Month: December 2021

Value Added Tax

Posted on by Rana Zubair

What is VAT:

VAT is acronym for Value Added Tax applied on purchase rate of taxable supplies and services.

Value added tax (VAT) is a type of indirect tax levied on goods and services for value added at every point of production or distribution cycle, starting from raw materials, and going all the way to the final retail purchase.

 

Why we pay VAT:

The main aim behind the introduction of VAT was to eliminate the presence of double taxation and the cascading effect from the then existing sales tax structure.

 

Why Knowing about VAT is important?

We have only covered a brief overview of VAT basic rules. You might need an expert who can provide you VAT Advice Services, VAT tax returns, payments, and penalties.

The rules for VAT are extremely complex and a business should establish the clauses applicable to them, this is to ensure they pay the correct VAT. This would also result in ensuring that businesses claim all the relevant reliefs available. This is worth mentioning that there are higher penalties for not complying to Value Added Tax Act 1994.

 

 

What are the current Rates of VAT:

There are 3 different rates for VAT depending upon the nature of goods and services:

  • Standard rate: 20% applies to most goods and services
  • Reduced rate: 5% applies to good and services like home energy, domestic fuel, children’s car seats, residential property conversions, mobility aids for older people
  • Zero rate: The goods and services under zero rate pay no VAT but are still under VAT regulation. Most foods, books and newspapers, children’s clothing, export from Northern Ireland to outside the EU and the UK get a 0% charge.

Exemptions:

Some goods and services are exempt from VAT which means one does not need to pay VAT on these.

The following are some of the items falling in the exemption list:

  • Insurance, finance, and credit
  • education and training services
  • fundraising events by charities
  • subscriptions to membership organizations

 

 

Partly exempt business:

There is another category which partially exempts businesses from VAT.

A business is partly exempt if they incur VAT on purchases that relate to exempt supplies.

We offer accounting services to small businesses in Ilford.

 

Current threshold to register for VAT:

If your taxable goods or services’ turnover exceed from £85,000 then you must register for VAT. The taxable turnover is the turnover generated from sales that are not exempt from VAT, even the goods or services with zero VAT rate is also considered in taxable turnover.

 

Registered late by Penalty
not more than 9 months late 5%
more than 9 months but not more than 18 months late 10%

 
more than 18 months late. 15%

There is a minimum penalty of £50.

 

Filing VAT return and paying:

Normally you must file your Vat return and pay your VAT at the end of each quarter, however HMRC may ask to file VAT return and pay for each month.

There is a penalty regime for late filing and payment of VAT.

We are tax accountants in East London that provides professional advice for tax filing.

 

Place of supply for services:

It is extremely important to consider about the place of supply because VAT is charged from the place of the supply.

 

VAT after Brexit:

The situation of VAT treatment has changed after Brexit and this has become more complex issue now.

 

VAT on good to/ from Northern Ireland:

There are sperate set of rules for good supplied from Northern Ireland and vice Vera after Brexit.

 

VAT Advice:

We provide VAT advice services as part of our Tax Planning service to various types of businesses for example, online trader, Consultants, retailers, manufacturing businesses. Our regular support ensures businesses don’t fall into HMRC investigation.

However, if your business is under HMRC investigation, we could help to reduce your stress.

 

We are here to help!

Please feel free to contact us for a no obligation consultation.

 

BADR associated disposals

Posted on by Mohsin Khan

Business Asset Rollover Relief (BADR) is the renamed Entrepreneurs’ Relief. The name change does not affect the operation of the relief. BADR applies to the sale of a business, shares in a trading company or an individual’s interest in a trading partnership. Where this relief is available CGT of 10% is payable in place of the standard rate. There are a number of qualifying conditions that must be met in order to qualify for the relief.

You can currently claim a total of £1 million in BADR over your lifetime. The £1m lifetime limit means you can qualify for the relief more than once. The lifetime limit may be higher if you sold assets before 11 March 2020.

One of the categories for claiming BADR concerns assets owned by the seller personally but that are used in a business carried on by either:

  1. a partnership of which they are a member, or
  2. by their personal trading company in which the seller is an officer or employee.

The disposal will only qualify as long as it’s associated with a qualifying disposal of either the sellers’ interest in the partnership or of shares or securities in the company.

BADR on the sale of an associated asset where say a property owner received full market rent from his company for use of the property, may restrict entitlement to BADR. Directors with commercial property often pay themselves a full market rent for use of the property as there is no NIC charge, but they may not have considered the loss of BADR when the property is subsequently sold. 

Claims for BADR are made either through the taxpayers Self-Assessment tax return or by filling in Section A of the Business Asset Disposal Relief help sheet. The deadline for claiming relief for the 2020-21 tax year is 31 January 2023.

Source: HM Revenue & Customs Tue, 14 Dec 2021 00:00:00 +0100

Tax Diary January/February 2022

Posted on by Mohsin Khan

1 January 2022 – Due date for Corporation Tax due for the year ended 31 March 2021.

19 January 2022 – PAYE and NIC deductions due for month ended 5 January 2022. (If you pay your tax electronically the due date is 22 January 2022).

