VAT Flat Rate Scheme – A Quick review

The VAT Flat Rate Scheme is designed by HMRC to help and simplify the VAT Return process for small businesses. The scheme is aimed to ensure that businesses pay roughly the same amount of VAT without having to complete as much paperwork as other VAT schemes.

Using the VAT Flat Rate scheme, businesses pay VAT as a fixed percentage of their VAT inclusive turnover. The actual percentage used depends on the type of business. The scheme has been designed to simplify the way a business accounts for VAT and in so doing reduce the administration costs of complying with the VAT legislation.

The scheme is open to businesses that expect their annual taxable turnover in the next 12 months to be no more than £150,000, excluding VAT. The annual taxable turnover limit is the total of business sales during the year. It includes standard, reduced rate or zero rate sales and other supplies. It excludes the actual VAT charged, VAT exempt sales and sales of any capital assets.

Have a look at our VAT Services page for details.

Who can’t join the scheme?

You cannot join the Flat Rate Scheme if:

  • you have previously been registered and only came out of the scheme in the last 12 months;
  • you are, or were, within the previous 24 months, registered for VAT as the division of a larger business, or as part of a group, or you were eligible to do so;
  • you use one of the margin schemes for second-hand goods, art, antiques and collectibles, the Tour Operators’ Margin Scheme, or the Capital Goods Scheme;
  • you have been convicted of a VAT offence or charged a penalty for VAT evasion in the last year; or
  • your business is closely ‘associated’ with another business.

As part of an annual review, it may be advisable to check that clients using the scheme continue to qualify. Businesses that have joined the scheme can continue using the scheme provided their total business income does not exceed £230,000 in a 12 month period. There are also special rules where increased turnover is temporary.

A limited cost trader test was introduced in April 2017. Businesses that meet the definition of a ‘limited cost trader’ are required to use a fixed rate of 16.5%. The highest ‘regular’ rate is 14.5%. If your clients meet the definition of a limited cost trader then it would be worth investigating if it would be more beneficial for them to leave the scheme and account for VAT using standard VAT accounting.

The scheme is unlikely to be beneficial for your business if you:

  • Spend more on standard-rated business expenses than HMRC consider typical for your business sector;
  • Regularly receive a VAT repayment under standard VAT accounting; or
  • Make a lot of zero-rated or exempt sales.

 

Please contact us if you would like to discuss your options.

Landlords Need To Embrace A Digital Approach

HMRC are slowly rolling out their Making Tax Digital (MTD) scheme through Digital Approach. Eventually, selected landlords submitting their rental income and outgoings via self-assessment will need to embrace this new MTD requirement.

https://www.gov.uk/government/publications/making-tax-digital/overview-of-making-tax-digital#helping-businesses-self-employed-people-and-landlords-get-it-right-first-time

What will it involve?

Self-employed landlords with property income above £10,000 will need to follow the MTD for Income Tax rules from their next accounting period starting on or after 6 April 2023.

Essentially, affected landlords will need to upload quarterly figures – kept electronically – from their accounting software directly to HMRC’s servers. Most accounting software providers will provide this functionality.

Have a look at our Tax planning page for details.

And therein lies the rub. If your property business has income above £10,000, from April 2023, you need to be using accounting software that complies with MTD.

Many landlords still record their income and outgoings manually or use spreadsheets. Unless the spreadsheets can be adapted to provide the necessary upload functionality a more digitally responsive approach will be necessary.

Time to embrace a digital approach?

Although the MTD requirement is still some two years away, converting manual systems to a computerised approach takes time. We can help you select and convert your present accounting records to a software solution that can cope with MTD.

And there are real benefits. With a click of your computer mouse, you can access reports that give you real time information about your property business as well as satisfying the needs for MTD digital uploads to HMRC.

Please Contact Us if you would like to discuss your options.

When You Can Get Rollover Relief

Business Asset Rollover Relief is a valuable relief that allows you to defer payment of CGT on gains made when you sell or dispose of certain assets and use all or part of the proceeds to buy new assets. The relief means that the tax on the gain of the old asset is postponed. The amount of the gain is effectively rolled over into the cost of the new asset and any CGT liability is deferred until the new asset is sold.

https://www.gov.uk/hmrc-internal-manuals/capital-gains-manual/cg60280

Where only part of the proceeds from the sale of the old asset is used to buy a new asset a partial rollover claim can be made. It is also possible to claim for provisional rollover relief where you expect to buy new assets but haven’t done so yet. Interestingly, rollover relief can also be claimed if you use the proceeds from the sale of the old asset to improve assets you already own. The total amount of rollover relief is dependent on the total amount reinvested to purchase new assets.

Have a look at our Capital gains tax services.

HMRC’s internal manual lists the following key conditions for the relief:

  1. The old assets are within one of the classes listed in CG60280 and have been used solely for the purposes of the trade throughout the period of ownership, and
  2. the whole of the consideration obtained for the disposal is applied in acquiring new assets within one of the classes listed in CG60280 which are, on the acquisition taken into use wholly for the purposes of the trade.

