As the theme of Stress Awareness Month is ‘Little by Little, a Little becomes a Lot’, we’re encouraging everyone to adopt this mindset and make small changes to reduce their personal tax-related stress. 

Planning ahead 

“Fail to prepare, prepare to fail.”  

Just as the saying goes, it’s wise to plan well in advance of the financial year ending, or you could full victim to rushing your tasks before April 2025 and likely missing crucial details.  

Avoid getting caught out by the new changes announced in the Spring Budget and ensure you’re aware of your responsibilities.  

For example, if you are self-employed, you need to be aware of and understand the reduction in Class 4 NICs from nine per cent to six per cent. 

Taking small but helpful steps 

We’ve identified a few useful steps that will guide you towards a worry-free and uniformed process.   

• Check in with your accountant – It’s best to have your accountant advise you sooner rather than later to ensure compliance 
• Don’t forget your expenses – Remember to claim all expenses that you’re owed. If you’re not sure what you’re entitled to, our team can guide you 
• Check your account – Review your figures regularly to ensure that they’re correct and conform to any tax obligations 
• Try to avoid mistakes – Naturally, human error occurs from time to time. However, avoiding inaccuracies is one thing to ensure less stress in the future 

By seeking advice early, our tax experts can help take this pressure off. 

Taking advantage of allowances  

Personal tax allowances could help you reduce the amount of Income Tax you pay.  

Some allowances can reduce the amount of income that you have to pay tax on whilst others provide an amount that you can set against your tax liability to reduce the amount of Income Tax you pay. 

The UK tax allowances that you might be eligible for include: 

• Personal allowance (main allowance) 
• Marriage allowance 
• Married couple’s allowance 
• Tax relief for maintenance payments 

These allowances are transferable, either completely or partially: 

• Marriage allowance 
• Blind person’s allowance  
• Married couple’s allowance 

To keep your finances in order as much as possible, it’s crucial to understand what allowances you’re eligible for.  

By taking small but important the steps, you will be able to move closer to a relaxed and stress-free tax year.  

If the pressure becomes too much, don’t panic!  

Our team are here to help, from advice on what tax allowances you are eligible for to support completing your tax returns. 

If you would like to maximise your allowances for the new tax year, contact our team today. 

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However, taxes, regulations, reliefs, and allowances are constantly changing so it’s important to consistently reconsider your current practices and strategies.

In recent months and years, the Government has made some significant amendments to the way businesses pay taxes.

Here are some of the things that we think you should now be aware of when it comes to business strategies and tax planning.

Your current tax obligations

We know that you already have a firm grasp of the relevant taxes, like Corporation Tax, Value Added Tax (VAT), Business Rates, and National Insurance Contributions.

However, each tax has its own set of rules and rates, which can impact different businesses in various ways – especially in light of more recent changes.

A qualified accountant can walk you through your various tax liabilities and explain each one in turn but here’s a quick rundown:

• Corporation Tax: A tax on the profits of limited companies. This is currently set at 25 per cent for businesses that make more than £250,000 in profit or 19 per cent for businesses that make £50,000 or less. The main rate (25%) also applies to single companies with profits between £50,000 and £250,000, but marginal relief will be given.
• Value Added Tax (VAT): A consumption tax levied on the value added to goods and services, applicable to most goods and services sold for domestic consumption. The VAT registration threshold is £85,000 (soon to be £90,000 as announced in the Spring Budget) of taxable turnover in a 12-month period. The standard rate of VAT is 20 per cent but there are some goods and services that are subject to a reduce rate of 5 per cent or 0 per cent and some are exempt.
• National Insurance Contributions: Payments made by employees and employers into the National Insurance scheme, which funds state benefits like the State Pension and the NHS.

Strategic use of reliefs and allowances

Utilising available tax reliefs and allowances can significantly reduce your tax bills and expenses.

Below are some detailed explanations of key reliefs and how they can benefit your business:

Full expensing

Full expensing enables companies only to deduct 100 per cent cost for expenditure on plant and machinery that would otherwise be included in the main rate pool.

