Today marks the day that the UK finally leaves the EU.  It also marks the day where all self-assessment tax returns are due, and many in the accountancy sector are concerned that focus on Britain's exit from the European Union might lead to huge delays in tax returns being submitted in time.

Last tax year, 704,000 returns were submitted on the deadline day, while another 477,000 returns were filed late. Even though the time is running out, there are still some things that taxpayers can do before the clock hits midnight on Friday. TaxScouts, a specialist tax  returns company, gave us their advice for anyone who still needs to get their returns done during the Brexit melee:

1. Register with HMRC as soon as possible

• If this is your first time filing a self assessment return, registering with HMRC can take a few weeks. You can either do it yourself on HMRC’s website or, if that seems too confusing, use a self assessment registration service like the one at TaxScouts.

2. Make sure you’re filing for the right tax year

• The current tax return deadline is for activity from April 6th 2018 to April 5th 2019, so if you’ve only just become self-employed or started earning income from renting a property (since April 6th) you don’t need to file yet.
• Make sure you understand how the UK tax year works.

3. Don’t get held up sorting documents

• Don’t delay filing your return because you want to get all of your documents ready first.
• If you’re self-employed, and if your expenses are under £1,000, don’t even worry about it. Just claim the easy-to-use £1,000 Trading Allowance. No docs needed.
• If you’re not self-employed, there might still be some allowances that are higher than the expenses that you were thinking about claiming.
• If you have high expenses but for some reason or another can’t find the receipts right now, just remember that HMRC doesn’t actually ask you for them right away. Only when and if you get audited.

4. Don’t put it off because you’re afraid of a large tax bill

• Adding fines and penalties to a large tax bill won’t make it any smaller. Complete and submit your return before the deadline to avoid a late-filing penalties.
• HMRC has payment plans available if you can’t afford to pay your bill all in one go. Call them and explain your situation - they can usually help you figure out a solution where you pay a little bit every month and avoid penalties.

5. Calculate your tax bill

• If you’re self-employed, HMRC will ask you to pay 50% of the estimated future tax bill in advance. This is called Payment on Account. They’ll assume that next year you’ll earn and spend pretty much the same as this year.
• Moving forward, every year you pay 50% in January and 50% in June, which actually helps soften the blow.

6. Remember: you can amend your tax return later if you don’t have all paperwork ready

• If you’re struggling to find lost receipts or documents, just submit your return with your best estimates before the deadline to avoid late-filing penalties.
• When you do find the receipts or documents you needed and find that your figures have changed, you can file an amendment to your tax return with no penalties.

Although it might not seem that Brexit and delays in tax returns are linked, historically many tax returns are filed late and HMRC struggled to cope with the workload in 2019, something experts foresee happening again this year.   Previously HM Revenue and Customs (HMRC) has issued warning letters in February following each January deadline. However, in 2019, many of the warnings weren’t sent until late April.  The delays were being caused by the heavy workload currently being shouldered by civil servants due to Brexit preparations.

If this happens again, HMRC claimed last year that no one will be “unfairly penalized” and accountants hope this will be the case once more despite Brexit Day and Deadline day sharing the same January 31st calendar space.

This week we learned that Flybe, though a tenth the size of Thomas Cook, is in a similar boat and facing the prospect of laying off over 2,000 employees to save its future. Sky News reported that UK-based Flybe is currently trying to secure financing so as to avoid the job cuts.

Administration and accountancy firm EY are currently on standby, but the BBC said  chancellor Sajid Javid and the business and transport departments are due to discuss the possibility of a bailout, not by method of financing, but by potentially  cutting air passenger tax duty.

Air passenger duty is charged per passenger on each flight and is a government taxation, which if removed could save the firm from its financial woe.

Flybe operates around 75 planes in over 70 airports around Europe. Almost two in five UK domestic flights are operated by Flybe. 2,000 are at risk if the company goes under. This news comes just a year after it was already saved by a consortium led by Virgin Atlantic.

Triangle model

 Governments around the globe are undergoing a form of digital transformation, mandating real-time tax enforcement and new forms of digital reporting as they look to capture billions in lost tax revenue. Advances in technology mean they are able to insert themselves into every one of a business’s transactions and change taxation requirements whenever the opportunity arises to claw back some extra revenue. Probably the best-known example of this, the use of electronic invoicing with real-time administration controls, has been mandatory in Latin America for almost two decades now.

The most tightly-controlled regimes in the region, such as Brazil’s tax authorities, operate in a “triangle model”. Here, the transaction data and corresponding invoices must first be sent by the supplier to the country’s tax administrators for approval. Only once it’s been approved can an invoice be sent from the supplier to the purchaser without intervention from the administration. Finally, the transaction must often be validated between the purchaser and the tax authorities.

In certain parts of Asia, though, these controls may not be seen as tight enough. There is a move in some countries on the continent to play a bigger role in the exchange of data between suppliers and buyers.

