Most products and services are subject to standard rate VAT at 20%, but some products are zero-rated (VAT applied at 0%), while others, e.g. rent for certain buildings, are exempt from VAT. There is a limited range of products and services that attract 5% VAT.
If you supply a package which is made up of products and services which carry different rates of VAT, you need to be sure of the split to charge the right amount of VAT to your customers. The VAT man may insist that you charge VAT at the highest rate if he thinks the lower-rated product is only incidental to the total package the customer is buying. For example a printed leaflet (zero rate) sold with a DVD (standard rate).
Say you own a large retail building and let out space within it as shops and in it are shops for antique dealers. The rent is exempt from VAT if you have not "opted to tax" your whole building. Each dealer can ask you to sell stock on their behalf if he is not present when a customer arrives. This selling service should be standard rated as an agency service.
In a similar case to this the VAT man argued that the whole charge to the dealers (rent and selling service) should be charged at 20% VAT. Fortunately the Tax Tribunal disagreed and ruled there were two elements which should have separate VAT charges, as this is how the antique dealers viewed the arrangement.
If your products have several elements with different VAT treatments, talk to us about how your customers view the mix, and how you should split the VAT charges.
Showing posts with label VAT. Show all posts
Showing posts with label VAT. Show all posts
Friday, 5 September 2014
Monday, 4 August 2014
EC Sales Lists
If your business is VAT registered and you sell goods or services into other European countries you must generally also submit an additional form to the Government called an EC Sales List (ESL also known as form VAT101). There are no payments to be made or reclaimed with the ESL, as you do on your quarterly VAT return form, but you must submit the ESL on time or HMRC will charge a penalty for late submission.
If you export goods worth more than £35,000 per year you will need to complete a monthly ESL, otherwise it's a quarterly task. However, where your total turnover is less than £106,500 and you export less than £11,000 you can ask HMRC for permission to submit just one ESL per year.
HMRC should send you an ESL form to complete if you have filled in box 8 on your VAT return. Don't ignore it, as the deadline for returning the form is just 14 days from the end of the quarter. If you chose to complete an online version of the ESL you have 21 days from the end of the quarter. These deadlines are much shorter than that for your quarterly VAT return.
We can complete and submit the ESL online on your behalf.
If you export goods worth more than £35,000 per year you will need to complete a monthly ESL, otherwise it's a quarterly task. However, where your total turnover is less than £106,500 and you export less than £11,000 you can ask HMRC for permission to submit just one ESL per year.
HMRC should send you an ESL form to complete if you have filled in box 8 on your VAT return. Don't ignore it, as the deadline for returning the form is just 14 days from the end of the quarter. If you chose to complete an online version of the ESL you have 21 days from the end of the quarter. These deadlines are much shorter than that for your quarterly VAT return.
We can complete and submit the ESL online on your behalf.
Monday, 7 July 2014
VAT on Digital Services
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.
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.
Monday, 2 June 2014
VAT and Discounts
Do you offer prompt payment discounts to your customers - known as PPDs?
Under UK law VAT is payable on the net amount after deducting the discount, whether or not the customer takes advantage of the discount.
Say you sell a carpet for £1,000 + VAT, and offer 3% discount if the customer pays with 10 days. VAT is charged at 20% on £970 ie £194, rather than as 20% of £1,000 which is £200. Even if the customer takes two weeks to pay and thus doesn't qualify for the PPD, the amount due will be £1194.
This is a ripe loophole ready for blocking, and that is exactly what the Government is going to do from 1 April 2015. From that date it is proposed that VAT will be due to the amount the customer actually pays. So in the example above where the customer doesn't take up the PPD he pays the full £1000 plus VAT of £200.
The PPD VAT-dodge has been widely exploited by suppliers of telecommunications and broadcasting services, so the use of PPDs to reduce VAT due has already been blocked in those sectors from 1 May 2014, where the customer can't recover the VAT charged. Those will be non-business customers.
If you offer PPDs you may need to change your sales software. We will keep you informed of the details of the changes, when they are announced nearer the time.
Under UK law VAT is payable on the net amount after deducting the discount, whether or not the customer takes advantage of the discount.
Say you sell a carpet for £1,000 + VAT, and offer 3% discount if the customer pays with 10 days. VAT is charged at 20% on £970 ie £194, rather than as 20% of £1,000 which is £200. Even if the customer takes two weeks to pay and thus doesn't qualify for the PPD, the amount due will be £1194.
