Update on MTD, FRS and dividend taxation – Finance Bill 2017
The 2017 Finance Bill is due to be the last piece of legislation to pass through Parliament before it is dissolved before the General Election on 8th June.
Making Tax Digital (MTD)
MTD is a system whereby taxpayers were going to have to file quarterly updates of their income and expenses to HMRC using either accounting software or apps, HMRC was never going to provide its own software or portal to enable this data to be uploaded.
The original plan was to roll-out the MTD regime for self-employed with effect from April 2018 for all self-employed businesses (and from 2020 for limited companies) but in the Budget in March 2018, it was announced that self-employed traders with a turnover of less than £ 85,000 and some Landlords would not have to “join” the scheme until April 2019. Meanwhile that meant that businesses with a turnover in excess of £ 85,000 would have to join as from April 2018.
The good news is that this piece of legislation is being dropped from the Finance Bill and so, for the time being, MTD will not be rolled out in April 2018 or April 2019. It is quite possible, of course, that MTD will be back on the agenda in a future Finance Bill depending on future Government plans.
Flat Rate Scheme (FRS)
For those clients who use the Flat Rate Scheme, you may remember that in the Autumn Statement of 23 November 2016 a new rate of 16½% was announced for “Limited Cost Traders”. Details can be found in my blog post. This new rate came into force on 1 April 2017 and may affect you if you use the FRS and are a “limited cost trader”. The effect of a FRS rate of 16½% is that you will be paying over nearly all of the output VAT that you have invoiced without receiving any relief for any input tax suffered. For some clients this isn’t really a problem as they have very little input tax to recover. For those who will need to use the new rate, it will mean that your VAT bill each quarter will increase.
If you are on the FRS and have significant input tax that you can recover, you will probably be better off leaving the FRS and reverting to the normal basis of accounting for VAT, or alternatively de-register from VAT altogether. If you wish to leave the FRS you will need to write (yes – write a letter!) to HMRC stating that you wish to leave the FRS and I would suggest that you specify the date of 1 April 2017. You should write to:
HM Revenue and Customs
77 Victoria Street
If you want a template, please email me.
In the March Budget it was announced that from April 2018 the “dividend allowance” will be reduced from £ 5,000 to £ 2,000. This plan has also been dropped from the Finance Bill which is due to be placed before Parliament before it is dissolved prior to the General Election on June 8th.
Again this doesn’t mean that the change won’t be re-introduced in a subsequent Finance Bill once a new Government is voted in.