When must your VAT payment reach HMRC? The correct answer is: seven days after the end of the month following the end of your VAT quarter. Not seven working days but seven calendar days.

If you get this wrong and pay your VAT late, you will receive one or two warnings from HMRC (two where the penalty would be under £400). If you pay late again within 12 months you will be charged a penalty of 2% of the late paid VAT. This percentage penalty increases every time you pay late, from 5% to 10% to 15% of the VAT due. Even paying one day late counts as late for calculating those penalties.

Make sure you know exactly how long it will take your electronic payment to reach HMRC’s bank account. Using the faster payment service (FPS) normally means the payment arrives within two hours, but there are monetary limits for FPS which vary between banks and for different types of bank accounts (corporate or retail). If the payment is too large to be sent by FPS, the bank will generally send it by BACS – which takes three working days.

If you have a direct debit set up to pay your VAT, HMRC will deduct the correct amount from your bank account three days after the due date for that VAT return, or three days after you submit your VAT return if that is later. So if you are late with filing your VAT return, the direct debit will be collected late, and you will have made a late payment of VAT, leading to a potential penalty.

If you would like any further information, please do not hesitate to contact Southside Accountants Wimbledon & London.

Q. My company is considering purchasing a VW Caravelle for me to use as my family vehicle. It is sold by the commercial van centre rather than the VW car dealer. Does that mean the company can claim back the VAT on it?

A. VAT can only be reclaimed on commercial vehicles such as; lorries, vans, buses, or cars used for daily rental to customers or as demonstration vehicles in the motor industry. Irrespective of who sells the vehicle, if it is designed to carry people rather than goods it is a car not a van, unless it’s a bus designed to carry 12 or more people. To qualify as a van it must have a payload of at least 1000Kg.

If you would like any further information, please do not hesitate to contact Southside Accountants Wimbledon & London.

Q. I act as a DJ for parties and other events. For themed parties (e.g. Halloween, 1970s) I wear clothes to suit the occasion. Can I claim the cost of those clothes as an expense in my self-employed accounts? A. The Taxman will not allow a deduction for the cost of ordinary clothes which are required “for warmth and decency”. However, where the item is needed for safety purposes, like a hard-hat on a building site, the cost is allowable. The same applies for the cost of a costume worn to identify the person in a role, such as a barrister’s legal wig and gown, then the cost is normally allowable. If your clothes amount to a costume for entertaining, then the cost is normally allowable. However, if you also wear those clothes as part of your everyday wardrobe for warmth and decency then the cost is not allowable. Try asking yourself: “would I wear this when I am not working as a DJ”. If the answer is ‘yes’, the cost is not allowable.

If you would like any further information, please do not hesitate to contact Southside Accountants Wimbledon & London.

Q. In September 2013 I started working through my own company but I haven’t drawn a salary yet. Can I award myself tax free childcare vouchers as an employee of my company? I was previously on a salary of £50,000 with my former employer. Would that affect the amount of childcare vouchers I can receive tax free in this tax year?

A. As an employee of your company you can receive childcare vouchers. The other conditions of a childcare voucher scheme must also be met, For example, all other employees of your company should be offered childcare vouchers on the same terms. Your previous salary is not relevant to the amount of tax free childcare vouchers you can receive from your current employer. If your expected salary for this tax year (don’t include dividends or bonuses you may receive), will be less than the basic rate band – pro rata over the rest of the year, you can receive the maximum of £55 of tax free childcare vouchers per week.

If you would like any further information, please do not hesitate to contact Southside Accountants Wimbledon & London.

The seed enterprise investment scheme (SEIS) is designed to help small companies raise modest amounts of funding (up to £150,000). The investor must subscribe for new shares issued by the company (not buy them from another shareholder), and in return he can claim income tax relief equal to 50% of the cost of those shares.

If the investor has made a capital gain in the same tax year as he makes the SEIS investment, up to 50% of the amount invested in SEIS shares can be set against that capital gain to reduce the CGT payable. This CGT reduction was 100% for gains in 2012/13, but is only 50% for gains arising in 2013/14.

That sounds wonderful, but there are a lot of conditions for the investor and the company to comply with before the SEIS tax relief can be given.