This is a ripe loophole ready for blocking, and that is exactly what the Government is going to do from 1 April 2015. From that date it is proposed that VAT will be due to the amount the customer actually pays. So in the example above where the customer doesn't take up the PPD he pays the full £1000 plus VAT of £200.
The PPD VAT-dodge has been widely exploited by suppliers of telecommunications and broadcasting services, so the use of PPDs to reduce VAT due has already been blocked in those sectors from 1 May 2014, where the customer can't recover the VAT charged. Those will be non-business customers.
If you offer PPDs you may need to change your sales software. We will keep you informed of the details of the changes, when they are announced nearer the time.
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.
Tax Nudge
A "nudge" in this context is a piece of advice or an arrangement designed to encourage you pick the option the Government wants you to choose, such as contributing to a pension, or eating healthier foods.
In this case the nudge is information about the average profit ratios businesses in your business sector make, as reported on their tax returns. Working out these average profit ratios is called "benchmarking".
The Taxman is writing to a sample of traders in selected trade sectors quoting benchmarked profit ratios for those sectors. He asks the trader to review his turnover and expense figures before completing the 2013/14 tax return, with a view to ensuring the reported net profit (also known as bottom line) lies in a range around the benchmarked net profit ratio.
If you receive one of these benchmark letters, please send us a copy as the Taxman is unlikely to have copied us in. We can help you review your income and expenses to be reported on your tax return.
Don't take the letter as a sign that the Taxman has any evidence that your reported figures are wrong. There are many valid reasons why your business may not be typical. For example you operate in a difficult geographical location, or your business may open for different hours than other similar businesses.
However, if you have been hiding sales which have been paid by credit or debit cards, the Taxman can now easily prove that your sales are understated. This is because he can request details of all transactions processed by debit and credit card companies.
That sales data can be broken down by trader, and compared to the VAT and tax returns you have submitted. However, remember the credit and debit card data could contain errors.So if you are challenged on the basis of your credit card sales don't assume the Taxmans information is 100% correct.
In this case the nudge is information about the average profit ratios businesses in your business sector make, as reported on their tax returns. Working out these average profit ratios is called "benchmarking".
The Taxman is writing to a sample of traders in selected trade sectors quoting benchmarked profit ratios for those sectors. He asks the trader to review his turnover and expense figures before completing the 2013/14 tax return, with a view to ensuring the reported net profit (also known as bottom line) lies in a range around the benchmarked net profit ratio.
If you receive one of these benchmark letters, please send us a copy as the Taxman is unlikely to have copied us in. We can help you review your income and expenses to be reported on your tax return.
Don't take the letter as a sign that the Taxman has any evidence that your reported figures are wrong. There are many valid reasons why your business may not be typical. For example you operate in a difficult geographical location, or your business may open for different hours than other similar businesses.
However, if you have been hiding sales which have been paid by credit or debit cards, the Taxman can now easily prove that your sales are understated. This is because he can request details of all transactions processed by debit and credit card companies.
That sales data can be broken down by trader, and compared to the VAT and tax returns you have submitted. However, remember the credit and debit card data could contain errors.So if you are challenged on the basis of your credit card sales don't assume the Taxmans information is 100% correct.
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.
Thursday, 6 March 2014
VAT on Books and Leaflets
There is no VAT on printed books, booklets, newspapers, and leaflets. Well there is, - its zero-rate VAT, so the customer pays no VAT, but the supplier can reclaim the VAT it pays on purchases.
Printing businesses have to be very clear about which of their products they treat as zero-rated for VAT and which are standard-rated so 20% VAT applies. The VATman likes to come round and check. If you have classified your printed products incorrectly, VAT on the earlier sales (up to four years ago) will have to be paid. It's unlikely that you will be able to recover this extra VAT from your customers.
In a recent case printed card document folders, which were designed to hold other leaflets, were judged to be standard rated for VAT, as was a laminated business card. However, personalised souvenir photo-books were determined to be zero-rated. We can help you decide which of your products should be zero or standard rated for VAT.
Beware; if the book, leaflet or newsletter is provided in an electronic form, standard rate VAT will apply. There is a special exemption for audio-books for the blind which are zero-rated.
