DMS Posts – Debonair Management Services Limited

From 1 January 2023, you’ll get penalty points if you submit a VAT Return late (including nil payment returns). Find out how points work and how to avoid a £200 penalty.

For VAT accounting periods starting on or after 1 January 2023, late submission penalties apply if you submit your VAT Return late.

The VAT default surcharge is being replaced by new penalties for returns that are submitted late and VAT which is paid late. The way interest is charged is also changing.

These changes affect everyone who submits VAT Returns, including a nil or repayment return.

How late submission penalties work

You must send a VAT Return by the deadline for your accounting period. Your accounting period is when you need to send a return to HMRC, for example, quarterly.

Late submission penalties work on a points-based system.

For each return you submit late you will receive a penalty point.

Once you’ve reached a penalty point threshold, you’ll receive a £200 penalty and a further £200 penalty for each subsequent late submission while you’re at the threshold.

The penalty point threshold for your accounting period

The penalty point threshold is set by your accounting period. The threshold is the maximum points you can receive.

Accounting period	Penalty points threshold
Annually	2
Quarterly	4
Monthly	5

Penalty example for a business making quarterly returns

A company submits their VAT Return quarterly. This means their penalty point threshold is 4.

They already have 3 penalty points because they submitted 3 previous returns late.

They submit their next return late and get a fourth penalty point. Because they’ve reached the penalty point threshold, they receive a £200 penalty.

The company submits their next return on time. They stay at threshold of 4 penalty points but do not get a £200 penalty.

The company submits their next return late. As they’re still at the penalty point threshold of 4 points, they receive another £200 penalty.

If you use a non-standard accounting period

If you have agreement from HMRC to use non-standard accounting periods, different rules apply.

Accounting period	Penalty points threshold	Rules that apply
Over 20 weeks	2	Annual
Over 8 weeks and no more than 20 weeks	4	Quarterly
8 weeks or less	5	Monthly

How changes to your business affect penalty points

Changing your accounting period

If you’ve agreed with HMRC to change how often you submit returns, we will adjust your threshold and penalty points.

This is how we will adjust your penalty points threshold:

Previous accounting period	Previous penalty point threshold	New accounting period	New penalty point threshold
Annual	2	Quarterly	4
Annual	2	Monthly	5
Quarterly	4	Annual	2
Quarterly	4	Monthly	5
Monthly	5	Annual	2
Monthly	5	Quarterly	4

If you have existing penalty points, this is how we will adjust your penalty points:

Previous accounting period	New accounting period	Penalty points adjustment
Annual	Quarterly	+ 2 points
Annual	Monthly	+ 3 points
Quarterly	Annual	– 2 points
Quarterly	Monthly	+ 1 point
Monthly	Annual	– 3 points
Monthly	Quarterly	-1 point

When you change your accounting period:

we’ll set your penalty points to zero if the adjustment gives you a minus figure
we will not make an adjustment if you have zero points

You cannot appeal adjustments to your penalty points.

When you change from a non-standard accounting period to the equivalent standard period, your points will not change.

Non-standard accounting period	Equivalent standard accounting period
Over 20 weeks	Annual
Over 8 weeks and no more than 20 weeks	Quarterly
8 weeks or less	Monthly

Taking over a business

If you take over a VAT-registered business as a ‘going concern’ any penalty points built-up by the business will not be transferred to your VAT registration number. This will be the case even if the VAT registration number is transferred from the previous owner to yourself.

Find out more about what ‘going concern’ for VAT means in paragraphs 1.3 and 1.4 of VAT Notice 700/9.

VAT groups and penalty points

If the representative member of a VAT group changes, any penalty points they’ve built-up are transferred to the new representative member.

The VAT groups’ penalty points total does not change if a person:

joins the group, even if the joining member had penalty points
leaves the group (the leaving member does not take points with them)

VAT Returns not affected

The late submission penalty rules do not apply to your:

first VAT return if you’re newly VAT registered
final VAT return after you cancel your VAT registration
one-off returns that cover a period other than a month, quarter or year

For example, you might make a one-off return covering a four-month period because you changed from submitting quarterly to annually.

DMS Posts, Other

Changes at Companies House: corporate transparency and companies register reform

March 29, 2022 Debonair Management Services Limted

The Government is planning the most significant changes to the role and powers of Companies House since the register was first created in 1844.

