How much will Making Tax Digital cost small businesses in the UK?

Half of small businesses in the UK are not yet ready for the Government’s Making Tax Digital (MTD) scheme, according to the Federation of Small Businesses (FSB). They’re urging the Government to underline its commitment to light-touch enforcement of the measures as research by the FSB shows 50% of small businesses cannot yet comply with the scheme, which will be enforced on 1 April 2019.

What is the Making Tax Digital scheme?

MTD is a major component of the Government’s plan to simplify the tax process for businesses and individuals. HMRC wants to become one of the most advanced tax administrative systems in the world, and digitising is a big part of this ambition.

The Government says that MTD will make tax administration more efficient, more effective and easier for people to get right. VAT-registered businesses with a turnover above the threshold must use the MTD service to submit their VAT returns from 1 April 2019, the start of the new financial year.

There are exceptions, including what the Government says is a “small minority” of VAT-registered businesses with complex needs. HMRC has committed to delaying the scheme for these specific customers until 1 October 2019. You can see more of the proposed timeline on its website.

Costs of compliance

However, the FSB says that 27% of small businesses have not yet even started to prepare for MTD. A further 23% (one in five) have sought quotes for the required software but haven’t yet bought access to any. A very small percentage (3%) say they are part of the pilot MTD scheme.

Some small businesses say that installing MTD-compliant software will cost an average amount of £564. Fees for software come as either one-off amounts or annual subscriptions for varying amounts.

The larger the business, the higher the expected costs. Businesses with a turnover of more than £500,001 and less than £1million will land a bill of around £872 for software. Businesses with a turnover of more than £1m will need to pay an average of £1,019.

 Lack of understanding

While the Government maintains the system will make it easier for businesses to manage their tax, just 10% of firms believe that MTD will have a positive impact on their financial management. And around 36% say they think it will be negative.

The research also showcases how important offline accounting administrative methods are to small businesses. About 37% say they use paper invoices, and almost a third (29%) use bank statements and paper receipts to manage their finances. HMRC’s own research shows that 19% of small businesses, who must comply with MTD on 1 April, don’t know what it is, or what it will mean for them.

James Turner, Managing Director of Turner Little Limited says: “We are extremely close to the roll out of MTD by HMRC now, and small businesses are not prepared for it in many cases. Either way, small businesses should not be punished for a rushed roll-out. It’s clear that some are in danger of not being able to comply with MTD in time, or worse, have little understanding of what it will mean for them.

“The Government says that MTD compliance will be affordable for small businesses, but some are now finding that they must pay hundreds of pounds. We are experiencing some lower levels of confidence for small businesses at the moment, and with rates rising, extra costs such as this are not helpful.

“The FSB also finds that the registration process is far from simple, adding to confusion for small business owners. It would be helpful to see a review of the rollout and for the Government to commit to helping small businesses reach compliance. A guarantee that it won’t be forced upon businesses below the threshold for VAT for a significant time period would also be welcome.”

About Turner Little
Founded in 1998 in Yorkshire, UK, Turner Little is a specialist UK and offshore company formation, banking and corporate services provider. Our services include company formation, UK and offshore banking, asset protection, credit correction, trademarking and trusts. Other services include Internet services, mail forwarding, wills and probate. Turner Little’s vision is to offer the best possible service, together with market leading products.

What is and Where are the tax havens?

A tax haven is any country that allows you to reduce the amount of tax you pay.

Let’s state at the beginning that there is nothing wrong with using tax havens provided you are careful not to break any rules in your country of residence.

Some people use tax havens to hide their money from the tax authorities in their home countries. This is not only illegal, it’s very stupid, because one day you will probably be caught and could end up with substantial fines as well as back-taxes and possible even a jail sentence.

Notwithstanding, if you have the legal right to use a tax haven you would be foolish not to take advantage of all the opportunities you can to maximise your wealth.