Printing businesses have to be very clear about which of their products they treat as zero-rated for VAT and which are standard-rated so 20% VAT applies. The VATman likes to come round and check. If you have classified your printed products incorrectly, VAT on the earlier sales (up to four years ago) will have to be paid. It's unlikely that you will be able to recover this extra VAT from your customers.
In a recent case printed card document folders, which were designed to hold other leaflets, were judged to be standard rated for VAT, as was a laminated business card. However, personalised souvenir photo-books were determined to be zero-rated. We can help you decide which of your products should be zero or standard rated for VAT.
Beware; if the book, leaflet or newsletter is provided in an electronic form, standard rate VAT will apply. There is a special exemption for audio-books for the blind which are zero-rated.
Friday, 31 January 2014
VAT penalties
If you pay your VAT late to HMRC, even one day late, your card will be marked for a VAT penalty called a 'default surcharge'. The first late payment doesn't attract a monetary penalty, but the second occasionon which you are late within 12 months triggers a penalty of 2% of the VAT due. The third, fourth, and fifth occasions of lateness increase the percentage of the penalty to 5%, 10% then 15% of the VAT due (ouch!).
You may not notice the first two penalties set at 2% and 5% of the VAT due as HMRC will only demand payment from a small business if the total penalty amounts to over £400. However, you will receive a warning letter, and you should appeal against the penalty if you had a reasonable excuse for paying late.
Not having the money available to pay your VAT bill is not a reasonable excuse. If your business has a cash flow problem you need to ask the HMRC business support service for time to pay before the VAT becomes payable, or we can do this on your behalf. The number to ring is: 0300 200 3835, and it's open every day. Don't ring the VAT helpline as they can't deal with VAT debt issues.
If your VAT payment was delayed by circumstances outside your control, for example a computer failure at your bank, that would be a reasonable excuse. However, you do need to present evidence of this reason when asking HMRC to review the penalty. Around 60% of VAT penalties are overturned on review, so it's worth a try!
You may not notice the first two penalties set at 2% and 5% of the VAT due as HMRC will only demand payment from a small business if the total penalty amounts to over £400. However, you will receive a warning letter, and you should appeal against the penalty if you had a reasonable excuse for paying late.
Not having the money available to pay your VAT bill is not a reasonable excuse. If your business has a cash flow problem you need to ask the HMRC business support service for time to pay before the VAT becomes payable, or we can do this on your behalf. The number to ring is: 0300 200 3835, and it's open every day. Don't ring the VAT helpline as they can't deal with VAT debt issues.
If your VAT payment was delayed by circumstances outside your control, for example a computer failure at your bank, that would be a reasonable excuse. However, you do need to present evidence of this reason when asking HMRC to review the penalty. Around 60% of VAT penalties are overturned on review, so it's worth a try!
Non-Resident Landlords
If you leave the UK and let your property here, your letting agent (or the tenant where there is no agent) should deduct basic rate (20%) tax from the rents paid after deduction of certain expenses, under the non-resident landlord scheme (NRL). This ensures that at least some tax is paid on the income in the UK.
You can avoid having 20% tax deducted if you successfully apply for approval under the NRL scheme from HMRC. Approval will be granted where your UK tax affairs are up to date, or you don't expect to be liable to pay UK tax in the year you apply.
The NRL scheme applies if the landlord's usual place of abode is not in the UK. This is not the same as being not resident in the UK for tax purposes. An absence from the UK for as little as six months can be enough to establish your usual place of abode as being outside the UK.
The NRL scheme applies to members of the armed forces and diplomats, just as it does to any other non-resident landlord. It also applies to overseas trusts and companies, which must have income tax (not corporation tax) deducted from their rental income.
If your UK property is let as holiday accommodation, you may need to register for VAT in the UK as holiday lets are subject to standard rate VAT. As an overseas person you have a zero turnover threshold for VAT registration, so you may have to register for VAT immediately on letting holiday accommodation. However, where a UK letting agent manages the property on your behalf, the VAT registration threshold of £79,000 applies for that landlord.
You can avoid having 20% tax deducted if you successfully apply for approval under the NRL scheme from HMRC. Approval will be granted where your UK tax affairs are up to date, or you don't expect to be liable to pay UK tax in the year you apply.
The NRL scheme applies if the landlord's usual place of abode is not in the UK. This is not the same as being not resident in the UK for tax purposes. An absence from the UK for as little as six months can be enough to establish your usual place of abode as being outside the UK.
