Posts Tagged ‘VAT’

The VAT Increase – What it means for you

Thursday, December 30th, 2010

VAT increases to 20% with effect from the 4th January.  The normal tax point rules will apply, so if the invoice or payment is made before 4th January, VAT will be at 17.5%, on or after 4th January, it will be 20%.

Basic Rules

  1. Retailers should start accounting for VAT from 4th January using the VAT fraction 1/6th (of the amount the customer pays).  If the customer takes the goods away prior to the 4th, account for VAt at 17.5% (7/47ths)
  2. For all businesses that issue sales invoices, these should include VAT at 20% if raised on or after the 4th
  3. For supplies of services that span the change, you can charge 17.5% for those supplied before the 4th and 20% for those supplied afterwards.  You can choose to charge all at 20%
  4. Suppliers issuiing invoices before the 4th, but delivering after it can choose to charge 20%
  5. Businesses issuing quotes for work to start after 4th Jan, must include VAT at 20%, unless payment is to be recieved before then
  6. Refunds and credit notes should be given at the same VAT rate that the orginal invoice was issued at.
  7. Sales of tickets for events taking place in 2011 can still be charged at 17.5% up to 4th January.  This is because the point of payment is pre 4th January
  8. The VAT rate change will also impact on those using the flat rate scheme.  The new flat rates can be found here

HMRC have issued full guidance notes, which can be accessed here.  As always, if you have any questions on how these changes impact you, please give us a call

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3 Quick Bookkeeping Tips

Monday, August 23rd, 2010

Here are three quick bookkeeping tips based on my experiences of working with successful small businesses over the years.

1. Do it Frequently

How often have you looked at that ever growing mountain of paperwork and groaned?  How often have you then put off processing the paperwork in favour of doing something “more interesting”?  Then, when you finally can’t put it off any more, you have to spend what seems like days processing it all.

Sound familiar?

Setting some time aside in your diary each week to keep your books up to date will vastly reduce the amount of stress you suffer trying to get it all done just before the VAT deadline/ year end deadline.  It will also give your accountant many more opportunities to undertake some tax planning work for you to keep your tax bills down!

2.  Use a System

Systems help you keep everything in order and track activity.  Without them it’s easy to lose track of where you are with your business numbers.  We recently saw a great example where the business owner didn’t really keep his books during the year and preferred to pass over a box of papers to us at the year end.  In the process of pulling together his accounts, we found invoices that he had issued to customers and had never received payment for.  they totalled over £20,000!

I’m sure you are all familiar with computerised bookkeeping systems such as Sage & Quickbooks, which are, in my opinion, far too complicated for a small business owner to use.  Instead, I’d suggest using a system more in tune with your needs.  This can be anything from a manual system, through to a full blown ledger system that stores details of all the customers that owe you money and all the suppliers you owe money to.  At Accountancy Extra, we recommend two systems.  For a cash based business (eg cafes, restaraunts, shops etc) we have a free cashbook system that we give out to clients which helps them record all their takings and outgoings.  For more complicated businesses that sell or buy on credit, we recommend Kashflow, an online system that does so much more than just keeping track of your expenses.

3.  Outsource

If all of this seems too much like hard work. Or, if you could be doing something else, such as selling more of your product, why not consider outsourcing the bookkeeping  to a qualified bookkeeper.  Bookkeeping rates vary between about £15 an hour up to £25 an hour.  Here, we charge £20 an hour for bookkeeping and generally find that we can complete the work in about 2/3rds of the time that it takes the business owner.  That frees them up to go and do what they do best, sell their own products and services.  they can also sleep easily at night, knowing that the VAT is taken care of and that they can spend their weekends with their friends & families!

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New VAT Penalty Regime

Wednesday, June 2nd, 2010

The new electronic VAT regime has brought with it a number of changes to the ways and dates that VAT payments can be made to HMRCE.

From 1 April 2010 all VAT payments made by cheque will be treated as being paid on the day the cleared funds reach the Taxman’s account. Previously the VAT was treated as being paid on the working day the cheque reached the VAT Office. A cheque will normally take at least three working days to clear. Where VAT payment is received late more than once in 12 months you may have to pay a default surcharge (a penalty).  Of course, there is no guarantee that the cheque will be banked on the same day that it’s received either!

The Taxman will exercise his discretion not to charge a default surcharge for VAT periods that commenced before 1 April 2010, where the paper VAT form and the cheque payment are both received on time. VAT cheque payments for periods that begin on and after 1 April 2010 will have to clear the Taxman’s bank account by the due date, or surcharges may apply.

Where the VAT return is submitted online the payment for any VAT due must also be made online. However this can cause problems where the VAT due for the quarter exceeds £10,000.