There are three principal types of tax haven:

Zero – Tax Havens

These are countries that do not have any of the three main direct taxes most of us are familiar with:

  • No income tax or corporation tax
  • No capital gains tax; and
  • No inheritance tax

Some of the nil tax havens, you have probably heard of or read about or even seen in films; you may even have been on holiday in some. Amongst others they include:

Cayman Islands
St Kitts and Nevis
Turks & Caicos Islands

Although there are no direct taxes in these jurisdictions, the governments there still need to generate some income. What they tend to do therefore is to impose licence fees for company incorporation documents or annual registration fees for companies; these charges are usually fixed and relatively small. If you’re considering living in one of these territories, most of these charges won’t apply and you may be able to live with little state involvement in the way of taxes. The only tax charges that might then affect you would perhaps be import duties or local sales taxes.

Foreign Source Exempt Havens

These countries do charge taxes and sometimes they can be at a high level. However, they are tax havens by virtue of the fact that they only tax you on locally derived income.

In other words, if all your income is earned outside the tax haven, you will not pay any tax there. Please be aware though that you may incur a liability for tax in the country in which you actually earn the income. Some examples of foreign source exempt tax havens are:

Costa Rica
Hong Kong

This type of tax haven exempts any income earned from foreign sources from tax, provided the foreign income source does not involve any local business activity.

Some of the other tax havens don’t even allow a company to conduct business of any sort internally if tax advantages are to be claimed.

Jurisdictions such as Panama and Gibraltar would require a company to decide at the time of incorporation whether it was allowed to do local business (and therefore be taxed on its worldwide profits), or only foreign business and therefore be free from taxation.

Low-Tax Havens

The final group of so-called tax havens are countries that do have a system of taxation and do impose taxes on residents’ worldwide income. You may well ask why these are still known as tax havens. There are principally two reasons:

  • Certain countries may grant concessions that offer tax advantages in specific situations (capital gains tax avoidance for example).
  • Appropriate use of double tax treaties that countries enter into with each other which may allow you to lower your tax bill.

Good examples of low-tax havens are:

The Netherlands
The United Kingdom

Other Important Factors to Consider

When considering tax havens per se, whilst the amount of tax they levy is obviously important, it is not the only factor.

You may not for example, want to risk investing your money in an offshore account in a politically unstable country; particularly if there is a risk that your assets could be expropriated.

Tax planning therefore, is only one consideration. Other important considerations are:

  • Privacy. What is the level of confidentiality?
  • Ease of residence. Is it fairly easy to obtain permission to live in the tax haven?
  • Political stability. Is there a risk your cash could end up in the government’s coffers?
  • Communications. How good are telephone and broadband internet access?
  • How easy is it to travel to the country?
  • Lifestyle factors. What is the standard of living? Are schooling and hospitals up to standard?
  • Is the climate suitable?
  • How high is the cost of living?

Ultimately, it’s a question of what you want from life and from your tax haven; are you concerned only with the tax position or are other factors equally important?

About Turner Little

Founded in 1998 in Yorkshire, UK, Turner Little is a specialist UK and offshore company formation, banking and corporate services provider. Our services include company formation, UK and offshore banking, asset protection, trademarking and trusts. Other services include Internet services, mail forwarding, wills and probate. Turner Little’s vision is to offer the best possible service, together with market leading products.

UK renews crackdown on offshore tax avoidance

As part of the Autumn Budget, the Government announced that HMRC (HM Revenue & Customs) would publish a new offshore tax compliance strategy. The Government also reaffirmed its intentions of fighting offshore tax avoidance, tax evasion and general non-compliance.

The new strategy is designed to build on the strengths of the current one. According to the Government, initiatives have secured and protected more than £185 billion since 2010. They say that without its strategy, this amount of tax would not have been paid.

Ending offshore tax avoidance

The current tax strategy from HMRC was implemented in 2014, and is called ‘No Safe Havens’. Its core tenet was to ensure that there are no jurisdictions in which taxpayers can hide their assets and income from HMRC.

Since 2014, the strategy has overseen new legislation and disclosure facilities. These were devised to encourage people with unreported tax liabilities from offshore wealth to voluntarily come to the HMRC and sort their tax affairs. Some of the key terms of the Liechtenstein Disclosure Facility (LDF) included immunity from prosecution and a low penalty of 10% of the tax involved. These have been criticised by being far too generous, given that many using the facility were owning up to large amounts of tax fraud.