The NRL scheme applies to members of the armed forces and diplomats, just as it does to any other non-resident landlord. It also applies to overseas trusts and companies, which must have income tax (not corporation tax) deducted from their rental income.
If your UK property is let as holiday accommodation, you may need to register for VAT in the UK as holiday lets are subject to standard rate VAT. As an overseas person you have a zero turnover threshold for VAT registration, so you may have to register for VAT immediately on letting holiday accommodation. However, where a UK letting agent manages the property on your behalf, the VAT registration threshold of £79,000 applies for that landlord.
Friday, 3 January 2014
Partly-exempt Businesses
If your business supplies some goods or services which carry VAT, and other items which are exempt from VAT (such as charitable events and financing), the business is likely to be partly-exempt for VAT purposes. Being partly-exempt means you may not be able to reclaim all of the VAT on your purchases (input VAT).
Where the input VAT that relates to your exempt sales is no more than £625 per month, and it is also less than half of your total input VAT, you can reclaim all of the input VAT. In other cases you can only reclaim the input VAT which relates to the supplies that carry VAT. There are various methods to apportion input-VAT which can be agreed individually with HMRC, or you can use the standard method.
Whichever method you use to allocate input VAT, this should be reviewed at least once a year, to see if it still gives the best outcome for your business. We can help you with this.
If you pay VAT on road fuel used for private journeys, based on the road fuel scale charges published by HMRC, you need to be aware that the concession for partly-exempt businesses is withdrawn from 1 January 2014. Under this concession the business is permitted to reduce the output VAT due on the road fuel scale charges in line with its partial-exempt position. If you have been using this concession we definitely need to review the methods you use to apportion input VAT from 1 January 2014.
Where the input VAT that relates to your exempt sales is no more than £625 per month, and it is also less than half of your total input VAT, you can reclaim all of the input VAT. In other cases you can only reclaim the input VAT which relates to the supplies that carry VAT. There are various methods to apportion input-VAT which can be agreed individually with HMRC, or you can use the standard method.
Whichever method you use to allocate input VAT, this should be reviewed at least once a year, to see if it still gives the best outcome for your business. We can help you with this.
If you pay VAT on road fuel used for private journeys, based on the road fuel scale charges published by HMRC, you need to be aware that the concession for partly-exempt businesses is withdrawn from 1 January 2014. Under this concession the business is permitted to reduce the output VAT due on the road fuel scale charges in line with its partial-exempt position. If you have been using this concession we definitely need to review the methods you use to apportion input VAT from 1 January 2014.
Tuesday, 3 December 2013
VAT Due Payment Date
When must your VAT payment reach HMRC? The correct answer is: seven days after the end of the month following the end of your VAT quarter. Not seven working days, seven calendar days.
If you get this wrong and pay your VAT late, you will receive one or two warnings from HMRC (two where the penalty would be under £400). If you pay late again within 12 months you will be charged a penalty of 2% of the late paid VAT. This percentage penalty increases every time you pay late, from 5% to 10% to 15% of the VAT due. Even paying one day late, counts as late for calculating those penalties.
Make sure you know exactly how long it will take your electronic payment to reach HMRC's bank account. Using the faster payment service (FPS) normally means the payment arrives within two hours, but there are monetary limits for FPS which vary between banks and for different types of bank accounts (corporate or retail). If the payment is too large to be sent by FPS, the bank will generally send it by BACS - which takes three working days.
If you have a direct debit set up to pay your VAT, HMRC will deduct the correct amount from your bank account three days after the due date for that VAT return, or three days after you submit your VAT return if that is later. So if you are late with filing your VAT return, the direct debit will be collected late, and you will have made a late payment of VAT, leading to a potential penalty.
If you get this wrong and pay your VAT late, you will receive one or two warnings from HMRC (two where the penalty would be under £400). If you pay late again within 12 months you will be charged a penalty of 2% of the late paid VAT. This percentage penalty increases every time you pay late, from 5% to 10% to 15% of the VAT due. Even paying one day late, counts as late for calculating those penalties.
Make sure you know exactly how long it will take your electronic payment to reach HMRC's bank account. Using the faster payment service (FPS) normally means the payment arrives within two hours, but there are monetary limits for FPS which vary between banks and for different types of bank accounts (corporate or retail). If the payment is too large to be sent by FPS, the bank will generally send it by BACS - which takes three working days.
