Category

VAT

Potts & Co - Accountancy & Business Advice

Making Tax Digital Software

By | HMRC, Potts & Co Accountancy & Business Advice News, VAT

 

Most VAT registered traders will be required to file their VAT returns using MTD-compliant software for VAT periods beginning on and after 1 April 2019. If your VATable turnover is likely to be over £85,000 for the year to 31 March 2019 it is crucial to understand this software issue.

If you already use accounting software to send your VAT return to HMRC automatically, without a human typing the figures into HMRC’s online form, you are probably OK. Check with your software provider when they will upgrade their package to be MTD-compliant.

If you use a spreadsheet or other software to compile the VAT figures you are half way there. There are several low- cost forms of ‘bridging software’ available that will pull numbers from spreadsheets or certain accounting packages and pump them through an application programme interface (API) into HMRC’s system. Job done until at least 2020.

Businesses with entirely paper- based accounting records have a bigger mountain to climb. You do not have to leap straight into a cloud-based accounting package; there are other solutions we can discuss with you.

The second requirement of MTD is to have end-to-end digital accounting records. Many businesses retype figures at some stage of the accounting process, but that will not be permitted for VAT periods beginning on and after 1 April 2020. We have a little over a year to work out how to completely digitise your accounting system.

Let’s discuss your options.

Potts & Co Accountancy

Tax Data 2019-20

By | Budget Update, Corporation Tax, HMRC, Inheritance Tax (IHT), Personal Tax, Potts & Co Accountancy & Business Advice News, VAT

All figures are annual amounts Tax

Allowances
Personal allowance £12,500
Allowance withdrawn from £100,000
Transferable marriage allowance £1,250
Trading income £1,000
Property income £1,000
Rent-a-room £7,500
Tax on earnings
Earnings to £34,500 20%
£34,501 to £150,000 40%
Over £150,000 45%
Tax on earnings for Scottish residents
Earnings to £37,500 20%
£37,501 to £150,000 40%
Over £150,000 45%
Thresholds and rates for Scottish taxpayers TBA
Tax on interest
First £5,000 0%
20% taxpayers £1,000 @ 0%
40% taxpayers £500 @ 0%
Balance taxed at marginal rates
Tax on dividends
First £5,000 0%
Balance in band to £37,500 7.5%
£37,501 to £150,000 32.5%
Over £150,000 38.1%
National insurance
Class 1 employers 13.8% over £8,632
Under 21 (apprentices 25) 0% to £50,000
Class 1 employees 12% on £8,632 to £50,000;
2% above £50,000
Class 4 self-employed 9% on £8,632 to £50,000;
2% on profits above £50,000
Class 2 self-employed
Voluntary if profits under
£156
£6,365
Class 3 voluntary £780
Employment allowance
Set against employer’s Class 1 NIC
(Not available for one-person companies)
£3,000
Pension contributions
No earnings £3,600 gross
Otherwise 100% of earnings
Annual contribution caps:
No pension taken
Some pension taken
£40,000
£4,000
Adjusted income over £150,000:
annual cap tapered to
£10,000
Lifetime pension fund cap £1,055,000
Corporation tax
All profits 19%
VAT
Registration turnover £85,000
Deregistration turnover £83,000
Standard rate 20%
Reduced rate 5%
Inheritance tax
Nil rate band £325,000
Residence nil rate band £150,000
Excess taxed at 40%
Where 10% left to charity 36%
Capital gains tax
Within basic tax rate 10%
Higher tax bands 20%
Surcharge for residential property
and carried interest
8%
Entrepreneurs’ relief 10%
Investors’ relief 10%
Annual exempt amount £12,000

VAT Option To Tax

By | HMRC, Potts & Co Accountancy & Business Advice News, VAT

Commercial properties which are more than three years old will not have VAT attached to their sale or rent unless the owner or leaseholder has opted to apply it. This is called the “option to tax”.

There are three key questions to ask about your own commercial property:

– have you ever made an option to tax on this property?
– if you did where is the evidence? This would be a copy of form VAT 1614 and acknowledgement from HMRC; and
– if the option to tax was made more than 20 years ago, is it now appropriate to revoke that election?

All these questions will become urgent if you wish to sell the property as the buyer’s legal team will ask for evidence that VAT is correctly charged on the sale. Some businesses cannot recover VAT, so they would prefer to buy or lease a building without VAT.

If you believe that an option to tax is in place but there is no evidence, you could write to HMRC asking for a copy of the election but do not hold your breath. HMRC will take weeks to reply and if the election was made many years ago they may no longer have the paperwork.

If you have never let the property and VAT was not charged on the original acquisition, it is probably safe to assume that an option to tax has never been made.