Recent changes include harsher measures

Due to the criticism, the Government has implemented harsher measures more recently. These include:

  • Substantial penalties measured by the value of the offshore assets.
  • Penalties based on the movement of offshore assets in a bid to avoid disclosure and detection.
  • The Failure to Correct (FTC) and Requirement to Correct (RTC) regime mean those who fail to correct non-compliance of offshore tax at a rate of up to 200% of the tax involved would receive harsh penalties and their details being made public.

Voluntary disclosers are usually made using the Worldwide Disclosure Facility (WDF). Exemptions include cases that involve serious fraud, which should be made through the Contractual Disclosure Facility (CDF). Disclosures made through the WDF can’t receive criminal immunity or a reduced penalty.

The UK Government has been making these changes as part of the general background for global tax transparency. Driven by financial austerity and fuelled by public demands for wealthy individuals and large enterprises to stop avoiding paying tax.

Common Reporting Standard for global transparency

The Common Reporting Standard (CRS), also known as the Organisation for Economic Co-operation and Development’s international information exchange, has included more than 100 countries. They have been sharing sensitive tax information since September 2017 in a bid to improve global transparency.

HMRC is a signatory, and as such have been given formerly unprecedented access to financial data of UK residents who use offshore accounts and investments. However, there are questions as to whether HMRC has enough resources to make use of this massive amount of data.

Earlier in 2018, the Public Accounts Committee (Parliament’s spending watchdog) reported on the Panama papers leak. The data leak led to 66 criminal and civil investigations and is expected to yield HMRC more than £100 million in unpaid tax. Despite this result, the committee says that it is “far from confident” that HMRC has enough expertise and resources to make proper use of the data it has access to.

Government must do more

Criticisms have been levelled against HMRC for many years from Treasury and Parliamentary committees for not fully investigating tax fraud or being too late to benefit from it. There are measures in place aimed at both tax payers and their advisers. For example, a strict liability corporate criminal offense is in place for those failing to prevent tax fraud. Other initiatives penalise advisers who enable their clients to perpetrate fraud.

Some of these, such as the RTC and FTC, the strict liability criminal offence for tax avoidance, and the amount of information automatically provided to HMRC under the CRS, it seems an appropriate time for the Government to reassess the measures and work on improvements. Some clues are given as to the future of the Government’s offshore noncompliance strategy with HMRC’s consultation paper ‘Amending HMRC’s Civil Information Powers’.

James Turner, Managing Director of Turner Little Limited says: “It seems likely that the changes to the current offshore compliance strategy will be minimal. This is particularly likely given that many of the current measures are either very new, untested or don’t even come into effect until next year. The biggest changes are likely to include more emphasis laid on international co-operation, as HMRC makes use of the CRS and the UK’s already adopted co-operation directives.

“It’s reasonable to think that HMRC will make some difference to the ‘tax gap’ that relates to offshore avoidance. However, it clearly needs more funding and resources to properly make use of the vast amounts of information it now holds. This is something that can only come from the Government.”

About Turner Little

Founded in 1998 in Yorkshire, UK, Turner Little is a specialist UK and offshore company formation, banking and corporate services provider. Our services include company formation, UK and offshore banking, asset protection, credit correction/repair, trademarking and trusts. Other services include Internet services, mail forwarding, wills and probate. Turner Little’s vision is to offer the best possible service, together with market leading products.


Tax Savings on a Buy-to-Let Property

Buy-to-Let Tax savings for Investors

Anyone who is a Buy-to-Let investor holding property personally should consider this possible tax saving scenario. It might reduce tax on rental income as well as achieve a Capital Gains Tax (CTG) free uplift in base cost, while allowing income to be accessed free of tax. This possible solution which uses a Limited Liability Partnership (LLP) might also provide an Inheritance Tax (IHT) efficiency.

Let’s assume the following:

  • An individual or a group of individuals own an asset or assets which generate a significant level of rental income. Such income is subject to higher or additional rates of income tax; and/or
  • Significant capital gains are inherent in the property or property portfolio or another class of asset; and
  • The individual or individuals wish to mitigate their ongoing tax liabilities; and
  • The individual or individuals are willing to revise the structure through which they currently operate.