If you have a direct debit set up to pay your VAT, HMRC will deduct the correct amount from your bank account three days after the due date for that VAT return, or three days after you submit your VAT return if that is later. So if you are late with filing your VAT return, the direct debit will be collected late, and you will have made a late payment of VAT, leading to a potential penalty.
Monday, 4 November 2013
VAT and Indirect Exports Change
When you export goods to a country outside the EU the goods are 'zero-rated' for VAT purposes, which means you do not apply VAT to the value of the goods. However, you need to have the paperwork to prove that the goods left the UK.
If your customer does the physical exporting, in that they take possession of the goods in the UK and handle the shipping, this is called an 'indirect export'. HMRC has previously only allowed you to zero rate the goods in this situation if your customer was an 'overseas person' - they had no VAT registration in the UK and no business establishment here. Also the goods must leave the UK within three months of the handover date.
From 1 October 2013 the rules for indirect exports have been relaxed slightly. Now you can zero rate the goods for export to a country outside the EU even if your customer is VAT registered in the UK. However, the customer must still not have a business established in the UK.
This change in the rules has been brought about due to pressure on the UK to comply with EU rules. It is thus effectively back-dated for four years. If you believe you have applied VAT in the last four years when under this change of rule it would not apply, you can reclaim that VAT. However, HMRC will expect you to pay back any reclaimed VAT to your customers who original bore the VAT on the goods.
We can help you check that you have the VAT position on any exports 100% correct.
If your customer does the physical exporting, in that they take possession of the goods in the UK and handle the shipping, this is called an 'indirect export'. HMRC has previously only allowed you to zero rate the goods in this situation if your customer was an 'overseas person' - they had no VAT registration in the UK and no business establishment here. Also the goods must leave the UK within three months of the handover date.
From 1 October 2013 the rules for indirect exports have been relaxed slightly. Now you can zero rate the goods for export to a country outside the EU even if your customer is VAT registered in the UK. However, the customer must still not have a business established in the UK.
This change in the rules has been brought about due to pressure on the UK to comply with EU rules. It is thus effectively back-dated for four years. If you believe you have applied VAT in the last four years when under this change of rule it would not apply, you can reclaim that VAT. However, HMRC will expect you to pay back any reclaimed VAT to your customers who original bore the VAT on the goods.
We can help you check that you have the VAT position on any exports 100% correct.
Tuesday, 1 October 2013
VAT on Sale of Commercial Buildings
When purchasing or selling a commercial property one of the first things to establish is whether VAT will be applied to the price of the property. Land and buildings are generally exempt from VAT, but 'new' commercial property (i.e. less than three years old) will have VAT applied. Otherwise VAT should only be charged on the sale of a commercial property where the seller has previously elected to apply VAT to the property. This election is known as the 'option to tax'.
There are circumstances where the option to tax may be disapplied by the seller, such as where the purchaser is going to use the building solely for charitable purposes or the building will be converted into residential use. If there is any question that VAT should not be applied to the sale, the seller must ask the purchaser for written confirmation of the intended use of the building.
When the purchaser plans to convert the building to residential use it must provide the seller with a VAT certificate (form VAT1614D) to confirm their intentions for the building. In other circumstances a written instruction from the purchaser should be sufficient.
Where VAT is applied to the price of the building, the stamp duty land tax (SDLT) charge will inevitably be higher, as SDLT is charged on the gross consideration paid, including the VAT charged. If you are planning to purchase a commercial property, or sell one, ask us to check the VAT implications before the price is agreed.
There are circumstances where the option to tax may be disapplied by the seller, such as where the purchaser is going to use the building solely for charitable purposes or the building will be converted into residential use. If there is any question that VAT should not be applied to the sale, the seller must ask the purchaser for written confirmation of the intended use of the building.
When the purchaser plans to convert the building to residential use it must provide the seller with a VAT certificate (form VAT1614D) to confirm their intentions for the building. In other circumstances a written instruction from the purchaser should be sufficient.
Where VAT is applied to the price of the building, the stamp duty land tax (SDLT) charge will inevitably be higher, as SDLT is charged on the gross consideration paid, including the VAT charged. If you are planning to purchase a commercial property, or sell one, ask us to check the VAT implications before the price is agreed.