The first hurdle is to check if the company’s trade will qualify for SEIS relief. Many ‘safe’ financial trades such as banking, money lending, accountancy or legal services are excluded. Also any trade where the company is likely to hold valuable property doesn’t qualify such as; running hotels or nursing homes, farming, woodland management, property development or property dealing.

Businesses which are related to any of the excluded trades need to be looked at very carefully. For example running a public house can qualify, but if it lets residential rooms it could be classified as a hotel which would mean it doesn’t qualify. An estate agent business may qualify, but a large part of an estate agent’s business can be arranging mortgages, which is a financial activity that doesn’t qualify. HMRC are prepared to provide assurance in advance of issuing shares as to whether a particular trade will qualify.

The second major hurdle is that the SEIS investor must not hold more than 30% of the company either alone, or together with relatives or other associates. Other shareholders can hold 30% or more of the company, but those shareholders will not be eligible for the SEIS tax relief.

An SEIS investor can invest up to £100,000 in a single tax year on which tax relief can be claimed, which can be spread over a number of companies.

If you would like any further information, please do not hesitate to contact Southside Accountants Wimbledon & London.

 

 

When you sell a business, you may receive some of the consideration up front and another payment later if the business meets certain targets, that later payment is called an ‘earn-out’.

How this earn-out is taxed can be tricky to work out, as it depends on a number of factors. For example: is the earn-out to be paid in cash or as shares or bonds, or is there a cash alternative to the offer of shares/bonds? Can the value of the earn-out be determined at the time the business was sold, or not until some later event has occurred?

Determining or ‘ascertaining’ the value of the earn-out is crucial for your capital gains tax computation.

If the earn-out can be ascertained (even within a broad range of values) at the time the business is sold, both the up-front and earn-out payments must be taxed as if they were both received together at the business sale date.

This can work in your favour. If the business sale qualifies for entrepreneurs’ relief, the up-front payment and earn-out which is taxed with it will also qualify for entrepreneurs’ relief. This reduces the tax payable on the earn-out to 10%. However, if the earn-out can’t be ascertained until it is received, it won’t qualify for entrepreneurs’ relief, so will be taxed at 28% (or your highest rate for CGT).

We should discuss all this before you finalise the sale of your business. There are numerous ways of structuring the payment for a business and they all have different tax implications.

If you would like any further information, please do not hesitate to contact Southside Accountants Wimbledon & London.

 

Real time information (RTI) is all about one-way communications with HMRC. Your payroll software sends reports (called FPS or EPS) to HMRC about the deductions made from your employees‘ pay, and normally you hear nothing back.

That is starting to change. HMRC is now sending electronic messages to employers to inform them that not all is well with their RTI reports. The first messages concern late submitted FPS reports, but in future there will be messages about late paid PAYE and missing RTI reports.

It is important to get the FPS in on time as then HMRC know that the amount of PAYE paid for the month agrees with the deductions you have reported on the FPS. HMRC will not impose penalties for any late FPS submitted within 2013/14, although the final FPS for 2013/14 (which closes the tax year), can carry a penalty if that is significantly late. The messages about late FPS reports are thus just a warning from HMRC in this tax year, but may indicate there is something wrong with your systems.

From 6 April 2014 there will be automatic penalties for filing a FPS late within the tax year. ‘Late’ means it arrives with HMRC after the date on which the employees were paid. There will also be penalties for paying PAYE late.

In order to pick up these electronic messages from HMRC you need to use your payroll software, or log on to HMRC’s PAYE online services, then look for notifications. The messages are also available using the HMRC’s PAYE desktop viewer (PDV) software package. However, the PDV has just been updated so you may need to download the latest version first.

These electronic messages about FPS will be the first of many important messages concerning RTI, so you need to get used to looking for them.

If you would like any further information, please do not hesitate to contact Southside Accountants Wimbledon & London.

Q. I’ve just won a sports car! The snag is the prize is only available from the company’s headquarters in Seattle, USA, although there is a cash alternative. Are there any tax implications of accepting the prize in the form of the car or as cash?

A. Most states in the USA impose a tax on competition prizes, but the awarding company may allow for that. There is no similar tax in the UK. If you take the car and ship it back to the UK there will be import duties and VAT to pay, so the cash alternative may be more tax efficient.

If you would like any further information, please do not hesitate to contact Southside Accountants Wimbledon & London.