Taskforce Targets Private Landlords

Apr29

The Taxman has announced a taskforce to investigate tax avoidance by landlords in South East England.

Private residential landlords have now been the subject of a taskforce in: Scotland, North Wales, London, East Anglia, North East, North West, and now South East England. That covers pretty much the whole of the UK. The message is clear; individuals who own rental properties must correctly declare all of the income and gains generated by those properties.

It is relatively easy for the Taxman to trace the owners of let properties through the Land Registry and compare the registered owner’s name to those recorded on the electoral roll for the property. If the names aren’t the same, the Taxman will assume the property has been let. He can also ask letting agents to provide lists of the landlords and properties they serve.

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

Business Record Checks

Apr24

The Taxman apparently believes that anyone who does business in cash must be a potential ‘tax cheat’. This is ridiculous of course, but his latest business record checks campaign is based on this fallacy.

If you receive a call from the Taxman asking questions about your business records, please refer the caller to us before agreeing to answer his questions. You should not be penalised for doing this. The Taxman is required to deal with the taxpayer’s agent if asked to do so.

The telephone questionnaire is a computer generated script, which only accepts a limited range of answers. For example: How many purchases are in cash? Answers accepted: none, a third, half or more.

The answers given determine whether the Taxman sends you guidance on how to keep better business records, or an Inspector to check what you may be doing wrong. Where the Taxman wants to inspect your business records, please ask us to be present when they come. The potential penalties for flying solo are not worth it.

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

Planning for RTI

Apr22

If you are an employer you should have received information from the Taxman about operating PAYE under Real Time Information (RTI).

Employers with fewer than 5001 employees will have to operate RTI from 6 April 2013, and that includes one-man companies. Some employers have already started to use RTI under the pilot program. Individuals who employ carers in their own home may be able to defer migrating to RTI until April 2014.

You need to check whether your payroll software will be RTI-ready from April 2013. Don’t assume it will be. Some software providers have decided to discontinue legacy packages and force you to move to more expensive offerings. Even HMRC is cutting back on the free payroll software it provides. The HMRC PAYE Basic Tools will work under RTI, but only for up to nine employees, and it does not handle net pay arrangements for employer pension contributions.

If you use an external provider to run your payroll, you should talk to them about how much it will cost to run your payroll from April 2013. RTI requires more data to be submitted to the Tax Office than currently required (see below). Also the RTI reports must be sent on or before the day on which employees are paid, which could be daily or weekly. Currently the Taxman requires an annual report of what has been paid and deducted under PAYE.

The ‘on or before’ requirement has been relaxed in limited circumstances where employees are paid in cash on the day they work, and the amount of payment cannot be known in advance. This may apply to bar staff and crop-pickers. However, the RTI report must still be made within seven days of the day of payment, or when the next payroll is run, whichever comes next.

As the purpose of RTI is to provide accurate information to the DWP on claimants’ earnings, employers are also required to report the weekly hours worked by each employee, as they fall into the following bands:

A. Up to 15.99 hours
B. 16 to 29.99 hours
C. 30 hours or more
D. Other

You don’t have to record the exact hours worked, only the normal hours the employee is expected to work.

RTI penalties will commence from April 2013. However, these are only penalties for inaccurate returns, not for late returns.

Penalties for inaccurate returns are not issued automatically and generally are only applied after a PAYE inspection (employer compliance check). However, as under RTI the employer will be making as least 12 reports a year (full payment submissions: FPS), the risk of inaccuracies creeping in must be greater than under the current once a year reporting system.

Penalties for late FPSs submitted within the tax year will be issued automatically, but not until after April 2014. However, the final FPS for the tax years 2012/13 and 2013/14 will be subject to a late return penalty if it is not received by 19 May following the tax year end.

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

HMRC forms – PAYE

Apr17

Agent copies of forms

HMRC will no longer send a number of PAYE forms to Agents as part of its efficiency saving measures.

The following forms issued between now and December 2010 will now only be sent to the taxpayer and if appropriate the employer organisation. These forms include:

P800 – Tax calculation
P800 – Tax calculation
SA 250 – Letter advising the customer of their unique Taxpayer Reference and detailing the requirement to Complete an annual Self Assessment tax return
SA251 – Letter advising the customer that HMRC will not require future self assessment tax returns to be completed

The professional bodies will be making representations regarding the withdrawal of the agent’s copies of these forms but, in the meantime, it is important that clients keep their agents informed of all forms and correspondence with HMRC.

