Tax Update February 2023
Welcome to the February 2023 Tax Update! In this edition we look at the delay to Making Tax Digital – again! The new VAT penalty regime, 130% Super Deduction ending soon, changes to R&D this April and key dates on the Accounting Horizon.
Making Tax Digital for Income Tax Delayed Again
Making Tax Digital (MTD) for Income Tax Self-assessment (ITSA) was originally scheduled to start in 2018 and was then put back to 2023 and then 2024. It was announced just before Christmas that the new system of submitting digital information quarterly to HMRC has been delayed yet again! The start date will now depend upon the gross business receipts of the individual.
Self-employed individuals and landlords with annual gross receipts above £50,000 will need to follow the rules for MTD for ITSA from 6 April 2026. Those with annual gross receipts between £30,000 and £50,000 will be mandated into the regime from 6 April 2027.
Whether MTD for ITSA will apply to those with gross receipts under £30,000 is under review but it would appear that the government have finally increased the starting threshold from £10,000, which they have resisted up until now.
Despite the delay in the mandatory start date for MTD for ITSA, businesses should nevertheless consider whether or not it would be beneficial to keep their business records digitally anyway.
The date when partnerships will be required to join MTD for ITSA has not been set and may be clarified in the March 2023 Budget.
New VAT Penalty Regime
A new, and arguably fairer, system for determining penalties for late returns and late payment of VAT applies to return periods commencing on or after 1 January 2023. The same system will also apply to the returns to be submitted under MTD for income tax, when it eventually starts!
Under the new regime, taxpayers will accumulate points for late submissions, and only after reaching a certain threshold will an automatic penalty be imposed. The threshold will depend on how regularly the taxpayer is required to submit a return. For a typical business submitting VAT returns quarterly an automatic £200 penalty will apply when 4 penalty points are accumulated. The system is designed to penalise persistent defaulters rather than those businesses that have an occasional lapse.
130% Super Deduction Ends Soon
Companies considering the acquisition of new plant and machinery need to be aware that the temporary ‘super-deduction’ of up to 130% for the cost of acquiring new plant ends on 31 March 2023.
Consequently, corporate businesses may wish to bring forward planned expenditure to take advantage of this enhanced tax deduction, utilising hire purchase agreements if funds are otherwise unavailable.
Important R&D Changes from April 2023
The government are committed to a number of important changes to Research & Development (R&D) tax relief from 1 April 2023. It also looks increasing likely that the two existing systems will be merged into a single system in future years and we hope to hear more in the March 2023 Budget.
We already know that there will be a significant reduction in the tax relief available to qualifying SME companies from 1 April 2023, with the current 230% tax relief reducing to just 186%. The effect of this change combined with the reduction in the credit rate will reduce the repayable credit for loss making SMEs from £33.35 per £100 spend to just £18.60. Companies affected should consider the timing of their R&D expenditure.
For non-SME companies the R&D Expenditure Credit (RDEC) is being increased from 13% to 20% as part of the gradual alignment.
There are also important changes to the claims notification procedure from April 2023.
On the Accounting Horizon
- Wednesday 1st February – Corporation tax payment for year to 30/4/22 (unless quarterly instalments apply)
- Thursday 2nd February – Bank of England interest base rate announcement
- Sunday 19th February – PAYE & NIC deductions, and CIS return and tax, for month to 5/02/23 (due 22/02 if you pay electronically)
- Tuesday 28th February – 5% Surcharge added to the outstanding balance of tax and national insurance due to be paid on 31 January 2023
If there are any aspects of this update you are unsure about, please call us on 01384 376964