Tax Administration
Making Tax Digital for VAT
The majority of businesses with VATable turnover above the £85,000 registration threshold will be required to maintain their VAT records using ‘functional compatible software’ from the first VAT return period starting on or after 1 April 2019. It was announced during October that a limited range of ‘more complex’ businesses will not be required to comply with the new rules until 1 October 2019. Concern has been expressed by Parliamentary committees and professional bodies that full-scale testing of the system has only recently started and awareness of the requirement among businesses is still patchy, but the Chancellor has not made any further announcements on the subject. It must therefore be assumed that the rules will be implemented as planned, another significant change to VAT three days after the UK leaves the EU.
Avoidance and evasion
There are as usual measures in the Budget to try to close loopholes. These include legislation targeted at businesses attempting to avoid UK tax by arranging for their UK business profits to accrue to entities resident in lower-tax territories (‘profit fragmentation’). The UK profits will be increased to the commercial level for tax purposes.
From April 2020, the amount of payable Research & Development tax credit that a qualifying loss-making company can receive in any tax year will be restricted to three times the company’s total PAYE and NIC liability for that year. This is described as a measure to prevent abusive and fraudulent claims.
The time limit for assessing unpaid tax involving ‘offshore non-compliance’ (concealing undeclared income and gains, and amounts chargeable to Inheritance Tax, outside the UK) is to be increased to 12 years in cases not involving deliberate errors by the taxpayers. This is not retrospective in effect: the present four year time limit is not extended back to 2006. However, amounts undeclared from 2015 will be assessable until 2027.
Charities
Charities are exempt from tax on the profits of a trade if carrying on that activity is the purpose of the charity (e.g. fees at a charitable school). There is also an exemption for profits of a small-scale ‘non-purpose’ trading activity to allow charities to make some money without falling into the charge to tax. The exemptions are currently £5,000 where turnover is up to £20,000, 25% of income where turnover is between £20,000 and £200,000, and £50,000 where turnover is over £200,000. From April 2019, the limits are increased to £8,000 on turnover up to £32,000 and £80,000 on turnover over £320,000 respectively. In between these limits, the 25% test still applies.
The limit for the Gift Aid Small Donations Scheme, which allows charities to claim Gift Aid on small amounts without requiring the donor to fill in a form, will be increased from £20 to £30 from 6 April 2019.
The 2017 Budget included an announcement of plans to simplify and clarify some of the conditions for Gift Aid relief to be claimed by charities from April 2019, where a benefit is provided to the donor. At the moment there are three monetary limits on such benefits that must be considered, and a number of extra-statutory concessions that allow the harsher effects of the law to be ignored. The limits will be simplified from three to two, and the concessions will be enacted in the law to provide certainty.