Tax calculations – end of year PAYE reconciliations

You have probably realised from the recent media coverage, that HMRC started sending out Forms P800 tax calculations for 2008/9 and 2009/10 to taxpayers from 6 September 2010. The purpose of the forms is to reconcile an individual’s total PAYE income and tax liabilities, rather than looking at the separate sources in isolation.

The types of taxpayer that will be most affected by this would typically include:

Employees in receipt of new benefits in kind
People with more than one job
Pensioners with multiple pensions

The forms will only be sent to taxpayers who have paid too much or too little tax. Agents will not be sent a copy of these forms so, if you receive one, it is important to send it to your agent.

P2 Notices of coding

Notice of coding explains to the taxpayer what the tax code is and how it is worked out. If the amounts are incorrect the taxpayer could end up paying too much or too little tax.

Taxpayers and Agents will need to quickly check any notices they receive and ensure that they are revised by HMRC before the new tax year starts.

As mentioned above, agents will no longer receive copies of P2 Notices of Coding and, therefore, they should be sent to your agent as soon as they are received.

Forms SA250 and SA251

These forms are important as they notify taxpayers of whether or not they are required to complete a self-assessment tax return.

These are important forms and, once again, agent copies of these forms are to be withdrawn so, if you receive one, it is important to send it to your agent as soon as possible.

This is a guide for ACCA members to provide assistance when dealing with clients or informing colleagues. This document has no regulatory status and provides an overview of the changes.

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

Penalties for late payment of employer and contractor PAYE

Apr10

Penalties for late payment of PAYE from tax year 2011-12

This guide tells you about the late payments penalties which apply for all employers and contractors from May 2010. This includes:

National Insurance contributions (NICs)
Construction Industry Scheme deductions
Student Loan deductions.

Who will the penalties apply to?

The new late payment penalties will apply to all employers and contractors that do not pay on time. Large employers and contractors will still have to pay electronically, but the new penalties will replace the mandatory electronic payment surcharge.

How much will the penalties be and when will they be issued?

The amount of penalty depends on whether payment is due on a monthly or quarterly basis, or annually.

Monthly and quarterly payments

For late monthly and quarterly payments the penalty will start at 1% of the late amount and will increase to 4% depending on how many times you pay late. You will not have to pay a penalty if only one payment is late in any tax year, unless the payment is more than six months late.

Monthly and quarterly amounts more than six months late

HMRC may charge penalties of 5% of the amount that is late on any monthly or quarterly payments more than six months late. HMRC may also charge further penalties of 5% if you have still not paid after 12 months.

Annual payments (for example Class 1A NICs and PAYE Settlement Agreements)

HMRC may charge up to three penalties of 5% of the amount that is late, depending on the length of time that the amount is not paid in full.

What if I can’t pay?

Please ring the Business Payment Support Service on 0845 302 1435 as soon as possible.

In certain circumstances, HMRC may allow extra time to pay. If HMRC agree extra time to pay, HMRC will not charge further penalties on amounts included within the agreement from the date you approach them – provided you stick to the agreement. You may still have to pay penalties for earlier late payments. Any penalties you do have to pay may be included within the agreement.

What if I disagree?

You will be able to appeal against the liability to the penalty, for example because:

the payment was not late, or

there is a ‘reasonable excuse’ for being late.

You will also be able to appeal against the amount of the penalty.

Further information

Further information is on the HMRC website. Go to http://www.hmrc.gov.uk/paye/problems-inspections/late-payments.htm or from the home page use the quick link Paying HMRC and see the update in the PAYE/Class 1 National Insurance area.

These notes are for guidance only and reflect the position at the time of writing. They do not affect any right of appeal.

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

Enterprise Investment Scheme (EIS) – The Tax Reliefs Condensed

Apr1

A LOOK AT THE TAX RELIEFS AVAILABLE UNDER THE EIS SCHEME

The Chancellor, George Osborne, has identified the Enterprise Investment Scheme as being an important scheme for encouraging investment in small business. The scheme has been with us since 1994, having taken over from the business expansion scheme but, given the current landscape with regard to obtaining business finance, the government are keen to promote the scheme as an alternative means of promoting business finance.

The rules and restrictions of the EIS Scheme are considered in our separate Guide to Enterprise Investment Scheme – The Rules Condensed. The Office of Tax Simplification recently identified the EIS scheme as being ‘four reliefs in one’; here we look at those reliefs.

1. Income Tax Relief

From 6 April 2012, the investor may up to £1,000,000 (combined maximum for Enterprise Investment Scheme and Venture Capital Trust investment) in a tax year and obtain a tax reducer of 30% of the amount of investment. It is possible to carry back the amount paid to the previous tax year. Any amount may be carried back, subject to the overriding maximum for the previous year not being exceeded. Dividends received are not subject to income tax.