It is a common misunderstanding that once a property is the subject of an option to tax it remains an “opted property” when sold. This is not the case. Each person with an interest in the property can make an independent decision whether to opt to tax or not.

Potts & Co - Accountancy & Business Advice

Making Tax Digital: What, When & How

By | HMRC, Making Tax Digital (MTD), VAT

If your business is VAT registered, and the turnover for the last year has exceeded  £85,000, you should soon receive a letter from HMRC stating that you must comply with the making tax digital (MTD) rules from April 2019.

The MTD regime requires you to keep all records relating to VAT in a digital format and submit VAT returns through MTD-compliant software. The online VAT return form on gov.uk will be closed to all businesses required to comply with the MTD for VAT regime. This is because HMRC wants to minimise the risk of human error in the submission of VAT figures.

The online form will remain open for businesses who have voluntarily registered for VAT and whose annual turnover is under £85,000. But beware, as soon as your turnover for the last 12 months exceeds  £85,000 you must comply with MTD from the start of your next VAT period.

You are responsible for keeping your business records in a digital form. This means recording the data from each transaction electronically. You don’t have to take a picture of each purchase receipt and sales invoice, but you must record the date of the sale, value excluding VAT and the VAT rate applied. Shops which use retail schemes can keep a digital record of the gross daily takings, so don’t have to record each sale separately.

A spreadsheet will qualify as a digital record if the VAT data can be transmitted via a digital link to MTD-compatible software, which submits it to HMRC. The digital link can be as simple as sending the spreadsheet to us by email, so we can import the data into our software.

Some businesses will prefer to use cloud-based accounting software, which enables people at different locations to access the data simultaneously. The accounting software will also automatically provide a back-up of the data.

If your accounting system hasn’t been updated for a while, contact us to discuss a more MTD-compatible model.

Potts & Co - Accountancy & Business Advice

VAT On Rewards For Crowdfunding

By | HMRC, Potts & Co Accountancy & Business Advice News, VAT

As an entrepreneur, you may look to a crowdfunding site to raise money for a new product. Prospective investors are asked to commit to a set level of funding; in return, they earn a package of rewards which expands with the level of funding. The VAT implications, however, can vary considerably.

HMRC treat the promise of rewards as a voucher for VAT purposes or sometimes as a pre-payment for goods or services. If the reward consists of one product, the treatment is simple: VAT is due when the investors hand over their money. However, when the reward package includes a number of items or services which carry different VAT rates (a ‘multi-purpose voucher’), VAT is due when rewards are received.

The difference in VAT tax points (the relevant date) between a single product reward and a multi-purpose reward voucher can be a considerable time period. If your business has not already registered for VAT when it starts to receive money through crowdfunding, the package of rewards can determine when you must register and account for VAT.

Don’t make VAT an afterthought: let us know your plans and we can discuss the implications in good time.

Potts & Co - Accountancy & Business Advice

Avoid VAT Penalties

By | HMRC, Potts & Co Accountancy & Business Advice News, VAT

As a VAT registered business, you have to do two things to avoid being charged a VAT penalty: pay your VAT on time and submit your VAT return on time.

If you fail on either of those requirements twice in twelve months, you are put on the VAT equivalent of the naughty step, the surcharge. Businesses with turnover of£ 150,000 or more don’t get that one-time free pass as they enter the surcharge period after just one late payment or late return filing.

The surcharge period is a serious lobster-pot, as once you are in you can’t get out until you demonstrate a full twelve months of good behaviour. Any late payment or late filing within that twelve months means the surcharge period is extended for a further twelve months.

What’s more, the penalties start racking up. The first missed deadline within the surcharge period generates a penalty of 2% of the late VAT, the second a 5% penalty, then 10%, and thereafter a painful 15% of the late-paid VAT. Even one day beyond the deadline means it’s late. However, it is easy to overlook a small penalty charge,
as (if your annual turnover is under £150,000) you won’t receive a penalty bill for less than £400 until you reach the 10% penalty level.

The lesson to learn is: pay your VAT on time, every time.

Potts & Co - Accountancy & Business Advice

Making Tax Digital: VAT First

By | Making Tax Digital (MTD), Potts & Co Accountancy & Business Advice News, VAT

The objective of the Making Tax Digital (MTD) project is to get businesses to record their accounting transactions digitally through accounting software and to use that software to report summary totals to HMRC each quarter. As VAT-registered businesses already submit VAT returns online, normally quarterly, the Government has decided that MTD reporting should start with VAT.

For periods beginning on and after 1 April 2019, VAT registered businesses with turnover at or above the VAT registration threshold (£85,000), will be required to use accounting software to submit the figures reported on each VAT return to HMRC. This will mean a change in practice for most businesses, as 88% currently take figures from their spreadsheets or accounting system and type the amounts manually into HMRC’s web based online VAT form.

