Jet Accountancy

The launch of HMRC’s Making Tax Digital for Business programme has been pushed back until 2020. HMRC had planned to mandate the use of digital tax records for businesses by April 2018, but concerns were raised that the deadline did not provide enough time for businesses to prepare. As part of the changes, only businesses with a turnover above the VAT threshold will “have to keep digital records, and only for VAT purposes” from 2019, and businesses will not be asked to keep digital records for other taxes until “at least 2020”. The government also said that for small businesses, digital tax returns will be voluntary.

The Government’s “Making Tax Digital” policy has been dropped from the Finance Bill after opposition from taxpayers, business groups and senior political figures across all parties. The initiative would have forced millions of businesses and self-employed people to file multiple tax returns each year. Anita Monteith, tax manager at ICAEW, said: “This is a sensible decision by government. Making Tax Digital plans remain controversial and need more scrutiny by those who will be affected, and most importantly proper parliamentary debate – a clear roadmap as to how MTD will work in practice is needed”. The system was due to be rolled out next April and pilot schemes were already under way. Mike Cherry of the FSB said the next government will be asked to rethink the plans carefully following the election while Chas Roy-Chowdhury, head of tax at the ACCA, said the delay would provide space for a proper debate. A spokesman for Phillip Hammond would not confirm that the plans would be reintroduced once the election was over. A tax on dividend incomes and new rules for non-doms were also removed from the Bill, leading to accusations that the Conservatives were breaking their promise to crack down on tax avoidance.

Here are the key points at a glance:

• Personal tax-free allowance to rise as planned to £11,500 this year and to £12,500 by 2020.

• Tax-Free Childcare will soon be available to working parents.  It will provide up to £2,000 a year in childcare support for each child under 12.  Parents will be able to receive up to £4,000 for disabled children up to the age of 17.  Parents of younger children will be able to apply for the scheme first, with all eligible parents able to access the scheme by the end of the year.  Working parents in England will also be able to apply for an additional 15 hours of free childcare for three and four year olds, bringing the total to 30 hours a week.

• The Lifetime ISA will be available from 6 April this year.  The Lifetime ISA will allow younger adults to save up to £4,000 each year and receive a bonus of up to £1,000 a year on these contributions. Funds can be withdrawn tax-free to put towards a first home or saved until a person turns 60.

• Small Businesses and landlords under the VAT threshold will have an extra year to prepare for Making Tax Digital (MTD).  Unincorporated businesses (businesses owned privately by one or more people) that have an annual turnover below the VAT registration threshold will have until April 2019 to prepare before MTD becomes mandatory.  Under MTD, businesses will use digital software to keep tax records and update HMRC quarterly.

• The main rate of National Insurance Contributions (NICs) for the self-employed will increase.  Currently, the self-employed may have to pay both Class 4 and Class 2 NICs:  Class 4 NICs at 9% are paid on profits between £8,060 and £43,000.  Class 2 NICs are paid on profits of £5,965 or more.  From 2018, Class 2 NICs will be abolished. Class 4 NICs will rise to 10% in April 2018 and to 11% in April 2019.  Taken together, only a self-employed person with profits over £16,250 will have to pay more as a result of these changes.  This change reflects the fact that the differences in contributory benefit entitlement between the self-employed and employees are now small, following the introduction of the new State Pension in April 2016.  In the summer, the government will also consider whether there is a case for greater consistency in parental benefits between the employed and self-employed.

• Tax-free dividend allowance will be reduced from £5,000 to £2,000 from April 2018.  This will reduce the tax difference between the self-employed and those working through a company. Typically, general investors will need over £50,000 worth of stocks and shares outside an ISA to be affected.