November 2019 News Update – featuring additional news developments from our newsletter series.
Welcome to the November News Update… HMRC is going after big business thanks to unscrupulous R&D tax relief claims, what does 2020 have in store for Making Tax Digital and more…
HMRC Going After Big Business R&D Relief After Misuse Claims Highlight £612m in Possible Repayments
Small businesses this month have been targeted by HMRC to apply for R&D tax relief. However, during the same period HMRC has launched a crackdown on big business misuse of R&D tax relief.
According to Accountancy Age:
“The large amount of tax under dispute, described by HMRC as ‘tax under consideration’, shows that businesses need to be careful when claiming R&D tax reliefs to avoid potentially expensive and unnecessary tax disputes.
Eyad Hamouieh, partner at BDO, said: ‘HMRC’s tough stance on the misuse and over-claiming of R&D tax credits will no doubt become an area of increased focus.
‘Whilst some businesses are getting into a fix by over-claiming, many more businesses are failing to claim the money they are entitled to.’
HMRC is also targeting businesses for £90m in underpaid tax relating to patent box claims in 2018/19, up 15% from £78m in 2017/18.
Patent box allows companies to pay tax at an effective rate of 10% on patent-related profits, as opposed to the standard rate of corporation tax of 19%.
BDO says identifying the profits that result directly from a patent can be confusing, leading to businesses over-claiming the patent box relief.
The firm also claims that one problem has been the growth in unregulated tax boutiques offering advice to businesses on how to maximise their tax rebates. This may be leading to companies misusing the system.”
“Broken” Business Rate System Needs Changing, Parliamentary Committee Argues
MPs have called for major reform of the UK’s creaking business rate system – this “broken” system, they argue, is unfair to small retailers and businesses and alternative provision is needed.
According to the Treasury Select Committee, business rates bring in £31Bn to the UK Exchequer in 2018/19. The system, which hasn’t been changed since 1990, has seen revenue beat inflation – with the Committee wanting the Government to answer whether this is a deliberate ploy to raise extra income.
According to Accountancy Age:
“The inquiry found business rates do not fall upon all business equally, for example, they place a far greater cost on physical businesses, such as those on the high street, than those that rely more upon an online presence. MPs said tweaking the current system through an increasingly complex web of reliefs does little to address the negative aspects of the tax and the Treasury should review all business rate reliefs to ensure that they remain necessary. The committee was presented with numerous alternatives, including a land value tax, online sales levy, profits tax, single consolidated tax and hybrid tax. It said further work is needed before it could recommend any proposal as a clearly superior alternative, but it wants the government to prepare a consultation on alternatives in time for Spring Statement 2020.
A new business rates appeal system checks Challenge Appeal (CCA) was introduced in 2017 to reduce the number of speculative appeals. However, the Valuation Office Agency (VOA) told the committee that as of March this year, 16,000 appeals made to the 2010 listing remained outstanding, years after they were first raised. The committee described this as ‘unacceptable’, saying these lengthy delays bring the work of the VOA into disrepute and undermine trust in the UK tax system. It wants the government to reduce the statutory limit for checks and challenges to a maximum of six months.”
What 2020 Means For Making Tax Digital – According to Accountancy Age
As more and more businesses start their Making Tax Digital journey, by meeting deadlines and finding the right software partner, the next step in the process is April 2020.
According to Accountancy Age:
“Congratulations if you are one of the hundreds of thousands who successfully filed on the new HMRC MTD platform following its introduction in April this year. But that was the easy bit. Now it’s the end of the ‘soft-landing’ in April 2020, and time to prepare for the three major changes: digital bookkeeping, digital journey and, the clincher, penalties.
It is this April 2020 phase that will cause the issues – although any businesses which were deferred on the first wave of MTD until 1 October 2019 will also be deferred on the 2020 changes until 31 October 2020.
So, how are the three reforms going to affect over one million VAT registered businesses in 2020?
The biggest change will be felt by hundreds of thousands of small businesses that keep their records in summary Excel or on paper. The 2020 changes oblige these businesses to digitalise recording of supplies received and made, including time of supply, value and VAT rate.
So aside from sales, this extends to purchases, stocks and fixed asset transactions. This will likely lead to the small businesses buying some basic accounting package for the first time – which should be MTD compliant for filing, too.
But they may stick with bridging software for MTD to maintain data if it still is able to transfer the data to HMRC without any manual adjustments or intervention.”