There are also other qualifying conditions to be met to ensure entitlement to any relief. For example, you should purchase the new assets within 3 years of selling or disposing of the old ones (or up to one year before). Under certain circumstances, HMRC has the discretion to extend these time limits. In addition, both the old and new assets must be used by your business and the business must be trading when you sell the old assets and buy the new ones. You must claim relief within 4 years of the end of the tax year when you bought the new asset (or sold the old one, if that happened after).

If you are looking to know more about this; feel free to book a free consultation.

Tax When You Sell Shares In A Company

Capital Gains Tax (CGT) is normally charged at a simple flat rate of 20% when you sell shares unless they are in a CGT free wrapper such as an ISA or pension.

If you only pay basic rate tax and make a small capital gain you may only be subject to a reduced rate of 10%. Once the total of your taxable income and gains exceeds the higher rate threshold, the excess will be subject to 20% CGT. There is also an annual CGT exemption. This means that in the current tax year you can make £12,300 of gains before paying any CGT. The allowance applies to each member of a married couple or civil partnership.

https://www.gov.uk/

The usual due date for paying CGT you owe to HMRC on the sale of shares is the 31 January following the end of the tax year in which a capital gain was made. This means that CGT for any gains crystalised before 6 April 2021 will be due for payment on or before 31 January 2021. However, if you waited until the start of the next tax year you would have until 31 January 2022 to pay any CGT due. For example, you could benefit from this extra year to pay CGT due by waiting to crystallise a gain from the 5 April 2021 (2020-21 tax year) until the 6 April 2022 (2021-22 tax year).

Have a look at our Capital gains tax services.

The normal way to report a gain on the sale of shares is to complete the relevant sections of your Self-Assessment tax return. When calculating your gain, you can deduct certain costs of buying or sell shares such as stockbrokers’ fees or Stamp Duty Reserve Tax.

If you are looking to know more about this; feel free to book a free consultation.

Nil Rate Band For Inheritance Tax

The Inheritance Tax residence nil-rate band (RNRB) is a transferable allowance for married couples and civil partners (per person) when their main residence is passed down to a direct descendent such as children or grandchildren after their death.

https://www.gov.uk/

The RNRB came into effect on 6 April 2017 and was introduced in stages. The allowance increased to the present maximum level of £175,000 from 6 April 2020. Going forward, the allowance is set to increase in line with the Consumer Price Index. The allowance is available to the deceased person’s children or grandchildren. Any unused portion of the RNRB can be transferred to a surviving spouse or partner. The RNRB is on top of the existing £325,000 Inheritance Tax nil-rate band.

The allowance is available to the deceased person’s children or grandchildren. Taken together with the current Inheritance Tax limit of £325,000 this means that married couples and civil partners can pass on property worth up to £1 million free of Inheritance Tax to their direct descendants.

There is a tapering of the RNRB for estates worth more than £2 million even where the family home is left to direct descendants. The additional threshold will be reduced by £1 for every £2 that the estate is worth more than the £2 million taper threshold. This can result in the full amount of the RNRB being tapered away.

If you need any further help; feel free to contact us.

Construction Sector – VAT Reverse Charge

A further reminder that new VAT rules for the construction sector or building contractors and sub-contractors will come into effect from 1 March 2021. The new rules were originally expected to commence from 1 October 2019, but an initial 12-month delay was announced. The start date was then delayed for a further 5 months until 1 March 2021 due to the impact of the coronavirus pandemic.

https://www.gov.uk/guidance/vat-domestic-reverse-charge-for-building-and-construction-services

The new rules will make the supply of most construction services between the construction sector or building businesses subject to the domestic reverse charge. The reverse charge will only apply to supplies of specified construction services to other businesses in the construction sector.

This means that from 1 March 2021, sub-contractors will no longer add VAT to their supplies to most building customers, instead, contractors will be obliged to pay the deemed output VAT on behalf of their registered sub-contractor suppliers. This is known as the Domestic Reverse Charge. However, there is no loss of cash flow as the deemed output VAT can be deducted as input VAT subject to any existing restrictions; in this way the two entries on VAT returns cancel each other out.

This change will mean you that contractors will have to alter the way that supplies from sub-contractors are treated by their accounting software.

HMRC’s guidance states that, for invoices issued for specified supplies that become liable to the reverse charge, the VAT treatment for invoices with a tax point:

  • before 1 March 2021 – the normal VAT rules will apply, and VAT registered subcontractors should charge VAT at the appropriate rate on supplies
  • on or after 1 March 2021 – the domestic reverse charge will apply.

If you need any further help; feel free to contact us.

HMRC To Charge Income Tax To Recover CJRS Overclaims

Recover CJRS overclaims Those businesses who have over claimed a Coronavirus Job Retention Scheme (CJRS) grant must pay back the overpayment to HMRC.

The rules outlined below for paying HMRC back an overclaim also apply to businesses that would like to make a voluntary repayment because they do not want or need the CJRS grant. The CJRS is currently due to continuing until 30 April 2021.

https://www.gov.uk/government/publications/penalties-for-not-telling-hmrc-about-coronavirus-job-retention-scheme-grant-overpayments-ccfs48

Any overpayments can be corrected in your next claim. If you confirm that your business has been overpaid, the new claim amount will be reduced to reflect this overpayment. You will need to keep a record of this adjustment for six years.

