DMS Posts, Tax

MTD: Monthly reports may be needed

Four million taxpayers will need to submit quarterly plus end of period reports for each trade and property business, leading to multiple submissions for different periods under MTD for income tax.

MTD for income tax has now morphed into MTD for income tax self-assessment (ITSA), and HMRC are now referring to the regime as ‘MTD ITSA’.

HMRC estimates there are four million businesses that pay income tax, but who are not VAT registered, so they are not already keeping digital business records. All of these businesses need to enter the MTD ITSA regime from April 2023 (see start dates below).  

What reports are required?

For each trading or property business the taxpayer operates they will have to submit a quarterly report of income and expenses in defined categories. The taxpayer will also have to submit an end of period statement (EOPS) for each of those businesses (the fifth report).

The MTD ITSA regime will incorporate all of the reporting required on the current SA tax return into a ‘finalisation’ or ‘crystallisation’ statement. This statement will bring together all of the information included in the MTD reports, plus other taxable income (such as investment and employment) to calculate the tax liability for the tax year. 

The draft MTD ITSA regulations (see developer hub policy update) indicate that individual landlords must submit separate quarterly updates for each category of property business (eg long term letting, FHL, overseas lettings).

All property businesses must use the tax year as the accounting basis period, but trades can use any accounting period. The quarterly reports are due exactly one month from the end of each of the quarter, which contrasts with one month and seven days after the end of the quarter for VAT.

The EPOS and the finalisation statement are both due by 31 January after the tax year end.

Example 1

Shaun is a self-employed builder who makes up his accounts to 30 April, and his VAT returns are submitted for the quarters to the end of April, July, October and January. He also lets two residential properties, one as furnished holiday accommodation (FHL) and the other as a long term let.

Shaun’s pattern of MTD reporting will be:

MonthProperty businesses: 5 April yearVAT returns Building trade: 30 April year endEOPS and year end finalisation
January   31 Jan x 3 EPOS31 Jan: Finalisation
February5 Feb x 2 28 Feb 
March  7 March  
April    
May5 May x 2 31 May 
June 7 June  
July    
August5 August x 2 31 August 
September 7 Sept  
October    
November5 Nov x 2 30 Nov 
December 7 Dec  
Total reports8444

Shaun needs to submit a quarterly MTD report for each of his property businesses and his building trade, an EOPS for each of those businesses, four VAT returns and a finalisation statement – a total of 20 reports to HMRC for each tax year.

Start dates

The mandation dates for MTD ITSA were announced in July 2020 and will be follows:

  • Existing property income: 6 April 2023
  • Existing trading income: first accounting period starting on or after 6 April 2023
  • New property business: 6 April following the start date
  • New trade: start of accounting period in year three

Individuals who have a combined gross income from all trades and letting businesses in excess of £10,000 per year are within scope of MTD ITSA. These people may not be liable to pay any income tax as the entry test is based on gross income not net, and the personal allowance will cover small profits up to at least £12,570.

Example 2

Jade lets her first investment property from 1 June 2023, and also starts a new trade as a self-employed diving instructor from 1 May 2023, making up accounts to 30 April. She will have to come within the MTD ITSA regime from these dates:

  • Property business: from 6 April 2024
  • Self-employed trade: from 1 May 2025

Combinations and mismatches

If Shaun in Example 1 uses the same accounting/MTD-compatible software for all of his property businesses and his building trade, that smart software may combine some of his MTD reports into a single submission. For example, his quarterly reports for his property businesses may be submitted together and all three EOPS may be delivered in one action.

HMRC intends to give businesses some flexibility to align their quarterly reporting periods, but this point is still being debated between the professional bodies and HMRC. The quarterly periods must be matched to the accounting basis periods.

It is clear that some simplification of the tax rules for accounting basis periods is required to make the implementation of MTD run smoothly for small businesses and landlords. The ICAEW has called for this in its Budget representations.

Change the tax year

ICAEW has also asked that the tax year end be changed to align with the end of a calendar month. Moving the year end back from 5 April to 31 March would be easiest to achieve.

However, Anita Monteith has argued more boldly in the FT that the UK should follow the Irish example and change its tax year to the calendar year, to make it more competitive internationally. The Republic of Ireland changed to a 31 December tax year end in 2002 when it joined the Euro.

DMS Posts, Other, PAYE, Tax

Inside and outside IR35: What you need to know

With rules set to change in the private sector from 6 April 2021, it’s important to understand what implications this might have on your contracts and tax bills.