Companies can also deduct 50 per cent for plant and machinery that would otherwise be included in the special rate pool.

The asset must be new and unused, and the expenditure must be incurred between 1 April 2023 and 31 March 2026.

Annual Investment Allowance (AIA)

The Annual Investment Allowance enables businesses to deduct the full cost of qualifying capital expenditure from their profits before tax.

The current limit stands at £1 million allowing significant investments in plant and machinery to be written off against taxable profits in the year of purchase. (There are restrictions on the £1 million limit and can be reduced depending on associated companies).

This form of relief applies to most plant and machinery investments, except for cars, items previously used for other purposes before being brought into the business, and items received as gifts​​​​.

It’s designed to encourage business investment in tangible assets by providing an immediate reduction in taxable income, effectively accelerating the tax relief that would otherwise be spread over several years.

Capital allowances

Capital allowances permit businesses to write off the cost of certain capital assets against taxable income, thereby reducing their tax bill.

This category includes enhanced capital allowances for investments in energy-efficient or environmentally beneficial equipment, providing 100 per cent relief in the first year.

Such allowances cover a wide range of assets, including machinery, equipment, and vehicles, encouraging businesses to invest in sustainable practices.

Research and Development (R&D) tax credits

R&D tax credits are designed to support companies that invest in innovation within qualifying projects.

Following recent reforms, the Government has merged the R&D Expenditure Credit (RDEC) and the R&D SME scheme into a single, streamlined approach.

This consolidation aims to simplify the claims process, though the specific benefits now vary depending on the company’s size and profitability, with relief rates adjusted to provide targeted support for innovative activities.

Rates vary from 18.6 per cent and 27 per cent.

Employment Allowance

The Employment Allowance allows eligible employers to reduce their annual National Insurance liability by up to £5,000.as long as the employers’ national insurance liabilities is less than £100,000 in the previous tax year.

This relief is applied each payroll run until the £5,000 limit is reached or the tax year concludes.

It’s specifically aimed at reducing the cost of Class 1 National Insurance contributions for employers, making it cheaper to hire and retain staff.

VAT reliefs

VAT reliefs, such as the Flat Rate Scheme, are designed to simplify VAT calculations for small businesses.

By applying a fixed rate of VAT to their turnover, companies can streamline their VAT payments, reducing administrative burdens.

Eligible businesses with a turnover of up to £150,000 can benefit from this scheme, keeping the difference between what they charge customers and what they pay to HMRC.

The flat rate percentage varies by industry sector, offering a tailored approach to VAT for small businesses.

Effective use of losses

Businesses should understand how to use their losses effectively, as well as their profits.

Many don’t realise that losses can often be carried back to previous years to reclaim tax paid or carried forward to offset future profits.

This can be a crucial cash flow management tool, especially for start-ups and businesses experiencing temporary downturns.

Utilising your losses can be complicated, however, and non-compliance is often looked upon unfavourably by HM Revenue & Customs (HMRC). As such, it is always best to speak to your accountant for tailored advice on leveraging losses.

For further information, or help to mitigate your tax liabilities, please don’t hesitate to contact us today.

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It does so by allowing a reduction in National Insurance Contributions (NICs), which helps to prevent cash flow challenges.  

Understanding Employment Allowance 

The Employment Allowance is a Government initiative designed to lower the annual employer NIC liability for eligible businesses. 

Currently, it allows a reduction in NICs of up to £5,000. Employers may claim this reduction in Class 1 NICs with each payroll cycle until they reach the full allowance or the tax year ends.  

Eligibility for Employment Allowance 

Eligibility for claiming the Employment Allowance is specific to certain businesses.  

Your business must incur some level of Class 1 National Insurance to qualify, excluding sole traders from eligibility.  

Eligible entities include businesses, charities, or community sports clubs that: 

• Employ staff and pay Class 1 NICs on their earnings 
• Have annual Class 1 NICs under £100,000 
• Belong to a group with combined Class 1 NICs below £100,000  

Notably, certain payments, such as those to contractors classified as ‘deemed payments’, do not contribute to the £100,000 threshold.  

