Archive for the ‘VAT’ Category

VAT rate change 1st January 2010 - What it means for you

Friday, December 18th, 2009

On 1 January 2010, the standard rate of VAT reverts to 17.5 per cent after a period of 13 months at 15 per cent.

Goods that are supplied or taken away before the 1st January can still be charged at 15%, even if they are paid for after that date..

Some businesses will still be trading at midnight on 31 December 2009 and HMRC has acknowledged it would be unfair to expect them to stop what they are doing on a busy New Year’s Eve and change their systems to cope with an extra 2.5 per cent VAT.  They will be allowed to continue applying the 15 per cent rate until their trading session ends that night, or until 6am, whichever is the earlier. The types of business affected are: pubs, clubs, restaurants and similar retail shops and telecommunications providers.

Exempt and partly exempt businesses (especially Charities) should consider taking advantage of early deliveries of goods, because, by so doing, they will minimise irrecoverable input tax.

Business owners should be aware that where a supply of services spans the change, i.e. it starts before 1 January 2010 but does not finish until on or after that date, the supplier may choose split his invoice to show amounts due at the two rates. As that treatment is optional, recipients of such services, whose input tax is not fully recoverable, should encourage their suppliers to take up the option.

You  should remember that the VAT fraction for determining the VAT amount from a VAT-inclusive figure reverts to 7/47, from 3/23.

Changes to the flat rate scheme

The percentages were revised downwards on 1 December 2008 when the standard rate was reduced to 15 per cent. However, the changes from 1 January 2010 will not only reflect the reversion to the 17.5 per cent standard rate, but also take into account business patterns across the various sectors over the last year.

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Do you have a valid VAT invoice?

Saturday, October 3rd, 2009

In my last post about reclaiming VAT on expenses incurred by an employee, I talked about getting a supplier to make out an invoice directly to the company.  But what should be included on a VAT invoice, and what will happen if any of the items that should be included, aren’t?

Valid VAT invoices

For an invoice to be valid in the taxman’s eyes, all of the following  must be present on the invoice:

  1. The invoice must contain a unique identifying invoice numberautomated-invoice-processing2
  2. The date of supply of goods/ services should be displayed
  3. The date of the invoice (the tax point)
  4. The name and address of the purchaser
  5. The type of supply (e.g sale of goods, lease, rental, commission etc)
  6. A description of the goods or services supplied
  7. For each description, a quantity of goods or extent of services supplied
  8. The total amount payable excluding VAT
  9. The rate and amount of any discounts offered
  10. The rates of VAT applied
  11. The amount of tax chargeable at each VAT rate
  12. The total amount of VAT chargeable

If any of the above is missing from an invoice, it is not a valid invoice for tax purposes and there is no legal entitlement to reclaim VAT on it.  It has been known for input VAT claims to be refused because of minor ommissions.

VAT invoice Tip

I would recommend using the list above as a checklist for supplier invoices.  Make sure you carry out spot checks on invoices you receive to ensure they meet all the criteria for being valid and that you don’t miss out on potential VAT reclaims.

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Don’t fall foul of the VAT reclaim trap

Saturday, October 3rd, 2009

There are occassions where the director of a business will need to pay for business expenditure out of his or her own pocket.  For example, you could be away on a trip and see a shiny new must have piece of equipment at a knock down price.  You don’t have your company card with you, but do have enough cash in your personal account, so you buy it and then claim it back on expenses from the company.  The problem is that the receipt is likely to be in your name, rather than the company’s, so how will the VAT inspector react on a VAT inspection?

The VAT reclaim rules in black and white

The law states that if a business wishes to reclaim VAT on purchases, several conditions must first be met, otherwise the VAT inspector could refuse your claim.  The two basic rules are:

  • The VAT must have been incurred by the person reclaiming it
  • The person making the reclaim must hold a valid VAT invoice for the supply

Exceptions to the rules

There are a couple of exceptions to these rules which all relate to small value purchases incurred in the course of business (i.e. less than £25 per transaction), such as:

  • Coin operated machinery
  • Car Parking
  • Toll charges
  • Telephone calls
  • subsistence claims

In these cases, the original receipt should be passed to the company by the employee/ director, but VAT can be reclaimed.

However, that doesn’t help with our original problem of the director buying a significant piece of equipment for the business on his personal card.

How to avoid the VAT trap

When you are buying goods in this way, you are really just acting as a conduit for your company, who are the real buyer, so you have met the first condition.

To meet the second it would be wise to ask the seller to make the invoice out to the company, even though you are paying the bill.  To avoid any concerns the seller may have, show him a business card to prove you are an employee of the company.

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Special schemes to account for VAT

Thursday, September 3rd, 2009

vat_thumbThere are a number of special VAT accounting schemes, which may have benefits for your business.  Three of the most popular are explained below:

Annual Accounting for VAT

If your business turnover is less than £1.35m, you may apply to HMRCE not to fill in quarterly VAT returns, but instead to complete one return a year.

Under this scheme, you must pay a monthly direct debit equal to an estimate of the years VAT liability (usually calculated by reference to the previous 12 months).  Any additional liability is then paid as a lump sum at the end of the year.

Under this scheme, businesses must remain self disciplined and ensure they keep a close eye on any VAT liability accruing throughout the year.  The last thing you need is a large balance to pay that you weren’t expecting.

The schemes main advantage is that there is certainty over the monthly VAT payment so you can correctly budget for it within your cashflow.

Cash Accounting for VAT

If your turnover is less than £1.35m, you may choose to only pay VAT to HMRC once your customers have paid you, rather than when you raise invoices to your customers.  however, similarly, you can only claim VAT back on your purchases once you have settled the bill with your supplier.

The main advantage of this scheme is that you don’t have to fund the VAT to HMRC out of sales proceeds as you only pay it across once you have received the VAT cash in.

Flat rate accounting for VAT

This scheme can be applied to businesses with turnovers less than £150,000 (excluding VAT).

Those who join the scheme do not need to record the VAT on their expenses.  Instead, the business continues to charge its customers at the full VAT rate (currently 15%), and then pays a fixed percentage of the gross sales over to HMRC.

The fixed percentage is based on the industry that the business is involved in.

This scheme is particularly beneficial to businesses who have few VAT’able expenses or who are looking to simplify their VAT recording.

Of course, you shouldn’t enter into any of these schemes without full consideration of all the facts.  Why not give us a call to see if any of these schemes would be beneficial to your business

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