The responsibility for determining your status in the private sector will shift to your client, if they are eligible. If you believe you are outside IR35, you’ll need to ensure your freelance contract and working practices clearly demonstrate your relationship as a contractor.

What’s the difference between inside IR35 and outside IR35?

Your status impacts the employment taxes you will pay.


Inside IR35
  • You pay the same tax and National Insurance as you would if you were an employee. 
  • You are only an employee for tax purposes, you have no employment rights.
  • Your client will be required to pay the necessary tax and NIC, which includes Employers’ NIC and the apprenticeship Levy where applicable.
Outside IR35
  • Nothing changes. You are paid a flat fee as normal and are responsible for managing your own taxes.

How and who pays the appropriate taxes largely depends upon a number of key factors: control over how the work is done, whether your personal service is required and mutuality of obligation. However, how you are set up in business can also be an influencing factor.

Not sure whether your contract is inside or outside?

You can check your employment status for tax using this tool from HMRC

Having a tax specialist review your contract can give you peace of mind. FSB members have access to a contract review service, for an additional fixed fee.

My last contract was outside IR35, but this one is inside?

IR35 applies on a contract by contract basis, so your status may differ depending on the contract agreed.

To remain compliant, you’ll want to brush up on your understanding of the new rules in the private sector.

If you don’t agree with your client’s decision about your employment status the legislation gives you the right to submit a written challenge to the Status Determination Statement and requires the end client to respond within 45 days to further explain their reasoning.

DMS Posts, Tax

What support is available for businesses during the second lockdown?

With lockdown number two starting on Thursday 5 November, the government has announced new measures to help businesses keep going. The main announcement is the extension of the Job Retention Scheme, which is reverting back to the levels of support during August, offering businesses more generous financial help than they would have received under the postponed Job Support Scheme. 

Job Retention Scheme  

The Job Support Scheme has been postponed and the Job Retention Scheme has been extended until March 2021. 

Key points of the Job Retention Scheme: 

  • All employers are eligible for the extended Job Retention Scheme. 
  • As long as the employee was on the payroll at 23:59 on 30 October 2020, they can be furloughed.  
  • Employees do not have to have been previously furloughed to be eligible. 
  • Businesses will have the flexibility to bring furloughed employees back to work on a part-time basis or furlough them full-time. 
  • If employers fully furlough employees, the government will pay 80% of their current salary up to £2,500. 
  • If employers choose to flexibly furlough, the government will cover 80% of the hours not worked. 
  • Employers must pay all National Insurance and employer pension contributions.  
  • Employers will need to report and claim for a minimum period of 7 consecutive calendar days. 
  • Employers are still able to choose to top up employee wages above the scheme grant at their own expense if they wish. 
  • The level of support is expected to be reviewed in January 2021.

Increased support in November for the Self Employment Income Support Scheme 

In line with the increased support for employers, the third SEISS grant covering November, December and January will now be 80% of 3 months average monthly trading profits, paid out in a single instalment and capped at £7,500 in total. The grant will be available from 30 November 2020.

Extension to Government-Backed Loan Schemes 

There has been a further extension to the application deadlines for the CBILS and BBLS as well as the CLBILS and Future Fund, giving people more opportunities to access funding if they need it. These schemes will now be extended until the end of January 2021. 

The government has also announced existing Bounce Back loans can be topped up if businesses did not apply for their maximum in their application (to the maximum under the scheme rules) should they need additional finance. Details on how to top up loans have not been given at the moment but we will continue to update this page as further information is announced. 

Grants 

Businesses required to close in England due to local or national restrictions will be eligible for the following: 

  • For properties with a rateable value of £15k or under, grants to be £1,334 per month, or £667 per two weeks; 
  • For properties with a rateable value of between £15k-£51k grants to be £2,000 per month, or £1,000 per two weeks; 
  • For properties with a rateable value of £51k or over grants to be £3,000 per month, or £1,500 per two weeks. 

Mortgage Holidays 

Mortgage payment holidays were set to end on 30 October, however, this has also been extended. Borrowers who have not yet had a mortgage holiday will be entitled to a six month holiday, and those that have already started a mortgage payment holiday will be able to top up to six months without this being recorded on their credit file. 