The proposed changes are part of a package of reforms to increase corporate transparency, improve business transactions and tackle economic crime which the Government has been consulting on since 2019.

What’s been proposed?

Over the last couple of years, there have been several Government consultations (see Further information below) on the proposed changes. Key proposals include:

Identity verification: introducing compulsory identity verification for all directors, People with Significant Control and those filing information on behalf of a company. The Government has proposed that once identity verification has been introduced, all company directors will have to verify their identity with Companies House before they can incorporate and a director’s appointment will not have legal effect until their identity has been verified.
Reforms to Companies House powers: Companies House will have stronger powers to query, seek evidence for, amend or remove information and to share it with law enforcement partners when certain conditions are met. Currently, Companies House is required to accept documents which are filed in good faith and place them on the register. One of the most important changes is to give Companies House the power to query information being filed and ask for evidence to support this, where appropriate. The Government issued a further consultation about how this power would work in practice which closed in February.
Register of Directors: it is proposed to remove the requirement for companies to keep their own Register of Directors so that the register held by Companies House will become the single, verified source of information for this. The Government is also considering the position on some of the other registers, such as the Register of Secretaries and the Register of People with Significant Control (although it has said it is unlikely to remove the requirement to keep a Register of Members).
Protecting personal information: this includes improving the processes for removing personal information from the register, including people’s signatures, the day of date of birth and residential addresses.
Company accounts: the Government has consulted on how to improve the way financial information is filed with Companies House. This includes requiring accounts to be delivered digitally and to be fully tagged. It is also proposed that the timescales for filing accounts will be shortened.
Ban on corporate directors: the Government legislated in 2015 to ban the use of corporate directors but these provisions were never brought into force. The Government now proposes to implement the ban, but with a ‘principles’ based exemption. This would mean that a company will only be able to appoint a corporate director if all the corporate director’s directors are natural persons whose identities have been verified by Companies House.

Who will the proposals apply to?

It is intended that any entities that are subject to the transparency provisions of the Companies Act 2006 will be caught (including registered companies, LLPs and limited partnerships).

Next steps

As these proposals are so wide-ranging and many will require legislation to implement, the Government has said it intends to publish a comprehensive set of proposals and will proceed to legislate ‘when Parliamentary time allows’. Funding will be required, particularly to implement the major changes to Companies House. However, the Government has indicated that it is committed to reform and we are likely to see at least some of the changes in the next few years.

Further information

The Government’s response to the consultation on corporate transparency and register reform can be found here.

You can also see the links below for the relevant Government consultations (which are now closed):

Current Companies House filing deadlines

The automatic extensions granted by the Corporate Insolvency and Governance Act have now come to an end for filing deadlines that fall after 5 April 2021. The Government had previously extended some deadlines to relieve the burden on businesses during the coronavirus outbreak.

As a reminder, some of the key Companies House filing deadlines are below:

First Annual Accounts: 21 months after the date the company is registered with Companies House;
Annual Accounts: 9 months after the company’s financial year ends;
Confirmation Statement: dated a year after either the date the company was incorporated or the date you filed your last confirmation statement. You have 14 days from the date of the confirmation statement to file it with Companies House;
Charges: within 21 days from when the charge is created;
Resolutions: all special resolutions and certain ordinary resolutions must be filed at Companies House within 15 days of being passed;
Changes to directors and company secretaries, for example new appointments, resignations or changes to their personal details: within 14 days of the change;
Changes to the ‘people with significant control’ (PSC) register, or a PSC’s personal details like a new address: within 14 days of the change; and
Allotment of shares: within 30 days of issuance.

DMS Posts, PAYE, Tax

Sunak aligns NIC and income tax in Spring Statement

March 24, 2022 Debonair Management Services Limted

The Chancellor is

aligning the class 1 national insurance contributions primary threshold with the personal allowance of £12,570.

As I predicted it is impossible to implement this change in payrolls run for April 2022, as it takes time to rewrite payroll software, but it will come into force from 6 July 2022.

Note that the secondary class 1 NIC threshold, where employers start paying class 1 NIC, will not be raised to align with the primary threshold. Employers will pay class 1 NIC at 15.05% on most employees’ salaries above £9,100 from 6 April 2022. Different secondary class 1 NIC thresholds apply for apprentices and freelance employees.

Self-employed NICs

The Chancellor has gone further than I expected, with plans to align the thresholds where the self-employed start paying class 2 NIC and class 4 NIC, with the personal allowance, but not immediately.