Even if your total NIC bill falls below £5,000, you may still claim the allowance up to the total of your NIC bill.  

For businesses in Northern Ireland dealing in goods manufacturing or sales, it is important to ensure compliance with the ‘de minimis state aid’ allowance.  

How to claim Employment Allowance 

The process for claiming Employment Allowance depends on your payroll system.  

Users of the Basic PAYE Tools from HM Revenue & Customs (HMRC) can apply by selecting the ‘Employment Allowance indicator’ option when submitting their Employer Payment Summary (EPS).  

Those using alternative software should adhere to their provider’s prescribed process.  

Can I backdate Employment Allowance claims? 

Businesses have the opportunity to claim Employment Allowance for previous tax years up to a specified limit.  

Presently, claims can extend back to the four preceding tax years, starting from the 2018/19 tax year, with allowances applicable at the rates set for each respective year.  

The Employment Allowance was set at £3,000 annually for the period from 2016/17 to the 2019/20 financial years, before increasing to £4,000 for the 2020/21 and 2021/22 financial years.  

For the 2018/19 and 2019/2020 tax years, businesses are permitted to claim Employment Allowance regardless of the total amount of their Class 1 NICs or the level of de minimis state aid received.  

What are the benefits of claiming Employment Allowance? 

Claiming Employment Allowance aligns with HMRC’s objectives to bolster SME growth, offering: 

• Tax savings that can ease budget constraints and safeguard against unforeseen expenses 
• Improved cash flow, facilitating investment in business development or expansion 
• Encouragement for employment, supporting both business growth and workforce development  

We can help you claim Employment Allowance  

While claiming Employment Allowance is relatively straightforward, our team is ready to assist you in navigating the complexities of payroll management and enhancing your business’s tax efficiency.  

We offer support in determining your eligibility for Employment allowance and incorporating these savings into your broader financial strategy.  

Get in touch with our team today for expert advice.  

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Gone are the days when AI was merely a concept in science fiction. Today, it’s a reality that’s transforming how accountants work, bringing both opportunities and challenges.

It has quickly integrated into almost every industry’s working model and seems to be here to stay.

So, what are some of the changes that we’ve seen in the accounting profession?

Automation of routine tasks

One of the most significant impacts of AI in accounting is the automation of routine tasks like data entry, basic number crunching, and even some aspects of financial reporting.

This automation has quickly enhanced efficiency and accuracy while removing some of the need for human input, allowing accounting employees to focus on other tasks.

For instance, AI-powered Optical Character Recognition (OCR) technology can scan and process invoices much faster and with fewer errors than manual methods.

Enhanced analytical insights

AI’s capability to handle large volumes of data is enabling accountants to gain deeper insights into financial information.

Advanced AI algorithms can analyse patterns in financial data, offering predictive insights on cash flow trends, budget variances, and potential financial risks.

This level of analysis was once beyond the reach of traditional accounting practices but smaller practices now have access to extremely high levels of insight.

Changing skill sets

The rise of AI is transforming the skill set required for accountants.

While the fundamental understanding of financial principles remains vital, there’s an increasing need for proficiency in IT and data analytics.

Accountants are now expected to interpret the output of AI systems and provide strategic advice based on this data.

This shift marks a move from number crunching to more consultative roles.

There’s a common concern that AI may lead to job losses in the accounting sector. However, this fear is often overstated.

While AI is automating certain tasks, it’s also creating new roles and opportunities.

The need for data analysts, IT specialists, and strategic advisors is growing.

AI is not so much eliminating jobs as it is evolving them and providing more opportunities for a generation that is already digitally native.

Enhanced audit quality

AI’s impact on audit quality is particularly noteworthy.

AI enables auditors to analyse entire datasets rather than just samples.

This comprehensive approach improves the accuracy of audits and provides a more robust overview of a company’s financial health.

