

When you run a limited company, your financial information will be available to the public. Small companies and micro-entities aren’t currently required to file profit and loss accounts, so less information is available – often as little as their current assets and liabilities, and total fixed assets.

However, this will soon change when Companies House
upgrades its rules. The February whitepaper Corporate Transparency and Register Reform
suggests that the government will make it compulsory for all micro-entities and small companies to file their profit and loss accounts for everyone to see.

How are business disclosure rules changing?

As mentioned, the key changes are that small companies will no longer be able to submit abridged accounts, and must now submit a director’s report. Both micro-entities and small companies will also have to file full profit and loss accounts. This information will now be available to competitors, employees, customers, family, and any other parties with an interest in the company’s profitability.

While these reforms haven’t been written into law yet, they are likely to be within the next year. With the aim of improving company ownership transparency and preventing fraud, the whitepaper also proposes the following actions:

The government is aware that there is potential for criminal misuse of the system for reporting accounts, which is why they want to streamline the process to make it as simple as possible for both businesses filing the information and those accessing it to inform their own business decisions.

Their proposed reforms will boost confidence in the integrity of businesses by improving the accuracy of their financial data. In the future, the whitepaper suggests exploring the new approach of filing everything once a year with the government, rather than filing different parts with different departments at varying times. This would be more efficient for all parties, reducing inconsistencies.

What does your business need to do?

Though the extended filing regulations won’t come into effect for a while yet, they should inform your decisions when making changes to an existing business or setting up a new company. When they do become law, there is likely to be a transition period to give companies time to comply.

If your business isn’t compliant with the new requirements by the end of the transition period, your company could face civil penalties or even criminal sanctions. If company directors fail to register with Companies House and verify their identities, they will also be committing a criminal offence.

You can find current guidance for Companies House accounts online, but it may be worth consulting a professional accountant if you have any uncertainties about your company’s liabilities. It’s also a good idea to get ahead with implementing a digital accounting system, if you haven’t done so yet.

Accurate disclosure is the key to staying on top of financial reporting regulations while protecting your company’s reputation, tracking your progress, and giving yourself an edge over less transparent competitors. If your company could benefit from expert advice and assistance with preparing and filing digital accounts, get in touch with GBAC, accountants in Barnsley, today on 01226 298 298 or at info@gbac.co.uk.

Between July 2021 and March 2022, the government reduced VAT rates for tourism and hospitality businesses to help these industries recover from the impact of the COVID-19 pandemic.

However, as of 1st April 2022, the standard VAT rate is back to normal. This means that if you’re selling food and drinks that aren’t zero-rated, you’ll have to pay 20% VAT on those products.

Unfortunately, when it comes to baked goods and confectionery, it can be difficult to distinguish between zero-rated food and standard-rated food. Everyone knows the common argument over whether Jaffa Cakes count as a biscuit or a cake – which are both taxed differently.

Complying with arbitrary food VAT regulations can feel like navigating a minefield. So, how do you stay on HMRC’s good side while saving your business money and making your customers happy? Let’s investigate which foods can be zero-rated and when you have to pay standard-rated VAT.

Which foods are standard-rated for VAT?

Generally, the standard VAT rate applies to food and drink served hot as part of a catering service. If you’re a retailer selling cold consumables to take away, these will be zero-rated.

However, any ‘eat-in’ products count as a catering sale. So, if you sell cold meals or drinks that customers consume on your premises – with or without hot products – then the otherwise exempt cold items will also be liable for standard VAT.

Though these categorisations widely apply, there are quite a few exceptions. For example, most cold drinks are standard-rated, but HMRC specifies that takeaway iced coffee, iced tea, and milkshakes are zero-rated
(though ice cream, which many milkshakes contain, isn’t).

Similarly, certain cakes and desserts are zero-rated, as are vegetable-based snacks. Yet savoury snacks like potato crisps, popcorn, nuts, and confectionery all fall under the standard rating.

When tap water is exempt but bottled water isn’t, and, how are businesses supposed to stay on top of charging the right prices to pay the right VAT rates?

How does VAT apply to baked goods?

One of the biggest sources of confusion for sellers of food and drink is the murky area of baked goods and confectioneries. The VAT rating of a sweet snack can hinge on whether it includes chocolate, which is standard-rated, while biscuits with any other coating are zero-rated.

Most confectionery will be given a standard VAT rating, while the rating of most baked goods will depend on whether they’re sold hot and/or eaten on the premises. For example, a cold takeaway pastry (such as a croissant) would be exempt, while a hot pasty would be eligible for full VAT.

Any sweetened food item usually eaten with the fingers counts as confectionery, such as chocolates, candies, and cereal bars. There are very specific instances where similar items and ingredients are rated differently. For example, sweets, gum, and dried fruits for snacking are classed as standard-rated, but candied fruits and chocolate pieces or spreads used for baking are exempt.

To make things even more confusing, you need to ‘apportion’ your sales of goods with mixed ratings. If customers buy cold takeaway food but consume it on your premises anyway, you must keep adequate records to calculate the appropriate VAT liability for this percentage of sales.

What if you sell a product that contains both zero-rated food and standard-rated food at the same time? This counts as mixed supplies, in which case the whole item is likely to be standard-rated. However, if you sell hot and cold items together in a package for consumption off the premises, only the hot portion is liable for VAT – so you’ll have to calculate that amount accordingly.

What happens if HMRC disagrees with your VAT rating?

Producers, manufacturers, wholesalers, and retailers alike should be wary of ignoring government guidance on VAT for food and drinks. If your own estimates don’t align with HMRC’s definitions, you could be looking at a tribunal case and paying a fine – or even going out of business completely.

Take these two cases as a warning. First, Glanbia Milk
produced low-calorie flapjacks with less sugar and fat but more protein than traditional flapjacks. HMRC argued that their product was not a zero-rated cake like regular flapjacks, but rather a standard-rated confectionery, and the tribunal agreed.

Second, in a similar case, start-up DuelFuel may end up closing down. HMRC does not consider their range of protein cake bars and flapjacks to be traditional cakes based on the ingredients, texture, and marketing. Therefore the company will have to pay the 20% standard rate
instead of zero VAT.

If a flapjack crosses into cereal bar territory, HMRC
has proven that they won’t show any leniency. This is why it’s so important to pay attention to even marginal differences between the way you categorise your own products and HMRC’s definitions – which you can find in VAT Notice 701/14.

Should your business need help with reviewing your sales systems and VAT liability, the financial consultants at GBAC, accountants in Barnsley, would be glad to assist you. Call us on 01226 298 298 to discuss tax advice, or email your enquiries to info@gbac.co.uk. We’ll be happy to arrange a VAT consultation with you.