The class 4 NIC lower profits limit will rise to £11,908 for 2022/23 and then be aligned with the personal allowance of £12,570 from 6 April 2023. This two-step increase is presumably implemented to shadow the delayed rise in class 1 NIC from 6 July 2022.

Class 2 NIC is currently payable once the individual’s profits for the year exceed the small profits threshold of £6,515. This relatively low payment threshold exists to allow self-employed individuals with small profits to build up a contribution record for the state pension and other benefits.

From 2022/23 the threshold for paying class 2 NIC will be aligned with that for paying Class 4 NIC: £11,908 for 2022/23, then £12,570 for 2023/24. However, this large step up could leave many low-profit traders with no national insurance contributions for many tax years.

To solve this problem from 6 April 2022 self-employed traders with profits below the lower profits limit will be treated as if they had paid class 2 NIC, but in fact they will make no actual NICs payment.

The Government has already published a draft National Insurance (Increase of Thresholds) Bill 2022, which will bring these changes into effect. This Bill will be fast-tracked through Parliament.

Employment allowance

In a sop to small businesses the employment allowance will rise from £4,000 to £5,000 from 6 April 2022. This allowance can only be claimed by employers that had a class 1 NIC liability of no more than £100,000 in the previous tax year. The increase will allow an eligible employer to pay one extra person on the national minimum wage without having to pay employer’s class 1 NIC.

The detail in the Spring Statement also confirmed that the employment allowance will cover the employers’ liability for the Health and Social Care levy.

Basic rate cut

The promised cut in the basic rate of income tax from 20% to 19%, is slated to apply from 6 April 2024, but that is a long way off. As the past month has shown, the world can change significantly in a few weeks, and I wouldn’t like to predict where we will be in the spring of 2024.

In his Mais lecture last month Chancellor Rishi Sunak set out the principles that underpin his tax policy. At the core is a desire to cut taxes, but only where those cuts can be funded, and he restated that belief in his Spring Statement.

To find out how much the tax cuts are all going to cost you need to dig into the Spring Statement 2022 policy costings document. For example, the increases in NIC thresholds to align with the personal allowance will cost £26.345bn over five years to 2026/27.

The costings document sets out three additional sources of income for the Treasury:

HMRC compliance (tax enquiries): £3.156bn
DWP compliance (benefit fraud and error): £2.24bn
Student loans (frozen thresholds increased interest): £35.215bn

The conclusion must be that the next generation will be funding today’s tax cuts by paying handsomely in increased student loan repayments.

Autumn plans

Perhaps further detail on how the tax and NIC cuts will be funded will be revealed in the Autumn Budget. In Sunak’s 12-page Tax Plan was a vague reference to reforming tax reliefs and allowances and an aspiration to make the tax system “simpler, fairer and more efficient”.

DMS Posts, Tax

Treasury to simplify Capital Gains Tax

December 16, 2021 Debonair Management Services Limted

Chancellor Rishi Sunak has confirmed that the government will implement some of the recommendations for simplifying Capital Gains Tax (CGT) put forward by the Office of Tax Simplification (OTS)

However, the OTS’ more radical proposals, such as aligning capital gains and income tax rates, will not be pursued.

As well as directing HMRC to improve its CGT guidance to taxpayers, the Chancellor has tasked HMRC with implementing reforms to:

Increase the filing deadline for the standalone CGT return on residential property gains from 30 days to 60 days (announced in the Autumn Budget 2021).
Extend the time window for no gain/no loss transfers of assets between separating/divorcing individuals by a year (there will be a consultation on this).
Expand CGT Rollover Relief to cover reinvestment in the form of enhancing land already owned (there will be a consultation on this).
Consider integrating the different ways of reporting and paying CGT into the ‘Single Customer Account’ that HMRC is developing.

In addition to accepting these recommendations from the OTS, HM Treasury is still considering:

The idea of a standalone CGT return system online (rather than the current combined income tax and CGT Self-Assessment return).
Treating individuals holding the same share or unit trust unit in more than one portfolio as holding them in separate share pools for CGT purposes (which would make calculations simpler and potentially facilitate automated online filing).
A review of the practical operation of Private Residence Relief nominations by taxpayers, and raising awareness of how the rules operate.
The way CGT exemptions for corporate bonds work.
The rules for Enterprise Investment Schemes to remove procedural or administrative issues that prevent their practical operation (the Treasury may carry out a much wider review of these reliefs).