AI tools can identify anomalies and patterns that might indicate errors or fraud, enhancing the overall integrity of financial reporting.

Challenges and opportunities for small practices

The integration of AI in accounting is not just a concern for large firms – small practices also need to adapt to this technological shift.

Those who embrace AI can leverage its benefits to compete effectively, offering high-quality, efficient services while those who fail (or refuse) will quickly fall behind as this technology becomes increasingly integral to the accounting profession.

The future of accounting and AI

As we look to the future, the relationship between AI and accounting is poised to grow even stronger – just as it is in almost every other sector.

AI’s ability to process and analyse vast amounts of data will continue to transform how financial information is interpreted and used.

The role of the accountant is evolving from one focused on compliance and record-keeping to a more dynamic role centred around business strategy and advisory.

As such, AI is not a threat to the accounting profession but more of an evolution in what the profession entails.

It offers accountants the opportunity to move away from mundane tasks and focus on providing more value-added services.

The future accountant will be a blend of a financial expert, a data analyst, and a strategic advisor, all rolled into one.

In conclusion, AI is not just changing the accounting profession – it’s redefining it.

By embracing AI, accountants can unlock new levels of efficiency, accuracy, and strategic insight.

The key to success in this new era will be adaptability and a willingness to evolve alongside emerging technologies.

If you are interested to hear how we are integrating technology in our practices, please ask one of our team.

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However, it remains a puzzling concept for many.  

To understand how your business is valued you must understand goodwill and its various nuances.  

This blog aims to shed light on what goodwill is, how it’s calculated, why it matters and how your business can enhance its goodwill. 

What is goodwill? 

In accounting and business parlance, goodwill is an intangible asset.  

In other words, unlike physical assets like buildings or equipment, you can’t touch or see goodwill, but it holds significant value.  

It encompasses various non-physical attributes that contribute to a business’s reputation and earning power.  

These could include brand recognition, customer loyalty, and even the skills and experience of a talented workforce. 

How is goodwill calculated? 

Goodwill usually comes into the picture during mergers and acquisitions or when valuing your company for other reasons – like investment.  

If you’re buying a business, you’re likely not just paying for its tangible assets (like property and inventory) but also its potential for future earnings, reputation, and other intangibles.  

In accounting terms, goodwill is calculated using the following formula: 

Goodwill = Purchase Price − (Fair Market Value of Identifiable Assets − Fair Market Value of Liabilities) 

Why does goodwill matter? 

• Business valuation: Goodwill indicates that a business has value above and beyond its tangible assets and liabilities. When selling a business, this extra value can command a higher sale price, reflecting the business’s potential for future earnings or its strong reputation in the market. 
• Strategic planning: Understanding the components that contribute to goodwill can help in focusing on strengths and identifying areas for improvement. For instance, a high value of goodwill might be attributed to strong customer relationships, pointing towards the importance of customer service for sustained growth. 
• Financial reporting: From an accounting perspective, goodwill needs to be reviewed regularly for impairment. If the market conditions change or if the acquired business doesn’t perform as expected, the value of goodwill can decline. An impairment of goodwill would require an adjustment in the financial statements, impacting the company’s overall valuation. 

How to enhance your goodwill 

There are numerous ways in which a business owner can improve the goodwill of their company.  

• Customer relationship management: A satisfied customer is a loyal customer, and loyalty can significantly contribute to your goodwill.  
• Branding and marketing: A strong brand image can be a substantial part of your company’s goodwill. Investing in professional branding, having a robust social media presence, and engaging in community events can elevate your reputation.  
• Quality products or services: Never underestimate the goodwill generated by providing a superior product or service, consistent quality draws in repeat business.  
• Employee relations: Your employees are your company’s ambassadors. Keeping your staff satisfied, motivated, and well-compensated can have a rippling effect on goodwill.  