Many banks impose a daily limit of £10,000 for electronic payments for both business and personal accounts. Larger electronic payments can be made by CHAPs but this may involve bank charges of up to £35 per transaction. You should also be aware that unlike normal business transactions, it takes HMRCE two days to clear, faster payments.

If your business is not already VAT registered but your sales are edging up towards the VAT compulsory registration threshold, (£70,000 from 1 April 2010), you need to be particularly careful about when you register. From 1 April 2010 there is a new set of penalties for failing to register for VAT on time. The penalty is based on the underpaid VAT. The minimum penalty will be 10% of the VAT due, and the maximum penalty 100%. The highest penalty will be charged where there has been deliberate concealment of the need to register for VAT.

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Tax and the Christmas party

Tuesday, November 17th, 2009

Christmas is drawing in on us at an ever increasing pace and at this time of year we, as business people, think about how to reward our teams for a hard years work.  A great way to do this is to throw a Christmas “bash” free of charge to attendees.

Employers can spend up to £150 a head annually on staff events, without HMRCE treating it as a taxable perk.

However, there are a few things that you need to be aware of and, if they aren’t followed, could cost you or your staff dearly.

  1. The allowance is £150 – on the nose. Go just £1 over this and the entire event becomes taxable, not just the excess.  The taxable benefit becomes £151, which means that tax and national insurance must be added on top.  This would make the event very expensive, either for the employer or the employee.
  2. You can spend the £150 on virtually anything you like, but make sure you keep the taxi fares and hotel accommodation within the £150
  3. The £150 also includes VAT, so be aware of including VAT in your budget
  4. The event must be open to all employees, not just a select few (although not all have to attend).  You can also extend the invitation to partners/ spouses and they too can benefit from the £150 allowance
  5. You don’t have to limit yourself to just one function a year.  You may decide to have two events a year at a cost of £75 each.  Be aware though, if the second event costs £76, then the whole £76 becomes a taxable benefit.
  6. Only annual events qualify, so going to the pub on a Friday teatime is out.  HMRCE have been known to pursue tax on an event which, despite it being within the limits, was to celebrate the companys 40th birthday.  Whilst this is an extreme interpretation of the rules, you need to weigh up the risk against the benefit

The HMRCE approach is to aggregate the cost of the event and divide it by the number of attendees, so there’s no need to worry that John in Marketing ordered the fillet steak!  Do make sure, however, that you keep accurate records of the costs of the event, and whatever you do – Don’t forget to close the free bar in time!

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HMRC New Penalty Regime

Tuesday, October 6th, 2009

HMRC have recently introduced a new penalty regime that applies to tax returns that under declare the amount of tax payable.  It applies to all tax return documents filed on or after 1st April 2009.  The penalties all centre around the care applied when producing and submitting the return.  In this article, we’ll look at why a penalty might be charged, the amounts of the penalty and what you can do to avoid getting charged.

Why might you get charged a HMRC penalty

The penalty regime is focused on both the accuracy of submitted information and the care that was taken in preparing the information.  HMRC state that there are four differant types of inacuracy:

  • An inacuracy made, despite the taxpayer taking reasonable care (in which case there will be no penalty)
  • A careless inacuracy
  • A deliberate, but not concealed error
  • A deliberate and concealed error

Penalties for inacuracies will impact across VAT, CIS, Income tax, Corporation Tax, Capital Gains Tax, PAYE and National insurance.

The penalty regime is designed to address the behaviours that led to the inacuracy.  As a result, the penalties for deliberate and concealed errors are substantially higher.

How much will you be charged

The penalties determined will depend upon how the error occured in the first place.  The regime has been put in place to encourage “correct compliance”.  An inacurate document must satisfy two conditions before the penalty can be charged:

  1. It must have led to an underpayment of tax, or a false reclaim of tax, and
  2. It must have been careless, deliberate or deliberate and concealed

If those two conditions are met, then a penalty can be applied.

The maximum levels of penalty range from 30% of the understatement of tax for a careless error, right through to 100% of tax due for a deliberate and concealed error.  A deliberate, but not concealed error, will lead to a maximum penalty of 70% of the tax due.

How to avoid being charged a penalty

The most obvious way of avoiding a penalty is not to make any mistakes on your tax returns!

However, occassionally mistakes do occur, so how can you reduce your penalties should you find yourself in thsi situation?

Quality of disclosure

Reductions of penalties can be made, dependant upon the quality of the disclosure following the discovery of the error:

  1. You can tell HMRC of the error, explaining how the error arose and making full disclosure of the inacuracies
  2. You can help HMRC in quantifying the under assessment
  3. You respond positively to requests for information and documents from HMRC

(These responses are taken from HMRC website)

The final way to avoid receiving penalties in the first place is to use your accountant to undertake as much of the work as possible in the first place.  Yes, it may cost you a few pounds more than you are currently paying, but could be well worth it in the long run to avoid being caught up in the penalty regime process.

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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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