The assessment can include:

  • any amounts not used to pay furloughed employees’ wages;
  • related costs within a reasonable period.

Employers must pay the amount due within 30 days of the assessment. HMRC can charge interest on any late payments and may also charge late payment penalties if the amount is still not paid 31 days after the due date.

If a company is insolvent and HMRC cannot recover the tax it owes, company officers can become personally liable to pay the tax charged on their companies’ overclaimed CJRS grants. Recover CJRS overclaims

 

Feel free to contact us to book an appointment if you are looking to know more about this news.

Furlough Grants Overclaim Repayment

Any business that has overclaimed a Coronavirus Job Retention Scheme (CJRS) grant must pay back the overclaim repayment to HMRC.

The rules outlined below for paying HMRC back an overclaim also applies to businesses that would like to make a voluntary repayment because they do not want or need the CJRS grant. The CJRS is currently due to continue until 30 April 2021.

Any overpayments can be corrected in your next claim. If you confirm that your business has been overpaid, the new claim amount will be reduced to reflect this overpayment. You will need to keep a record of this adjustment for six years.

https://www.gov.uk/guidance/pay-coronavirus-job-retention-scheme-grants-back#how-to-pay

Alternatively, if you are not making another claim under the CJRS then you can request a payment reference number and pay HMRC back within 30 days. This request needs to be made online.

HMRC’s guidance states that if you have overclaimed a grant and have not repaid it, you must notify HMRC by the latest of either:

  • 90 days after the date you received the grant you were not entitled to;
  • 90 days after the date you received the grant that you were no longer entitled to keep because your circumstances changed.

Late notifications of overclaimed grants could see the imposition of penalties. Any claims based on inaccurate information can be recovered by HMRC. However, HMRC has stated that they will not be actively looking for innocent errors in their compliance approach.

Having to repay HMRC is unlikely to be a cost that employers will have thought about, so it is important to ensure that all claims made for furloughed employees are accurate. Employers are required to keep full records relating to any CJRS claims (including adjustments) for a period of six years.

Feel free to contact us to book an appointment if you are looking to know more about this news.

Tax Returns Filing And Payment Deadline This Month

The 31 January 2021 tax returns filing deadline is not just the final date for submission of your Self-Assessment tax returns but also an important date for payment of tax due to HMRC.

This includes the payment of any balance of Self-Assessment liability for the 2019-20 plus the first payment on account due for the current 2020-21 tax year.

31 January 2021 is also the payment date for any CGT due on residential property sales made before the rules changed on 6 April 2020.

Please have a look at our personal tax services page.

If you missed the filing deadline then you will usually be charged a £100 fixed penalty if your return is up to 3 months late, regardless of whether you owed tax or not.

If you do not file and pay before 1 May 2021 then you will face further penalties unless you have made an arrangement with HMRC.

Self Assessment is a system HM Revenue and Customs (HMRC) uses to collect Income Tax. Tax is usually deducted automatically from wages, pensions and savings. People and businesses with other income must report it in a tax return.

Feel free to contact us to book an appointment if you are looking to know more about this news.

£4.6 Billion Lockdown Grants Announced

Following a rapid rise in COVID infections, from today 5th January 2021, England has been placed into a new lockdown. Following this the Chancellor has announced £4.6 billion lockdown grants of new lockdown grants to help support businesses forced to close. The lockdown in England is expected to last until March with a review not due to take place until the February half-term. There are also similar lockdowns across Scotland, Wales and Northern Ireland.

https://www.gov.uk/government/news/46-billion-in-new-lockdown-grants-to-support-businesses-and-protect-jobs

The new financial support announced sees the introduction of a new one-off top-up grant for retail, hospitality and leisure businesses worth up to £9,000 per property. The intention is to help businesses keep afloat until the Spring. This means that some 600,000 business premises across all nations of the UK will receive the one-off cash payment.

The amount businesses in England will be able to claim from their Local Authority for one-off top-ups depends on their rateable value:

  • Small businesses with a rateable value of or below £15,000 will be able to claim £4,000.
  • Medium-sized businesses with a rateable value between £15,000 and £51,000 will be able to claim £6,000.
  • Larger businesses with a rateable value over £51,000 will be able to claim £9,000.

£4.6 Billion Lockdown Grants Announced and The Chancellor also announced that another £594million will be added to a discretionary fund to help support other firms affected. The money will be allocated to Local Authorities and the Devolved Administrations to support other businesses not eligible for the grants outlined above.

The Chancellor, Rishi Sunak said:

‘The new strain of the virus presents us all with a huge challenge – and whilst the vaccine is being rolled out, we have needed to tighten restrictions further. Throughout the pandemic we’ve taken swift action to protect lives and livelihoods and today we’re announcing a further cash injection to support businesses and jobs until the Spring.

This will help businesses to get through the months ahead – and crucially it will help sustain jobs, so workers can be ready to return when they are able to reopen.’

The previously announced grants package for businesses is still available and the above measures are in addition to this.

Feel free to contact us to book an appointment if you are looking to know more about this news.

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