2018: A year of fiscal upheaval
By Donald Drysdale for ICAS
12 April 2018
With Making Tax Digital and other tax changes afoot, Donald Drysdale sees 2018 as a year in which it has never been more important for Chartered Accountants to keep up to date with tax.
Introduction
Spring without a Budget is a novelty for tax practitioners. But don’t be misled by the gap it seems to have left. This may prove to be the lull before a storm.
Chancellor Philip Hammond has changed the legislative calendar by switching to a single fiscal event each autumn, but it would be a grave mistake to imagine that 2018 will be a year without upheaval.
Making Tax Digital
Business taxpayers and their advisers must prepare for Making Tax Digital (MTD) for VAT, which will be phased in from April 2019 as a new mandatory obligation on all businesses with annual turnover exceeding the VAT registration threshold – currently £85,000.
To comply with MTD, many businesses will have to change the way they maintain their accounting records, in most cases probably part-way through their financial year. This is likely to involve added expense – not only in implementing new systems, but also in obtaining advice from their accountants on the changeover.
Selecting new accounting software is never an easy task. Choosing a new system for MTD is likely to be especially difficult when few products yet are demonstrably MTD-compliant and none will be accredited or approved by HMRC. Practitioners have a vital role to play in helping their business clients make the right decision on this.
Some firms of accountants are already working closely with specific software vendors, offering businesses an MTD-compliant package. Where the software product is ‘best of breed’, this may be the most effective and economical way of meeting clients’ needs. Firms not yet offering such a package or independent advice on the best accounting options need to consider urgently how best to serve their clients.
In most instances, the move to MTD may also go hand in hand with implementing cloud-based accounting, and it is crucial that clients understand any new risks they may face in a cloud environment.
Devolved taxes
From April 2018 many Scots are subject to higher rates of income tax than taxpayers in other parts of the UK. At this stage, the differentials in rates and threshold may seem slight, but some clients may already want advice on how to minimise their exposure to higher Scottish taxes now and in future years.
Practitioners and their clients now face the difficulty of coping with an income tax regime that involves so many different rates, thresholds and reliefs. It was once feasible for anyone with even modest arithmetical skills to check HMRC’s calculation of a taxpayer’s liability. Now HMRC can’t be trusted to program their tax computations correctly, and only a mathematical genius with exceptional tax knowledge can check them.
Politicians may want taxpayers to pay their dues meekly without comprehending them. By contrast, many practitioners are accustomed to advising clients who want to understand what they are paying and why, and how their tax may be minimised. To advise Scottish clients, tax personnel need to be fully up to speed with Scottish taxes.
Across the UK it seems that this situation can only become even more demanding, with Welsh income tax due to be implemented in April 2019. And for those who haven’t yet noticed, the introduction of Welsh income tax will also trigger technical changes to the Scottish income tax regime.
Professional conduct
ICAS and the other professional bodies subscribing to Professional Conduct in Relation to Taxation (PCRT) are working on proposals to issue the document in a re-structured format. Their aim is to make it easier to follow by breaking it down into a mandatory core supported by PCRT help sheets.
Practitioners should not under-estimate the importance of complying with PCRT. It applies to all ICAS members. While it is primarily applicable to members in practice, others should note too that its principles apply to all members who deal with tax in any capacity – for example as employees, and those attending to their own tax affairs or those of family, friends, charities etc, whether or not for payment.
In recent years there has been much controversy about the boundaries of acceptable tax planning, and amendments to PCRT from March 2017 introduced standards which members must meet in advising on UK tax planning. These are designed to protect the reputation of members and the wider profession and ensure that public interest concerns are met.
ICAS members need to recognise that HMRC regard PCRT as an acceptable basis for dealings with them and they expect it to be honoured. Shortcomings in its observance may be taken into account by HMRC in assessing the severity of any failures in tax compliance. PCRT is the yardstick against which all tax agents and advisers, whether qualified or not, may be judged.
For practitioners, there are risk management issues to consider. For example, how can a practising firm ensure that all partners and staff comply with PCRT? This may not be easy, but could be fundamental in protecting the reputation and ongoing viability of the firm.
Article supplied by Taxing Words Ltd
For an overview of matters arising from Finance Act 2018, an update on key tax issues affecting business and practice, and a chance to discuss what ICAS should be doing for you, the tax team from ICAS will host a series of Spring Tax Updates around Scotland and in London.
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