Do you sell digital services such as: music or software downloads, e-books or online videos? If so, do you know where your customers are, and whether they are businesses or individuals?
From 1st January 2015, when you sell digital services across international borders you will have to collect information about your customers to determine if they are businesses or not, and where they are based. Where your international sale is to a non-business customer, from 2015 you will have to charge that customer VAT of the country where he or she is located (if that's in the EU). You will also have to register for VAT in your customer's country. This is because the VAT threshold for traders selling into other EU countries is zero.
Many music and software creators are suspicious of the large online stores such as iTunes, and want to sell their tunes or games directly to their customers. If you sell through a large online store, that store sorts out the VAT so you don't have to worry about it. However, if you sell your digital product directly to non-business customers who are located in other EU countries from 1st January 2015, you must deal with the VAT consequences.
The easiest way to do this will be through the HMRC website under a system called VAT-MOSS. This system goes live from October 2014, and it will allow you to account for VAT in all the EU countries you sell services to.
However, in order to use VAT-MOSS you must first be registered for VAT in the UK. If you are not already VAT registered, perhaps because your turnover does not exceed the UK VAT threshold of £81,000, you need to pick one of these options:
1. register for VAT in the UK;
2. stop selling digital services to non-business customers outside the UK; or
3. sell only through online stores or other businesses.
We can help you make this choice and do the necessary registrations.
Showing posts with label VAT registration. Show all posts
Showing posts with label VAT registration. Show all posts
Monday, 7 July 2014
Monday, 28 April 2014
Flat Rate VAT
The flat rate VAT scheme for small businesses is designed to reduce administration hassle for the businesses that use it, not to reduce the amount of VAT the business pays over to HMRC, but that is often a side effect of using the scheme.
You can use the flat rate VAT scheme if you have an annual turnover up to £150,000 (net of VAT). Once registered to use the scheme, you must apply VAT to your sales at the rates required for the particular product or service (20%, 5% or zero). However, when completing the quarterly VAT returns you ignore any VAT paid on purchases, apart from large assets costing over £2000. You calculate the VAT to be paid over to HMRC as a flat percentage of your gross sales, with the percentage used determined by the trade sector which most of your sales fall into.
For example a hairdresser which is registered for the flat rate scheme must use a flat rate of 13%. On sales of £3,000 in the quarter she charges VAT at 20%: £600. She will pay VAT to HMRC of: 13% x £3,600 = £468.
You must choose to register for the flat rate VAT scheme, it will not be offered to you, even if you would be better off using the scheme. When you register you must choose which of 55 trade categories best fits the majority of sales made by your business. This is important as the flat rate percentages vary from 4% to 14.5% for different trade sectors, so an incorrect choice of trade sector can be very expensive.
You can change the trade sector you opt to use, but HMRC generally only permit a change to be made from the beginning of the current VAT quarter. You must also review the trade sector chosen on the anniversary of starting to use the flat rate VAT scheme. If your sales mix has altered so most of the sales are in a different trade sector, you must switch to using the flat rate percentage relevant to the majority of your sales. We can help you decide if the flat rate scheme would be advantageous for your business.
You can use the flat rate VAT scheme if you have an annual turnover up to £150,000 (net of VAT). Once registered to use the scheme, you must apply VAT to your sales at the rates required for the particular product or service (20%, 5% or zero). However, when completing the quarterly VAT returns you ignore any VAT paid on purchases, apart from large assets costing over £2000. You calculate the VAT to be paid over to HMRC as a flat percentage of your gross sales, with the percentage used determined by the trade sector which most of your sales fall into.
For example a hairdresser which is registered for the flat rate scheme must use a flat rate of 13%. On sales of £3,000 in the quarter she charges VAT at 20%: £600. She will pay VAT to HMRC of: 13% x £3,600 = £468.
You must choose to register for the flat rate VAT scheme, it will not be offered to you, even if you would be better off using the scheme. When you register you must choose which of 55 trade categories best fits the majority of sales made by your business. This is important as the flat rate percentages vary from 4% to 14.5% for different trade sectors, so an incorrect choice of trade sector can be very expensive.
You can change the trade sector you opt to use, but HMRC generally only permit a change to be made from the beginning of the current VAT quarter. You must also review the trade sector chosen on the anniversary of starting to use the flat rate VAT scheme. If your sales mix has altered so most of the sales are in a different trade sector, you must switch to using the flat rate percentage relevant to the majority of your sales. We can help you decide if the flat rate scheme would be advantageous for your business.
Tuesday, 1 April 2014
Cross-border Services
You may have heard that the price of electronic books and music will rise on 1 January 2015. This because electronic services (including e-books and music), will be subject to VAT in the country where the customer lives from 2015. Currently large suppliers of electronic services tend base themselves in the EU country with the lowest rate of VAT, so they can sell their services with that low rate attached.