However, there is to be no change to the CGT treatment of a disposal where proceeds are deferred, nor any change to the complex way that gains on foreign assets are calculated (converting values to sterling at each relevant date will continue).

The treatment of housing developments in a taxpayer’s garden will not change, nor will the treatment of a freeholder extending a lease.

DMS Posts

MTD ITSA delayed to 2024

September 30, 2021 Debonair Management Services Limted

by Rebecca Cave

The government has delayed the start of MTD ITSA to 6 April 2024, with MTD for general partnerships postponed to 2025. The change to the tax year basis has also been delayed until at least April 2024.

In a written statement to the House of Commons on 23 September 2021, it was announced that MTD for income tax self assessment (MTD ITSA) would be postponed yet again to April 2024.

“We recognise that, as we emerge from the pandemic, it’s critical that everyone has enough time to prepare for the change, which is why we’re giving people an extra year to do so. We remain firmly committed to Making Tax Digital and building a tax system fit for the 21st Century” announced the new financial secretary Lucy Frazer.

Long time coming

This is the latest in a series of delays and deferrals in the MTD programme, which was proposed by Chancellor George Osborne in late 2015. The MTD start date for small businesses was first planned to be in April 2018, then the focus switched to MTD for VAT. The MTD for income tax programme was to be delayed until lessons had been learnt from the VAT roll-out.

MTD for VAT commenced on time for most VAT registered businesses for VAT periods starting on and after 1 April 2019 but a number of “complex” entities had a deferred start date to 1 October 2019. A similar deferral is now in place for general partnerships (ie not LLPs, mixed or corporate partnerships), with those “ordinary partnerships” due to enter MTD ITSA from April 2025.

There is no indication of when other more complex partnerships will have to join MTD, and we don’t know if the MTD for corporation tax project will start as planned in 2026 or not.

What is the base year?

The turnover for mandation into the MTD ITSA regime remains at only £10,000 per year, much to disappointment of many who were lobbying for a much higher entry threshold.

As the turnover threshold must take into account the taxpayer’s income from all of their sole-trader businesses, plus their rental income, HMRC needs to pull together several figures from the taxpayer’s self assessment tax returns. Only when the tax return totals reach the £10,000 threshold will HMRC issue a notice to file under the MTD regulations.

If MTD ITSA was mandated from 6 April 2023, the turnover test would need to apply to the figures reported in the 2021/22 tax return, submitted by 31 January 2023, and possibly turnover reported in the 2021/22. Both of those years were affected by the pandemic which reduced turnover and rental income for many businesses and landlords.

Local authority grants for businesses liable for business rates would also increase business turnover for those periods. The SEISS grants should not have been included in business turnover, but some taxpayers have reported them as such, leading to HMRC having to make many corrections taxpayers’ self-assessments for 2020/21, and possibly also for 2021/22.

As MTD ITSA will now start in April 2024 the base year for testing the MTD turnover threshold will be the tax year 2022/23. The turnover figures for that year should not be distorted by Covid-related grants, and hopefully will reflect normal trading beyond the pandemic for most businesses.

Tax year basis

When the consultation on changing to the tax year basis of assessment was released in July 2021, doubts were raised on whether there was sufficient time to introduce such a fundamental change to tax law before the mandation of MTD ITSA.

It was apparent that HMRC wanted all unincorporated businesses to switch to the tax year basis before the introduction of MTD ITSA in 2023, but this would make 2022/23 the difficult transitional year.

For businesses with an accounting year end that doesn’t approximate to the tax year, more than 12 months of profits would be assessed in 2022/23. This would have a knock-on effect for a wide range of allowances and charges, including NIC, student loan repayments and capital allowances, to name a few. There was just not enough time to write amendments to regulations in all the areas affected before April 2022.

What’s more using the tax year basis would bring forward the start of MTD ITSA for businesses with a 31 March year end, from 1 April 2024 to 6 April 2023 – which came as a big shock for many accountants and businesses.

The written statement from the new financial secretary to the Treasury, confirmed the change to the tax year basis will not come into effect before April 2024, with a transition year no earlier than 2023. The government will respond to the consultation on reforming basis periods “in due course” but the wording of this statement makes the change to the tax year basis look uncertain.

Category: DMS Posts

Penalty points and penalties if you submit your VAT Return late