Wednesday, 31 July 2013
VAT Mistakes
If your company makes a deliberate VAT mistake, which results in less VAT being paid over to HMRC than is correctly due, you as the director of that company can be issued personally with a penalty. This very rarely happens, but the VATman does have the power to impose such penalties where he can show the underpaid VAT was due to the dishonest conduct of one or more of the directors.
Two recent cases illustrate the types of situations where a personal penalty can be imposed:
Mr Brookes is the sole director of a building company. A VAT inspection found suppliers' invoices to support VAT inputs were missing. Brookes obtained 'copy' invoices from the main suppliers, but those 'copies' were found to be very poor forgeries. Brookes was served with a personal penalty of £43,753 which was 60% of the over claimed VAT.
Mr and Mrs Walker failed to submit eight successive VAT returns for their company. The VAT office issued estimated VAT assessments to the company which were less than the VAT eventually found to be due, and the Walkers did not challenge those estimated assessments. The Walkers were served with personal penalties totalling £194,214.
If you are getting in a VAT mess, ask us to help you out before things get really serious!
Two recent cases illustrate the types of situations where a personal penalty can be imposed:
Mr Brookes is the sole director of a building company. A VAT inspection found suppliers' invoices to support VAT inputs were missing. Brookes obtained 'copy' invoices from the main suppliers, but those 'copies' were found to be very poor forgeries. Brookes was served with a personal penalty of £43,753 which was 60% of the over claimed VAT.
Mr and Mrs Walker failed to submit eight successive VAT returns for their company. The VAT office issued estimated VAT assessments to the company which were less than the VAT eventually found to be due, and the Walkers did not challenge those estimated assessments. The Walkers were served with personal penalties totalling £194,214.
If you are getting in a VAT mess, ask us to help you out before things get really serious!
Self-billing Change
The procedure of 'self-billing' is frequently used in the publishing and construction sectors, where a large business customer engages lots of smaller businesses as suppliers (eg authors or subcontractors). The customer issues self-billed invoices on behalf of the small suppliers, usually with the payment to each supplier.
If you are operating self-billing you must comply with the conditions set out in the VAT Notice 700/62: Self Billing. These conditions have recently changed, so make sure you download the latest version of the VAT notice from the HMRC website. In particular there is a new legal requirement to mark all self-billed invoices as 'SELF BILLING'.
The key requirement of self-billing is that the suppliers must actively agree to self-billing, and provide the customer with their VAT details (registration number and address). Those that do not sign a self-billing agreement must issue their own invoices to the customer.
When you operate self-billing you should review your self-billing agreements at least once a year. This involves checking with the supplier that their billing details are still correct, and whether their business is VAT registered or not. In the recent recession many businesses have deregistered for VAT but have carried on trading.
It is important to get the supplier's VAT details right, If you issue a self-billing invoice on behalf of a supplier, that includes VAT, when the supplier is not VAT registered, your business will over-claim VAT. This will result in penalties and interest for your business.
Your annual review of self-billing agreements does not have to be conducted all at the same time; the agreements can be reviewed on a rolling basis.
If you are operating self-billing you must comply with the conditions set out in the VAT Notice 700/62: Self Billing. These conditions have recently changed, so make sure you download the latest version of the VAT notice from the HMRC website. In particular there is a new legal requirement to mark all self-billed invoices as 'SELF BILLING'.
The key requirement of self-billing is that the suppliers must actively agree to self-billing, and provide the customer with their VAT details (registration number and address). Those that do not sign a self-billing agreement must issue their own invoices to the customer.
When you operate self-billing you should review your self-billing agreements at least once a year. This involves checking with the supplier that their billing details are still correct, and whether their business is VAT registered or not. In the recent recession many businesses have deregistered for VAT but have carried on trading.
It is important to get the supplier's VAT details right, If you issue a self-billing invoice on behalf of a supplier, that includes VAT, when the supplier is not VAT registered, your business will over-claim VAT. This will result in penalties and interest for your business.
Your annual review of self-billing agreements does not have to be conducted all at the same time; the agreements can be reviewed on a rolling basis.
Wednesday, 1 May 2013
Don't Rely on HMRC VAT Advice
If you are uncertain about whether you can make a claim for VAT you have incurred, or how to treat a certain transaction for VAT purposes, you could try searching the HMRC website for a solution to your query. Alternatively you may ring the HMRC VAT helpline but the adviser is likely to send you a copy of a VAT leaflet which is available on the HMRC website. This may, or may not, answer your query.