 The European model – continuous reporting

 Many countries in the European Union are inspired by the Latin American approach but express this not by imposing electronic invoicing, but by making traditional VAT returns, reporting and auditing concepts more granular and more frequent. This approach is controversial, for several reasons.

To start with, reporting and auditing of indirect tax are activities that EU Member States can freely decide on without much mingling from Brussels. This is leading to a multiplicity of continuous and other technology-based enhanced VAT reporting schemes that contradict the very spirit of the EU internal market.

Secondly, most companies deal with VAT returns and similar periodic reports using manual approaches and often relying on local subsidiaries to deal with local idiosyncrasies and the submission to authorities. Gradually making these processes faster, and requiring the inclusion of actual transaction data rather than aggregate amounts creates confusion as to when these current VAT compliance processes need to be replaced by automated processes.

Some Asian tax administrations are going all the way by seeking to control or even own the entire technological stack for the transference of transactional data.

 Continuous transaction controls go East: including supply chains?

 Some Asian tax administrations are going all the way by seeking to control or even own the entire technological stack for the transference of transactional data. The entire communication flow - including the approval process - is run through a government network, thereby ensuing some of the highest levels of control on invoices and tax ever seen.

Take India, by way of illustration. The Indian Government established a committee to examine the viability of e-invoicing as a way of reducing tax evasion under its Goods and Services Tax (GST) programme. This committee has proposed to set up an extensive real-time control system which uniquely identifies suppliers’ invoices and, in many cases, transmits registered invoices to buyers.

The aim of this initiative is certainly laudable; it was designed to provide greater transparency into the country’s taxation system, helping to close its tax gap, reduce fraud and promote automation in both the private and public sectors. Such a stringent process could have an impact on global supply chains, however. India is a global manufacturing powerhouse. Should any corporation with a footprint in the country fail to understand the new process, it could not just result in non-compliance and associated financial sanctions, it could impact just-in-time delivery of critical components for the assembly or distribution of finished goods to businesses and consumers worldwide.

Given the wider implications of such tight controls, a lighter touch may, therefore, be more effective. Recent initiatives in Singapore also correspond to the trend for Asian authorities to pay more attention to the exchange of business data between suppliers and buyers but suggest a lighter-touch approach.

Recent initiatives in Singapore also correspond to the trend for Asian authorities to pay more attention to the exchange of business data between suppliers and buyers but suggest a lighter-touch approach.

Interoperable systems

In May 2018, Singapore’s Government announced the introduction of a nationwide e-invoicing framework largely based on a system that was originally designed to make public procurement more effective and equitable in Europe. The primary function of this framework is to raise productivity and efficiency within Singapore’s business ecosystem, but there are clear indications that certified transaction management cloud vendors acting as ‘access points’ on this network may also be required to perform transaction reporting to the Singaporean authorities for tax control purposes.

Companies can send and receive e-invoices based on the Pan-European Public Procurement Online (PEPPOL) standard, a set of technical specifications that can be implemented to enable interoperability among disparate public procurement and private sector e-invoicing systems. Doing so means that not only is Singapore able to adopt e-invoicing on a large scale, but its companies are able to carry out relatively friction-free international transactions with businesses from other countries that use the PEPPOL standards.

Latin America, the European Union, and now Asia. Each of these regions has embraced the advantages technology can offer when it comes to generating additional tax revenue, and closing existing gaps in their respective systems. The concept of real-time or near-real-time harvesting of live transaction data is central to most of these ‘continuous transaction control’ systems; however regional differences are emerging that take into account not just lessons learned from early adopter countries, but also cultural and economic differences.

While there are clear tax and economic benefits for governments to leverage modern technology to grab transactions between suppliers and their customers as they happen rather than requiring complex reporting and auditing after the fact, the business challenges of diversity within regions with similar philosophies (for example, the major differences among e-invoicing approaches in Latin America) are increasingly compounded by more structural differences among regions. Perhaps only time and experience will tell if their new state-driven model will be a success, or whether a compromise is required after all.

From the characteristics of MITC fraud arrangements to the tangible damage that such schemes can cause, below Jérôme Bryssinck, Head of Government Solutions at Quantexa, talks Finance Monthly through the options for fighting VAT carousel fraud.

Europol believes that missing trader intra-community (MITC) fraud (usually known as ‘VAT Carousel’ fraud) costs authorities around €60 billion annually. MITC is a highly sophisticated form of fraud which can be carried out due to the way that pan-European legislation means cross-border trade may be carried out VAT free. Due to the complexity of the schemes, MITC is hard to fight, and entire legal businesses frequently become unwitting participants in the carousel. Innovative technologies and new policies must be used to tackle this fraud robustly.

What is MITC fraud?

By its nature, the EU trading bloc enables the converging of regulations and standards and the removal of barriers to international export, in order to make trade within the bloc simpler and less expensive. MITC fraud works by taking advantage of the EU legislation around cross-border transactions- traders receiving services or goods from an entity in the EU do not have to pay VAT, as intra-community transactions are VAT exempt.

