My Blog

Category: VAT

  • Budget 2020 – A pot-hole free drive in your electric car through magic money trees?

    There is much to be happy about in today’s Budget, where the magic money trees are well and truly thriving!

    Businesses will benefit from many announcements, particularly those who trade from a property, have one or two employees, and need a new car!

    Business rates are abolished for a year for rateable values of less than £51k and these same businesses will receive a £3k grant, as a response to the Coronavirus but it’s also part of the overall picture of dealing with competition from Amazon and other online retailers.

    Where possible and appropriate for your business model, businesses going forward may need to embrace online retail further. Having said that, many can provide a niche, local, personal service perhaps relying on online marketing, such as Facebook, but not online sales.

    With the money saved, and assuming you needed one already, an electric car is very tax efficient. The 100% write off against your tax bill has been extended beyond 2021 to 2025 with no benefit in kind until March 2021 and then minimal after that. VAT still can’t be recovered, however, apart from 50% through leasing.

    Your employees earning over £9,500 will pay less national insurance from April 2020, but you’ll still pay 13.8% national insurance on their salaries over £8,788 with a £4k offset from the increased employer annual allowance of £4k. For example, if you have one employee earning £37,774, the £4k annual allowance will offset all the employer national insurance due. Even employ a veteran where you save employer’s NI for a year. And remember to claim the statutory sick pay for up to 2 weeks if your employees need to be away from work due to the Coronavirus.

    If you’re a sole trader, your Class 4 national insurance of 9% will, from April 2020, only kick in after you’ve earnt profits of over £9,500. If the Corornavirus reduces your profits, however, remember to claim Universal Credit. You may need to pay Class 2 national insurance voluntarily to maintain your state pension credit.

    If you also carry out Research and Development, R&D, the new restriction on cash refunds for loss making businesses is still coming in, but delayed until April 2021, and if your claim is less than £20k, there’ll be no restriciton at all. So, as you were! Carry on with R&D and cash claims even if you are just a one or two director company on minimal salary.

    If your business survives the Coronavirus, perhaps with funding help from HMRC Time To Pay or your bank and one day you’re ready to sell your business, you’ll pay capital gains tax of 10% on the first and only £1m business capital gain in your lifetime, and 20% on the rest of the gain. Many small businesses are sold for less than £1m, so this is a welcome compromise effective immediately.

    Some of the good news is ofset by confirmation of the corporation tax rate remaining at 19%, but also HMRC being given 1,300 more staff to get tax HMRC believes it’s entitled to! Be careful you don’t get caught up in that, where HMRC have been known to go for low hanging fruit, possibly hanging on a magic money tree 😀, rather than trickier cases. 

    Stay well! 

  • Jargon Busting – Does your SPV issue SPVs?

    SPV – According to business

    This means Single Purpose Vehicle. What is this?

    All this really means is a limited company. It usually means a new company set up for a specific task or an asset, often property, within an existing group. The idea being that if it fails, it’s debts don’t become debts of the group’s other companies, or if it succeeds it can be easily sold off without having to disentangle its activities from other group business.

    Therefore SPV is a term you often hear, but not to be confused with the completely different VAT version…

    SPV – According to HMRC VAT

    This means Single Purpose Voucher. What is this?

    The definition was changed in 2019 to bring forward when VAT is due on most vouchers, usually gift vouchers. If you sell a gift voucher which can be exchanged for goods or services charged at the same VAT rate, the VAT is due at the date of sale of the gift voucher.

    If, however, the goods or services aren’t charged at the same VAT rate the gift voucher is called a Multi-Purpose Voucher and VAT is only due when the voucher is later exchanged for goods or services.

    You may therefore prefer to issue Multi-Purpose Vouchers not only to delay VAT, but sometimes not to pay any. This is because many vouchers are never redeemed, and if they are MPVs, you don’t need to account for VAT on any part of the money received for that MPV.

  • #Tax Myth 8 – Exporting goods are VAT zero rated

    You may know that exports are zero rated and think that there’s nothing else to worry about. You’re expecting to recover VAT on your costs so you’re in a net recovery position each month. You might even be thinking of submitting monthly VAT returns to optimise your cashflow.

    However, to be correct, you need to be able to agree with the following statement.

    All my EU customers are VAT registered.

    You should know this because you have to get their local VAT number and preferably show it on your invoice.

    So, what do you do if you are selling goods to non-VAT registered people in the EU – probably consumers?

    You have to charge UK VAT like any other sale to a UK consumer.

    You may therefore have to regularly pay over UK VAT like any other UK business.

    If you are selling a lot of goods to one EU country you then have to consider the local VAT rules.

    For France, if you sell more than Euros 100,000 of product to local consumers, your business needs to be VAT registered in France.

    What does that mean for my VAT returns?

    You would revert to zero rating as you would now be selling to an EU VAT registered business. You would have to submit another VAT return in France and pay Euros to the french tax authorities.

    Therefore if you make only sales to EU businesses, or are VAT registered locally, all your sales will be zero rated. However, when selling to EU consumers below certain thresholds you will need to charge UK VAT.

  • #Tax Myth 1 – Limited companies have to be VAT registered

    This probably stems from the more administration required when running a company. It seems to be assumed that this additional administration includes VAT registration. VAT registration is only required when your annual turnover reaches £73,000.

    However, many businesses choose to be VAT registered. This can be a sole trader, partnership or limited company business. The reasons to choose to be VAT registered include benefiting from the HMRC flat rate scheme or being eligible for VAT repayments.

    This myth may also come from the fact that businesses with low turnovers are less likely to be run as a limited company. This is because the additional costs such as accountants fees may outweigh the financial benefits of a limited company such as tax savings.

    As always, the facts applying to each business need to be reviewed before a recommendation can be given.

  • VAT Cashflow

    By asking your suppliers to invoice you just one day earlier, with no effect on your normal payment terms, can improve your VAT cashflow by three months.

    A £10,000 invoice due to be invoiced on 1st April 2011, could be invoiced on 31st March 2011 enabling you to offset the £2,000 VAT in the quarter to 31st March 2011 rather than the quarter to 30th June 2011. Similarly, delaying issuing your own supply invoices by one day has the same effect. Together, this would provide you with interest free working capital of £4,000 for three months without involving your bank.

    If your turnover is under £1.35 million, annual VAT accounting can be helpful. VAT is paid for the first three quarters on account on the normal due date. The balancing amount for the last quarter is paid one month later than usual. With a quarterly VAT payment of £10,000 you have the use of £10,000 for an additional month. Moreover, the VAT due on account is a quarter of your previous year’s VAT. If you are enjoying an increasing turnover, this is a useful cashflow advantage.

    If you suffer from a slow paying customer you can reclaim the VAT when the debt is six months old, even though you might get paid after this. When you do get paid you simply include this in your next VAT return. If your customers are regularly slow payers and your turnover is under £1.35 million, cash VAT accounting may improve your cashflow.

    And always check you are maximising your VAT recovery on less visible items like employee expenses.

    Understanding your business’s commercial arrangements and recent/prospective trading patterns are essential to maximising your VAT cashflow.