DMS Posts, Tax

CJRS and SEISS: how to correct an over claimed grant

Unsurprisingly, HMRC has announced how they will be cracking down on fraudulent grant claims. Due to the speed and urgency that claims were made and issued, there are likely to be a number of innocently miscalculated grants and HMRC is requesting that businesses double-check their calculations and notify HMRC within 90 days of receiving any grants, however the penalties will largely be directed at those who deliberately did not comply with the criteria and knowingly submitted fraudulent claims.

HMRC services sign in

This applies to the Coronavirus Job Retention Scheme (CJRS) and the Self Employment Income Support Scheme (SEISS) as well as the Coronavirus Statutory Sick Pay Rebate Scheme and other coronavirus business support grants. In this blog, we have explained how to repay an over claimed CJRS or SEISS grant, when you need to do this and what penalties you may face if you do not comply.

Why would I need to repay part or all of a claim?

Under the CJRS, the main reasons that could trigger a partial or full repayment of a claim include:

  •  grants not used for the purposes for which they are intended;
  •  calculation errors
  •  employees working during periods that they are on furlough.

For those who claimed under the SEISS you will need to repay some or all of your grant if you:

  • received more than HMRC said you were entitled to
  • your business was not adversely affected
  • you did not trade in the tax year 2019 to 2020
  • you did not intend to continue to trade in the tax year 2020 to 2021
  • you have incorporated your business since 5 April 2019

When do I need to inform HMRC about an overpayment?

If you have claimed too much for a grant and have not repaid it, you must notify HMRC and repay the money by the 20 Oc‌to‌be‌r 2020 if you received money you’re not entitled to or if your circumstances changed on or before 22 J‌ul‌y or within 90 days if you received the money after 22 July.

How do I tell HMRC about an over claimed grant?

CJRS: If you are making another CJRS claim, you can report the overpayment as part of the claims process, and the new claim will be adjusted to count for the overpayment. If you are not making any further claims, you will need to contact HMRC who will then provide a reference number for you to make a repayment. Further guidance can be found here.

SEISS: To repay an over claimed SEISS grant you will need to log into your Government Gateway account and fill out the relevant form with your grant claim reference and Self Assessment Unique Taxpayer Reference (UTR) number. Once you have filled this form out, HMRC will give you the details of where to repay the funds.

What penalty could I face if I do not notify HMRC?

For an over claimed CJRS payment that is not paid back within the notification period, you may have to pay a penalty of up to 100% of the amount of the CJRS grant that you were not entitled to receive or keep. HMRC has been very clear that the onus is on the taxpayer to determine if they received an incorrect grant amount.

If you received an overpayment under the SEISS, the penalty will depend on whether you knowingly over claimed or not. If you knowingly applied and received a grant whilst being ineligible, the penalty will be based on the amount you were not entitled to receive along with other factors. If you honestly believed you were eligible, and you later realised this was not the case, HMRC will only penalise you if you have not repaid the grant by 31 January 2022.

DMS Posts, Tax

Self-Employment Income Support Scheme grant extension

The UK Government recognises the continued impact that coronavirus (COVID-19) has had on the self-employed and has taken action to provide support.

The Self-Employment Income Support Scheme grant extension provides critical support to the self-employed in the form of 2 further grants, each available for 3 month periods covering November 2020 to January 2021 and February 2021 to April 2021.

1. Who can claim

To be eligible for the grant extension self-employed individuals, including members of partnerships, must:

  • have been previously eligible for the Self-Employment Income Support Scheme first and second grant (although they do not have to have claimed the previous grants)
  • declare that they intend to continue to trade and either:
    • are currently actively trading but are impacted by reduced demand due to coronavirus
    • were previously trading but are temporarily unable to do so due to coronavirus

2. What the grant extension covers

The extension will last for 6 months, from November 2020 to April 2021. Grants will be paid in 2 lump sum instalments each covering a 3 month period.

The third grant will cover a 3 month period from 1 November 2020 until 31 January 2021. The Government will provide a taxable grant calculated at 80% of 3 months average monthly trading profits, paid out in a single instalment and capped at £7,500 in total. This is an increase from the previously announced amount of 55%.

The Government are providing the same level of support for the self-employed as is being provided for employees through the Coronavirus Job Retention Scheme which has also been extended until March 2021.

The Government has already announced that there will be a fourth grant covering February 2021 to April 2021. The Government will set out further details, including the level, of the fourth grant in due course.

The grants are taxable income and also subject to National Insurance contributions.

3. How to claim

The online service for the next grant will be available from 30 November 2020. HMRC will provide full details about claiming and applications in guidance on GOV.UK in due course.