To create a ‘carousel’, a criminal will create or buy companies to acquire goods (let’s call them Company A in this example). These companies will next buy goods from a company in the EU (Company B). Company A will then purchase goods from Company B, with no VAT being due. Company A will then peddle these goods to a different company (Company C). This company could be a legitimate one, or a company managed and set up by the criminals. Here, VAT will be added to the sale price. Since the goods have been sold domestically, Company A must legally declare the VAT it has included on the goods, and pay this to HMRC. In the case of MITC fraud, though, Company A will vanish, and the VAT will not be paid. The goods will then be passed through many other companies which function as a buffer so as to complicate any potential investigation. Next, a company (Company D) will send these goods out of the EU and reclaim the VAT that was not in fact ever paid to HMRC. This loss of tax revenue negatively affects the provision of crucial public services for the country including education, policing and healthcare, and also increases the tax obligations of honest taxpayers.

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How MITC fraud is being fought

Because millions of euros worth of goods are traded daily, it is hard to identify illegal activity amongst so much legal activity. Combatting VAT carousels is made more difficult by the way that member states need to coordinate across separate national borders. The data needed to investigate MITC fraud criminals will commonly be stored in different forms and will be owned by disparate regulatory or government bodies across the EU. In many cases, ‘carousels’ will already have dissipated by the time authorities realise criminal activity has occurred, allowing the criminals to remain unidentified and the money to have already been lost. Those seeking to fight MITC fraud are therefore unlikely to be able to act to prevent such crimes from being carried out.

Bettering our defences

Technology must be leveraged more effectively to empower tax departments to proactively tackle MITC fraud. A priority is to speed up the sharing and analysing of data at a European level. Data analytics technology should be used to better comprehension of the broader context of each individual company, so that tax departments build a bigger picture of the trades that are being carried out.

Technology must be leveraged more effectively to empower tax departments to proactively tackle MITC fraud.

Such technology would be able to identify anomalies and red flags, such as if a company with an annual turnover of €200K was able to order €2 million’s worth of goods. Under an improved system of data gathering and sharing, VAT information would be collated and interpreted by machines, and AI would be utilised to create risk models that would help improve the accuracy of identifying anomalous results. This information could be shared with a case handler, who would be able to act more swiftly to investigate criminal activity.

As well as this, each EU Member State needs to improve their operational and analysis capabilities. The pace at which each state reacts to the flagging of anomalous results needs to improve if action will be taken effectively. At present, many member states do not have the technical means required to enable them to bring together external data. Some member states must also grow the amount of information they are gathering from traders. VAT receipts, for example, could be collated in a machine-readable format which would improve data collection.

Next steps

VAT Carousel fraud has so far proved difficult for EU Member States to combat. If we are to prevent criminals benefiting at the expense of the taxpayer, we will need a pan-European, multi-pronged approach. The amount of information gathered and collated about company and trade accounts must increase, and we also need to make use of innovative technologies which will facilitate the garnering of actionable insights from the vast amounts of data collected. Only by enacting such a systematic approach will be truly be able to tackle this crime.

As KPMG aims to dramatically scale back its costs and restructure its operations, particularly following recent performance backlash, and in preparation for regulatory changes in the financial sector, it is planning a one-off cull of its UK partners.

Back in August KPMG suffered serious reputational damage following the collapse of Carillion, and in the past year or so has had to pay out over £20 million in regulatory fines. In order to manage performance, it appears KPMG is now taking serious action by cutting away around 65 partners form its UK divisions.

According to the FT, it’s pretty normal for KPMG to lose around 45 partners each year in staff turnaround, either by those who leave naturally, or forced into retirement, but this is the single biggest company action in years.

KPMG has confirmed most of the departures will come from its business divisions, though its unlikely many will come from KPMG’s perceivably low-performing auditing divisions.

KPMG said: “It is critical that our firm constantly evolves as we build the mix of capabilities required to service the changing needs of our clients. To achieve this, we are significantly increasing our investment in all of our core businesses — audit, tax, deals and consulting. This year we have appointed 50 new partners and 200 new directors, across all parts of our business.”

You can read more about KPMG and the other Big Four firms’ performance in one of our latest special features: ‘Are the Big Four Still ‘the Best’?’

UPDATE:

Recent reports indicate KPMG has now denied allegations that it would be culling a tenth of its UK partners.

According to the Internal Revenue Service (IRS), 1099 means “information return.” You are also required to report the received information on your tax return. There is more than one 1099 form and they are specifically made for different types of income that are different from the one your employer provides you with. Whichever form of 1099 you receive, you should know that they all contain your social security number and the IRS will be notified if you don’t report that 1099 income on your tax return. We’ll be giving you a brief guide that can help you discern which types of income are reported on 1099 forms.

