VAT Opting to Tax on Buildings

Sep17

Buildings are generally exempt from VAT, but there are a lot of exceptions to this.

A person who holds an interest in a building (freehold or leasehold) can opt to tax the building, such that income from selling or letting the building is subject to VAT.

If you purchase a building and the purchase price includes VAT, you do not have to opt to tax that building.

Consider Ali who owns a VAT registered car repair business. He purchases a new commercial unit for £200,000 plus VAT of £40,000. The unit is used entirely for the car repair business, so Ali can reclaim the VAT of £40,000 in the same way he reclaims VAT on other purchases.

Ali does not have to opt to tax the unit to reclaim that VAT. In a few years Ali may want to sub-let the unit, in which case the rent will be exempt from VAT. This will make Ali’s business partially exempt, which may mean he cannot reclaim all the VAT charged on his purchases. In that situation Ali may choose to opt to tax the building so the rent must have VAT added.

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

Turnover is less than £75k per year, stop charging VAT?

May28

You must not stop charging VAT until you are given permission to do so by the VAT office. You need to apply to deregister for VAT on form VAT7, and send the completed form to the VAT deregistration office in Grimsby. You must continue to charge VAT on your sales until your application to deregister from VAT is accepted, and this has been confirmed by the VAT office.

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

VAT on Not Invoiced

Jan21

Q. My business recently bought an e-book reader from an online retailer. It will be used for business purposes but the retailer is refusing to provide me with a VAT invoice, saying their products are not provided for business purposes, so VAT invoices are not provided to VAT registered customers. How can I get the VAT invoice I need to claim back the VAT charged to my business?

A. If the customer (you) asks for a VAT invoice the supplier must provide one, but in practice you can’t force the retailer to comply with the VAT law. As long as you have documentary evidence that VAT was charged – the amount and rate – and evidence that you have tried to obtain a VAT invoice, you can reclaim the VAT charged in your VAT return.

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

A guide to The Cash Accounting Scheme

Jan2

UNDERSTANDING THE CASH ACCOUNTING SCHEME
As an overview, the Cash Accounting Scheme allows you to account for output tax on a payment received basis rather than when the tax invoice is issued. To mirror this treatment, input tax can only be claimed once payment has been made for supplies. 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:

a cash flow advantage, especially if you offer extended credit to your clients/customers.

automatic bad debt relief.

However, this scheme may not benefit businesses that are paid promptly at the point of sale, regularly reclaim VAT or make continuous supplies of services.

Please note that this scheme can be used together with ‘Annual accounting scheme’. This scheme cannot be used together with the ‘Flat rate scheme’. It must be noted that the ‘Flat Rate Scheme’ does have its own cash based method of accounting. In addition, the scheme can be used by partially exempt businesses.

Eligibility for the scheme

A business is eligible for the scheme providing the following conditions are met, most of which are self explanatory:

you expect the value of your taxable supplies in the next year not to exceed £1,350,000;
you have no VAT returns outstanding;
you have not been convicted of a VAT offence in the last year;
you have not accepted an offer to compound proceedings in connection with a VAT offence in the last year;
you have not been assessed to a penalty for VAT evasion involving dishonest conduct in the last year;
you do not owe HMRC any money or if you do, you have made arrangement with HMRC to clear the total amount of your outstanding VAT payments;
HMRC have not written to you withdrawing use of the scheme during the last year;
HMRC have not written to you and denied you access to the scheme; and
you comply with the conditions set out in VAT Notice 731.

The taxable supplies figure is the total of your standard, reduced and zero rated supplies excluding VAT. For this purpose, exempt supplies or sale of capital assets can be ignored. If you exceed the threshold for the scheme, provided that the estimates were made on reasonable grounds, HMRC will not levy a penalty.

The scheme can be used until your taxable supplies including the disposal of stock and capital assets does not exceed £1,600,000. Once this figure has been exceeded, excluding ‘one-off’ increases in sales, you will have to leave the scheme at the end of your current tax period.

APPLYING FOR THE SCHEME

HMRC do not require notification of entering into the scheme provided your business is eligible. If your business is already VAT registered, the scheme can be entered from the start of the next VAT period. Care must be taken not to account for VAT twice on both purchases and sales.

Similar to entering the scheme, HMRC do not need to be notified when exiting the scheme, a business can leave the scheme at the end of a VAT period.

