TaxCalc Blog

MTD for ITSA simplification

Buried amongst the press releases, the Treasury have announced the following changes to the MTD for ITSA requirements, with further legislation to follow:

• Quarterly updates are to be cumulative rather than periodic.
• End Of Period Statement (EOPS) will no longer exist as a separate submission to the final declaration.
• Landlords with jointly-owned property may choose to only submit income during the year rather than both income and expenses.
• Taxpayers unable to obtain a National Insurance number will be exempt.
• Foster carers will be exempt for their qualifying care income.
• Taxpayers will be able to authorise more than one agent to represent them.

National Insurance Contributions

Confirmation, if ever it were needed, that NIC is just another tax is never more evident when a Chancellor chooses to cut NIC, rather than reduce the basic rate of Income Tax. Both employees and the self-employed will benefit but no joy for employers for whom the main rate of Class 1 NIC will remain unchanged. Payroll software suppliers will also be busy as the Class1 primary changes are effective from 6 January 2024. The key changes are as follows:

• Class 1 (primary) main rate of NIC cut from 12% to 10% from 6 January 2024.
• Class 2 NIC abolished from April 2024 but associated contributory benefits to be retained.
• Class 4 NIC cut from 9% to 8% from April 2024.

The employer NIC relief for qualifying veteran employment is to be extended for a further year.

Full expensing for capital expenditure

As widely anticipated, the full expensing policy on plant and machinery is to be made permanent. However, this really only benefits those businesses that have exhausted the Annual Investment Allowance limit of £1m.

Expanding the cash basis

In recent years, we saw the introduction of the cash basis for both trading and property rental businesses. The former defaulting to accruals unless the taxpayer elected to use the cash basis, and the reverse for property businesses. It was announced that the cash basis will be the default for both business types and the turnover threshold for eligibility will be removed. The £500 limit on interest deductions and the restrictions on using relief for losses made using the cash basis will also be removed.

R&D tax credit reform

The previously announced merger of the Research and Development Expenditure Credit (RDEC) and the Small and Medium-sized Enterprise (SME) schemes was confirmed by the Chancellor.

What has changed is the effective date, which will now be for accounting periods starting on or after 1 April 2024, as opposed to expenditure incurred on or after 1 April 2024.

Other announcements

Other key announcements that may be of relevance to your clients were as follows:

• National Living Wage rate will rise to £11.44 per hour from 1 April 2024 (from £10.42 per hour currently) and be extended to those from age 21 (rather than 23).
• 6.7% increase to Universal Credit and other benefits in April 2024 (10.1% in April 2023).
• 8.5% increase in State Pension from April 2024 (10.1% in April 2023).
• Pension reforms to ease consolidation of pension pots into a single fund.
• Any company bidding for Government contracts must pay small business invoices within 55 days (reducing to 30 days).
• Business rate multiplier frozen for another year and the business rates discount for hospitality businesses extended for a year.

And finally

HMRC is to be given resources needed to ensure everyone pays what they owe, raising an additional £5bn for UK plc. Whether these resources are put into the MTD project to realise the mythical tax gap that MTD for ITSA purports to unlock – or whether HMRC will now properly resource its R&D claims team to avoid the negative impact on legitimate claimants, only time will tell.

Personally, I believe a wiser investment may be in people to man the helplines and process written correspondence but perhaps, as HMRC hopes, the £500m investment in AI technology will resolve that one for them.