Here we look at frequently asked questions we hear from our clients when considering potential tax changes after the Brexit transition period that may affect your personal and business income.

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Choosing the VAT Flat Rate scheme as a business owner may mean a simpler route for calculating, paying and recouping VAT in your business, where you pay a fixed rate of VAT and you get to keep the difference between what you charge to customers and what you pay to HMRC. There is therefore little need to monitor your VAT position on an ongoing basis as you always know what VAT you are due to pay and you could be left cash flow positive if you have a bumper level of sales in a given period.

So what circumstances would you no longer consider using the VAT Flat Rate Scheme (FRS)? There are a number of rules to consider which may cause you to reconsider your VAT position.

The turnover rule

If you are currently in the FRS and you are aware that your turnover in the last 12 months was more than £230,000 including VAT or if you forecast it will be at this level in the next 30 days, you will need to consider leaving the FRS.

New entrant to the FRS must have a turnover of £150,000 or less and the £230,000 maximum threshold means that you will need to consider moving on to either the Cash Accounting Scheme or Annual Accounting Scheme.

The FRS rate of tax varies dependent on the industry you work in, a full list of FRS rates can be found here.

Are you a limited cost business?

When HMRC consider the FRS rates of tax they will firstly decide whether you are a ‘limited cost business’ or not. If goods in your business cost less than 2% of your turnover or £1,000 a year, if your costs are more than 2%, you are considered a limited cost trader.

If you are classified as a limited cost trader, you have to pay a higher rate of VAT at 16.5%.

There is therefore no real economic benefit of using the FRS if you are classed as a limited cost trader, although the reporting to HMRC is much simpler. For example, the FRS rates currently range from 4% to 16.5%, quite a difference in VAT costs across industries using the FRS.

If you are lucky enough to be an industry that has a FRS rate of 4%, such as a retail clothing store or a newsagents, you can see the attraction of staying in the FRS if your turnover is below £230,000 – cash profit and less reporting to HMRC.

How do I know what VAT scheme is right for me?

As a business, we recommend regulator monitoring your turnover (excluding VAT) to ensure that you are on the right VAT scheme. Compulsory registration in the UK is required from businesses earning £85,000 or above in a given 12 month period, but businesses can also join FRS if they are below this turnover threshold if, for example, they are subject to suppliers who charge VAT on a regular basis, to reduce running costs.

Tax is never simple

We understand how difficult it is to run a small business and understand fully your tax and legal obligations, and making the most of the tax reliefs available to you.

Please call if you would like to discuss your options.

Written by Shaima Todd.

It is certainly tempting to wait until the eleventh hour to submit your Self Assessment Tax Return, and according to HMRC statistics, there is a surge of submissions close to midnight on 31 January each year. Here are 3 reasons why you should file your tax return early!

1. Timing is everything

Rather than rushing around a couple of days before the deadline to get your books in order and seeking out receipts from more than a year ago, if you start and organise early, you will hopefully avoid the annual panic that comes around every January!

2. Working on HMRC timescales

If this is the first year you are completing a tax return, you may not realise that it takes 1-2 weeks to register with HMRC, who send you a PIN code via post, which is required to submit your return.

Remember, if you miss the 31 January deadline, you will be immediately penalised with a £100 fine, so it’s worth getting organised now!

3. More time to budget and pay your tax bill

Did you know that you can submit your tax return as early as April after the tax year in question, for example for the 2018/19 tax return due by the end of this month, you could have completed this as early as April 2019!

By getting organised and completing your tax return as early as possible, you are gifting yourself more time to plan and budget for your tax bill, which is still due by the 31 January deadline no matter how early you submit your tax return!

I wish you had told me sooner, I think I am going to miss the deadline, what can I do?

The good news is that you won’t be hunted down by the taxman or the police with a late night knock on your door – phew! – although you will incur an immediate £100 penalty fine from HMRC as well as interest on any unpaid tax you are due.

The best next step is to complete and submit your tax return as soon as possible if you miss the 31 January deadline as the penalties will only keep going up. If you want to know what penalties you are liable for, HMRC have a handy calculator to check.

If you’re a sole trader or director of a Limited Company, we would be happy to help you through the self assessment process and get your tax return submitted as soon as possible. We may even be able to help you reduce any penalties you have incurred if you have a good enough excuse.

Please get in touch to see how we can help.