Making Tax Digital
HMRC has created a 10-year tax administration strategy, the central focus of which will be Making Tax Digital (“MTD”) and on simplifying the understanding and administration of tax.
The next step in this move towards digitalisation is the extension of MTD for VAT to apply to businesses with turnover below the compulsory VAT registration threshold (currently £85,000). This has been delayed because of Covid, but is now set to be in place by April 2022.
By 2023, HMRC will extend MTD to income tax self-assessment for business and landlords with income over £10,000.
As part of these processes tax reporting will be brought in line with real time with the stated aim of allowing taxpayers to have a single and complete financial picture of their tax situation in real time. It’s highly likely HMRC will also expect more regular payments on account to fall in line with these reporting requirements although it is currently unclear what the procedure for making year-end adjustments will be.
Under the Companies Act 2006 in order to pay a dividend the most recent company accounts must show sufficient distributable profits taking into account:
- Capital Maintenance – a company should update its consideration of the financial position from the date of the last balance sheet to the date of the proposed dividend. If distributable profits have been eroded, it would be unlawful to make a distribution which is effectively from capital.
- Director Duties – directors have a fiduciary duty to act in a manner that is most likely to promote the success of the company. As such they are required to look forward from the date of the proposed dividend to ensure that to paying-out of such dividend would not leave the company in a position from which it cannot effectively operate.
The above considerations are particularly important in light of the past year’s (and ongoing) pandemic and the financial implication thereof. It is possible that the last set of financial statements would not accurately state the availability of funds. It is therefore recommended that interim or management accounts be prepared in advance of the dividend declaration.
You may have seen the news that the Biden administration is calling for a global minimum corporate tax rate of 21% to spur a worldwide change in how and where companies are taxed in an attempt to level the playing field.
In addition, MEPs are calling for a new and fairer systems of taxation, specifically targeted at highly digitalised multinationals, with a revision of the traditional concept of permanent establishment which fails to cover the digitalised economy. Across the EU, digital businesses on average face an effective tax rate of only 9.5%, as opposed to 23.2% for traditional business models.
While the EU is prepared to introduce a digital tax across only member states, its preferred option would be for an international agreement aimed at a fair and effective tax system globally and is supporting the efforts of the G20 and OECD in this regard.
The OECD is currently reviewing the outcome of a consultation on plans to introduce a new set of cross-border tax rules which is particularly focused on the introduction of a global approach to tax for highly digitalised multinationals (think Google and Facebook).
Expats’ Right to Vote
With the recent elections it seemed appropriate to highlight the Budget announcement relating to eligibility for all expats to indefinitely continue to vote in UK elections. The change related to the period of time an expat would continue to be eligible which was previously 15 years.
Careful consideration of the tax implications should be made by individuals who have purportedly left the UK permanently, severing all (or most) ties to the UK and thus potentially ceasing to by UK domiciled.
Individuals who are UK domiciled at the date of their death are subject to inheritance tax on their worldwide assets and changing your domicile is often times difficult to do and (more importantly where HMRC are concerned) to prove.
Broadly it would involve permanently severing all ties to your life in the UK: home, work, memberships at social clubs and, as in one tax case, newspaper subscriptions. Retaining your right to vote would indicate a continued interest in UK politics and thus indicate a perceived intention to one day return to the UK to live.
If you’ve not already done so you need to make sure you provide P60s to your employees before 31 May. Failure to do so can result in an automatic £300 penalty plus £60 per day for each subsequent day.
VAT which was deferred from between 20 March and 30 June 2020 is due for payment before the end of June. If you are unable to pay in full by this date you can request a time to pay arrangement using HMRC’s online VAT deferral notification service until 21 June 2021.
The scheme allows taxpayers to schedule payments on a monthly basis and allows you to pay your deferred VAT in equal instalments, interest free; and choose the number of instalments by direct debit, the maximum of which is now nine if you join before 19 May 2021.
HMRC has confirmed that companies will be liable for a 5% penalty or interest if they do not pay in full or agree a time to pay arrangement by 30 June 2021.