Monthly Archives: February 2019

HMRC move the goal post with partner expenses

HMRC have made a significant change to their guidance manuals recently regarding partner and members of LLPs expenses.

It had been a long standing principle, with HMRC approval, that business expenses incurred by partners (separate from the partnership itself) are tax deductible in arriving at the partners taxable profit share. For example,  partners incurring home office expenses; this would typically not be borne by the partnership but the partner incurring the cost would be capable of claiming a tax deduction. The deduction was claimed via the partnership tax return, it did not matter that the expense had not gone through the partnership accounts.

This meant that as long as the expense was “wholly and exclusively”  incurred for the purposes of the partnership business, a tax deduction was available regardless of whether it was the partner or the partnership that had incurred the expense. This was a practical way of dealing with partner expenses.

The Office of Tax Simplification, in the past, had suggested to improve the ability for partners to claim business expenses which they had incurred personally, that they should be able to make the claim on their own personal tax  return and not the partnership return. This would have been a welcome change for partners but has not been introduced.

HMRC have now updated their guidance note at  BIM82080  and have made the job of claiming partner expenses more difficult. The new guidance states   “To be allowable as a deduction for tax purposes, the expense has to be an expense incurred (typically, paid) by the partnership. If the partnership does not bring the expense into the accounts, then it is not an allowable deduction.”

If this new guidance goes unchallenged, it will require partnerships and LLPs to bring into account partner expenses into their accounts. This will require deducting the partners expenses in the partnership accounts and making an equal and opposite adjustment to the partner’s profit share to achieve the same net tax position as in previous years. Whilst the main impact of these changes is administrative, this will  clearly have a time and  cost impact for businesses. For example, a change in profit share to accommodate the tax relief for partner expenses, could require an update to the partnership agreement!

If you are likely to be impacted by these changes, please contact Jonathan Cunningham (Jonathan.cunningham@pmm.co.uk) or Helen Clayton (Helen.Clayton@pmm.co.uk).

Jill Morris, director of PM+M’s Run My Business division, cuts through the confusion of Making Tax Digital for VAT.

What is Making Tax Digital?

Making Tax Digital (‘MTD’) is an attempt to do exactly what its name suggests. Businesses will have to keep electronic records of their accounts (using HMRC MTD approved software) and file their tax information digitally.HMRC claims it wants to make tax administration more effective, more efficient and simpler.  In practice, it means that business and taxpayers will need to start using accounting software to digitally submit the returns instead of completing their VAT returns by typing numbers into the existing online HMRC portal.

When does MTD for VAT come into force?

Officially on 1st April. There is a stagger depending on the business quarter end date. This is when affected businesses will no longer be able to keep manual records. After that date, digital records must be maintained in software or spreadsheets which can connect to HMRC via an Application Programming Interface (API).

Who will be affected?

All VAT-registered businesses and organisations with a taxable turnover above the VAT threshold of £85,000 per annum.

Are there any exemptions?

In the main, no. HMRC’s online VAT return will remain available only to businesses and organisations that are not within the scope of MTD for VAT. So, just those which complete a VAT return but have taxable turnover below £85,000.00 per year. However, the only exception to this is a small minority of VAT-registered businesses and organisations with more complex requirements. These include trusts, ‘not for profit’ organisations that are not set up as a company, VAT groups, VAT divisions, traders who are based overseas, annual accounting scheme users and any organisation that makes payments on account. Those which fall into any of these categories have a six month deferral until October 2019.

What do businesses need to do to be ready for MTD for VAT?

Firstly, take time to understand the facts and what MTD actually means for you. It’s a huge change and one that can’t be avoided. On a more practical level, speak to your accountant or carefully research the types of compatible software products that use HMRC’s API platform. There are a lot on the market – some better than others.  It will also take time to learn how to use so don’t leave it until the last minute.

What are the implications of not being compliant?

If your business is affected by MTD for VAT and you don’t use compatible software then you simply won’t be able to submit your returns and pay what is owed. If that happens, HMRC will consider your business to have defaulted on its VAT bill. When a   business fails to pay its VAT, it enters into a 12-month period called a ‘surcharge period’. During which time, it will be charged an additional fee on top of its VAT bill based on its annual turnover and past default history. If it still fails to pay VAT, its account will go into arrears and HMRC will take steps to recoup the monies – often through the courts.

PM+M can offer a wide range of services and support to help you become MTD compliant (including reviewing your current VAT procedures, guiding you towards a suitable solution, assisting with quarterly submissions to HMRC and even providing training for your team). Get in touch with our specialist MTD team to find out more by emailing MTD@pmm.co.uk or by calling 01254 679131.

RBS Business Banking Switch – are you affected?

If you are a Royal Bank of Scotland customer, and your business has an annual turnover of less than £25 million, then you may be eligible for incentives to switch your banking to another provider.

Overview

For many years the provision of business current accounts and credit for SMEs has been dominated in the UK by the incumbent ‘big four’ banks (HSBC, Lloyds, Barclays and RBS) who together hold around 85% market share.

As a condition of the government providing financial support to Royal Bank of Scotland (RBS) in 2008, the state-owned bank is now preparing to hand over £6 billion in customer deposits and £4.2 billion in loans to challenger banks, known as the ‘business banking switch scheme’.

The government hopes this will increase competition within the banking sector and provide customers with far greater choice.

However, many business owners are still in the dark about the scheme, here we explain what the new incentive means for SMEs.

What is the business banking switch?

This is an incentivised switching scheme for challenger banks to pick up some of the RBS customer base.

Originally known as the ‘incentivised switching scheme’, it is now better known as at the ‘business banking switch’. Banking Competition Remedies Ltd (BCR) is the organisation tasked with overseeing the implementation of the scheme, independent of RBS and the UK Government.

There is £225 million worth of funding available to challenger banks in the form of dowries to encourage the switch of eligible customers.

The dowries range in size from £750 – £50,000 depending on the customer’s business turnover. Challenger banks will determine how to apply the dowries for the benefit of the eligible RBS customers through preferential offers and incentives.

Eligibility

The scheme is open to eligible RBS SME banking customers. All eligible customers should have already been contacted by RBS. To participate, your turnover must be £25 million or less, and you may not be allowed to apply if your business is in financial difficulty. Those seeking to participate in the scheme will need to be registered on the RBS microsite and will be provided with a unique reference to confirm eligibility.

Who are the challenger banks?

Eleven banks have been approved to join the scheme, including:

  • Arbuthnot Latham
  • CYBG
  • Co-Operative Bank
  • Hampden & Co
  • Metro Bank
  • Monzo
  • Nationwide Building Society
  • Santander
  • Starling Bank
  • Handelsbanken
  • TSB

When is it happening?

BCR has confirmed that the business banking switch will launch via a dedicated switching website on 25 February 2019, but applicants can register their interest now via the RBS microsite.

Should you switch?

As with any big business decision, it’s always better to seek professional advice. Although some of the offers may seem too good to miss, it’s important to consider what your bank can offer you in the long-term.

If you are an eligible RBS customer and would like to talk about the business banking switch, please contact Tim Mills on 01254 679131, or via email at tim.mills@pmm.co.uk.