Their objective might simply be achieved by:

  • The individual or individuals transferring the property into a LLP and operating the business through this structure. This needs to be done for at least eighteen months. During this time, the income generated by the business will still be subject to Income Tax.
  • After eighteen months the business is incorporated into a private limited company. Thereafter the profits will be taxable within a corporate structure and profits will be subject to corporation tax (currently 20%) as opposed to the more punitive personal income tax rates of up to 45% previously suffered. Profits can then be managed as part of any tax planning exercise for the individual client.
  • A further benefit arising from this structure is that the assets will benefit from an adjustment to their base cost when they are put into the corporate structure. The values at which the assets are carried in the corporate structure is the market value at which they were introduced to the LLP, as opposed to the CGT cost previously carried by the individual prior to disposal.
  • The transaction can be undertaken in such a manner as to allow the profits from the corporate structure to be drawn by the individual free of tax for a significant period of time.
  • It also facilitates future IHT planning which may be considered whereby individuals seek to pass assets to family members (not spouse) but are put off doing so by the immediate charge to CGT.
  • Shares/debt in the corporate structure can be gifted in such circumstances with no CGT charges arising.

Necessary considerations

In making such changes, it is necessary to carefully consider for whom the structure may be suitable. Quite simply, the structure is suitable for anyone with a property portfolio business that generates substantial income. There may also be an additional benefit where there are latent gains within the property portfolio or indeed other assets.

The main benefit is a reduction in income tax rates from 45% to the much lower corporate tax rate of currently 20% which will reduce further following the last budget announcement. In addition, there will be no liability to Stamp Duty Land Tax for the transfers of the property or Stamp Duty where the asset is shares and, importantly, there is an adjustment to the base cost of the asset carried by the Limited Company

Inevitably there are of course risks attached, though the risks in achieving the transition of the portfolio from the individual to the limited company are relatively low. There is however a risk that on a subsequent disposal of the assets or the shares in the company there may be a challenge by HM Revenue & Customs as to the whether there was an earlier disposal.

Turner Little

In our opinion this risk is relatively low. While Turner Little Limited are not tax advisors and would always recommend their clients to seek independent tax advice, they are experts in the formation of company structures.

Turner Little was founded in 1998 and it has since become a well-established UK based professional Company Registration Agents, Registered Bank Intermediaries and Business Consultants, as well as Trust providers.

Taxes, What Do Small Businesses Have to Pay?

If you run a business which trades for profit, you’re legally obligated to pay taxes to the government. But the taxes you pay depend on the type and size of company you operate, leading Turner Little to discuss; what taxes do small businesses have to pay?

Small business taxes

There are no specific ‘small business taxes.’ Rather, the taxes you pay to the government depends on the type of business you run. If you’re self-employed, you must send a self-assessment tax return to HM Revenue and Customs (HMRC), the government’s tax department, every year and pay income tax on any profits above a certain threshold, which is adjusted by Whitehall annually.

In contrast, if you form a limited company in the UK (which as experts in this field, Turner Little can help you with), you may have to pay corporation tax on any profits your business makes during its most recent accounting period. At present, all limited companies must pay a corporation tax rate of 20% on profits earned from 1st April 2015. Also whatever type of firm you operate, if you ‘dispose of’ one of your business’ assets for a profit, you’ll be required to pay capital gains tax.

Who must pay national insurance?

National insurance is essentially another type of business tax. So who must pay national insurance? You’re required to submit national insurance contributions to Whitehall if you’re aged 16 or over and if either you’re an employee earning more than £155 per week, or self-employed and making a profit of at least £5,965 or more. If you’re self-employed you may have to submit national insurance contributions as both an employer and an employee of your firm.

How Could VAT Affect Your Small Business?

Also, you may be required to charge Value Added Tax (VAT) of 20% on the price of most of the products and services you sell to customers. So how could VAT affect your small business? If your annual turnover exceeds a certain threshold (currently £82,000), you’re legally obligated to register for VAT. You must then pay VAT on your business’ ‘taxable supplies’ e.g. commission to HMRC.

After this, you charge VAT on the goods and services you sell to customers; if you charge more VAT than you’ve paid, you must submit the difference to HMRC. However, you’ve paid more VAT than you’ve charged your company’s customers, you can reclaim the difference from HMRC. If you’re the director of a limited company it’s you, not your business, that must register for VAT. You can utilise Turner Little’s miscellaneous corporate services to handle VAT registration.

