Quarterly reporting to the tax office is on its way, that is certain. This will apply to business as well as all individuals with secondary or non-PAYE income in excess of £10,000 in any tax year.
You may think that that does not apply to you but you may be in for a painful shock when penalties start arriving.
For instance, you may be a basic rate taxpayer with a couple of rental properties earning £650 per month each in rent, and paying agency fees and other expenses of 20% before paying interest of £300 per month on two buy-to-let mortgages. As this creates a net “profit” of £8,800 you may think that you will not need to consider quarterly accounting. Wrong! When asked the tax office confirmed that the £10,000 limit applies to “taxable income”. The new rules governing interest deductions being introduced shortly mean that taxable income is calculated before deducting interest, resulting in taxable income in the above example of £12,400.
You might be forgiven for thinking that the changes will be introduced for large corporations, such as Starbucks or Amazon, first. But again you would be wrong. Companies will not need to start submitting quarterly returns until their accounting period starting after 1st April 2020. VAT registered businesses, however, will be affected for tax years starting after 5th April 2019. Smaller businesses under the VAT registration threshold, and individuals with secondary income above £10,000, will need to submit quarterly returns for tax years starting after 5th April 2018, ie in just over 2 years.
So what will need reporting? In short, according to the tax office, no-one knows as no decision on the contents of the quarterly reports has been decided. Despite this indecision, the tax office is already somehow consulting with software suppliers on the provision of “free software for smaller businesses and those with less complex tax affairs”. Similarly, according to the tax office, no decision has been made on what penalties will be payable, how much they will be and for what will they be imposed. And finally, almost, no-one in government knows, or is admitting to know, whether quarterly accounting will require quarterly payments.
In summary, in 27 months’ time a large number of you will need to report something (but you don’t know what), somehow (but you don’t know how) to the tax office. At the same time you may or may not need to make a payment calculated by some method (but you don’t know which), or probably (or less probably not) face potential penalties of some size (but you don’t know how big)!
One thing is certain. If you don’t do “it”, whatever “it” is, then it won’t be their fault, but yours.
WatkinsonBlack are pleased to advise on these and other matters. They have considerable experience in all areas of taxation and business services, including providing a very cost-effective payroll bureau service. If you want to arrange a no-obligation initial meeting on any taxation or accounting matter then please contact us. Please note that these ideas are intended to inform rather than advise and you should always obtain professional advice before taking any action.
Published in Warrington Worldwide on 7th March 2015.