DSJ Partners have a wealth of experience in advising businesses and individuals in the London area on a range of key tax and financial planning issues. Here we consider strategies to help you to minimise your tax bill, maximise your profitability and boost your wealth.
The UK economy continues to operate under challenging economic conditions. Meanwhile, Making Tax Digital for VAT now takes effect, and business owners are urged to consider the changes to Entrepreneurs’ Relief conditions, and to take advantage of the increased capital allowances Annual Investment Allowance. Here, we provide an overview of these latest developments.
Making Tax Digital for VAT
HMRC has launched its landmark Making Tax Digital (MTD) initiative, which sees a fundamental change to the way in which businesses keep records and report to HMRC. It requires businesses and individuals to register, file, pay and update their information via a secure online tax account.
Under the MTD for VAT rules, businesses with a turnover above the VAT registration threshold (currently £85,000) must keep digital records for VAT purposes and provide their VAT return information to HMRC using functional compatible software. Businesses below the VAT threshold which have voluntarily registered for VAT can opt to join the scheme.
The MTD rules generally apply from the first VAT accounting period beginning on or after 1 April 2019, however, for some VAT-registered businesses with more complex requirements, the rules take effect on 1 October 2019. Included in this deferral category are VAT divisions, VAT groups and firms using the annual accounting scheme.
VAT returns must be submitted to HMRC via an Application Programming Interface (API). Submission can be from API-enabled spreadsheets, software or bridging software. The transfer of data to HMRC, from the mandatory digital records to the filing of the return, must be entirely digital. MTD for VAT is backed up by a system of penalties. For the first year, however, HMRC intends to take a slightly more lenient approach on penalties for the issue of digital links between software products. Businesses are given until at least 31 March 2020 to have digital links in place between software products. HMRC refers to this as a ‘soft landing’ penalty period.
In the 2019 Spring Statement, Chancellor Philip Hammond confirmed that the government will not mandate MTD for any new taxes or businesses in 2020.
Changes to the Annual Investment Allowance
The majority of businesses are able to claim a 100% Annual Investment Allowance (AIA) on a portion of the expenditure on most types of plant and machinery (except cars). The AIA applies to businesses of any size and most business structures.
The AIA increased from £200,000 to £1 million from 1 January 2019, for a period of two years (complex rules apply to ‘straddling’ accounting periods). Businesses are urged to time their capital expenditure so as to make full use of the increase.
A special tax relief, Entrepreneurs’ Relief (ER), may be available for those in business, which reduces the tax rate on the first £10 million of qualifying lifetime gains to 10%. In a change to the previous rules, the relief will be available to individuals on the disposal after two complete qualifying years of:
- all or part of a trading business carried on alone or in partnership
- the assets of a trading business after cessation
- shares in the individual’s ‘personal’ trading company
- assets owned by the individual used by the individual’s ‘personal’ trading company or trading partnership where the disposal is associated with a qualifying disposal of shares or partnership interest.
New 5% ‘personal’ trading company rules
To qualify for ER, the company needs to be an individual’s personal company where the individual must:
- be a company employee or office holder
- hold at least 5% of the company’s ordinary share capital; and
- be able to exercise at least 5% of the voting rights.
For disposals on or after 29 October 2018, they must also satisfy one of the following tests:
- a distribution test – an individual is entitled to at least 5% of the company’s profit available for distribution to equity holders and 5% of the assets available for distribution to equity holders in a winding up; or
- a proceeds test – an individual is entitled to at least 5% of the proceeds in the event of a disposal of the whole of the ordinary share capital of the company.
Your financial planning strategy
In the face of ongoing change, it is more important than ever to have a robust business and personal financial planning strategy in place, to help ensure that you and your family are financially secure and on course to achieve your long-term goals.
If you're in the London area and would like advice on tax planning strategies, please contact DSJ Partners.