Additional business taxes

If you’re a small business owner in the UK, you may be required to pay additional taxes depending on your circumstances. For example, you may have to pay business rates to HMRC if you use non-domestic properties e.g. offices, shops, for business purposes, or pay stamp duty if you buy commercial premises valued above a certain threshold. At present, the stamp duty threshold for non-residential properties and land is £150,000. Finally, you may be affected by a number of environmental and other specific types of taxes, depending on the industry your business operates in.

How to lower your tax bill

At this point, we need to explain how to lower your tax bill. There are a number of business tax allowances and reliefs you can use to reduce your company’s tax expenditure. For example, if you’re self-employed you can claim ‘allowable expenses’ e.g. employee wages. You can set against your taxable profits as well as your personal income tax allowance, to lower your firm’s income tax bill.

In order to reduce your firm’s tax bill, as well as fulfil your legal obligations, you need to keep proper business tax records detailing your company’s revenue and expenses. Therefore, your small business needs to invest in effective financial infrastructure to reduce the burden that tax places on its bottom line. As registered bank intermediaries and business consultants, Turner Little can supply the corporate banking services your firm requires to handle its tax obligations.

Turner Little

Turner Little was founded in 1998 and it has since become a well-established UK based professional Company Registration Agent, Registered Bank Intermediaries and Business Consultants, as well as Trust provider.

A small business guide to VAT

If you’re not sure about the VAT threshold or when you need to register, then you’ve come to the right place. We’ve put together this brief guide to value added tax (VAT), the different rates, when they’re applicable and information on registration.

What exactly is VAT?

Value added tax is charged by businesses that are VAT registered. It’s charged on most services and goods that you can buy in the UK, as well as some that are imported from outside of the EU (European Union).

If a business is VAT registered and is then charged VAT when it buys services or goods, then it can reclaim the VAT. If it’s not VAT registered, then it generally can’t recover the VAT it’s been charged.

VAT registered businesses essentially charge VAT on top of their base sales price, collect this money and then pay it to HMRC.

When do you need to register your business for VAT?

There are two registration categories: compulsory and voluntary.

Compulsory registration

If a business makes more than the current VAT registration threshold then it must register for VAT. This means if the taxable turnover for a business for any 12-month period exceeds the threshold then they need to be registered. Currently (as from the start of the new financial year on 1 April 2017), the registration threshold is £85000. This increases every year.

There are certain other reasons why you would be obliged to register your business. For example, if you’re trading outside of the UK. If you don’t register your business on time then you could incur penalties.

It’s also worth noting that if your turnover is over the VAT registration threshold but only temporarily, you can ask for an exemption from registration.

A business can’t register for VAT if it doesn’t meet the HMRC’s definition of a business. It’s also not allowed to register if it mostly sells services and goods that are VAT exempt.

Voluntary registration

If your taxable turnover doesn’t go over the current registration threshold, then you can still voluntarily register for VAT. There are two reasons where this is a good idea:

  1. Where customers are mostly other VAT registered businesses. This means any VAT charged can be recovered, so it doesn’t affect their customers one way or the other.
  2. Where they’re often in a position of being owed a refund by HMRC, meaning the business is better off if it’s VAT registered.

Different rates of VAT explained

  • Standard: This is the default rate of tax at 20%, charged on most services and goods in the UK unless they are specifically reduced or rated zero.
  • Reduced: This is the amount (5%) charged on domestic power and fuel, the installation of energy saving materials, sanitary products etc.
  • Zero: Food, kids’ clothes and shoes, public transport, books and newspapers are subject to no tax. This doesn’t include restaurant food or takeaways though.
  • Exempt: This is where items aren’t applicable for VAT, including insurance, fundraising, membership or credit.
  • Outside the scope: This refers to items that are outside of the UK’s VAT system, including wages, rates and MOT tests among other things.

For more information on VAT and whether your business should be registered, contact Turner Little.

