Should Making Tax Digital be delayed until 2022?
Leading accountancy bodies have backed a House of Lords call for delaying Making Tax Digital by at least a year.
Making Tax Digital for VAT will require that VAT registered businesses with taxable turnover over the VAT registration threshold keep records in digital form and file their VAT returns using software.
A House of Lords report out this week recommends that Making Tax Digital should not be mandatory when it comes into force in April 2019.
Instead, businesses should go digital at a pace that suits them, the report says.
The ICAEW lent its support to the recommendation. The organisation has found that 40 percent of businesses about to be affected by Making Tax Digital for VAT are not yet aware of it. It also said a quarter of businesses are still using a paper-based accounting system. This will not be permissible for MTD for VAT.
“We support HMRC’s ambition to increase the use of digital technology, but we are concerned, as it is the committee, that many VAT registered businesses are not going to be ready for implementation in April, “said Anita Monteith, ICAEW’s tax manager.
Budget 2018 – key points
A summary of Chancellor Phillip Hammond’s final Budget before Brexit, key points including taxation, business, public finances and the state of the economy.
- The personal allowance threshold, the rate at which people start paying income tax at 20%, to rise from £11,850 to £12,500 in April – a year earlier than planned
- The higher rate income tax threshold, the point at which people start paying tax at 40%, to rise from £46,350 to £50,000 in April
- After that, the two rates will rise in line with inflation
- National Living Wage increasing by 4.9%, from £7.83 to £8.21 an hour, from April 2019.
- New 2% digital services tax on UK revenues of big technology companies, from April 2020
- Profitable companies with global sales of more than £500m will be liable
- Private finance initiative (PFI) contracts to be abolished in future
- New centre of excellence to manage existing deals “in the taxpayer’s interest”
- Annual investment allowance to be increased from £200,000 to £1m for two years
- Contribution of small companies to apprenticeship levy to be reduced from 10% to 5%
- Business rates bill for firms with a rateable value of £51,000 or less to be cut by third over two years
- Measure to benefit 90% of independent shops, pubs and restaurants, cutting bills by £8,000
- £900m in business rates relief for small businesses and £650m to rejuvenate High Streets
- New 100% mandatory business rates relief for all lavatories made available for public use
- Extending changes to the way self-employment status is taxed, from the public sector to medium and large private companies, from 2020
- Public borrowing in 2018 to be £11.6bn lower than forecast in March, representing 1.2% of gross domestic product, (GDP) the total value of goods produced and services provided
- Borrowing as a share of GDP to rise to 1.4% next year
- Borrowing to total £31.8bn, £26.7bn. £23.8bn, £20.8bn and £19.8bn in next five years
- Debt as share of GDP peaked at 85.2% in 2016-17, falling to 83.7% this year and to 74.1% by 2023-24
- 1.2% annual average growth in departmental spending promised
State of the economy:
- Era of austerity is “finally coming to an end”, the chancellor says
- 2018 growth forecast downgraded to 1.3% from 1.5% in March, due to impact of bad Spring weather
- But forecast for 2019 raised from 1.3% to 1.6% and annual forecasts raised to 1.4%, 1.4%, 1.5% and 1.6% in 2020, 2021, 2022 and 2023 respectively.
- 3.3 million more people in work since 2010 and 800,000 more jobs forecast by 2022.
- Wages growth at its highest in nearly a decade
UK Watchdog launches investigation into the Big Four accounting firms
Britain’s big accountancy firms could be banned from earning lucrative consultancy fees at businesses they audit following a series of scandals that have rocked the sector.
The UK’s audit watchdog, the Financial Reporting Council, laid out a series of reforms to tackle what it admitted was the “underlying falling trust in business and the effectiveness of audit”.
It also severely rebuked top firm KPMG, the auditor of collapsed construction giant Carillion, finding “a deterioration in the quality of the audits that we inspected to an unacceptable level”.
KPMG earned about £1.5m a year vouching for Carillion’s accounts, and in March 2017 expressed no concern over reported profits of £150m, even though four months later these proved to be illusory.
The FRC report lays bare how dependent the “big four” firms – Deloitte, EY, KPMG and PwC – are on the huge fees generated from consultancy work rather than the more humdrum business of auditing.
It said that in 2017, the big four earned a total of £2.1bn from auditing but another £8.4bn from non-audit consultancy. Just over £1bn of that income came from firms they also audited.
The FRC’s proposals echo calls by a parliamentary committee earlier this year, which demanded that the audit arms of accountancy firms should be detached from their consulting services, to avoid conflicts of interest.
The FRC is itself under intense pressure to improve its performance, after being widely criticised as too timid and too close to the firms it is supervising. It is currently the subject of a government review, led by Sir John Kingman, to determine if it is fit for the future.
The FRC said that it would in future “conclude cases more quickly” and increase fines so that financial penalties against auditors “reflect the gravity of the issue”.
How might Brexit affect UK tax policy?
Nearly two years after the UK voted to leave the European Union, it is still not totally clear what impact Brexit will have on Britain – especially as we await the outcome of the negotiations between the government and the EU. However, one area Brexit may well impact is tax policy – especially for business taxes.
Corporate and general tax issues
“Generally, the feeling is that most corporation tax issues will be quite manageable,” Daniel Lyons, head of Deloitte’s tax policy group, says. “However, there are some implications around withholding tax, and while most of those will be picked up in tax treaties, there are one or two instances where that is not the case.”
“There is lots of uncertainty about the UK corporation tax rate going down to 17% – it’s difficult to see how the economy can afford it,” says George Bull, senior tax partner at RSM. “Are we even sure it’s going to happen? I think two potential changes to consider are: first, what will the corporation tax rate be; and second, are there any tax reliefs where we can be more generous once we’ve left the EU [to boost our competitiveness] because state aid rules currently prevent how generous we can be.”