This change in the law could affect your business if you sell electronic services to non-business customers in other EU countries. "Electronic services" includes a wide range of things including the provision of software online, writing or supporting websites.
Say you design a website for someone in France (who is not a business). From 2015 that sale will be subject to French VAT rates and you will probably have to register for VAT in France, as the French VAT registration threshold is very low. Similarly you may have to register for VAT in other EU countries where you sell electronic services to non-business customers.
Fortunately there will be a "mini one stop shop" (MOSS) on the HMRC website that will allow you to register for VAT in all the EU countries in which you sell electronic services, and make a single VAT return for all those countries. The MOSS will be open to start the registration process from October 2014.
In the meantime you need to check which of your products will come within the definition of "electronic services" for these new rules. We can help you with that.
If you are selling across EU borders you also need to think about the following:
- How to identify the location of your customers, and store that information.
- How to determine if your customer is a business or not, and what evidence will you need to support this decision.
- If you sell through an agency, check what the contract says about who takes responsibility for VAT registration.
This change in the law could affect your business if you sell electronic services to non-business customers in other EU countries. "Electronic services" includes a wide range of things including the provision of software online, writing or supporting websites.
Say you design a website for someone in France (who is not a business). From 2015 that sale will be subject to French VAT rates and you will probably have to register for VAT in France, as the French VAT registration threshold is very low. Similarly you may have to register for VAT in other EU countries where you sell electronic services to non-business customers.
Fortunately there will be a "mini one stop shop" (MOSS) on the HMRC website that will allow you to register for VAT in all the EU countries in which you sell electronic services, and make a single VAT return for all those countries. The MOSS will be open to start the registration process from October 2014.
In the meantime you need to check which of your products will come within the definition of "electronic services" for these new rules. We can help you with that.
If you are selling across EU borders you also need to think about the following:
- How to identify the location of your customers, and store that information.
- How to determine if your customer is a business or not, and what evidence will you need to support this decision.
- If you sell through an agency, check what the contract says about who takes responsibility for VAT registration.
Friday, 21 March 2014
The Budget 2014
Summary
This was a Budget for bingo-playing baby-boomers who have not started to draw their private pensions. George Osborne announced some sweeping reforms to the taxation of pensions and halved bingo duty.
The traditional sin taxes on booze and fuel have largely been frozen or even reduced, although tobacco suffers a 2% above inflation tax rise. The new "sins" appear to be; owning a valuable home through a company and operating a high-stakes gaming machine.
Most individuals aged under 67 will feel the benefit of an increase in personal allowance from £10,000 to £10,500 in 2015. A transferable married couples' allowance of £1,050 will also help basic rate taxpayers from April 2015. Savers will enjoy higher tax-free limits for ISAs and premium bonds later this year, plus a cut in tax on savings income from 2015.
Businesses are encouraged to invest in equipment by an increase in the annual investment allowance to £500,000 from April 2014, and reliefs for investing in small trading companies and social enterprises are enhanced. Small and medium sized companies who undertake R&D are also given additional tax relief.
The losers are those who use tax avoidance schemes, as those sinners will have to pay the tax avoided up front. Several other tax loopholes used by groups of companies are blocked, and the rules for VCT schemes are tightened-up to deter abuse.
This newsletter is a summary of some of the key points form the Budget, based on the documents released on 19 March 2014. It is possible that a different position will be shown by the draft legislation which will be published on 27 March 2014. We will keep you informed of any significant developments.
Individuals
Personal Tax Allowance
• For people born after 6 April 1948, the personal tax allowance for 2014/15 is £10,000. This will increase to £10,500 from 6 April 2015.
• For people born on 5 April 1948 or before, the personal tax allowance for 2014/15 is £10,660.
• From April 2015, spouses and civil partners will be able to transfer 10% of their personal allowance to each other, which means £1,050 in 2015/16.
• To be eligible to make or receive the transfer, neither party must be liable to tax at the higher or additional rate.
Income Tax rates and bands 2014/15
• The basic rate of 20% will be charged on income up to £31,865.
• The higher rate of 40% will be charged on income from £31,866 to £150,000.
• The additional rate of 45% will be charged on income over £150,000.
Business Tax
• The main corporation tax rate will be 21% from April 2014, falling to 20% from April 2015.
• From 1st of April 2014 to 31st December 2015 the AIA cap is doubled to £500,000.
Duties
• AIR PASSENGER – From 1 April 2015, the number of destination bands are going to be reduced from four to two, resulting in long haul flights being charged duty at a lower rate. For example, a family of four visiting relatives in the Caribbean or India, flying in economy class, will pay £56 less in duty.
• BEER – The price of a pint will be cut by 1p from 24 March 2014.
• CIDER/SPIRITS – The duty has been frozen for 2014/15.
