This is a type of VAT fraud that costs the UK millions of pounds every year. It works like this...
A VAT registered company based in the UK purchases small high-value goods (such as mobile phones) in another EU country and imports them into the UK (with zero-rate VAT). The importer then sells those goods at a VAT-inclusive price within the UK. However, before the VAT collected from the UK customers is paid over to HMRC, the importing company is liquidated and its directors disappear (become a missing trader), leaving the VAT unpaid.
However, this is not the end of the story, as if you are the UK customer who bought those goods from the fraudulent importing company, the Tax Office will block your claim for repayment of the VAT you paid on your purchase. This block can apply whether or not you knew you were part of a fraudulent supply chain.
To avoid involvement in a chain of suppliers that includes a criminal trader you should undertake 'know your customer' checks. These involve carrying out credit and identity checks on your supplier, and on the directors of the company. Also check the goods actually exist and are as described (i.e. new goods). You should be suspicious if you are offered a deal that looks very attractive and has any of the following attributes:
- The company is newly established and has no financial or trading history.
- The company has been acquired recently and the new owners have no previous involvement in your sector.
- The company trades from residential or short-term lease property.
- Your contacts in that company have a poor knowledge of the market and products.
- There is no apparent risk for you in the deal.
- Repeat deals at the same or lower prices and small or consistent profit.
- Instructions to make payments to third parties or into offshore bank accounts.
- You are asked to pay much less than the full market price for the goods.
- You are offered an unsecured loan with unrealistic interest rates and/or terms.
Wednesday, 1 June 2011
Why Stamp Duty Form Changes?
Stamp Duty Land Tax (SDLT) forms have changed, but why?
The forms used to report Stamp Duty Land Tax (SDLT) due on a purchase of UK land and property are changing. The lead purchaser must now provide an identity number such as NI number and date of birth. Where the purchaser is a company the company's tax reference number (UTR) or VAT registration number should be used. Partnerships should use their UTR or VAT registration number.
If the lead purchaser does not have any of the above reference numbers, as they are not registered for tax in the UK, they should use another unique reference number such as passport number, and state the country of issue of the document.
The new forms have been available since 11 April 2011, and will become compulsory from 3 July 2011. The online filing system for SDLT will incorporate the changes from 3 July.
The Taxman may well be collecting the additional information for a reason, perhaps to cross-reference to taxpayers files!
The forms used to report Stamp Duty Land Tax (SDLT) due on a purchase of UK land and property are changing. The lead purchaser must now provide an identity number such as NI number and date of birth. Where the purchaser is a company the company's tax reference number (UTR) or VAT registration number should be used. Partnerships should use their UTR or VAT registration number.
If the lead purchaser does not have any of the above reference numbers, as they are not registered for tax in the UK, they should use another unique reference number such as passport number, and state the country of issue of the document.
The new forms have been available since 11 April 2011, and will become compulsory from 3 July 2011. The online filing system for SDLT will incorporate the changes from 3 July.
The Taxman may well be collecting the additional information for a reason, perhaps to cross-reference to taxpayers files!
Property Development Issues
There are a wide range of tax issues to consider when developing properties. Here we touch on just a few of them...
- Your own home is normally free of capital gains tax when you sell it, but this tax exemption does not apply if you purchase a property with the intention of developing it and turning a profit. In this case the profit you make could be subject to income tax (at rates of up to 50%) rather than capital gains tax (18% or 28%), as the Taxman will want to view the development activity as a trade. It is very rare that the Taxman succeeds in proving the development of a single property is a trade, but if you make a habit of developing and selling on properties, while claiming capital gains exemption, you could lay yourself open to a tax investigation.
- Where your property includes a significant amount of land, the profit attributed to the land in excess of half a hectare will normally be subject to capital gains tax. This half-hectare limit can be stretched in circumstances where the land and any accompanying outbuildings are closely related to the main residential building.
- When purchasing a run-down property to develop you must think about the cost of VAT. If you are not a VAT registered builder you normally can't reclaim the VAT on the development costs. However there is a scheme that allows DIY builders to reclaim VAT when a non-residential building is being converted into a home. There are a number of other conditions that must be met for this DIY builders scheme to apply.
- VAT may be charged at the lower rate of 5% on certain building services when the building has been empty for at least two years, or the development changes the number of dwellings in the building. The rules that allow this lower rate of VAT to apply are very complicated so you need to take advice before you start the development project.
If you are looking at property development it is important to get advice before proceeding.
- Your own home is normally free of capital gains tax when you sell it, but this tax exemption does not apply if you purchase a property with the intention of developing it and turning a profit. In this case the profit you make could be subject to income tax (at rates of up to 50%) rather than capital gains tax (18% or 28%), as the Taxman will want to view the development activity as a trade. It is very rare that the Taxman succeeds in proving the development of a single property is a trade, but if you make a habit of developing and selling on properties, while claiming capital gains exemption, you could lay yourself open to a tax investigation.