1099-MISC

Independent contractors and freelancers are usually the people who receive 1099-MISC forms constantly. As independent contractors provide their services based on a contract between them and individuals, corporations, or organizations, income should be documented in a 1099-MISC form. Whether a freelancer receives a 1099-MISC or not and as long as he/she was paid for the job, income tax should be paid. Sometimes the 1099-MISC form can be confusing as it’s filled with many calculations, and a useful 1099 generator can really help with all the calculations needed. These generators are easy to use and ensure that you don’t make any mistakes or costly errors when filling a form.  It’s always better to stay accurate when you’re filling MISC forms.

1099-A, B, and C Forms

These three 1099 forms are reserved for the identification of taxable income generally obtained from the cancellation of debt. 1099-A is usually received when your mortgage has been cut or completely canceled. The canceled mortgage debts are taxable as the IRS considers them as income. The 1099-B form is received due to the sale or bartering of securities and amenities. It’s usually sent by websites as most people who barter in person don’t need a 1099 form. Debt consolidation and settlements require a 1099-C form as whatever your lender or bank removes from your debt. It’s still taxable income in the eyes of the IRS.

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1099-G and R

Any money received from the government, whether it’s the state, local municipality, or the federal government triggers the issuing of the 1099-G form. Usually in the form of credit cuts and tax refunds or even unemployment checks. If you received any income from pensions, retirement plans, the IRA, or any profit-sharing program you might be due for a 1099-R form. The 1099-R form is usually at a tax advantage and sometimes even exempt, so it can be also considered book-keeping at best.

1099-LTC

LTC is short for long-term care, so the 1099-LTC form is reserved for long-term care insurance payments. The insurers usually send the form. Life insurance policies are also included as some payments related to death benefits can be given in advance.

While there may still be a few types of 1099s out there, these are the most important and common ones. Sometimes 1099 isn’t required, but it’s always better to stay on the safe side and keep track of them to stay on the safe side. Always remember to pay your income tax even if an expected 1099 form didn’t arrive.

What is the enterprise investment scheme and could it be useful to you and your business? Below Tony Stott, Chief Executive of Midven, has the answers.

The Enterprise Investment Scheme, we believe, is one of the investment sector’s best-kept secrets. Despite helping 26,000 privately-owned small businesses to access £16bn worth of funding for growth over the past 25 years, and securing attractive tax-efficient returns for investors in the process, the scheme has a relatively low profile.

That is now changing, however, as savers seek out new opportunities to plan for their long-term financial needs in the face of increasing restrictions elsewhere.

Most obviously, the once-generous rules on contributions to private pension plans have been steadily curtailed. Today, most investors are limited to annual pension contributions of no more than £40,000; moreover, higher earners, with annual incomes of more than £150,000, get a smaller allowance – as little as £10,000 a year for those with incomes of more than £210,000. The lifetime allowance, which levies tax charges on pension funds worth more than £1.03m, is also a problem for increasing numbers of people.

By contrast, the EIS offers much more generous allowances, with investors able to put up to £1m a year into qualifying companies. For many savers, the scheme therefore represents an increasingly valuable opportunity as a complement to pension saving, particularly as it may also be a more flexible option. Investors must hold on to their EIS shares for only three years to retain their tax incentives; pensions, by contrast, can’t be accessed until age 55 at the earliest.

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Those tax incentives are certainly alluring, spread across income tax, capital gains tax and inheritance tax:

• investors receive 30 per cent income tax relief when they make an EIS investment, reducing the cost of a £10,000 investment to just £7,000;
• profits are also tax-free, even where they exceed an investors’ annual capital gains tax allowance. The scheme also enables investors to defer paying tax on previous capital gains if they reinvest the profits on which the bill is due. Losses, meanwhile, can be set against tax;
• EIS shares are exempt from inheritance tax. Once they have been held for 2 years.

Understanding the investment opportunity

It’s important, however, not to let the tax tail wag the investment dog. After all, tax reliefs aren’t much use to investors who end up losing their starting investment.

It’s only fair to point out that the Government offers these tax breaks partly because it recognises the high risk of EIS qualifying companies, due to their illiquid nature. To be eligible for the scheme, companies must meet some restrictive tests: amongst other criteria, they must have assets of no more than £15m, fewer than 250 employees and be less than seven years’ old. These small, early-stage businesses are, by their nature, more likely to fail than larger more established companies.

That said, the best of these privately-owned companies also tend to deliver much more exciting returns than their larger counterparts trading on recognised stock exchanges. And investors can mitigate the risks of EIS investment through diversification. While would-be EIS investors do have the option of investing in individual companies with EIS-qualifying status – including many businesses on equity crowdfunding platforms – it is also possible to get exposure through a managed fund of such businesses run by a specialist asset manager. Such vehicles represent a potential way to spread your bets.

There are no sure things in investment, but the tax breaks on the EIS, allied with the opportunity to build a portfolio of shares in potentially high-growth companies, are an tempting mix for long-term savers. They are likely to be particularly attractive to those who are running out of pension allowance.