• WINE/SPARKLING CIDER – The duty rates for wine and sparkling cider exceeding 5.5% in strength will be increased by the rate of inflation, based on the Retail Price Index. This means an increase of 8p to the price of high strength sparkling cider and 6p to the price of a bottle of wine.
• TOBACCO – Duty will rise at 2% above inflation, based on the Retail Price Index, adding 24p to the price of 20 cigarettes.
• FUEL – The rise planned for September has been cancelled.
VAT Registration and Deregistration Limits
With effect from 1st April 2014, the new thresholds will be:
UK taxable supplies:
Registration - £81,000
Deregistration - £79,000
'Relevant Acquisitions' from other EC Member States:
Registration - £81,000
Deregistration - £81,000
Changes from 2014
• VAT treatment of prompt payment discounts given by suppliers
Others
• From 1 July 2014, cash and shares ISAs are to be merged into a New ISA – NISA – with an annual tax-free savings limit of £15,000. Savers will now have complete flexibility over the cash and shares mix within the overall limit of £15,000.
• From April 2015, the starting rate of tax for savings income will be reduced from 10% to nil. The maximum amount of taxable savings income that will be eligible will rise to £5,000 from £2,880.
• From 1 June 2014, the cap on Premium Bonds will rise from £30,000 to £40,000, increasing further to £50,000 in 2015/16. From August 2014, two £1 million prizes per month will be on offer, instead of the current one.
• HMRC is going to be given debt collection powers to recover money direct from the bank and building society accounts, including ISAs, of debtors who owe over £1,000 of tax or tax credit debts. HMRC will use this route after the debtor has been contacted ‘multiple times’. A minimum of £5,000 will be left ‘across’ debtors’ accounts after the debt has been recovered.
• The 36 month tax free period when a person’s main home is sold is reduced to 18 months for most disposals made after 5th April 2014.
• The annual exemption for capital gains tax increases to £11,000 for 2014/15.
• The inheritance tax nil rate band will remain frozen at £325,000 until 2017/18.
Research and Development
Companies can claim enhanced deductions for expenditure on Research and Development projects at rates broadly dependent on the size of the company as follows:
-Small and medium(SME): 225% of qualifying expenditure -Large: 130% of qualifying expenditure
Pensions
The following changes will be introduced from 27 March 2014:
• A person who wishes to take their pension as "draw-down" instead of buying an annuity will have to prove they have £12,000 of other income in retirement, rather than £20,000.
• The capped drawdown withdrawal limit will increase from 120% to 150% of an equivalent annuity.
• The total pension savings which can be taken as a lump sum will increase from £18,000 to £30,000.
• The maximum size of a small pension pot which can be taken as a lump sum (regardless of total pension wealth) will increase from £2,000 to £10,000; and
• The number of personal pots that can be taken under these small pot rules will increase from two to three.
In addition the chancellor proposes to change the rules for defined contribution pension schemes from 2015 so that:
• individuals will have complete freedom in how they access their pension savings;
• buying an annuity will not be a requirement on retirement;
• the 55% tax charge on withdrawing too much from a pension fund will be removed; and
• everyone will be offered free and impartial advice on how to best use their pension savings.
and Finally…
Tax Avoidance
HMRC is going to seek an upfront payment of tax from people who have invested in disputed tax avoidance schemes.
HMRC Investigation Target
HMRC’s compliance yield target – the money it collects from pursuing tax evasion and tax avoidance –
• has been increased to £24.5 billion in 2014/15 and £26.3 billion in 2015/16.
This was a Budget for bingo-playing baby-boomers who have not started to draw their private pensions. George Osborne announced some sweeping reforms to the taxation of pensions and halved bingo duty.
The traditional sin taxes on booze and fuel have largely been frozen or even reduced, although tobacco suffers a 2% above inflation tax rise. The new "sins" appear to be; owning a valuable home through a company and operating a high-stakes gaming machine.
Most individuals aged under 67 will feel the benefit of an increase in personal allowance from £10,000 to £10,500 in 2015. A transferable married couples' allowance of £1,050 will also help basic rate taxpayers from April 2015. Savers will enjoy higher tax-free limits for ISAs and premium bonds later this year, plus a cut in tax on savings income from 2015.
Businesses are encouraged to invest in equipment by an increase in the annual investment allowance to £500,000 from April 2014, and reliefs for investing in small trading companies and social enterprises are enhanced. Small and medium sized companies who undertake R&D are also given additional tax relief.
The losers are those who use tax avoidance schemes, as those sinners will have to pay the tax avoided up front. Several other tax loopholes used by groups of companies are blocked, and the rules for VCT schemes are tightened-up to deter abuse.
This newsletter is a summary of some of the key points form the Budget, based on the documents released on 19 March 2014. It is possible that a different position will be shown by the draft legislation which will be published on 27 March 2014. We will keep you informed of any significant developments.