- Where your property includes a significant amount of land, the profit attributed to the land in excess of half a hectare will normally be subject to capital gains tax. This half-hectare limit can be stretched in circumstances where the land and any accompanying outbuildings are closely related to the main residential building.
- When purchasing a run-down property to develop you must think about the cost of VAT. If you are not a VAT registered builder you normally can't reclaim the VAT on the development costs. However there is a scheme that allows DIY builders to reclaim VAT when a non-residential building is being converted into a home. There are a number of other conditions that must be met for this DIY builders scheme to apply.
- VAT may be charged at the lower rate of 5% on certain building services when the building has been empty for at least two years, or the development changes the number of dwellings in the building. The rules that allow this lower rate of VAT to apply are very complicated so you need to take advice before you start the development project.
If you are looking at property development it is important to get advice before proceeding.
Tax Efficient Profit Extraction
As a company owner you can choose how to extract the profits from your company, and by making the right choices you can minimise the tax and NI paid by you and the company.
The Taxman would like you to take all the profits in the form of a salary and possibly a bonus, as these carry the highest NI charges and ensure the tax is deducted under PAYE before you get your hands on the net income. It is good practice to pay yourself a modest salary that does at least make use of your personal allowance (£7,475 for 2011/12), as this makes the best use of your tax free allowances. However, the maximum salary you can take so that neither you nor the company pay NICs is £7,072 in 2011/12, as the threshold for NICs is lower than the tax free threshold. As long as you salary is greater than £5,304 this counts as being a "pensionable year" in calculating your final state pension.
Most company owners extract any further amount they need in the form of dividends. If the gross dividend is less than the basic rate limit of £35,000 you will pay no further income tax on that income, and no NI charges. However, larger dividend payments will create an additional tax charge in your hands of 25% (for 40% taxpayers) of the net dividend or 36.1% (for 50% taxpayers).
If you don't actually need the income now consider extracting the profits in another form such as employer pension contributions although you will have to pay income tax on the pension you eventually receive.
You can also charge a rent for assets you own which the company uses. These assets could be real property (land) or intellectual property (e.g. patents). If you lend funds to the company it can pay you a commercial rate of interest on that loan. These profit extraction methods are free of NI charges.
We can discuss other methods of extracting profits, perhaps using your family members. Please contact us for specific advice in your own circumstances.
The Taxman would like you to take all the profits in the form of a salary and possibly a bonus, as these carry the highest NI charges and ensure the tax is deducted under PAYE before you get your hands on the net income. It is good practice to pay yourself a modest salary that does at least make use of your personal allowance (£7,475 for 2011/12), as this makes the best use of your tax free allowances. However, the maximum salary you can take so that neither you nor the company pay NICs is £7,072 in 2011/12, as the threshold for NICs is lower than the tax free threshold. As long as you salary is greater than £5,304 this counts as being a "pensionable year" in calculating your final state pension.
Most company owners extract any further amount they need in the form of dividends. If the gross dividend is less than the basic rate limit of £35,000 you will pay no further income tax on that income, and no NI charges. However, larger dividend payments will create an additional tax charge in your hands of 25% (for 40% taxpayers) of the net dividend or 36.1% (for 50% taxpayers).
If you don't actually need the income now consider extracting the profits in another form such as employer pension contributions although you will have to pay income tax on the pension you eventually receive.
You can also charge a rent for assets you own which the company uses. These assets could be real property (land) or intellectual property (e.g. patents). If you lend funds to the company it can pay you a commercial rate of interest on that loan. These profit extraction methods are free of NI charges.
We can discuss other methods of extracting profits, perhaps using your family members. Please contact us for specific advice in your own circumstances.
Monday, 9 May 2011
Capital Allowances for Holiday Lets
Do you own a property that qualifies as a furnished holiday let (FHL)? To qualify the property has to be commercially let for short periods for at least 70 days per year, although this minimum will increase to 105 days from April 2012. There are also some other conditions.
If your property does qualify as a FHL, have you claimed tax relief for all of the equipment included in and attached to that property? FHL properties have advantageous tax rules that permit capital allowances to be claimed for the cost of equipment used in the building, which is not the case for other let residential property.
Since April 2008 it has been easier to claim capital allowances on a range of items attached to buildings that qualify as integral features in addition to the usual fixtures that qualify.
For a typical FHL property capital allowances may be claimed on the following fixtures...
- Bathroom fittings
- Dishwasher
- Cooker
- Fridge-freezer
- Central heating
- Fitted carpets
- Swimming pool
For a new property with fitted kitchen, bathroom and carpets that cost £235,000, perhaps £25,000 would relate to the built-in fixtures. In addition you can claim capital allowances on the cost of furniture and curtains you provide in the property.
Capital allowances must be claimed in your tax return. A capital allowances claim for the tax year 2009/10 should have been included in your tax return submitted by 31 January 2011, but that return can be amended to include a claim before 31 January 2012. If the property is used for private purposes the capital allowance claim must be amended to reflect that private use.
