Autumn Statement 2016: What this means for your income tax

koru

No doubt HMRC will be challenging situations where expenditure on goods suddenly shoots up compared with previous years. They could challenge on the grounds that the expenditure on goods is not wholly for the purpose of the business or that the expenditure is contrived tax avoidance.

koru

I suppose the problem is that it isn't just engineers. They would need to add dozens of new categories. But I agree, this is the right solution, at least in principle.

What is unfair about the new 16.5% rate is that it is equivalent to being given an input credit of just 1% of your outputs. Service businesses might not buy many goods, but they will still generally have inputs greater than 1%, due to buying services like accountancy, web hosting, web design, training courses, subscriptions, etc. If they had set the "limited cost" rate at, say, 15%, I'd say fair enough.

chrismac1

They could do that, and they might win. They thought they would win the cases in the engineering sector where they went for 14.5% instead of 12.0% which the engineers were using.

BUT THEY LOST.

I repeat HMRC:

Copy and paste "Engineering 14.5% and shove it on the flat rate sector page of Gov.uk. How hard can it effing be?

WEEN_NASTY

I wonder if this legislation is designed to be start of withdrawal of this scheme entirely. Some commentators have used the FRS scheme as an issue with the proposed MTD.

TheCyclingProgrammer

So it seems as if some additional guidance has been issued.

Notably the updated guidance seems to indicate that simply buying stuff you don't need for business or buying goods with the intention giving them away or donating them just to get around this will not work.

Goods must be used exclusively for the purpose of the business - this means that you must not include the cost of any goods that are used in full or in part for your own private use. For example, printer ink and stationery that are used for both your office and your home would not be included. It would also exclude goods acquired with the intention of giving them away or donating them to a third party.

Additionally, it seems that the definition of "capital goods" for the purpose of this rule is as described in VAT regulations, *regardless* of how you treat those items in your accounts. So even if you have a policy of treating for example, hardware of less than £1000 as an expense rather than a capital asset, it would still likely be treated as capital goods for the purposes of this rule.

Capital expenditure - is the cost of any goods which are bought to be used in the business over a period of time (for example, longer than a year). Examples include equipment such as a computer, mobile phone, office furniture, a tablet or a printer, even if they are not necessarily treated as capital assets for accounting purposes. The legislation that describes capital expenditure goods can be found in VAT Regulations 1995, 55A (1).

Draft legislation was supposed to have been published yesterday but I've not found a link to it yet.

polymaff

I wonder if this has been referred to the Office of Tax Simplification?

Yet another example of HMT/HMRC getting themselves into hot water trying to apply knee-jerk fixes to a system that didn't work out as they intended.

Will they ever learn? (CLUE: No)