• Corporate social responsibility: Companies that engage in socially responsible activities, like sustainability practices, often generate additional goodwill.  
• Financial transparency: Being transparent about your business’s financial status and future projections can also build goodwill with stakeholders and lenders. 
• Legal compliance and ethical conduct: Legal troubles and repercussions can lead to a rapid depreciation of this intangible asset. 

As you can see, goodwill is more than just an accounting formality – it’s a measure of a business’s intangible value, representing aspects like reputation, brand strength, and future earning potential.  

Understanding how it is calculated and what it signifies can provide invaluable insights into a business’s true worth, helping you to make informed decisions whether you’re buying, selling, or operating a business. 

To learn how an accounting professional could elevate your goodwill valuation, get in touch.  

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However, the idea of registering for VAT often elicits groans and sighs from business owners, given the additional administrative tasks involved.

While it may seem burdensome, there are, in fact, various advantages to registering for VAT that can significantly benefit your business.

Enhanced business credibility

Registering for VAT provides an image of establishment and credibility.

A VAT registration number indicates that your business is earning above the threshold or is expecting to in the future, a signal that can attract more significant clients or customers who prefer to do business with VAT-registered companies.

Businesses must register for VAT if their VAT taxable turnover is more than £85,000.

Reclaim VAT on purchases

Once you are VAT-registered, you can reclaim the VAT paid on goods and services purchased for business use.

This can include VAT paid on raw materials, business equipment and other business-related expenses, effectively reducing your overall costs.

Open doors to business-to-business transactions

Many businesses, particularly larger ones, prefer or even require dealing with VAT-registered suppliers.

Being VAT-registered opens up a broader market for your products or services. This can be particularly crucial if you are looking to expand into sectors where VAT registration is standard.

Voluntary registration

If your turnover is below the VAT threshold (£85,000 as of 2023), you can voluntarily register for VAT.

This option could be beneficial if you are planning for future growth or if you wish to reclaim VAT on start-up costs.

Simplified accounting with VAT

The UK offers various VAT schemes designed to simplify accounting procedures for small businesses.

The Flat Rate Scheme, for example, allows you to pay a fixed rate of VAT to HMRC and keep the difference between what you charge your clients and what you pay to HMRC.

Such schemes can simplify bookkeeping and financial planning.

It is advisable to talk to an accountant if you want advice on what VAT scheme is right for your business.

Easier international business

Being VAT-registered can simplify trading internationally.

For European Union (EU) transactions, it is often easier to handle VAT obligations if your business is already VAT-registered in the UK.

In addition, some countries outside the EU have reciprocal agreements with the UK, making international trade more straightforward.

While the administrative aspect of VAT registration can initially seem daunting, the benefits often outweigh the drawbacks.

Whether it is reclaiming VAT on business expenses or enhancing your business’s credibility, the advantages of VAT registration can significantly contribute to your business growth in the long run.

If you would like additional VAT advice for your business, please get in touch today.

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If you are submitting a paper return the deadline is 31 October 2023.  

As we get closer to the date, you must have a firm grasp of the ITSA process to guarantee your business is not affected by setbacks or fines.  

Below is a guide to help you ensure a smooth and hassle-free tax return experience this tax season. 

Understanding your tax obligations 

As a sole trader, you are personally responsible for reporting your business income and expenses to HM Revenue & Customs (HMRC) through a Self-Assessment tax return. This involves: 

• Individual responsibility: Sole traders report their business income and expenses on their individual tax returns. 
• Simplicity: Generally, the process is more straightforward compared to the reporting requirements for other business structures. 
• National Insurance Contributions (NICs): Sole traders are required to pay Class 2 and Class 4 NICs based on their profits. 

• Payment on account: Sole traders may be required to make payments on account, which are advance payments towards your tax bill. 

Getting to grips with ITSA 

The Self-Assessment process involves providing HMRC with a detailed report of your earnings and expenses over the tax year.  

This is a meticulous process, and it is advisable to maintain a well-organised record of all your financial transactions to facilitate a smooth self-assessment. 

One of the perks of being a sole trader is the ability to deduct allowable expenses from your income, reducing your tax bill.  