2. Capital Gains Tax Exemption

If the investor has received Income Tax relief (which has not subsequently been withdrawn) on the cost of the shares, and the shares are disposed of after they have been held for at least three years from the date of issue of the shares (or three years from the date of commencement of the qualifying trade, if later), then any capital gain on the disposal of the EIS shares will be exempt from capital gains tax.

3. Capital Gains Tax Deferral

Capital gains realised on the sale of any asset may be deferred against investments in an EIS scheme; the gains crystallise when the EIS investment is disposed of.

4. Loss Relief

If the shares are disposed of at a loss, you can elect that the amount of the loss, less any Income Tax relief given, can be set against income of the year in which they were disposed of, or any income of the previous year, instead of being set off against any capital gains.

Let us look at some of these reliefs more closely by way of an example:

_____________________________________________________________________

Mr Yorke has taxable income, after allowances, for 2012/13 of £200,000. He makes an EIS investment on 1 November 2012 of £100,000. Mr Yorke had previously made a capital gain on 14 October 2011 on a sculpture (after his annual capital gains tax exemption) of £100,000.

Mr Yorke has been told that he could significantly reduce his tax liabilities if he makes an investment under the enterprise investment scheme and is considering an investment of £100,000.

Let us compare his tax position firstly on the assumption that he makes no EIS investment with the position if he makes the £100,000 EIS investment:

Without EIS investment:		With £100,000 EIS Investment:

2011/12 Capital Gains Tax Position:		2011/12 Capital Gains Tax Position:

	£		£

Gain after annual exemption	100,000	Gain after annual exemption	100,000

		Less: Gain rolled over against
		cost of EIS investment	-100,000


Gain chargeable to CGT	100,000		0


CGT thereon @28%		CGT thereon @28%
(Mr Yorke has fully utilised his		(Mr Yorke has fully utilised his
basic rate tax band against		basic rate tax band against
his income)	£28,000	his income)	£0



2012/13 Income Tax Position:		2012/13 Income Tax Position:

Taxable income	200,000	Taxable income	200,000

Income tax thereon:		Income tax thereon:
34,370 x 20% =	6,874	34,370 x 20% =	6,874
115,630 x 40% =	46,252	115,630 x 40% =	46,252
50,000 x 50% =	25,000	50,000 x 50% =	25,000
	78,126		78,126

		Less:
		Tax reducer (EIS investment):
		£100,000 x 30% =	-30,000


Income tax liability	£78,126	Income tax liability	£48,126



TOTAL OF 2011/12 CGT AND 2012/13 INCOME TAX LIABILITIES	£106,126		£48,126

Tax saving:			£58,000

In the above scenario, Mr Yorke has achieved a tax saving equal to 58% of the cost of the investment or, to put it another way, he has made a £100,000 investment at a cost of £42,000.

If the shares are held for the requisite three year period, any eventual capital gain on the sale of the EIS shares themselves will be free from capital gains tax. It is important to note, however that the gain held over from 2011/12 is only “deferred” against the EIS shares and is not itself exempt. It may be possible for Mr Yorke to sell the EIS shares piecemeal at a later date and realise the deferred 2011/12 in stages by making part disposals of the EIS holding, thereby utilising several years’ annual CGT exemptions in the process.

If we continue the above example further:

____________________________________________________________________

Let us assume that that in 2015/16, the EIS investment goes bad and the company is wound-up with Mr Yorke receiving nothing for his shares. Mr Yorke’s taxable income, after any allowances but before share loss relief, is £300,000 and he has made no other capital gains or losses during the year. Let us compare the tax position both with and without a claim for relief for the losses on the shares against income. (assume all rates and allowances remain the same as for 2011/12.)

2015/16 Income Tax Position		2015/16 Income Tax Position:
assuming NO share loss relief claimed:		assuming EIS share loss relief claimed:

	£			£

Taxable income	300,000	Taxable income		300,000

		Less: Share loss relief:
		Loss on EIS shares
			100,000
		Income tax relief
		given 2011/12	-30,000
				-70,000
Chargeable to tax	300,000	Chargeable to tax		230,000



Income tax thereon*:		Income tax thereon:
32,245 x 20% =	6,449	32,245 x 20% =		6,449
117,755 x 40% =	47,102	117,755 x 40% =		47,102
150,000 x 45% =	67,500	80,000 x 45% =		36,000
	121,051			93,551


Income tax liability	£121,051	Income tax liability		£89,551


Tax saving 2015/16				£31,500

Plus: Tax Savings from 2010/11 and 2011/12				£58,000

TOTAL TAX SAVINGS				£89,500

(NB: 2013/14 Tax rates used in above example)

Note: In the above scenario, the capital gain deferred from 2010/11 would crystallise but Mr Yorke could “serial” defer the gain into a further EIS investment.

