- only businesses with a turnover above the VAT threshold (currently £85,000) will have to keep digital records and only for VAT purposes;
- they will only need to do so from 2019; and
- businesses will not be asked to keep digital records, or to update HMRC quarterly, for other taxes until at least 2020.
If your business qualifies for the cash accounting scheme (CAS), it’s usually beneficial to use it. Its big advantage is that the trigger date for accounting for VAT on your sales, is when you get paid and not when you supply goods or services to your customers. So you’re not out of pocket (in terms of VAT) if a customer is a slow payer. Plus, you don’t have to deal with the tricky bad debt relief rules, which is all good news for your cash flow.
The drawback with the CAS is that you can’t reclaim VAT on purchases until you pay for them, rather than when you’re invoiced. This means the CAS isn’t for you if you usually reclaim VAT refunds on your returns. This can happen, for example, if you make a lot of zero-rated supplies.
If you expect that your turnover in the next twelve months won’t exceed £1,350,000, you can join the scheme.
You must leave the scheme if your sales in the previous twelve months exceeded £1,600,000. If there’s a one-off increase in turnover that pushes you over the limit, and you expect your turnover will return to below it for the next twelve months, HMRC may allow you to stay in the scheme.
If you have to leave the cash accounting scheme, you must usually account for VAT on all of your unpaid sales invoices. However, you can opt for a six-month extension if you meet HMRC’s conditions. Take special care to avoid the common mistake of double accounting for VAT.
There are strict rules that say when HMRC is entitled to start an investigation, or enquiry. It is allowed to make a relatively small number of random checks into self-assessment tax returns, otherwise HMRC must have a reason to start an enquiry.
Since 1 February 2018 UWOs can be used to allow government departments, including HMRC, to investigate an individual’s financial affairs if it appears their wealth isn’t backed up by sufficient income to justify it. However, UWOs will only be issued if:
- you own assets worth £50,000 or more; and
- HMRC, or other government departments, can prove there are “reasonable grounds” to suspect something is awry.
Only then will the High Court (Court of Sessions in Scotland) issue a UWO.
While most taxpayers will easily meet the £50,000 condition, the purpose of the new rule isn’t to catch everyone in the net. It’s to give HMRC a crack at very wealthy individuals who are able to hide most of their wealth but are unlikely to be able to manipulate it below £50,000. UWOs can be obtained to look into the financial affairs of individuals, or organisations that hold funds for individuals, like trusts.
Time will tell how HMRC will make use of UWOs, however, it seems unlikely that HMRC will be able to use the new “unexplained wealth orders” as a general means to start an enquiry. Primarily, this is because it must first obtain approval from the courts. If you find yourself at the wrong end of a UWO, it’s serious and you should take advice from an accountant and probably a lawyer too.
First letting - legal costs: The accepted view is that legal costs for drawing up a lease and other expenses, e.g. surveyor fees, associated with the first time you let a property count as capital expenditure and so are not tax deductible. This is because the lease only puts you in a position to start your rental business rather than run it. However, HMRC's view is that where the first let is for a period of no more than one year, the legal etc. expenses can be deducted for tax purposes from rental income. Even where the expenses aren't deductible for a first let because it's for longer than a year, they will be for the lease renewal if that's for less than 50 years and doesn't include a lump sum payment (usually referred to as a premium).
If you use your car you can claim either a proportion of your motor expenses or HMRCs' mileage allowance (the latter is simpler to work out and often more generous).
Capital allowances: Whilst you can't claim Capital Allowances for equipment for use in the property by tenants you can claim Capital Allowances for equipment you buy to run your rental business. For example, tools with an expected life of more than two years, which you use to maintain your let properties or a computer if that's what you use to administer and manage your rental business. However, you must limit your claim proportionately to account for any non-business use.
- starting a business;
- support for growing a business including taking on employees and expanding;
- buying and selling abroad;
- completing tax returns; and
- tax credits.
Linked to the forum, HMRC's dedicated webchat service offers direct support to businesses and the self-employed. A pilot was launched in March 2017, since when the forum has grown to have more than 1,000 registered users. It does not deal with questions about taxpayers individual circumstances and comments that include personal information will be deleted.