Allowable expenses can include costs such as office rent, utility bills, and travel costs incurred exclusively for business purposes.  

It is wise to consult with a professional tax adviser to ensure you are maximising your allowable deductions whilst remaining compliant with the law. 

Making Tax Digital for Income Tax (MTD for ITSA) 

The UK Government has introduced the Making Tax Digital for Income Tax initiative to streamline the tax reporting process, making it easier and more efficient for sole traders to declare their incomes. 

Starting from April 2026, sole traders with a business income above £10,000 per annum will be required to report their income and expenses digitally every quarter.  

This initiative aims to provide a more real-time approach to tax management, helping you to keep on top of your tax affairs.  

It is advisable to familiarise yourself with digital record-keeping systems and software that are compatible with MTD for ITSA or discuss this development with your accountant to ensure a seamless transition. 

Submission deadlines  

We recommend starting the Self-Assessment process early to avoid a last-minute rush and potential penalties for late submission. 

• Paper Self-Assessment tax returns: 31 October 2023 

• Online Self-Assessment tax returns: 31 January 2024 
• Deadline for paying tax owed: 31 January 2024 

There are several rare exceptions to these deadlines, and you should always consult your accountant if you think they might apply to your business.  

Other types of small businesses 

While this blog focuses on sole traders, it is worth noting that there are other forms of small businesses, such as partnerships and limited companies, each with its own set of tax obligations and allowances.  

We will be posting several blogs in the coming weeks outlining the different responsibilities that each business structure is obligated to fulfil in its Self-Assessment.  

Seek expert advice 

Navigating the ITSA process can be a formidable task, especially for sole traders who are new to the process.  

However, understanding and efficiently managing your Self-Assessment tax return r can pave the way for a successful and compliant business journey.  

Remember, the key to a stress-free tax season is preparation and seeking the right advice.  

Our team of experts is here to assist you, offering tailored advice to help you navigate the tax landscape with confidence. 

To find out how our experts could streamline your Self-Assessment this tax season, get in touch.  

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Below are some of the lesser known, yet vital, accounting services that can steer your small business towards sustained growth.

Company secretarial services

Often overshadowed by bookkeeping and payroll, company secretarial services are the unsung heroes of the accountancy profession.

A company secretarial team ensures the seamless function of your business, handling statutory compliance, maintaining company registers, and orchestrating the timely filing of your annual returns.

Your accountant can assist in crafting a well-oiled administrative machine that allows you to focus on strategic growth without being bogged down by routine administrative tasks.

Corporate governance

Corporate governance services offered by accountancy firms play a crucial role in fostering business integrity and transparency, helping to build a trustworthy reputation while ensuring compliance with regulatory and ethical standards.

A professional accountant can nurture your business through its corporate governance services, paving the way for a reputation built on trust and reliability.

Business advisory

Nowadays accountancy firms fulfil many roles, one of which is that of a strategic advisor.

This role involves providing deep insights into your business to improve growth and promote a successful business strategy.

In this situation, an accountant can be a trusted partner who understands the pulse of your business, guiding you through strategic planning and performance analysis to foster sustainable growth.

Forensic accounting

In the intricate world of finance, the services of forensic accounting safeguard businesses against financial discrepancies and fraud.

This service goes beyond mere number analysis, offering a detailed investigation into financial irregularities and providing a clear pathway in the event of legal proceedings.

Engaging the services of an accountant goes a long way to empowering businesses with knowledge and insights as well as effective bookkeeping.

Each of the services mentioned above have the possibility of being game changing elements in the success of your business.

To find out how our accountants could assist you in more than just your bookkeeping, get in touch.

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However, many businesses struggle to manage their financial records efficiently, often leading to errors, compliance issues, and wasted time.

In recent years, outsourcing accounting has emerged as a game-changer for businesses across various sectors.

Cost-effective solution

Maintaining an in-house accounting department can be a costly affair.

It involves expenses such as salaries, benefits, office space, software, training, and more.