Indeed, the secret appears to be getting out there, with official figures suggesting EIS popularity has surged in recent years.

Figures from HM Revenue & Customs reveal that in the 2016-17 financial year, the most recent period for which data is available, some 3,470 companies raised a total of £1.8bn of funds under the EIS, though this was an initial estimate that HMRC expects to increase. In 2015-16, 3,545 companies raised £1.9bn of funds.

This won’t be a scheme for everyone. Investors will need to be prepared to accept the risk of partial or total losses, significant volatility over the short term, and to be patient. But for investors seeking out new opportunities to maximise the financial provision they are making for the long term, then EIS may be worth considering with your independent financial, legal and tax advisor.

A recent report in The Telegraph says businesses across the UK are losing out on billions by not claiming for R&D Tax credits.

If you are carrying out any research and development (R&D) in your business, you should be making the most of the government scheme to claim tax relief on eligible R&D spend.

In this article I’ll be highlighting the things you need to know before putting together a claim. First let’s take a look at exactly what R&D Tax credits are and what type of business can make use of the scheme.

R&D Tax Credits in a nutshell

‘R&D Tax Credits’ is the umbrella term for tax relief available to businesses that invest in developing products, services, software or processes. The key is that the R&D activities seek to achieve an advance in technology. This can be creating new products, services or processes or modifying existing ones.

Who can claim R&D Tax Relief?

Any business that meets the eligibility criteria can claim, regardless of sector. It is a common misconception that only businesses in the technology and engineering sectors can claim. This isn’t true. Eligibility criteria simply asks that:

• Your business is a Limited Company and is subject to Corporation Tax
• Your business has carried out qualifying research and development activities
• Your business has actually spent money on these projects

For the main scheme, your business also needs to be a small or medium-sized enterprise (have fewer than 500 employees), and either, a turnover of less than €100 million, or gross assets of less than €86 million. If your company has more than 500 employees, or is in partnership with another company, other rules apply under the Large Company Scheme.

The information you’ll need when making an R&D tax claim

Putting the right information together when you submit your claim to HMRC for R&D Tax Relief could make all the difference and ensure you maximise your tax break.

1. Technical information

Part of the process of making a claim involves writing what is called a ‘technical narrative’. This part is really important and often the bit that companies fall down on. The technical narrative explains your project, including the features and challenges involved.

HMRC will want to see that you have looked for an advance in science or technology and sought to achieve this aim. You will need to show that your challenge could not easily be worked out by a professional in the field and that you had to overcome scientific or technological uncertainty.

The narrative needs to be written from a technical perspective, not a project management one. It needs to be technically complex and show how resource intensive your activities were. Ideally your R&D technical narrative should be 2-5 pages long.

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2. Details of your R&D spend

This is essentially all of the financial information related to your R&D project. You will need to know what costs can be included in your R&D Tax claim as not all costs are eligible. Costs that can be claimed are known as ‘qualifying expenditures.’ You should be able to claim for:

• Direct staff costs
• Subcontractor costs
• Externally provided worker costs
• Software costs
• Utility costs
• Payments to clinical trial participants
• Contributions to independent research
• Prototypes

There are a lot of costs you can’t claim for, even though they may have been incurred as a direct result of your R&D project.

Items you can’t claim for include travel and subsistence, recruitment agency fees, postage, stationery and freight, computer costs, capital expenditure, rent and business rates, telephone and broadband charges, server costs, professional fees and Patent attorney fees. Ideally, consult with your accountant or an R&D tax specialist to clarify the costs you can claim for.

You will need to match finances to the data in the technical narrative. If you don’t do this HMRC will almost certainly query your claim.

3. Information about employees that have worked on the projects

Qualifying staff costs fall into two categories (direct and indirect). Let’s take a brief look at what this means. Direct staff expenditure refers to the costs of directly employed staff who are engaged in carrying out R&D activities.

This includes gross wages, Employer’s National Insurance Contributions and pension costs. The staff have to be company employees under a contract of employment. Directors wages can also be included if they are working on the R&D project.

As employees are unlikely to be spending all of their time on R&D, you will need to maintain timesheets or similar records to present with your claim to HMRC.

Indirect staff costs are those where employees are engaged in wholly or partly supporting those engaged directly in R&D activities. This includes clerical support and administration staff, maintenance engineers, security staff and training staff.

How long will it take for HMRC to approve?

Typically, once you’ve submitted an R&D Tax claim to HMRC, it takes around 6-8 weeks to get approved, or longer if the tax office has queries. Once approved you’ll receive either a tax rebate or a Corporation Tax deduction.

Don’t delay, start your claim today. Speak to an R&D tax specialist to find out if your project is eligible.

