The Taxman apparently believes that anyone who does business in cash must be a potential 'tax cheat'. This is ridiculous of-course, but his latest business record checks campaign is based on this fallacy.
If you receive a call from the Taxman asking questions about your business records, please refer the caller to us before agreeing to answer his questions. You should not be penalised for doing this. The Taxman is required to deal with the taxpayer's agent if asked to do so.
The telephone questionnaire is a computer-generated script, which only accepts a limited range of answers. For example: How many purchases are in cash? Answers accepted: none, a third, half or more.
The answers given determine whether the Taxman sends you guidance on how to keep better business records, or an Inspector to check what you may be doing wrong. Where the Taxman wants to inspect your business records, please ask us to be present when they come. The potential penalties for flying solo are not worth it.
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.
Beware scam e-mails
With the self assessment deadline approaching, there are more and more scam e-mails circulating, which appear to be from HMRC in relation to claiming a tax refund. These often look genuine - coming from "@hmrc.gov.uk" e-mails and they usually copy HMRC's logo from their website, and include links to HMRC's genuine website.
The e-mails have a form attached which asks for debit or credit card details, security codes and passwords, dates of birth, available balances on account - all of the details a fraudster needs to be able to steal from you!
HMRC do not e-mail in relation to tax refunds. Nor will they ever ask you for credit or debit card details for refunds.
If you receive an e-mail in relation to a refund DO NOT complete the form - delete it or forward the e-mail to us or to HMRC at phishing@hmrc.gsi.gov.uk
Taskforce Targets Private Landlords
The Taxman has announced a taskforce to investigate tax avoidance in landlords in South East England.
Private residential landlords have now been the subject of a taskforce in: Scotland, North Wales, London, East Anglia, North East, North West, and now South East England. That covers pretty much the whole of the UK. The message is clear; individuals who own rental properties must correctly declare all of the income and gains generated by those properties.
It is relatively easy for the Taxman to trace the owners of let properties through the Land Registry and compare the registered owner's name to those recorded on the electoral roll for the property. If the names aren't the same, the Taxman will assume the property has been let. He can also ask letting agents to provide lists of the landlords and properties they serve.
Please talk to us if you are uncertain about what reliefs and expenses you can claim for your let property.
Private residential landlords have now been the subject of a taskforce in: Scotland, North Wales, London, East Anglia, North East, North West, and now South East England. That covers pretty much the whole of the UK. The message is clear; individuals who own rental properties must correctly declare all of the income and gains generated by those properties.
It is relatively easy for the Taxman to trace the owners of let properties through the Land Registry and compare the registered owner's name to those recorded on the electoral roll for the property. If the names aren't the same, the Taxman will assume the property has been let. He can also ask letting agents to provide lists of the landlords and properties they serve.
Please talk to us if you are uncertain about what reliefs and expenses you can claim for your let property.
Thursday, 1 November 2012
NIC Refunds for Vocational Training
Does your business engage self-employed teachers, lecturers or vocational instructors, or are you such a self-employed teacher or instructor? The NI contribution regulations were changed from 6 April 2012 to make it clear that such teachers/instructors should not be treated as employed and subject to class 1 NICs, where they were engaged on self-employed contracts.
However, for years prior to 6 April 2012 the Taxman demanded payment of Class I NICs from organisations who engaged self-employed vocational instructors whose self-employed status was not in dispute. Now the Taxman has admitted the NIC regulations in place before April 2012 did not apply to those who provided vocational or recreational training (as opposed to more formal education).
Consequently Class 1 NICs were paid by the engagers and trainers prior to 6 April 2012 when those contributions were not due. The type of instructors affected include: first-aid trainers, vocational and recreational trainers. These individuals and the organisations which engaged them, can now claim a refund of the class I NICs which have been paid in error.
The refund of Class I NICs can only apply to educators who were engaged on a self-employed basis. Also the Taxman will only refund contributions made for the last two tax years (2010/11 and 2011/12), or for years where the Taxman's decision was requested or challenged, and that decision has not been determined. We can help you draw-up the refund claim.
However, for years prior to 6 April 2012 the Taxman demanded payment of Class I NICs from organisations who engaged self-employed vocational instructors whose self-employed status was not in dispute. Now the Taxman has admitted the NIC regulations in place before April 2012 did not apply to those who provided vocational or recreational training (as opposed to more formal education).
Consequently Class 1 NICs were paid by the engagers and trainers prior to 6 April 2012 when those contributions were not due. The type of instructors affected include: first-aid trainers, vocational and recreational trainers. These individuals and the organisations which engaged them, can now claim a refund of the class I NICs which have been paid in error.
The refund of Class I NICs can only apply to educators who were engaged on a self-employed basis. Also the Taxman will only refund contributions made for the last two tax years (2010/11 and 2011/12), or for years where the Taxman's decision was requested or challenged, and that decision has not been determined. We can help you draw-up the refund claim.
VAT on Exports
The internet has enabled many small businesses to sell internationally, but exporting goods and services can create VAT difficulties.
