February 2022 Tax Update

MTD for VAT

Making Tax Digital (MTD) for VAT has been around since 2019 for businesses with turnover in excess of the registration threshold, from April 2022 it comes into force for all VAT registered businesses regardless of their level of turnover.

Businesses must sign up to MTD for their first VAT return starting on or after 1 April 2022. Registration must be at least five days after the last non-MTD VAT return deadline date, and no less than seven days before the first MTD VAT return deadline date or the business may have to pay VAT twice.

Under the new rules, it is mandatory to keep digital records. Where a business chooses to use bridging software, digital links must be in place to ensure that records are kept digitally as information is transferred between different platforms.

Those who do not sign up will be charged a penalty for failure to do so.

VAT Penalty Changes

A new penalty system for late payment of VAT or submission of return was due to come into force from 1 April 2022. HMRC have recently announced that this will be delayed until 1 January 2023. This is likely due to HMRC wanting to ensure all registered business have got to grips with MTD for VAT.

Under the proposed changes, HMRC will issue a single penalty point for a late submission of a VAT return. Once the business has exceeded the below thresholds for continued failures, a flat penalty of £200 will be imposed for each subsequent late return:

• Annual – two points
• Quarterly – four points
• Monthly – five points

Each point will expire after two years.

In addition, there will be late payment penalties – the first charge will be imposed at 2% of the outstanding tax if the tax remains unpaid 15 days after its due date. If any of this tax is still unpaid after 30 days, the penalty increases to 4% of the tax still outstanding at that point.

Childcare Vouchers

HMRC have reported that an estimated 1.3 million families un the UK would be eligible for tax-free childcare vouchers, but due to a lack of understanding of how the scheme works and who is eligible, take-up is reported low.

Tax-free childcare is a 20% top-up which provides eligible families with help towards the cost of holiday clubs, before and after-school clubs, childminders, nurseries, and other accredited childcare schemes.

Parents must each earn at least the equivalent of 16 hours a week at the national minimum wage but have an income of no more than £100,000 per year. Eligible parents can open an online childcare account and for every £8 they pay in, the government will add £2, up to a maximum of £2,000 per child each year, until they reach12 years old, or £4,000 for a disabled child until they reach 17 years old. The subsidy is available to high earners with a cap on applicants earning over £100,000.

HMRC’s CEST Tool

A recent survey of 3,750 respondents found that only 5% of contractors trust HMRC’s Check Employment Status for Tax (CEST) tool to accurately determine their tax status and only 4% trusted HMRC to keep its promise to stand by the tool’s results.

In addition, we are seeing an increase in the number of contractor engagements which are having a blanket determination issued to them by their end client. It is worth noting that the determination is not valid if the client fails to take reasonable care in coming to the conclusion. HMRC guidance states that ‘reasonable care’ is ‘acting in a way that would be expected of a prudent and reasonable person’ and it could therefore be argued that issuing a blanket determination is not acting in a prudent manner.

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