July Small Business Update

Here is an update on some current topics that may be of interest to you.

Making Tax Digital (MTD)

HMRC are progressing with their plans to encourage all businesses and individuals to maintain records in digital format. The aim is for the tax system to operate completely paperless. HMRC says this will lead to a more real-time system, which enables you to see how much tax you owe as you go.

The next stage relates to VAT.  From April 2022 all VAT-registered businesses will be required to use software to submit their VAT return.  If you wish to remain VAT registered and are not already using software to submit your return, please get in touch with us.

Following this, in April 2023 MTD will commence for all self-employed businesses and landlords with annual business or property income above £10,000. The first return will be due in the fourth month of your accounting period, so if your year end is 31 March, it will be due by 31 July 2023 and if it is 5 April it will be due by 5 August 2023. Returns must be submitted every 3 months, plus a final year end one in which all allowances and reliefs can be claimed.

You will have the option to either use:

  1. an App on your phone which will upload bank transactions, and in which you record income and expenses. The App will send quarterly reports to HMRC.
  2. a spreadsheet which will have a link to HMRC via a special software package, many of which should start to become available shortly.
  3. a software accounting system such as FreeAgent or Xero, through which you will be able to maintain your records and send the reports to HMRC.

It is likely that you will need to set up a separate bank account for your income to be paid into, so that this can be reported via an App or can be fed into your chosen software via a bank feed.

There are a few exceptions where you may apply for an exemption from the reporting requirements; if you are unable to comply due to age, disability, location, or if it is contrary to your religion.

HMRC are running a pilot scheme which you can sign up to now. Only sole traders with income from one business or landlords who rent out UK property (excluding furnished holiday lettings) can currently use this. You cannot sign up if you have income from other sources to declare.

It is planned that you will be able to voluntarily pay your taxes as you go, in quarterly instalments throughout the year. We will keep you updated with further announcements on this.

The final details for MTD for corporation tax are still being discussed but it has been confirmed that this will not be introduced before April 2026. Whilst it is likely to bring about some significant changes, if you are already using software to record your transactions then the new requirements should have a limited impact. The current proposals are for every company to use MTD compatible software to:

  1. maintain digital records of their income and expenditure.
  2. provide quarterly updates of income and expenditure to HMRC.
  3. prepare and file the annual corporation tax return.

Unlike MTD for VAT, there is currently no plan to give an exemption for smaller businesses. However, associated bodies are challenging the proposals and asking that the requirements be waived where the business is already quarterly reporting for VAT, and for HMRC to instead focus their effort on encouraging businesses to keep digital records. We will keep you posted as more information becomes available.

New One Stop Shop schemes for VAT on sales to EU consumers

You may have recently read about One Stop Shop Schemes and wondered what or when these may be applicable.

These new schemes apply to sales to consumers only, not sales to a VAT-registered business and not via an online marketplace. Such sales are denoted as B2C (business to consumer).

Under current EU rules, a UK business who supplies goods or services to EU consumers is generally required to register for VAT in each country to which they make their supply, and to report and pay EU VAT at various rates. An exception is a business offering digital services to consumers, who has the option to use the Mini One-Stop-Shop (MOSS) and to declare the VAT due in a single quarterly return. However, this scheme ceased on 31 December 2020.

From 1 July 2021, the EU is creating similar schemes called One-Stop-Shop (OSS) for suppliers of all B2C services and goods, which will remove the requirement for a business to have multiple VAT registrations and reporting obligations in the EU.

The schemes will allow UK sellers to register in a single member state to declare and pay VAT on all sales of goods and supplies of services to EU consumers. The UK business will still charge the VAT rate that applies in the country where they perform the services or send the goods, but only a single OSS return will need to be submitted electronically each quarter, showing the VAT collected in each EU country. The business can choose the country in which to register, and therefore might favour one which speaks good English, such as Ireland, Malta, or the Netherlands.

There are 2 types of OSS scheme relevant for UK businesses.

The IOSS scheme covers goods exported from the UK to an EU consumer where the total value of the shipment is less than €150 excluding VAT (£135). The first IOSS return will be due for July 2021 and must be submitted by the end of August.

The OSS non-Union scheme covers all distance sales of goods and supplies of services to EU consumers.

These rules do not apply to goods sold via an online marketplace because the online marketplace will deal with the VAT.

Note that from 1 January 2021 the VAT on goods sold business-to-business can be accounted for by the customer by means of the reverse charge. However, where goods are sold directly to non-VAT registered customers in the UK, the overseas seller is responsible for accounting for the UK VAT due, and this has led to many overseas sellers having to register for VAT in the UK.  It is therefore important to notify the seller you are a business, by giving them your VAT registration number, otherwise the transaction will be treated as sale to an individual and UK VAT charged (which is incorrect and therefore you cannot recover it).

Job Retention Scheme (furlough)

This scheme is expected to close on 30 September 2021. In July, the furlough grant available from the Government will be reduced to 70% of your usual salary up to a maximum of £2,187.50 per month, lowering to 60% or £1,875.00 in August and September. The employer, or your company, will need to make up and pay the difference between 70%/60% and 80%.

For new claimants, salary must have been paid and reported between 20 March 2020 and 2 March 2021. Remember you may be able to claim if you are not currently working due to the pandemic and are either employed or are a director of your own company. Anyone who thinks they may be eligible and wishes to make a claim should get in touch with us as soon as possible.

Self-employment Income Support Scheme (SEISS)

There will be a fifth Self-employment Income Support Scheme (SEISS) grant for the period May 2021 to September 2021 which will open to claims from late July. To be eligible, you must have been self-employed or a member of a partnership in the tax year 2019/20 and submitted your tax return on or before 2 March 2021. The grant will be determined by how much your turnover has reduced in the year 2020/21.

Amy FowlerJuly Small Business Update