If you do get a straight answer out of the VAT helpline, be careful to record what you said, and exactly what the HMRC adviser to told you. This is important as if the advice from the helpline is later found to be incorrect you need to be able to prove you presented the full facts for the reply which you relied on. Even then a subsequent VAT inspection may determine you were wrong all along and charge you penalties and interest on any under-paid or over-claimed VAT.
The courts have recently decided that taxpayers cannot legitimately expect the advice given verbally by HMRC to be 100% correct, and this can include advice given in a VAT leaflet or online on the HMRC website. The only way you can count on advice given by HMRC is to apply for a written ruling known as a 'clearance'. To get a clearance you have to set out the full facts in writing, in a clear and unequivocal fashion.
We can help you with this clearance application, or we may be able to answer your VAT question ourselves.
If you do get a straight answer out of the VAT helpline, be careful to record what you said, and exactly what the HMRC adviser to told you. This is important as if the advice from the helpline is later found to be incorrect you need to be able to prove you presented the full facts for the reply which you relied on. Even then a subsequent VAT inspection may determine you were wrong all along and charge you penalties and interest on any under-paid or over-claimed VAT.
The courts have recently decided that taxpayers cannot legitimately expect the advice given verbally by HMRC to be 100% correct, and this can include advice given in a VAT leaflet or online on the HMRC website. The only way you can count on advice given by HMRC is to apply for a written ruling known as a 'clearance'. To get a clearance you have to set out the full facts in writing, in a clear and unequivocal fashion.
We can help you with this clearance application, or we may be able to answer your VAT question ourselves.
Thursday, 21 March 2013
VAT
Rates
The VAT rates remain unchanged at...
Lower rate: 0%
Reduced rate: 5%
Standard rate: 20%
The registration and deregistration limits from 1 April 2013 are...
Registration turnover: £79,000 (1 April 2012 - £77,000)
Deregistration turnover: £77,000 (1 April 2012 - £75,000)
The VAT rates remain unchanged at...
Lower rate: 0%
Reduced rate: 5%
Standard rate: 20%
The registration and deregistration limits from 1 April 2013 are...
Registration turnover: £79,000 (1 April 2012 - £77,000)
Deregistration turnover: £77,000 (1 April 2012 - £75,000)
Friday, 30 November 2012
VAT Registration Advice
It's one number (£77,000 from 1 April 2012), so why is so easy to get it wrong? We are talking about the compulsory VAT registration threshold in the UK. If your VAT taxable turnover (sales) total for the previous 12 calendar months exceeds this compulsory registration threshold, or the sales your expect to make in next 30 days will exceed that threshold, you MUST register for VAT within the next 30 days.
You can now register for VAT online on the HMRC website, but we recommend that you talk to us first, as so many things can go wrong. If you make a mistake with the form, the Taxman may not let you correct it. For example:
- If you exceed the VAT registration threshold due to a 'blip' in sales, you can ask the VATman for permission not to register for VAT, but you must ask first, permission may not be granted.
- You can reclaim VAT on services you purchased for your business in the six months before the day your VAT registration is effective from, so it is essential to time your VAT registration date with an eye on the invoice dates for those expensive services. If the service relates to an asset which was no longer held at registration, the VAT can't be recovered as pre-registration VAT.
- If you receive a large order which will push your sales over the VAT registration threshold for the next 30 days alone, pay attention to the delivery dates for that order. A staggered delivery for the order may mean you do not exceed the VAT threshold in the next 30 days, and you may register for VAT too early.
You can now register for VAT online on the HMRC website, but we recommend that you talk to us first, as so many things can go wrong. If you make a mistake with the form, the Taxman may not let you correct it. For example:
- If you exceed the VAT registration threshold due to a 'blip' in sales, you can ask the VATman for permission not to register for VAT, but you must ask first, permission may not be granted.
- You can reclaim VAT on services you purchased for your business in the six months before the day your VAT registration is effective from, so it is essential to time your VAT registration date with an eye on the invoice dates for those expensive services. If the service relates to an asset which was no longer held at registration, the VAT can't be recovered as pre-registration VAT.
- If you receive a large order which will push your sales over the VAT registration threshold for the next 30 days alone, pay attention to the delivery dates for that order. A staggered delivery for the order may mean you do not exceed the VAT threshold in the next 30 days, and you may register for VAT too early.
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