Making Tax Digital (MTD) is the Government's ambitious plan to transform the way taxpayers interact with HMRC. With only a few exemptions, VAT-registered businesses trading over the VAT threshold of £85,000 are required to keep records in a digital format, ensure that the transfer or exchange of VAT information is digitally linked and submit their VAT return information to HMRC using MTD compatible software.

HMRC estimates that 1.2 million businesses are subject to the MTD rules, which became law for VAT periods starting on or after 1 April 2019 (or 1 October 2019 for organisations which are deemed to be more complex). Depending on their VAT return stagger, a significant number of these will be required to submit their first quarterly VAT return to HMRC using software by the 7 August this year.

Yet figures just released by HMRC show that the financial sector has been one of the slowest to sign up, with 75% of firms yet to register.

Commenting on the new figures, John Forth, the head of RSM's financial services indirect tax practice said: “While it's not clear why financial firms have been so slow to sign up, these figures are pretty shocking.

“It is possible that HMRC have overestimated the size of the problem due to the complexity of the VAT regime. Alternatively, they may have failed to recognise that many financial services organisations will be regarded as complex and will therefore be subject to the 1 October deadline. As a result, we may see this figure come down rapidly over the next few months.

“While HMRC have stated that they won't issue filing or record keeping penalties during the first year, financial firms should not see this as a reason not to register. MTD represents a major change to the way businesses report and pay their VAT, and businesses need to make sure they are ready.

“Currently, HMRC are dealing with 10,000 registrations every day. Clearly there are tens of thousands of VAT-registered financial businesses that need to get their skates on and register at the earliest opportunity.”

(Source: RSM)

If you run operations across multiple jurisdictions you may need to invest in the support of an experienced tech companies that can help you connect the dots.

Steven Smith, Europe Proposition Lead, Corporates, at Thomson Reuters, looks at the challenges that businesses face in being tax compliant across indirect tax, corporate tax returns and year-end accounts across multiple jurisdictions. 

Governments around the world are rapidly moving away from the established ‘old’ standard of gathering taxpayers’ information. These changes are not uniform and vary from country to country, with, for example, Spain requesting invoice details every four days, Hungary demanding them at the point of invoicing, and Italy adopting a clearance model (with Greece following suit in 2020).

Fraud and tax avoidance are the driving forces behind governments refining tax processes. By adding transparency to the invoicing process, tax authorities can quickly identify where one party or another may be cheating the system. In countries, such as India, goods and services taxes (GST) have been introduced, which enable authorities to see both sides of a transaction. China has also introduced a very similar process. It really boils down to compliance and data. If a multinational organisation is striving to comply across different jurisdictions, it must be sure that its data is correct, even before an invoice is raised. Are the buyer details correct? Does the invoice meet the criteria to calculate the correct VAT liability? All of this data needs to be present before the finance department starts raising invoices.

Tax avoidance in the UK is not on the same scale when compared to countries like Brazil and Poland. Indeed, HMRC believes that UK corporate taxpayers are far more compliant and as a result it is very unlikely to introduce intrusive reporting such as Security Industry Association (SIA), however, there is still a gap that needs to be filled so initiatives such as Making Tax Digital (MTD) are only the start of more detailed information requests.

But meeting MTD in the UK is just one thing. It’s a very different story for multinationals. Many are firefighting and taking a ‘sticking plaster’ approach to help meet the myriad of tax requirements across different territories. They tend to focus on one particular country at a time, and that focus is driven by audits. And then once that requirement has been met, they simply switch their ‘firefighting’ mode to the next country and wherever the greater risk for non-compliance rests. However, they’re missing a huge opportunity by taking this case-by-case approach rather than looking at the entire organisation’s global footprint.

Meeting MTD in the UK is just one thing. It’s a very different story for multinationals. Many are firefighting and taking a ‘sticking plaster’ approach to help meet the myriad of tax requirements across different territories.

The sticking plaster approach of hopping from one country audit to the next has left a huge mess and many organisations are now in the position where they could be much smarter in the way they store and utilise their tax data. Organisations need to review how much business they’re doing country by country and prioritise by compliance risks. Now is the time to clean up and identify and rectify problem areas before the authorities come calling.

No company is the same and so it is difficult for businesses to know which country to concentrate their efforts on at a particular time. What they can do though is connect the tax dots. By working with a technology partner that operates across multiple jurisdictions and by prioritising countries, organisations can work to meet immediate requirements and add other countries as they come onboard. Working with one partner to meet these requirements means there’s no need to repeatedly hire new people, partners or add different processes as all the tools are available in one place.

Connecting the dots isn’t just about working more effectively across multiple countries though. It’s also about how invoices and indirect tax relates to the company’s corporate tax position, about corporate pricing arrangements and corporate income tax. And it’s about connecting all that internal information and driving greater collaboration across the tax and finance departments so that all parties have a clearer view of the organisation’s financial position.

MTD is just a tiny piece of the indirect tax puzzle, yet keeping records digitally will not only help to ensure a business is compliant but will also provide far greater insight into operations. Global businesses will always have more important, more urgent things to focus on, but they’d be mistaken to ignore the opportunity digital tax has to offer the business, as well as the tax authorities.