_____________________________________________________________________

It can therefore be seen that, even though the worst case scenario has happened in the above example and the investment has become valueless, the tax savings achieved can be as high as 89.5% of the original cost of the investment. So, even though the enterprise investment is aimed at encouraging investment in smaller, higher risk companies, the tax reliefs available can make them look considerably less “risky” in the eyes of a potential investor.

Withdrawal of Relief

One of the biggest problems with EIS is that the tax reliefs will be withdrawn if, during the three year qualifying period, either:

the investor or an associate becomes connected with the company
the company loses its qualifying status
any of the shares are disposed of (unless the disposal is to a spouse or civil partner – in those circumstances the shares are treated as if the spouse or civil partner had subscribed for them)
the investor (or an associate) ‘receive value’ from the company (or a person connected with that company). Receiving value is broadly defined and includes receiving a loan or benefit from the company, or receiving an asset from the company at below market value..

There is an obligation to inform your HMRC within 60 days of any of the events above occurring.

This document has no regulatory status and provides an overview of the scheme.

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

A guide to VAT Registration

Mar20

LEGAL

The requirement for a taxable person/business to register for VAT in the UK is included in the Value Added Tax Act 1994 (VATA 94).

The administration of VAT and registration is performed by HM Revenue & Customs (HMRC). For a simple VAT registration, form VAT1 (form VAT2 for partnerships) needs to be completed and submitted to HMRC. Details of registering and completing the registration form can be found in the VAT Notice 700/1, titled “Should I be registered for VAT?”

http://customs.hmrc.gov.uk/channelsPortalWebApp/channelsPortalWebApp.portal?_nfpb=true&_pageLabel=pageLibrary_PublicNoticesAndInfoSheets&propertyType=document&columns=1&id=HMCE_CL_000086

TYPES OF REGISTRATION
There are a number ways of registering for VAT, each one has been detailed below with a small example to help you decide the timing of your effective date of registration.
Compulsory VAT registration: The current VAT registration threshold is £73,000 from 1 April 2011 (previously £70,000). VAT registration threshold is usually increased annually, therefore to see if the threshold has been exceeded the annual change must be taken into account. There are two prescribed methods of determining the obligation to compulsorily register for VAT.

When working out a person’s taxable income, all income must be aggregated to determine the liability to register for VAT. There is anti-avoidance provision, known as disaggregation, which prevents businesses being artificially separated. In these circumstances HMRC looks at financial, economic or organisational links.

The first method can be simply described as the ‘looking back’ rule. Essentially, you look back at the previous 12 months to see if the taxable turnover has exceeded the registration threshold. Once the VAT registration threshold has been exceeded, HMRC must be notified by the end of the following month and registration by the beginning of the following month or earlier by mutual agreement.

Example 1

A business commenced 1 April 2011 and supplies of £10,000 per month are made. The business does not wish to register for VAT until it is obliged to do so.

The registration threshold is exceeded in month eight, i.e. November 2011 (8 x £10,000 = £80,000). As the requirement to register was exceeded at the end of November, the business would therefore need to notify HMRC by 31 December and will be registered for VAT from 1 January 2012.

The second method can be simply described as the ‘looking forward’ rule. If you know that within the next 30 days that you will exceed the registration threshold you will have an obligation to register for VAT.

Example 2

A business commenced 1 April 2011 and supplies of £10,000 per month. On the 21 June 2011 an order of £80,000 is placed and needs to be completed by the end of the month. As the registration threshold is exceeded notification needs to be made to HMRC by 20 July and the business needs to be registered from 21 June.

Voluntary VAT registration: There are a number of advantages for voluntarily registering for VAT. This is a way of improving the status of a company and for growing businesses registering for VAT earlier than required avoids any later registration penalties. This also allows a business to claim input tax on initial expenditure.

Intending trader registration: This method of registration is used by businesses prior to beginning to trade. HMRC need to be satisfied that a business intends to make taxable supplies and is entitled to be registered for VAT. If there are changes to the intention once the business is registered, the business must notify HMRC if its intention is no longer to make taxable supplies.