19 January 2022 – Filing deadline for the CIS300 monthly return for the month ended 5 January 2022. 

19 January 2022 – CIS tax deducted for the month ended 5 January 2022 is payable by today.

31 January 2022 – Last day to file 2020-21 self-assessment tax returns online.

31 January 2022 – Balance of self-assessment tax owing for 2020-21 due to be settled on or before today unless you have elected to extend this deadline by formal agreement with HMRC. Also due is any first payment on account for 2021-22.

1 February 2022 – Due date for Corporation Tax payable for the year ended 30 April 2021.

19 February 2022 – PAYE and NIC deductions due for month ended 5 February 2022. (If you pay your tax electronically the due date is 22 February 2022)

19 February 2022 – Filing deadline for the CIS300 monthly return for the month ended 5 February 2022. 

19 February 2022 – CIS tax deducted for the month ended 5 February 2022 is payable by today.

Source: HM Revenue & Customs Thu, 16 Dec 2021 00:00:00 +0100

Gifts to spouse or charity

Posted on by Mohsin Khan

In most cases, there is no Capital Gains Tax (CGT) to be paid on the transfer of assets to a spouse or civil partner. There is, however, still a disposal that has taken place for CGT purposes effectively at no gain or loss on the date of the transfer. When the asset ultimately comes to be sold, the gain or loss will be calculated from when the asset was first owned by the original spouse or civil partner.

There are a few exceptions that couples should be aware of where the relief does not apply. This mainly relates to the use of goods which are sold on by the transferee’s business and for couples that were separated and not living together for the entire tax year when the assets were transferred. Spouses or civil partners that lived together at any point in the tax year when the assets were transferred can still benefit from these rules. If a transfer did not qualify then the asset must be retrospectively valued at the date of the transfer and the transferor is liable for any gain or loss.

There are similar rules for assets that are gifted to charities. However, CGT may be due where an asset is sold to a charity for more than was paid for it and less than the market value. The gain in this case would be calculated based on what the charity paid rather than the market value of the asset.

Source: HM Revenue & Customs Tue, 14 Dec 2021 00:00:00 +0100

Rent-a-room relief

Posted on by Mohsin Khan

The rent-a-room scheme is a set of special rules designed to help homeowners who rent-a-room in their home. If you are using this scheme, you should ensure that rents received from lodgers during the current tax year do no exceed £7,500. The tax exemption is automatic if you earn less than £7,500 and there are no specific tax reporting requirements.

The relief only applies to the letting of furnished accommodation and is used when a bedroom is rented out to a lodger by homeowners. The relief also simplifies the tax and administrative burden for those with rent-a-room income up to £7,500. The limit is reduced by half if the income from letting accommodation in the same property is shared by a joint owner of the property.

The rent-a-room limit includes any amounts received for meals, goods and services provided, such as cleaning or laundry. If gross receipts are more than the limit, taxpayers can choose between paying tax on the actual profit (gross rents minus actual expenses and capital allowances) or the gross receipts (and any balancing charges) minus the allowance – with no deduction for expenses or capital allowances.

Source: HM Revenue & Customs Tue, 14 Dec 2021 00:00:00 +0100

Postponed VAT accounting

Posted on by Rana Zubair

Since 1 January 2021, businesses registered for VAT have been able to account for import VAT on their VAT return, often referred to as postponed VAT accounting. For most businesses, this means that they can declare and recover import VAT on the same VAT return. The normal VAT recovery rules regarding any VAT that can be reclaimed apply.

This applies to all customs declarations that require businesses to account for import VAT, including supplementary declarations, except when HMRC have notified a business otherwise.

These rules save businesses from having to pay import VAT (at the port of entry) and to recover at a later date. This offers cashflow benefits for affected businesses. HMRC has confirmed that the postponed VAT accounting rules are to remain in place permanently.

Businesses are able to account for import VAT on imports into Great Britain (England, Scotland and Wales) from anywhere outside the UK. Businesses in Northern Ireland can use the postponed VAT accounting for goods imported from outside the UK and EU. The VAT rules for the movement of goods between Northern Ireland and the EU have not changed and remain subject to the Northern Ireland Protocol.

VAT registered businesses do not need any specific approval from HMRC in order to account for import VAT on their VAT return.

Next Step:

If you are looking to know more please feel free to Book a free consultation now.

The judgement in HMRC v Tooth

Posted on by Mohsin Khan

A recent Supreme Court decision examined in some detail HMRC’s powers in relation to issuing a discovery assessment. HMRC generally use discovery assessments where the statutory time limit for looking into a return has expired.

If certain conditions are satisfied, then HMRC can make a discovery assessment:

  • 4 years from the end of the year of assessment in which the further liability to tax arises where the loss of tax is not due to careless or deliberate behaviour
  • 6 years from the end of the year of assessment in which the further liability to tax arises where the loss of tax is due to careless behaviour of the relevant person.
  • 20 years from the end of the year of assessment in which the further liability to tax arises where the loss of tax is due to deliberate behaviour of the relevant person.