For VAT purposes you need to know whether you are selling goods (physical things), or services (things you can't physically touch eg: down-loaded software), as the rules vary for goods as opposed to services. You also need to know where your customer is based - in an EU country or elsewhere and whether the customer is a VAT registered business.
When you sell goods to other businesses in the EU or in other countries you can normally charge the zero-rate of VAT on the sale. This means you can recover VAT on any related input costs. However, you need to show that your customer was VAT registered and the goods physically left the UK. Getting the paperwork right is essential.
The rules for international services are more complicated as they depend on the place of supply of the service, which varies according to the type of service supplied and who it is supplied to (business or non-business customer). UK businesses selling to private customers in other EU countries must charge UK VAT. Where the customer is a business in another EU country, in most cases the customer accounts for the VAT in their own country, so the UK supplier does not charge VAT.
Whether you sell goods or services to VAT-registered businesses within the EU you must complete an EC sales list (ESL). If you only supply services, or your total goods and services sales do not exceed £35,000 per quarter, you may submit the ESL every quarter, otherwise you must submit monthly ESLs. Certain low-volume exporters can apply to the Taxman for permission to submit annual ESLs.
The ESL can be submitted in paper form on VAT 101, or online through the HMRC website, but it must contain the following details:
- your customer's name;
- the relevant country code for each customer; and
- the value of the goods and/or services supplied.
We can complete the ESL on your behalf, just like your normal VAT return.
For VAT purposes you need to know whether you are selling goods (physical things), or services (things you can't physically touch eg: down-loaded software), as the rules vary for goods as opposed to services. You also need to know where your customer is based - in an EU country or elsewhere and whether the customer is a VAT registered business.
When you sell goods to other businesses in the EU or in other countries you can normally charge the zero-rate of VAT on the sale. This means you can recover VAT on any related input costs. However, you need to show that your customer was VAT registered and the goods physically left the UK. Getting the paperwork right is essential.
The rules for international services are more complicated as they depend on the place of supply of the service, which varies according to the type of service supplied and who it is supplied to (business or non-business customer). UK businesses selling to private customers in other EU countries must charge UK VAT. Where the customer is a business in another EU country, in most cases the customer accounts for the VAT in their own country, so the UK supplier does not charge VAT.
Whether you sell goods or services to VAT-registered businesses within the EU you must complete an EC sales list (ESL). If you only supply services, or your total goods and services sales do not exceed £35,000 per quarter, you may submit the ESL every quarter, otherwise you must submit monthly ESLs. Certain low-volume exporters can apply to the Taxman for permission to submit annual ESLs.
The ESL can be submitted in paper form on VAT 101, or online through the HMRC website, but it must contain the following details:
- your customer's name;
- the relevant country code for each customer; and
- the value of the goods and/or services supplied.
We can complete the ESL on your behalf, just like your normal VAT return.
Avoid Property Trading Tax
Some people regularly purchase run-down houses, do them up and sell them on. If you do this as part of your building/property development business, the profits made on the sale of the properties may be taxed as trading income (tax rates: 20%, 40% or 50%).
If you let the renovated properties, then sell them at a later date, the profits made on those sales will be taxed as capital gains (tax rates: 18% or 28%). The position is less clear cut if you live in each property for a period either during or after the renovations are undertaken. The Taxman is keen to charge any profits made on the renovated property as trading income, because if the profits are categorised as a capital gain, that gain may well be exempt from tax on the basis that the property was your main residence.
For the Taxman to prove the money made from the property is trading income he must show the owner's motive for purchasing and renovating the property was to make a profit, and not simply to make the property more comfortable for the owner to reside in. This is difficult to prove.
If the owner is a builder by trade the Taxman may also argue that the property renovation was undertaken as part of his building business, even if he also lived in the property. The Taxman may say the profits should be taxed as a trade if the owner has a history of purchasing and renovating many properties and living in each for only a short period.
If you want to avoid profits you make on renovating and selling a property being taxed as a trade, make sure you make the property your real home for a significant period. Have a good reason for living in that location, eg locality to schools or work, and try not to make a habit of purchasing and renovating several properties within a short number of years.
If you let the renovated properties, then sell them at a later date, the profits made on those sales will be taxed as capital gains (tax rates: 18% or 28%). The position is less clear cut if you live in each property for a period either during or after the renovations are undertaken. The Taxman is keen to charge any profits made on the renovated property as trading income, because if the profits are categorised as a capital gain, that gain may well be exempt from tax on the basis that the property was your main residence.
For the Taxman to prove the money made from the property is trading income he must show the owner's motive for purchasing and renovating the property was to make a profit, and not simply to make the property more comfortable for the owner to reside in. This is difficult to prove.
If the owner is a builder by trade the Taxman may also argue that the property renovation was undertaken as part of his building business, even if he also lived in the property. The Taxman may say the profits should be taxed as a trade if the owner has a history of purchasing and renovating many properties and living in each for only a short period.
If you want to avoid profits you make on renovating and selling a property being taxed as a trade, make sure you make the property your real home for a significant period. Have a good reason for living in that location, eg locality to schools or work, and try not to make a habit of purchasing and renovating several properties within a short number of years.
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