Individuals
Personal Tax Allowance
• For people born after 6 April 1948, the personal tax allowance for 2014/15 is £10,000. This will increase to £10,500 from 6 April 2015.
• For people born on 5 April 1948 or before, the personal tax allowance for 2014/15 is £10,660.
• From April 2015, spouses and civil partners will be able to transfer 10% of their personal allowance to each other, which means £1,050 in 2015/16.
• To be eligible to make or receive the transfer, neither party must be liable to tax at the higher or additional rate.
Income Tax rates and bands 2014/15
• The basic rate of 20% will be charged on income up to £31,865.
• The higher rate of 40% will be charged on income from £31,866 to £150,000.
• The additional rate of 45% will be charged on income over £150,000.
Business Tax
• The main corporation tax rate will be 21% from April 2014, falling to 20% from April 2015.
• From 1st of April 2014 to 31st December 2015 the AIA cap is doubled to £500,000.
Duties
• AIR PASSENGER – From 1 April 2015, the number of destination bands are going to be reduced from four to two, resulting in long haul flights being charged duty at a lower rate. For example, a family of four visiting relatives in the Caribbean or India, flying in economy class, will pay £56 less in duty.
• BEER – The price of a pint will be cut by 1p from 24 March 2014.
• CIDER/SPIRITS – The duty has been frozen for 2014/15.
• WINE/SPARKLING CIDER – The duty rates for wine and sparkling cider exceeding 5.5% in strength will be increased by the rate of inflation, based on the Retail Price Index. This means an increase of 8p to the price of high strength sparkling cider and 6p to the price of a bottle of wine.
• TOBACCO – Duty will rise at 2% above inflation, based on the Retail Price Index, adding 24p to the price of 20 cigarettes.
• FUEL – The rise planned for September has been cancelled.
VAT Registration and Deregistration Limits
With effect from 1st April 2014, the new thresholds will be:
UK taxable supplies:
Registration - £81,000
Deregistration - £79,000
'Relevant Acquisitions' from other EC Member States:
Registration - £81,000
Deregistration - £81,000
Changes from 2014
• VAT treatment of prompt payment discounts given by suppliers
Others
• From 1 July 2014, cash and shares ISAs are to be merged into a New ISA – NISA – with an annual tax-free savings limit of £15,000. Savers will now have complete flexibility over the cash and shares mix within the overall limit of £15,000.
• From April 2015, the starting rate of tax for savings income will be reduced from 10% to nil. The maximum amount of taxable savings income that will be eligible will rise to £5,000 from £2,880.
• From 1 June 2014, the cap on Premium Bonds will rise from £30,000 to £40,000, increasing further to £50,000 in 2015/16. From August 2014, two £1 million prizes per month will be on offer, instead of the current one.
• HMRC is going to be given debt collection powers to recover money direct from the bank and building society accounts, including ISAs, of debtors who owe over £1,000 of tax or tax credit debts. HMRC will use this route after the debtor has been contacted ‘multiple times’. A minimum of £5,000 will be left ‘across’ debtors’ accounts after the debt has been recovered.
• The 36 month tax free period when a person’s main home is sold is reduced to 18 months for most disposals made after 5th April 2014.
• The annual exemption for capital gains tax increases to £11,000 for 2014/15.
• The inheritance tax nil rate band will remain frozen at £325,000 until 2017/18.
Research and Development
Companies can claim enhanced deductions for expenditure on Research and Development projects at rates broadly dependent on the size of the company as follows:
-Small and medium(SME): 225% of qualifying expenditure -Large: 130% of qualifying expenditure
Pensions
The following changes will be introduced from 27 March 2014:
• A person who wishes to take their pension as "draw-down" instead of buying an annuity will have to prove they have £12,000 of other income in retirement, rather than £20,000.
• The capped drawdown withdrawal limit will increase from 120% to 150% of an equivalent annuity.
• The total pension savings which can be taken as a lump sum will increase from £18,000 to £30,000.
• The maximum size of a small pension pot which can be taken as a lump sum (regardless of total pension wealth) will increase from £2,000 to £10,000; and
• The number of personal pots that can be taken under these small pot rules will increase from two to three.
In addition the chancellor proposes to change the rules for defined contribution pension schemes from 2015 so that:
• individuals will have complete freedom in how they access their pension savings;
• buying an annuity will not be a requirement on retirement;
• the 55% tax charge on withdrawing too much from a pension fund will be removed; and
• everyone will be offered free and impartial advice on how to best use their pension savings.
and Finally…
Tax Avoidance
HMRC is going to seek an upfront payment of tax from people who have invested in disputed tax avoidance schemes.
HMRC Investigation Target
HMRC’s compliance yield target – the money it collects from pursuing tax evasion and tax avoidance –
• has been increased to £24.5 billion in 2014/15 and £26.3 billion in 2015/16.
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