The case in question centred on two main issues. Firstly, whether there had been a deliberate inaccuracy in a 2007-8 tax return enabling HMRC to issue a discovery assessment within the extended 20-year limit and secondly, whether HMRC had made a valid discovery.

The First-tier Tribunal (FTT), the Upper Tribunal (UT) and the Court of Appeal all decided that HMRC could not assess the taxpayer. The Supreme Court held that the interpretation of the tax return by HMRC did not properly consider the whole document and that there was no inaccuracy. Commenting further, the Judges opined that even if there was, they would not have been satisfied that such an inaccuracy was deliberate. The Supreme Court also rejected the notion of 'staleness' in respect of the discovery assessments.

Source: Other Tue, 14 Dec 2021 00:00:00 +0100

Changes to customs declarations 1 January 2022

Posted on by Mohsin Khan

There are special procedures for importing goods into the UK. Following the end of the Brexit transition period on 31 December 2020, the process for importing goods from the EU effectively mirrors the process for all non-EU international destinations.

However, a number of easements had been in place to help ensure a smooth transition for goods coming from the EU. This included a delay in the requirement for full customs declarations and controls until the end of this year.

And so, from 1 January 2022, businesses will no longer be able to delay making import customs declarations under the Staged Customs Controls rules that have applied during 2021. This will mean that most businesses will have to make declarations and pay relevant tariffs at the point of import.

Affected businesses should ensure that they consider as a matter of urgency how they are going to submit customs declarations and pay any duties. Businesses can appoint an intermediary, such as a customs agent, to deal with their declarations or they can submit them directly; although this can be daunting for businesses unused to the processes involved.

There is a ‘Simplified Declarations’ authorisation from HMRC that allows some goods to be released directly to a specified customs procedure without having to provide a full customs declaration at the point of release. However, this needs specific authorisation from HMRC and there are also other requirements that must be met. An application made now is unlikely to be approved before 1 January 2022.

Source: HM Revenue & Customs Tue, 14 Dec 2021 00:00:00 +0100

Claiming tax relief for working from home

Posted on by Mohsin Khan

Employees working from home may be able to claim tax relief for certain home-related bills they pay that are related to your work. 

Employers may reimburse employees for the additional household expenses incurred through regularly working at home. The relief covers expenses such as business telephone calls or heating and lighting costs for the room in which you are working. Expenses that are for both for private and business use (such as broadband) cannot be claimed. Employees may also be able to claim tax relief on equipment they have bought, such as a laptop, chair or mobile phone.

Employers can pay up to £6 per week (or £26 a month for employees paid monthly) to cover an employee’s additional costs if they have to work from home. Employees do not need to keep any specific records if they receive this fixed amount. 

If the expenses or allowances are not paid by the employer, then the employee can claim tax relief directly from HMRC. Employees will get tax relief based on their highest tax rate. For example, if they pay the 20% basic rate of tax and claim tax relief on £6 a week, they will get £1.20 per week in tax relief (20% of £6). Employees can claim more than the quoted amount but will need to provide evidence to HMRC. HMRC will accept backdated claims for up to 4 years. 

These tax reliefs are available to anyone who has been asked to work from home on a regular basis, either for all or part of the week including working from home because of coronavirus.

Source: HM Revenue & Customs Tue, 07 Dec 2021 00:00:00 +0100

Government agrees OTS recommendations

Posted on by Mohsin Khan

The Office of Tax Simplification (OTS) was established in July 2010, to provide advice to the Chancellor of the Exchequer on simplifying the UK tax system. The Financial Secretary to the Treasury has recently written an extensive letter to the OTS regarding the conclusions of the first five-year review and to respond to the OTS reviews into Inheritance Tax (IHT) and Capital Gains Tax (CGT).

The letter confirms that after careful consideration, the government has decided not to make any changes to the IHT lifetime gifts rules at the current time. It was also confirmed that changes to the design and operation of CGT will be kept under review.

The government has accepted the following five recommendations from the OTS report on the technical and administrative issues with CGT:

  1. Integrate the different ways of reporting and paying CGT into the Single Customer Account. This is part of a long-term strategy.
  2. Extending the reporting and payment deadline for the UK Property return to 60 days. This has been completed.
  3. Extending the ‘no gain no loss’ window on separation and divorce. This will be subject to consultation over the course of the next year.
  4. Expanding the specific Rollover Relief rules which apply where land and buildings are acquired under Compulsory Purchase Orders (CPO). This will be subject to a final consultation. 
  5. Various improvements in CGT guidance on specific areas. HMRC has already completed a review and expansion of the guidance on the UK Property Tax Return and will proceed in other areas identified in the OTS report.

The government will also consider five other recommendations by the OTS including the treatment of separate share pools, the practical operation of Private Residence Relief nominations and a review of the rules for enterprise investment schemes.

Source: HM Treasury Tue, 07 Dec 2021 00:00:00 +0100

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