When registering a company in Ireland, what are the most important legal considerations that should be taken into account?

When you start a Limited Company in Ireland you need to guarantee that you meet all the legal requirements. Together with selecting a distinguishing name for your company, the things that need to be taken into consideration include: the company needs to have at least one director who’s a resident of the EEA as otherwise, a non-EEA resident bond needs to be provided; have a secretary; have at least one shareholder; have a registered office address and you’d also need to decide on how many shares will be allocated and issued. After your company is registered, the main on-going compliance requirements are as follows: All companies must submit and file an annual return every year, together with abridged accounts to the Registrar of Companies. Failure to do so will result in substantial penalty fees and possible strike-off proceedings, as well as loss of the audit exemption for two years if applicable. The first Annual Return is due six months after incorporation (no accounts required). The only exception to this are Unlimited Companies in certain circumstances.

Every company whose turnover or group turnover exceeds €8.8 million must prepare and file audited accounts. Most registered charities (Companies Limited by Guarantee) must also file audited accounts.

A Corporation Tax Return must be made every year and if the company is VAT registered, VAT returns must be made every two months.

Ireland has one of the lowest corporate tax rates in the world at 12.5%.

How can non-residents avoid difficulties when attempting a company formation in Ireland? Why is it important to contact a specialist?

Getting the correct advice from a specialist is a must when selecting the correct structure of the company to be able to avail of the Irish preferential corporate tax regime. The type of structure you choose depends on the kind of business you are running, with whom you will be doing business and your attitude to risk. It is advisable to get the advice of a company formation specialist like Fidutrust Formations Ltd when considering the structure for your business. Another important aspect is whether the beneficial owner is an EU resident or not. If a non-EU resident wishes to set up a company in Ireland, they need to have an EU resident director in the structure. If they cannot provide one, a non-resident director bond must be put in place. Many of our non-EEA clients ask what a non-resident bond is and why it is required and the explanation is quite simple -  it ensures the company for a sum of €25,400 and its purpose is to make sure that it completes the required submissions with the Revenue Commissioners and the Companies Registration Office.

Our company could assist in obtaining this bond or could provide a nominee director to comply with the regulation of having an EU resident in the structure.

Why should people consider registering their company in Ireland? What makes the country attractive?

Ireland is attractive because it has one of the lowest corporate tax rates in the world at 12.5%. Additionally, a thriving research, development and investment sector, with strong government support for productive collaboration between industry and academia, is present in Ireland too. Other benefits are a strong legal framework for development, exploitation and protection of intellectual property rights; a strategic location with easy access to the European, Middle-East and Africa (EMEA) region; excellent IT skills and infrastructure; and an advanced telecommunications infrastructure, with state-of-the-art optical networks and international connectivity. Ireland also offers strategic clusters of leading global companies in life sciences, ICT, engineering, services, digital media, and consumer brands.

Ireland came 11^th (out of 82 countries) in the recent Business Environment Ranking of the Economist Intelligence Unit’s ‘Most attractive business locations in the world’ ranking. The country is politically stable, has a respected regulatory regime, is considered to be a low bureaucracy and offers a low-tax environment that is very supportive of entrepreneurs. The World Bank’s ‘Doing business’ report rates Ireland as the easiest place in the European Union to start a business due to having the most business-friendly tax regime out of any country in Europe or the Americas.

Tell us about the tax-efficient structures that are available to businesses in Ireland?

One of the most beneficial elements available in Ireland is a range of specialist tax vehicles. These entities are set up to take advantage of beneficial tax rates and relaxed reporting standards, allowing companies to avoid certain public declarations of funds and profits. These vehicles known as Qualifying Investor Alternative Investment Funds (QIAIF) can come in five different formats, with the Irish Collective Asset-management Vehicle (ICAV).

The World Bank’s ‘Doing business’ report rates Ireland as the easiest place in the European Union to start a business due to having the most business-friendly tax regime out of any country in Europe or the Americas.

Qualifying Investor Alternative Investment Funds (QIAIF) were created to counteract some of the bad press previous tax saving schemes in Ireland had obtained and to compete with other offshore jurisdictions.

Some QIAIF vehicles select the tax transparent Limited Partnership type. However, since their introduction in 2014, the Irish Collective Asset-management Vehicle (ICAV) has been the preferred choice for both US-based or linked investors, outperforming options in several other jurisdictions.

Would an investment into a new company formation in Ireland guarantee a residency permit for non-EEA nationals?

There are two ways in which non-EEA nationals can invest or start a business in Ireland and receive a residency permit or a business visa. The first one is called an Immigrant Investment Program that provides a range of investment options which allows approved non-EEA investors and their immediate family to enter Ireland on multi-entry visas and remain here for up to five years with the possibility of ongoing renewal. The client would have to have a net worth of at least €2MM and be able to invest in one of the categories under this scheme.