Exemption from VAT registration: An exemption is available for businesses that only make zero-rated supplies. Though not regularly used, these businesses are usually in a net VAT repayment situation. This exemption may be useful in situations where the administrative burden and cost would be greater than the actual VAT recovered.

Group Registration: Group companies under common control can apply for a group VAT registration. There are a number of advantages; intra-group transfers are ignored for VAT purposes. The group registration has to elect a representative member, who must account for the group Output tax and Input tax. This does not vindicate other group members of any liability as all members are held as jointly and severally liable.

To be included within a VAT group, members must be “bodies corporate”, establishments or fixed establishments in the UK and be under “common control”.

Further details can be found in VAT Notice 700/2

http://customs.hmrc.gov.uk/channelsPortalWebApp/channelsPortalWebApp.portal?_nfpb=true&_pageLabel=pageLibrary_PublicNoticesAndInfoSheets&propertyType=document&columns=1&id=HMCE_CL_000094

Divisional Registration: This type of registration is adequately described in the title, a divisional registration. This is a special type of registration available that provides some administrative advantages, though due to complexities it is not often used.

Further details can be found in VAT Notice 700/2

http://customs.hmrc.gov.uk/channelsPortalWebApp/channelsPortalWebApp.portal?_nfpb=true&_pageLabel=pageLibrary_PublicNoticesAndInfoSheets&propertyType=document&columns=1&id=HMCE_CL_000094

DEREGISTRATION

Though this guide is about registering for VAT, it is important to know the two main types of deregistration, compulsory deregistration and voluntary deregistration. There are a number of circumstances that will force a trader to be compulsorily deregistered. For current voluntary deregistration the threshold is £71,000 from 1 April 2011 (previously £68,000). Please note that the VAT deregistration threshold is usually increased annually.

TAXABLE SUPPLIES

Taxable turnover includes standard rated, zero rated, private use, reverse charge, self-supplies and acquisitions from other EU member states. Exempt and outside the scope supplies do not need to be included.

Another category of sales that would bring a supplier to become liable to UK VAT is ‘Distance Selling’. This is where supplies are made from another EC country directly to a non-VAT registered entity, a typical example is a mail order business. The threshold to note here is £70,000, distance sales to the UK exceeding this threshold will require the business to register for UK VAT, the option of earlier voluntary registration is also available.

PRE-VAT REGISTRATION EXPENSES AND ADMINISTRATION

Pre-registration expenses

One of the key questions businesses ask in VAT registration situations is regarding pre-registration input tax recovery.

There are separate rules for goods and services. For goods to qualify for input tax recovery they must have been purchased for the purposes of the business and not supplied onwards or consumed before the date of registration, and finally the VAT must have been incurred within three years of the date of registration.

For services for qualify, the cost must have been incurred for business purposes and the VAT must have been incurred within six months of the date of VAT registration.

In both situations the input tax recovery is subject to being supported by an appropriate VAT invoice. Also, the input VAT would be claimed through the businesses first VAT registration.

Administration

Output VAT only needs to be accounted for from the date of VAT registration. VAT invoices cannot be issued until a VAT registration number has been issued. This can present businesses that are waiting for their VAT registration number with an administrative issue. The general practice is to issue invoices ‘gross’ with the legend ‘VAT registration number applied for’. The invoice must not show a VAT amount on the invoice.

Once a VAT number is attained, invoices issued with the legend mentioned above would need to be re-issued correctly displaying the VAT amount.

FAILURE TO NOTIFY

Failure to register your business on time or to notify HMRC of your liability will result in a penalty. The penalties regime has been reconstructed and is effective for periods commencing 1 April 2009. For further details on the new penalties regime, please refer to ACCA’s ‘Guide to…The New Penalties Regime’:

http://www.accaglobal.com/documents/penalties.doc

A trader may wish to challenge the penalty with a reasonable excuse. However, HMRC has stated that a lack of funding or reliance on a third party will not be accepted as reasonable excuses.

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

A guide to Reasonable excuse

Mar13

INTRODUCTION

‘Reasonable excuse’ is a term which regularly appears in indirect tax legislation, but has only recently received much attention in relation to direct tax matters.

Where ‘reasonable excuse’ is established, penalties are withdrawn or not charged, however, there is no definition of ‘reasonable excuse’ in the legislation.

Some cases recently heard by the tribunals have concerned HMRC’s insistence that ‘reasonable excuse must involve an exceptional event beyond the control of the taxpayer,’ which appears to have no basis in law.