By outsourcing your accounting needs, you can eliminate these fixed costs and instead pay for the services you require on an as-needed basis.

Outsourcing allows you to access professional expertise without the burden of maintaining a full-time accounting team, resulting in significant cost savings for your business.

Access to expertise

Accounting regulations and tax laws can be complex and ever-changing.

Staying up to date with these regulations can be a daunting task for businesses, especially smaller ones without dedicated accounting resources.

Outsourcing your accounting enables you to tap into the expertise of experienced professionals.

These experts possess the knowledge and skills necessary to ensure accurate financial reporting, compliance with tax laws, and optimised financial management for your business.

Enhanced focus on core competencies

Outsourcing your accounting functions allows you and your team to focus on core competencies that drive your business forward.

By entrusting your financial processes to experts, you can shift your attention to strategic planning, business development, and delivering exceptional products or services to your customers.

This increased focus on your core competencies can lead to improved productivity, innovation, and overall business growth.

Scalability and flexibility

As your business expands or experiences seasonal fluctuations, the workload on your accounting department can vary significantly.

Outsourcing provides the flexibility to scale your accounting services up or down based on your business needs.

Whether it’s managing payroll, bookkeeping, tax preparation, or financial analysis, outsourcing allows you to access a broad range of services tailored to your requirements.

This scalability ensures that your accounting needs are met efficiently, without the need for additional recruitment or training.

Reduced risk and compliance

Compliance with accounting standards and tax regulations is of paramount importance for businesses.

Errors or non-compliance can result in penalties, audits, and damage to your company’s reputation.

By outsourcing your accounting to professionals well-versed in accounting regulations, you mitigate the risk of errors and ensure compliance with the law.

These experts stay abreast of regulatory changes, adapt quickly, and provide accurate and timely financial reporting, reducing the risk of legal and financial consequences for your business.

For more information and to begin the process of outsourcing your finances, get in touch with our expert team.

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This upcoming change reflects the new system for reporting and recording VAT, introduced under Making Tax Digital (MTD).

This requires all VAT-registered firms to record and report their VAT information digitally, using compliant software, every quarter.

How will you be affected?

VAT-registered businesses submitting VAT information to HM Revenue & Customs (HMRC) on or after 1 January 2023 will be subject to a new points-based system.

Late submission penalty points will also apply to any nil or repayment VAT returns that are submitted and received late.

For each VAT report that is submitted late, you will be given one penalty point. Once you have accrued a certain number of points and reach your threshold you will face a fine.

The penalty threshold will depend on your submission frequency but once you meet your specific threshold you will be given a £200 penalty to pay and for each subsequent late submission following, another £200 penalty will be added.

For annual submissions, the penalty point threshold is two points, for quarterly submissions, it is four points and for monthly submissions, it is five points.

To avoid consistent penalty fees, you can reset your points to zero by ensuring HMRC has received all your outstanding returns for the last 24 months and submitting your VAT returns and reports before the due date for your period of compliance, which is dependent on your submission frequency.

Late payment penalties

Penalties for late payments will depend on how late the payment is:

Up to 15 days late

You won’t pay a penalty if you pay your VAT payment or decide on a payment plan within 15 days of the due date.

16 to 30 days late

If you pay within 16 to 30 days, your first penalty will be calculated from two per cent of the VAT you owe on day 15.

31 days and longer

The previous penalty will apply as well as another two per cent from day 30 added on.

A daily rate of four per cent each year for however long you owe VAT will apply as a second penalty.

As these are significant changes, HMRC will not charge the first late penalty for the year between 1 January 2023 and 31 December 2023 if you pay the full charges within 30 days of your original due date.

Starting 1 January 2023, late payment interest will be charged every day beginning the first day your payment is overdue till the day you pay in full.

You also need to ensure you are complying with the Making Tax Digital software as from 1 November 2022, your online VAT account cannot be used to make monthly or quarterly payments.

Instead, you need to be signed up for MTD and use the compatible software to file your returns.

For more advice on this, contact us today.

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