USING THE SCHEME

The cash accounting scheme once applied must be used for the whole of your business apart from:

goods bought and sold under lease purchase, hire purchase, conditional sale or credit sale agreements

goods imported or acquired from another European Community Member State
certain goods where the purchasers must account for output tax, due to ‘reverse charging’
supplies where you issue a VAT invoice and payment of that invoice is not due for 6 months from the date of issue
supplies of goods or services where you issue a VAT invoice in advance of making a supply or providing the goods

Output tax

There are different tax points when accounting for output tax, dependent upon the payment method.

Cash (coins and notes) it is the date that you receive the money.

Bank transfers like, giro, standing orders or direct debits, the date is when your account has been credited with the payment.
Credit/debit cards it is the date the sales voucher is issued
Cheques are the date you receive the cheque or the date on the cheque, whichever is later.

Unless a deposit is taken as a security, a deposit will trigger a tax point and hence output tax needs to be accounted for. There are special rules for agents, factoring, selling debts, Imports and Exports (outside the EU), Acquisitions and Dispatches (within the EU), part payments, payments in kind and foreign currency payments.

Input tax

The tax point for accounting for input tax is:

Cash (coins and notes) it is the date that you pay the money.

Bank transfers like, giro, standing orders or direct debits, the date is when your account has been debited with the payment.
Credit/debit cards it is the date the sales voucher is issued
Cheques are the date you send the cheque or the date on the cheque, whichever is later.

Care must be taken for a partially exempt business, VAT Notice 706 provides further details on partial exemption.

Part Payments

Example 1

Net amount £1,000

VAT at 20% £200

Gross total £1,200

Payment received of £900, therefore the following fractions is used to work out the VAT to be allocated:

£900 / £1,200 x 100% = 75% the percentage is applied to the total VAT due of £200 x 75% = £150

Therefore £150 needs to be accounted for as VAT with the balance remaining of £50 accounted for when payment is received. If payment is received again in part, then a similar exercise needs to be performed to allocate the VAT due.

Example 2

Invoice A Invoice B

Date 1/6/11 Date 2/6/11

Net amount £1,000 Net amount £2,000

VAT at 20% £200 VAT at 20% £400

Gross total £1,200 Gross total £2,400

Payment received of £2,000, £1,200 should be allocated to the Invoice A first, leaving a balance of £800. As in the example1 above the following fraction is used to work out the VAT to be allocated:

£800 / £2,400 x 100% = 33% the percentage is applied to the total VAT due of £400 x 33% = £132

Therefore £132 (from Invoice B) together with £200 (from Invoice A) needs to be accounted for as VAT. The balance remaining of £268 (from Invoice B) is to be accounted for when payment is received. If payment is received again in part, then a similar exercise needs to be performed to allocate the VAT due.

Record keeping and administration

In regard to record keeping, the same rules apply as to all VAT registered businesses, details of which can be found in VAT Notice 700/21. However, there are additional record keeping requirements, for cash payments received in coins or notes, the customers copy of the invoice must be endorsed with the amount and date of payment. Similarly, if your business has paid suppliers in coins or notes your copy of an invoice must be endorsed in the same way.

FURTHER CONSIDERATION

Further details can be found on the HMRC website, as a source of reference please refer to the VAT Notice 731, produced by HM Revenue & Customs (HMRC).

http://customs.hmrc.gov.uk/channelsPortalWebApp/channelsPortalWebApp.portal?_nfpb=true&_pageLabel=pageVAT_ShowContent&id=HMCE_CL_000348&propertyType=document

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

Changes For VAT Flat Rate

Jan9

Question: Two years ago I joined the Flat Rate VAT and my turnover has gone up about the one hundred and fifty thousand pound limit. Does this mean I am done with the scheme?

Answer: Well there have been some changes and so long as your turnover does not top two hundred and twenty-five thousand pounds net of VAT for the twelve months, with cessation after one year of you joining the scheme, you are able to keep going.

However you need to include the two hundred and twenty-five thousand pounds and any non-inclusive income like lottery winnings or bank interest. If this pushes you past the limits, then you need to depart at the end of the VAT quarter.

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

Explanation of VAT Flat Rate Scheme

Aug1

What is the flat rate scheme?

The VAT flat rate scheme is designed to make it simpler and quicker for small businesses to complete their VAT return.