Penalties usually relate to late filing of a tax return or late payment of tax. Section 71(1) VAT Act 1994 states:

‘For the purpose of sections 59 to 70 which refers to a reasonable excuse for any conduct –

(a) an insufficiency of funds to pay any VAT due is not a reasonable excuse; and

(b) where reliance is placed upon any other person to perform any task, neither the fact of that reliance nor any dilatoriness or inaccuracy on the part of the person relied upon is a reasonable excuse…’

HMRC have always refused to accept as a reasonable excuse:

ignorance of the law
oversight or misunderstanding
error
preoccupation with work
inexperience of business affairs
no intention to escape payment of tax.

There is no definition of ‘reasonable excuse’ in the legislation, so the recent First-Tier Tribunal cases are of particular interest.

Successful appeals:

HMRC failed to issue a notice of cancellation of gross payment for CIS Scheme
late payment of tax was due to insufficiency of funds. This is not normally a ‘reasonable excuse’, but was caused by HMRC having cancelled gross payment status on an earlier occasion, which had been subsequently overturned on appeal
ten failures to comply had been put forward as grounds for cancellation of the gross payment scheme. HMRC admitted that eight were their fault and one was allowed as a ‘reasonable excuse’. HMRC had failed to exercise their discretion as required by the law. Indeed they appear to consider that they must apply penalties
a taxpayer had heard from the media that the Government had announced that firms suffering difficulties would be able to spread their payment on a timetable they could afford. He was not computer-literate and therefore did not visit HMRC’s website and did not realise that this must be agreed in advance. The tribunal accepted that taxpayers do have their limitations and that this was a misunderstanding
the directors of a company had received incorrect advice that they did not have to file a return and could ignore filing penalties because they did not have any income. The directors tried dealing with HMRC who sent replacement returns to the wrong address. This is interesting, since HMRC will not accept reliance on a third party as a reasonable excuse, but does reflect the fact that taxpayers can be vulnerable to incorrect advice.
the majority of tax related to the sale of a partnership and LLP and the consequent capital gain. The taxpayer decided to pay the income tax immediately and pay the capital gains tax by instalments. He agreed a plan of ten monthly instalments which was confirmed by HMRC, but did not realise that HMRC did not have details of his bank account. He had contacted HMRC and told them that payments were not being collected. The tribunal has no power to mitigate a penalty, but decided that the taxpayer’s actions had been reasonable and quashed the penalty.

Unsuccessful appeals:

an American was paid removal expenses by his company, but failed to show the excess over £8,000. When he filed the return, he had not received his P11D and HMRC were aware of this. He had relied upon his accountants to prepare the return and did not know that, unlike American tax, UK tax is charged on removal expenses to the extent that they exceed £8,000. HMRC’s compliance handbook states that ‘a person who goes to an apparently competent professional adviser, gives the adviser a full and accurate set of facts, checks the adviser’s work or advice to the best of their ability and competence and adopts it, will have taken reasonable care to avoid inaccuracy.’ Despite this, his appeal was rejected
a taxpayer submitted an appeal against 243 penalties imposed for late filing of 31 monthly CIS returns. His marriage had broken down and he had been locked out of his house, from which he ran his business. Despite claiming ill health, he had been able to continue running his business. The appeal was dismissed
a late filing penalty of a self assessment return was the subject of another appeal. The taxpayer felt that he had a reasonable excuse as he was on sick leave, having had a mild stroke. He had recently been through a divorce and was supporting two daughters. His appeal was rejected

CIS returns were submitted late and penalties imposed. The taxpayer had appointed new agents, who submitted paper returns; the previous agent had submitted returns online. Penalty notices were issued, but some time later the agents wrote to HMRC. Meanwhile, HMRC wrote to the taxpayer, enclosing a 64-8. The agents stated that the form was ‘re-completed’ and sent on 4 June, but as the form was enclosed with HMRC’s letter dated 4 June, the tribunal was not convinced that this was the case. The appeal was dismissed as they could find no evidence that the taxpayer’s returns had been submitted prior to 29 June. This illustrates that proof of posting is important.

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

A guide to The Flat Rate Scheme

Mar6

UNDERSTANDING THE FLAT RATE SCHEME
As an overview, the Flat Rate Scheme allows you to apply a single percentage to your turnover to work out your VAT liability. This is one amongst a number of schemes offered by HM Revenue & Customs (HMRC) aimed at easing the administrative burdens small businesses face.