New Tax Changes and how they will effect you

While the beginning of April might conjure up dreams of long awaited spring sunshine and lighter evenings, it is also the start of a brand-new tax year in the UK. And that means various tax changes for everyone.  The chances are that the new tax changes will make you richer if you’re already well off.  Increases to the National Minimum Wage might help you if you’re at the lower end of the pay scale. However, council tax bills have risen sharply, and workers have to pay three times more into their pension.

Changes to income tax

Pretty much every taxpayer is better off following Income Tax changes. The threshold has risen from £11,500 to £11,850, saving BR (basic rate) tax payers around £70 per year. The higher rate tax threshold has gone from £45,000 to £46,350, saving approximately £336 per year.

While this sounds good on paper, these threshold increases have only risen by inflation. The Institute for Fiscal Studies (IFS) has pointed out that all other increases since 2010 have been higher.

Changes to Scottish tax

For the first time, this month sees taxpayers in Scotland paying different rates to England and Wales. People earning more than £33,000 (around 45% of the population) pay more income tax in Scotland, leaving 55% paying less.

Changes to National Minimum Wage

Minimum Wage rises, which have been in force since 1 April 2018, are above inflation for both those under and over 25. The biggest increase is for 18 to 20-year olds who get a 5.3% increase. People over 25 years old get a 4.4% increase (33p per hour).

Changes to student loans

From 6 April 2018, the threshold for students to start paying back their loans increased. Students in England and Wales who took out loans before Sept 2012 can now earn £18,330 before starting repayments. This applies to students in Northern Ireland and Scotland too, and is an increase from a threshold of £17,775. Anyone with loans from after 2012 will see their thresholds go up from £21,000 to £25,000.

Changes to Inheritance Tax (IHT)

Homeowners face less IHT following the changes. There is no increase for the main exemption amount of £325,000 but the extra exemption for property has risen from £100,000 to £125,000. This could mean a saving of up to £10,000 on IHT.

Changes to council tax

Across England council changes tax have led to a rise on average of 5.1%. As an example, an average band D property now costs £1,671 per year (that’s up £81 on 2017). People in London have seen an increase of £55, while people in county council areas are looking at an increase of £86.

All councils across Scotland are increasing council tax by the maximum allowed – 3%. Wales is being hit with the biggest rises due to the Welsh Assembly failing impose restrictions. Pembrokeshire tops the list with a rise of 12.5%.

Changes to pensions

From 6 April 2018, 9 million people with auto-enrolment pensions have to pay triple the amount of monthly contributions. This will be several hundred pounds more for most people, but they also get a 2% increase in payments from their employer.

The Pensions Lifetime Allowance rose from £1 million to £1,030,000. The allowance is the most you can have in your pension, and people with more than this must pay 55% tax on lump sum withdrawals and 25% on income withdrawals.

State pensioners have received a 3% rise since 9 April 2018, due to the triple lock mechanism put in place by the government.

Changes for savers

There are few positive changes for savers. A program called ‘Help to Save’, which was to give people on benefits a 50% top up has been postponed. It was supposed to launch this month but has been shifted to October.

ISA limits remain at £20,000, although the maximum amount for Junior ISAS has risen to £4,260, an increase of £132. The maximum you can get from share dividends with no tax has decreased from £5,000 to £2,000 per year. Basic Rate taxpayers are charged 7.5% on dividends over £2,000, while higher rate payers are now charged 32.5%.

Changes to benefits

There has been no increase in Child Tax Credit, Child Benefit, Jobseeker’s Allowance, Universal Credit and Employment Support Allowance, affecting around 10 million households.

We’re now into the third year of a four-year planned freeze and an average family with two children can expect £315 less in 2018 than they should have been entitled to.

New sugar tax

Since 6 April 2018, sugary drink manufacturers have had to pay the ‘Sugar Levy’. Drinks with more than 5% sugar are at a lower rate, while those with more than 8% are at a higher rate. It’s likely that prices will go up for consumers by around 8p per can.

For more information on how tax changes affect you and your business, contact the team at Turner Little.

About Turner Little
Founded in 1998 in Yorkshire, UK, Turner Little is a specialist UK and offshore company formation, banking and corporate services provider. Our services include company formation, UK and offshore banking, asset protection, credit correction/repair, trademarking and trusts. Other services include Internet services, mail forwarding, wills and probate. Turner Little’s vision is to offer the best possible service, together with market leading products.