A word of warning: HMRC is considering whether it will continue to accept claims for capital allowances for FHL properties following a Brief it released on 22 October 2010. Clarification of the meaning of this Brief has been requested by the Chartered Institute of Taxation, but has not been provided. In the meantime, if you don't claim, you don't get the tax relief.
If your property does qualify as a FHL, have you claimed tax relief for all of the equipment included in and attached to that property? FHL properties have advantageous tax rules that permit capital allowances to be claimed for the cost of equipment used in the building, which is not the case for other let residential property.
Since April 2008 it has been easier to claim capital allowances on a range of items attached to buildings that qualify as integral features in addition to the usual fixtures that qualify.
For a typical FHL property capital allowances may be claimed on the following fixtures...
- Bathroom fittings
- Dishwasher
- Cooker
- Fridge-freezer
- Central heating
- Fitted carpets
- Swimming pool
For a new property with fitted kitchen, bathroom and carpets that cost £235,000, perhaps £25,000 would relate to the built-in fixtures. In addition you can claim capital allowances on the cost of furniture and curtains you provide in the property.
Capital allowances must be claimed in your tax return. A capital allowances claim for the tax year 2009/10 should have been included in your tax return submitted by 31 January 2011, but that return can be amended to include a claim before 31 January 2012. If the property is used for private purposes the capital allowance claim must be amended to reflect that private use.
A word of warning: HMRC is considering whether it will continue to accept claims for capital allowances for FHL properties following a Brief it released on 22 October 2010. Clarification of the meaning of this Brief has been requested by the Chartered Institute of Taxation, but has not been provided. In the meantime, if you don't claim, you don't get the tax relief.
Tax Efficient Cars
There are quite a few types of car which have CO2 emissions of no more than 110g/km; including certain models of the Mini Cooper, Toyota Prius, Smart, and Fiat 500. If your company buys one of these low emissions cars new (not second hand), it can claim a tax deduction for the full cost in the year of purchase and for all its running costs.
Where the car is provided to a director or employee of the company for their own private use, or for the use of a member of their family (perhaps for son or daughter), the director/ employee will be taxed on 10% of the list price of the car for petrol cars and 13% for diesels.
For example a Mini Cooper 1.6D has CO2 emissions of 104g/km and a list price of £15,730. The director/employee will be taxed on £2,045 per year, and if their top tax rate is 40% this will give in an annual tax bill of £818. The company will also have to pay class 1A NICs of £282 per year, but that cost is tax allowable for the company. The company can also pick up the full cost of all servicing and insurance for the car with no extra tax charges.
Where the car is provided to a director or employee of the company for their own private use, or for the use of a member of their family (perhaps for son or daughter), the director/ employee will be taxed on 10% of the list price of the car for petrol cars and 13% for diesels.
For example a Mini Cooper 1.6D has CO2 emissions of 104g/km and a list price of £15,730. The director/employee will be taxed on £2,045 per year, and if their top tax rate is 40% this will give in an annual tax bill of £818. The company will also have to pay class 1A NICs of £282 per year, but that cost is tax allowable for the company. The company can also pick up the full cost of all servicing and insurance for the car with no extra tax charges.
Paying PAYE on Time
HMRC are encouraging businesses to pay all their taxes electronically. Only large employers with 250 or more employees, are currently required to pay PAYE and other payroll deductions to HMRC by electronic means, but this may become compulsory for all employers from October 2013.
Before then let's hope HMRC will sort out their banking to make it easier for employers to pay on time. At present they do NOT operate the Faster Payment Service (FPS) on any of their bank accounts, so you need to allow at least three working days for an electronic payment to reach the HMRC account. This means electronic payments of PAYE must leave your bank on 19th to arrive on 22nd of the month, assuming none of those days falls on a weekend or bank holiday.
To reduce the likelihood of PAYE payments going missing HMRC ask taxpayers to always include the Accounts Office (AO) reference on any PAYE payment. HMRC also recommend that the year and month the payment relates to should be added on to the end AO reference, without leaving a space. For example, PAYE for month 01 in 2011/12 (due 22 May 2011 for electronic payments), add 1201 to the AO ref.
Before then let's hope HMRC will sort out their banking to make it easier for employers to pay on time. At present they do NOT operate the Faster Payment Service (FPS) on any of their bank accounts, so you need to allow at least three working days for an electronic payment to reach the HMRC account. This means electronic payments of PAYE must leave your bank on 19th to arrive on 22nd of the month, assuming none of those days falls on a weekend or bank holiday.
To reduce the likelihood of PAYE payments going missing HMRC ask taxpayers to always include the Accounts Office (AO) reference on any PAYE payment. HMRC also recommend that the year and month the payment relates to should be added on to the end AO reference, without leaving a space. For example, PAYE for month 01 in 2011/12 (due 22 May 2011 for electronic payments), add 1201 to the AO ref.
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