August 2021
Technical and Client Update
In this issue
Company loss relief can be claimed early
MTD coming soon for income tax
Information in quarterly MTD for income tax reports
Timing of MTD for income tax reports
Abolition of basis periods and new tax year end?
Exam Success
Company loss relief can be claimed early
Where a company makes a trading loss of no more than £200,000 in an accounting period it is now possible to claim relief for that loss even though the corporation tax return CT600 has not been submitted.
This will enable the company to carry back the loss to earlier years and obtain a repayment of tax previously paid.
HMRC will, however, need evidence of the loss to support the claim, in particular a PDF of the company’s management accounts for the period.
In determining whether the loss is no more than £200,000 the company is required to claim all available reliefs, in particular capital allowances.
Where companies are members of a group the £200,000 limit applies to each individual company. Note that for members of a group the £2,000,000 limit on the temporary extended carry back applies to the group as a whole. The extended carry back allows companies to carry back trading losses two further years in addition to the normal one year carry back.
We can, of course, advise you on the best use of trading losses.
Losses carried back will result in a repayment of corporation tax at 19% whereas, if carried forward against profits, the losses may save tax at up to 26.5% after April 2023.
MTD coming soon for income tax
VAT registered business making taxable supplies above the £85,000 registration threshold have been grappling with Making Tax Digital (MTD) since April 2019. The next roll-out will be the introduction of MTD for income tax which is scheduled to start in April 2023.
The obligation to keep records in a digital format and report information quarterly will apply to unincorporated businesses and property landlords with gross income in excess of £10,000 a year. Businesses operating MTD for VAT will already have MTD compliant accounting software but the extension of MTD to income tax will mean a major change for property rental businesses who are outside of the current rules.
There are a number of MTD compliant accounting software packages that you might wish to consider and we can of course advise you on the one that is most appropriate for your business. There are even relatively cheap software packages specifically designed for property rental businesses.
Information in quarterly MTD for income tax reports
The precise details of what needs to be reported each quarter have yet to be finalised, but the categories of income and expenditure are likely to be the same as currently reported for self-assessment.
The accounting software will need to record income and expenditure into the following main categories:
- Turnover/gross rents
- Costs of goods sold
- Materials
- Wages and salaries of employees
- Sub-contractor costs
- Rent, rates, power, insurance
- Repairs and renewals
- Professional fees
- Telephone and other office costs
- Interest on bank and other loans
- Motor and travel expenses
It is unclear at this stage how loans to finance residential lettings will be reported as those costs are no longer deducted in arriving at rental profits as relief is now given by way of a basic rate tax deduction.
Timing of MTD for income tax reports
It is currently proposed that there will be 4 quarterly reports to HMRC followed by a finalisation return when end of year adjustments will be made. For a buy to let business that would mean quarterly returns made up to 5 July, 5 October, 5 January and 5 April. There would then be a MTD finalisation submission the following 31 January.
Abolition of basis periods and new tax year end?
We are awaiting further information on MTD from HMRC this summer but one significant announcement on 20 July was draft legislation to abolish basis periods for unincorporated businesses for the 2023/24 tax year to simplify MTD reporting.
That change would apply to sole traders, partnerships, as well as trusts with trading and property rental income. There would also be complicated transitional rules for 2022/23 which could result in a big tax bill that year for some traders.
The Treasury are also consulting on changing the tax year itself from the archaic 5 April year end to 31 March or even 31 December. A calendar tax year would bring the UK into line with most other countries at last!
We will keep you updated when more information comes available.
Exam Success
We are pleased to announce that Jodie Wan recently passed the exam for the highest level tax qualification in the UK, to become a Chartered Tax Adviser (CTA), to complement her Chartered Accountancy qualification (ACA).
Since Jodie joined Humphrey & Co as an apprentice in 2012 she has achieved several accounting qualifications with the firms support, progressing to a Client Manager for Partner Greg Penfold in the Dental and Medical team.
“I am delighted to qualify as a Chartered Tax Adviser and I am incredibly proud of all that I have achieved over the years. I am extremely grateful for the continued support and encouragement that Humphrey & Co has given me since I joined and I can’t thank them enough. I am looking forward to putting my new qualification into practice and combining all the knowledge I have gained in assisting our clients with their tax and accounting affairs.” said Jodie.
Senior Partner Anthony Smith comments “Jodie should feel very proud of her achievements, the CTA exams are technically challenging and she has worked extremely hard to secure the qualification. We have several CTA qualified staff now, with more coming through, which enables us to offer the best possible advice to our clients in an ever-changing environment. Well done Jodie from all of us!”