The scheme provides a number of advantages, such as:

the simplicity of the scheme, removing some administrative burdens

no partial exempt calculation needs to be performed
no fuel scale charge needs to be paid for businesses paying road fuel.
HMRC offer a 1% discount for new VAT registered businesses under this scheme (the discount only applies to the first year of registration)

HMRC produce a ‘Ready Reckoner’ to see how using the scheme will affect your business, this can be found at: http://www.hmrc.gov.uk/vat/start/schemes/flat-rate.htm

Please note that this scheme can be used by partially exempt businesses, and with ‘Annual accounting scheme’. The Flat Rate Scheme has its own versions of a cash accounting and retail scheme, but is not applicable to margin scheme, retail scheme and cash accounting scheme users.

Eligibility for the scheme

A business is eligible for the scheme providing both the following two tests are satisfied.

Test 1 is the value of your taxable supplies in the next year does not to exceed £150,000 excluding VAT ignoring the sale of capital assets but include:

standard, reduced and zero rated supplies.

sale of second-hand goods sold outside the margin scheme
sale of investment gold detailed in the VAT Act Section 55 (see VAT Notice 701/21 Gold for further details)

Test 2 is the value of your taxable supplies in the next year does not to exceed £191,500 including VAT ignoring the sale of capital assets but include:

all the items included for Test 1

the value of exempt supplies (such as rent, lottery commission, bank interest etc.)
any other income received or receivable (such as non-business etc.)

The scheme can be used until your total turnover exceeds £230,000 excluding ‘one-off’ increases in sales (which need to be notified to HMRC in order to remain in the scheme This must be checked on the anniversary of joining the scheme. If you are aware that within the next 30 days the threshold of £230,000 will be exceeded you will have to leave the scheme.

There are also a number of other restrictions to joining the scheme, you cannot join the scheme if:

you are not VAT registered

you use the second-hand margin scheme or the auctioneers’ scheme
you are required to use the tour operators margin scheme
you are required to use the Capital Goods Scheme
you have stopped using the Flat Rate scheme in the previous 12 months
you have accepted a compound penalty offer or been convicted of an offence in connection with VAT in the last 12 months;
you have been assessed to a penalty for conduct involving dishonest conduct in the last 12 months;
you have been registered for VAT in a VAT Group in the last 24 months
you have been registered for VAT in a VAT division in the last 24 months
you have been eligible for a VAT group registration in the last 24 months
your business is ‘associated’ or closely linked with another business within the last two years

APPLYING FOR THE SCHEME

The scheme does not automatically apply, application is made by completing and submitting form VAT 600FRS:

http://customs.hmrc.gov.uk/channelsPortalWebApp/channelsPortalWebApp.portal?_nfpb=true&_pageLabel=pageLibrary_ShowContent&id=HMCE_CL_000057&propertyType=document

The application form has to be sent to:

National Registration Service

HM Revenue & Customs

Imperial House

77 Victoria Street

Grimsby

Lincolnshire

DN31 1DB

The application form can also be submitted by email to: frsapplications@hmrc.gsi.gov.uk

If you are also registering for VAT, the form VAT 600FRS can be submitted with the VAT registration form VAT1. In addition a business can join the ‘Annual Accounting Scheme’ together with this scheme, please see the ‘Guide to The Annual Accounting Scheme’ for further details.

The Flat Rate Scheme will usually begin from the next VAT period following the receipt of the application form. Applying the scheme to an earlier period must be agreed with HMRC. HMRC will notify you when your business can start using the scheme.

If you wish to leave the scheme notice must be made in writing to the Annual Accounting Registration Unit.

USING THE SCHEME

Calculating the Flat Rate percentage

The key issue with this scheme is determining the appropriate flat rate percentage. HMRC have recommended a four step process in order to establish the correct percentage.

Step 1 – Review the table of flat rates percentages and see if your business is mentioned

Step 2 – Re-review the table making sure that your business is not mentioned in a composite sector
Step 3 – If your sector is not mentioned look at the Businesses not mentioned elsewhere
Step 4 – Finally If you are still unsure then phone the National Advice Service on 0845 010 9000

The choice you make should be on a sensible and reasonable basis, evidence should be retained as to why a particular choice was made. This could help prevent issues later if HMRC were to challenge the rate used.

If your business looks like it fits into two or more sectors, the percentage of your main business activity (by reference to turnover) should be used. If this balance of business activity changes, continue using the current percentage for the remainder of the VAT year and then change the percentage used if appropriate.