This is because VAT payable to HMRC is calculated as a particular percentage of the gross turnover of the business and not as the difference between VAT on individual sales and purchases. In particular there is no need to record the VAT incurred on most purchases and determine whether it is reclaimable or not, so there is less chance of error. The amount of VAT charged to customers remains the same whether using the flat rate scheme or not.

How will it help you?

The aim of the scheme is to simplify the way small businesses account for VAT so that you will spend less time and money keeping VAT records and calculating the VAT payable to HMRC.

Might you pay more VAT by using the flat rate scheme?

Some businesses will pay more and some will pay less VAT by using the scheme. This is because the flat rates are averages. You can estimate the effect on your business by using our calculator. Please click here for the calculator.

Who can join the scheme?

The scheme is open to small businesses whose annual taxable turnover (not including VAT) does not exceed £150,000.

Who cannot join the scheme?

There are some exclusions. You cannot use the scheme if you:

already use any of the schemes for second-hand goods, tour operators or capital goods;

have been guilty of a VAT offence or dishonesty in the last 12 months;

have been ‘associated’ with another business or have registered as part of a VAT group or in VAT divisions in the last 24 months.

How does the scheme differ from normal VAT rules?

Under the normal VAT rules you have to identify the VAT on each sale you make, record the value and VAT separately and pay the VAT to us as output tax. Similarly you have to identify the VAT included in the things your business buys, record the value and the VAT separately and claim the VAT back from HMRC as input tax.

Under the flat rate scheme you do not have to identify, or separately record, the VAT on your sales and purchases to calculate the VAT you owe. You simply record all the sales your business makes, including exempt sales, and apply the appropriate flat rate percentage for your trade sector to the total in each period. The result is the VAT you owe to HMRC.

How are the flat rates calculated?

The flat rate percentages are calculated from the net tax paid by all the businesses that are currently registered for VAT and eligible for the scheme. The net tax paid varies with different trade sectors and so there are a variety of flat rate percentages. You can find the flat rate perentage for your business here. The net tax calculated using the flat rate percentage allows for the fact that businesses can usually recover the tax paid on their purchases. Under the flat rate scheme you normally cannot claim input tax with some exceptions.

How do you calculate my flat rate turnover?

To calculate your turnover, you record the sales you make either at the time you invoice your customers or at the time you receive payment.

How do you calculate the VAT due?

At the end of each VAT period, take the VAT inclusive turnover of your business and multiply this by the flat rate percentage for your trade sector. For example, if your business is the repair of motor vehicles and your VAT inclusive turnover for the VAT period is £20,000 the calculation is: £20,000 x 6.5% = £1,350. So your tax due is £1,350.

What is the 1% reduction for new VAT registrations?

Newly VAT registered businesses use the flat rate for their sector minus 1%. So, if the rate for your sector is 9%, you apply a flat rate of 8% in your first year of VAT registration.

How do you recover VAT?

If you use the scheme you do not make a separate claim for input tax (VAT on your purchases) or for VAT on imports or acquisitions. The flat rate percentage includes an allowance for these items. Two exceptions follow.

What if you buy an expensive capital asset?

If you buy a single capital asset with an invoice value, including VAT, of £2,000 or more you can claim the the VAT on your VAT return in the normal way.

If you do recover VAT on an expensive capital asset, any subsequent disposal of that asset has to be accounted for using the normal VAT accounting rules. Add the VAT calculated to your flat rate calculation of VAT due.

Should you issue VAT invoices?

If your customers are registered for VAT, follow the normal rules and issue a VAT invoice. The flat rate scheme affects the way you calculate the VAT you owe to us but does not change the VAT rate applicable to your sales. This means that when you issue a VAT invoice, you show VAT on it at the normal rate for that type of supply (not the flat rate percentage)

Who can join the scheme?

You can apply to use the scheme if there are reasonable grounds for believing that the following turnover test is met:

Your taxable turnover (not including VAT) in the next year will be £150,000 or less.

How do I calculate my taxable turnover for the first turnover test to join the scheme?

The flat rate scheme is for small businesses. The first turnover test is the value of your taxable supplies (ie your sales) excluding VAT. For the first test, exclude any anticipated sales of capital assets but always include all of the following:

the VAT exclusive value of standard rate, zero rate and reduced rate supplies (ie Sales);

the VAT exclusive turnover from the sale of second hand goods sold outside the margin scheme; and

any sales of investment gold that are covered by the VAT Act

How do I calculate my total income for the second turnover test to join the scheme?