Under MTD the VAT figures must flow directly from the accounting software, although it may be possible to have software that reads data from a spreadsheet.

Businesses who have voluntarily registered for VAT, as their turnover is under the VAT threshold, will not be required to enter the MTD reporting regime in April 2019. The MTD reporting will also be optional for those who are registered for VAT in the UK as non-resident traders and who have turnover under the VAT threshold.

There may be particular issues to overcome for VAT groups who need to combine data from several companies to submit on one VAT return and for businesses who need to adjust their accounting figures to accommodate VAT rules such as for partial exemption, capital goods and margin schemes.

Let’s talk about how we can work together to crack this MTD nut. It will be a case of using the software that best suits your business circumstances.

Potts & Co - Accountancy & Business Advice

VAT, MTD & Fraud

By | Budget Update, Making Tax Digital (MTD), Potts & Co Accountancy & Business Advice News, VAT

Registration

The UK’s VAT registration threshold is the highest in the EU at £85,000; some people argue that it holds back growth as businesses deliberately reduce sales to remain outside the VAT net. This may be true and the Treasury is going to look at how the VAT ‘cliff edge’ can be managed better.

In the meantime, the VAT registration threshold will be frozen at £85,000 until at least 2020 and the deregistration threshold will also be fixed at
£83,000. This helps you predict whether you will have to be VAT registered as at 1 April 2019.

This is the start date for the Making Tax Digital (MTD) regime, when all VAT-registered businesses with turnover above £85,000 will have to keep all their accounting records digitally and report their VAT figures quarterly to HMRC using accounting software.

Construction

The Government believes there are many ‘fly by night’ firms in the construction industry who charge VAT to their customers, then disappear before paying that VAT over to HMRC. To tackle this problem a reverse charge system for VAT will be introduced in October 2019 which will shift the VAT charge from the supplier to the customer. Businesses in the construction industry will have to adapt their account systems to cope with this change.

Online

Traders who sell online, and don’t charge VAT when they should, undercut honest UK traders who correctly charge VAT to their customers. From early 2018, online market places will be jointly and severally liable for VAT payments due on the goods sold through their site. The website will also have to display each seller’s VAT number and check that each number is valid.

Potts & Co - Accountancy & Business Advice

Reclaim Overseas VAT

By | HMRC, Potts & Co Accountancy & Business Advice News, VAT

When you incur VAT on business expenses in other EU countries, you mustn’t reclaim that VAT on your UK VAT return. However, if your business meets the following conditions it can reclaim the overseas VAT through HMRC’s VAT online services system:

• it must be registered for VAT in the UK;

• it must not be registered for VAT (or liable to be registered) in the country where the expenses were incurred;

• it must not have a place of business, fixed establishment or other residence, in that other EU country;

• it must not make supplies of goods or services in that EU country, except for transport services or services where the recipient pays the VAT.

You can claim for each complete quarter, if the refund claimed is €400 or more, or claim for the whole calendar year, if you are reclaiming €50 or more. These thresholds may vary in different countries. The deadline for submitting a claim for VAT incurred in 2016 is 30 September 2017; claims made after that date will not be accepted.

Your business can’t reclaim VAT on goods acquired for resale, or on goods brought into the UK from another EU country. The claim must be made in the national currency of the country to which the claim is directed. The supporting invoices must be retained, but those documents don’t need to be sent with the claim; they may be requested later.

There are rules on blocking refunds of VAT for particular categories of expenses, such as for business entertaining, which will differ across the EU. We can help you understand the rules on claiming overseas VAT.

Potts & Co - Accountancy & Business Advice

VAT flat-rate scheme

By | HMRC, Potts & Co Accountancy & Business Advice News, VAT

If you use the VAT flat rate scheme (FRS), you need to work out whether you spend at least 2% of your gross turnover, and at least £250 per quarter, on ‘relevant goods’. If you don’t, you must use a flat-rate percentage of 16.5% for that quarter, which removes all the financial benefit from using the FRS.

The definition of relevant goods doesn’t include goods you acquire to give away as promotional items or gifts or goods you buy to resell which are not part of your main business activity.

If you are unlikely to meet the 2% threshold, you may want to stop using the FRS and revert to normal VAT accounting. You can opt out of the FRS from the be-ginning of your VAT quarter with retrospective effect. For example, if your VAT quarter runs from 1 April to 30 June, you can opt out of the FRS from 1 April 2017 if you tell H MRC before you submit your VAT return for that quarter; this is due to be submitted by 7 July.

If you want to cease to be VAT registered, but you will carry on trading, you must tell HMRC in advance of the date you want to cancel your registration. This can’t be back-dated. Once deregistered, you won’t be able to reclaim VAT on purchases and you must not charge VAT on your sales.