Where a business activity starts or stops the same review needs to be done in addition to checking that this change does not make your business ineligible for the scheme. Any change in flat rate percentage must be notified to HMRC within 30 days of the change or to: Enquiries.estn@hmrc.gsi.gov.uk

Calculating the turnover

The next step is applying the percentage to your turnover, which includes:

VAT inclusive sales and takings of standard rated, zero rates and reduced rate supplies

Exempt supplies (such as rent or lottery commission)
Supplies of capital expenditure goods unless they are in relation to goods where the VAT has been calculated outside the flat rate scheme
Despatches to other European Commission countries

Amounts excluded from turnover are:

Private income

Proceeds from the sale of goods you own but not used in the business
Sales of gold detailed in the VAT Act Section 55 (see VAT Notice 701/21 Gold for further details)
Non-business income and supplies outside the scope of UK VAT
Sale of capital expenditure on which input tax was claimed

Without confusing matters, your business will have to determine how the turnover is calculated as there are three ways of calculating your turnover.

Basic turnover – Mainly for businesses that deal with other VAT registered businesses.

Cash based turnover – Similar to the Cash Accounting Scheme, the turnover is on a cash received basis.
Retailer’s turnover – Similar to the retail scheme, used mainly for businesses that sell goods to the public.

Care must be taken if you have any special circumstances to your business, if you buy or sell goods/services within or without the EU, partially exempt business, fuel scale charges, sales of second-hand margin goods and if you act as an agent. In addition, there are special rules for business like florists and Barristers.

Capital Expenditure

The scheme allows for capital expenditure, subject to rules, to be treated outside the scheme. Effectively, the input tax on a capital purchases costing more than £2,000 (including VAT) can be claimed in the normal manner, i.e. through box 4 of the VAT return. The expenditure must be for more than one purchase, over £2,000 and not for a service to qualify. An apportionment must be performed on capital items with a private use element.

To mirror the input tax treatment, if input tax was claimed on the purchase of a capital item, output tax must be charged on the sale. If the capital item was within the flat rate scheme, as for example it cost less than £2,000 then there is no output tax accountable on the sale.

Record keeping and administration

In regard to record keeping, the requirements relate to the flat rate turnover, details of the percentage used and how the tax was calculated. Additional requirements relate to certain capital expenditure in excess of £2,000 in value.

VAT invoices must still be issued for VAT registered customers. The rate of VAT on these invoices should be the appropriate rate of VAT and not the Flat rate percentage. Care must be taken when calculating your VAT liability, the calculation is based on the VAT inclusive total.

Care must be taken when completing the VAT return, as the normal rules are not followed. The differences are:

Box 1 – this will contain the flat rate scheme amount payable. In addition there maybe output tax on certain capital goods.
Box 2 – standard rated VAT on goods bought from other EC countries
Box 3 – completed in the normal way
Box 4 – this will normally be zero unless there have been capital goods purchased. In addition you can recover VAT on stocks and assets held at registration
Box 5 – completed in the normal way
Box 6 – the VAT inclusive amount is included. In addition supplies outside the scheme should be added as excluding VAT
Box 7 – this will normally be zero unless there have been capital goods purchased or acquired goods from other EU countries
Box 8 & 9 – completed in the normal way

Accounting treatment

The accounts for your entity need to be compiled using gross amounts. It is normal practice for the flat rate VAT due to be included as a deduction from the turnover figure. This is then disclosed by way of a ‘Turnover’ note to the accounts, for example:

“Turnover shown in the profit and low account shall exclude either VAT on taxable outputs or VAT imputed under the flat rate scheme.”

Alternatively the Flat rate VAT can be shown as a separate expense item within the Profit and Loss account.

FURTHER CONSIDERATION

Further details can be found on the HMRC website, as a source of reference please refer to the VAT Notice 733.

http://customs.hmrc.gov.uk/channelsPortalWebApp/channelsPortalWebApp.portal?_nfpb=true&_pageLabel=pageLibrary_ShowContent&propertyType=document&columns=1&id=HMCE_CL_000345#P39_3090

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

October Key Tax Dates

Mar4

1 – Due date for payment of Corporation Tax for the year ended 31 December 2011

5 – If a Tax Return has not been received, individuals and trustees must notify HMRC of new sources of income and chargeability in 2011/12

14 – Return and payment of CT61 tax due for quarter to 30 September 2012

19 – Tax and Class 1B NI due on PAYE settlements for 2011/12

19/22 – PAYE/NIC and CIS deductions due for month to 5/10/2012 or quarter 2 of 2012/13 for small employers

31 – Deadline for 2011/12 self assessment paper returns to be filed for HMRC to do the tax calculation. If a paper return is being filed also the deadline for tax underpaid to be collected by adjustment to your 2013/14 PAYE code (for underpayments of up to £3000 only)

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

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