The second turnover test is the value (excluding VAT) of all your business supplies (ie sales) except anticipated sales of capital assets. This includes, in addition to your taxable supplies (sales), both of the following:

the value of any exempt supplies, such as rent or lottery commission; and

any other income received or receivable by your business. This includes any non-business income such as that from charitable or educational activities.

Note: non-business income is included in the joining test because the scheme is for small businesses. When you use the scheme, non-business income is not included in the VAT inclusive turnover to which the flat rate applies.

How do I know what my future turnover is going to be?

You may forecast your future turnover in any reasonable way. If you have been registered for VAT for 12 months or more, the turnover declared on your returns may be a reasonable guide but take into account any proposed or expected changes. If you are not VAT registered when you apply for the scheme, you may forecast your turnover by looking at:

any period of trading before you join the scheme or registered for VAT;

the turnover of the previous business owner; or

information on business plans or loan applications.

What if my future turnover rises over my forecast?

However you estimate your future turnover, HMRC will not penalise you provided there were reasonable grounds for what you forecast. It is sensible, therefore, to keep a record of what figures you used to calculate your future turnover. If your forecast of turnover had no reasonable basis, you may be excluded from the scheme immediately or even from the date your ineligible use began..

What if my turnover rises once I have joined the scheme?

You may stay in the scheme provided your total VAT inclusive turnover for the year just gone does not exceed £225,000. Make this check on each anniversary of your business joining the flat rate scheme. Additionally, you must leave the scheme if your income increases so that there are grounds for believing it will exceed £225,000 in the next 30 days alone.

How can I apply?

Call the National Advice Service on 0845 010 9000. They can take your application over the phone.

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

Flat Rate Scheme Can Help The Admin & Save You Money

Apr23

The flat rate scheme for small businesses is designed to simplify the completion of VAT returns for small businesses but it can also save you money. Do not confuse this scheme with the flat rate scheme for farmers, which is completely different. What happens is that rather than calculate the output and input VAT due every quarter, you simply apply a set percentage to your gross turnover (including the VAT charged to your customers) on a quarterly basis and this is the VAT due to HMRC. To use the scheme your annual taxable supplies (excluding VAT) must be less than £150,000. Total income includes all income falling within UK VAT, which includes zero rated and exempt supplies such as letting a residential building, but not services supplied to customers outside the UK. If you want to exclude certain income from the Flat rate VAT scheme, such as let property income, you must ensure that income is received by a different legal person than that which is applying for the scheme. . You must also not already use another special VAT scheme such as the second hand goods or tour operators scheme. The fixed percentage that you apply depends on the particular trade sector that the majority of your business falls into. The percentages vary from 5% to 14.5%. The turnover to apply the percentage to includes all zero rated and exempt income. To use the scheme you need to apply to HMRC. If you buy any capital assets such as computers costing over £2000 each, you can apply to get the VAT back on these separately. The scheme is designed to save on the administration costs of completing VAT returns, although you do still need to raise VAT invoices for your sales applying VAT at the normal VAT rate. However it is also worth calculating how much VAT you would pay on this scheme compared to what you pay without the scheme to see if there is a VAT saving to be made by switching to this scheme. There is often a saving where you have a low value of purchases for your business sector, or make sales that fall into more than one trade sector. So go check it out. If you would like any further information,

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

Requirement to File VAT Returns Online

Mar7

From 1/4/2010 all VAT registered businesses with turnover that exceeds £100,000 (excluding VAT) and all new VAT registered business will need to submit their VAT return online and pay the VAT electronically.

The online VAT return is similar to the paper version and there are no changes in the VAT rules. Further you will not need to change your record keeping system regardless of whether you maintain electronic or manual recording system.

Signing up for online VAT returns is straight forward. All you need to do is register on HMRC website.

Additional benefits of online VAT return is that you will receive an email reminder letting you know when you next VAT return is due. Further you get extra seven days (in addition to the usual month) to submit the return and ensuring your payment received by HMRC.

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

Can I reclaim the VAT on team/moral building expenses?

Feb7

You as an employer can recover VAT on expenses incurred on staff team building where this event is wholly for the business purpose. The same also applies to staff parties, staff outgoings and other similar events.

However, you will not be able to cover VAT where:

The event is exclusively for the directors of the business. For you to recover all staff should be invited to the event.

Where your employees merely acts as hosts to non-employees and the only purpose of the event is entertaining non- employees.

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

VAT – Basics

Dec2

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