The second one is called a Startup Entrepreneur Program and it allows a non-EEA national with a high-potential startup and minimum funding of €75,000 to come and set up a business in Ireland. If you are enrolled in this program, you will receive a 12-month business visa that could be extended after it expires. We would be happy to provide more information on these programs to anyone interested in finding out more

Do you provide assistance with business bank account openings in Ireland or other jurisdictions?

We do and this is our main specialisation. There is a huge demand on the market for bank account opening services, given recent issues in Latvia and Cyprus, and we are proud to be one of the leading agencies in Europe that provide operational, holding, crypto and transactional business bank accounts in the major EU, US, Asian, Swiss and off-shore banks for companies domiciled all over the world. We can open bank accounts for all types of legal entity structures and for most countries of residence of the beneficial owners.

About Fidutrust Formations Ltd & Apex Fidutrust AG

Fidutrust Formations Ltd provides assistance on a wide range of consulting and legal services in Ireland in the field of registration and administration of companies, partnerships, trusts and funds as well as consultancy in Irish civil and business law. Apex Fidutrust AG is a fiduciary and financial intermediary firm providing corporate, banking, asset and wealth management services in Switzerland.

Contact details

Fidutrust Formations Ltd

19 Charnwood Court, Clonsilla, Dublin 15

Contact number: +353 1 559 39 08

Mob: + 353 86 896 82 79

Email: mikhail@irishcompany.eu

Web: www.irishcompany.eu;  https://apex.ag/

For an update on tax in India, Finance Monthly speaks with Shipra Walia, Managing Partner & Lead Consultant at W S & Co. – a Chartered Accountancy firm, rendering comprehensive professional services. Based in Noida, Uttar Pradesh, the company offers statutory audits, GST audit and compliances, tax consultancy (direct & indirect including international and domestic law), valuation, advisory on issues covered under Double Taxation Avoidance Agreements, expat taxation, audit, management consultancy, accounting services, secretarial services, representations before various authorities including Set Com and DRP etc.

How is the corporate tax system structured in India?

India has a dual taxation structure. One is direct tax paid by the taxpayer directly to the government like stamp duty, income tax, etc. and the other one is the indirect tax that reaches to the government through supply chain which is GST/VAT/Excise Duty/Customs duty. While a resident is taxed on their worldwide income, a non-resident is taxed only on income that is received in India, or that arises or is deemed to accrue in India.

How complex is the tax system in India? Are tax disputes commonplace and how are disputes resolved?

Every tax system has some inherent complexities as per the economy of the country. However, the equivalent measures are also there to curb or meet any tax litigations. Further, there are various laws which help with resolving litigations or reaching an agreement at an acceptable level for both parties. Similar, provisions exist for solving conflicts in cross-border transactions. For example, the Double Taxation Avoidance Agreements between India and foreign companies provide for MAP i.e. Mutual Agreement Procedure.

As per the amended provisions, any company whose location and effective management is in India will be treated as an Indian company and will be subject to all domestic laws

Have there been any amendments to India’s tax legislation since we last spoke in 2017?

Recently, India has included the concept of Place of Effective Management (POEM) in our tax legislation. Previously, if the control and management of a company was not located wholly in India, this was considered as a foreign company.

As per the amended provisions, any company whose location and effective management is in India will be treated as an Indian company and will be subject to all domestic laws. The rules also clarify the computation of active and passive business activity, the adherence to global group policies on accounting, HR, IT, supply chain. Additionally, routine banking operations shall not lead to POEM in India and strategic and policy decisions should be relevant in determining POEM, as opposed to routine operational decisions for oversight of day-to-day business operations.

Similarly, a new Goods and Service Tax (GST) was implemented in India in July 2017. GST’s mission is to exclude the multiple individuals and authorities involved in the process and is seen as one of the most influential transformations in the field of tax.

What tax considerations must be taken into account for foreign businesses who wish to expand their business operations in India?

India is a prominent upcoming market. With the government’s focus on “Made in India”, there are various tax benefits available in the country - either based on the product or the activity of the specific business. Under the changes, the initiatives are also driven towards improving exports with various countries.

With the government’s focus on “Made in India”, there are various tax benefits available in the country.

Tax benefits for angel investors, flexible valuation norms, no tax on remittance of profits by a branch of a non-resident company to its Head Office, no dividend distribution tax on Limited Liability Partnerships are amongst the few inbuilt attractions for expanding your business operations in India.

What tax incentives are in place for investors operating in India?

Tax incentives provided in the Indian tax structure can be broadly classified into location-based incentive, industry-specific incentives and activity based incentives. There are various SEZs set up for special benefits to 100% export-oriented units, as well as special international financial services centres (IFSC) which also serve as a catalyst for foreign investors that handle cross-border financial products and services.

Contact details:  

Website: www.wsco.in

Email: shipra@wsco.in

Tel: 9811738764