VAT Flat Rates by trade

Heres a useful official web site with HMRC VAT flat rates by trade and sector:

http://www.hmrc.gov.uk/manuals/vatmanual/frsmanual/FRS7200.htm

November newsletter

Our November newsletter is now available:

http://www.garbetts.com/news/november2009.htm

You can register automatically for our future newsletters by clicking here

Reminder: Companies House deadlines

A repost of our blog about this from earlier this year:

A reminder about the change in Companies House filing deadlines for accounts from 10 months to 9 months.

This applies to Companies and LLPs for their financial year starting after 6 April 2008.

For most companies with a 31 March year end this means the 10 month deadline still applies for their 31 March 2009 year end, as the year started before 6 April 2008, however these companies will have a 9 month deadline from their 31 March 2010 onwards.

However some companies with a 31 March 2009 year end will have a 9 month deadline if either (i) they have changed their accounting year by shortening it or (ii) this is the first year of trading and is less than a full 365 days (or less than 360 days to be precise).

As we approach the peak deadline dates for 31 March year ends, we advise all limited company clients to check their filing position. This can be done online at Companies House, free of charge:

http://www.companieshouse.gov.uk/toolsToHelp/WCInfo.shtml

This will tell you last accounts received and next accounts due.

As a reminder, we automatically prepare abbreviated accounts for filing at Companies House for all our clients, and these are sent out either with your approval accounts or bound accounts - our clients, however, have the responsibility for signing the accounts and sending them to Companies House. We recommend use of Royal Mail recorded delivery or guaranteed next day. Companies House are notorious for not making any allowance for postal delays, including strikes, and automatic penalties are due even for being a day late! There is an online filing mechanism available but it is cumbersome, and we don't at present recommend it except for very last minute filings.

Charitable donations - company or personal?

A query from a client:

"As a limited company with myself only, is there any benefit in making charitable donations directly from the company as opposed to making a personal donation?
"I understand with Gift Aid, the charities can claim back the tax paid from an individual, hence increasing the value of the gift."

Our reply:

"Its best to answer it with a example. I'm assuming (i) donation of £1,000 net, (ii) your company pays standard Corporation Tax at 21% (iii) and if you make the donation personally then you draw a dividend to cover the cost and I'll look at the situation of (a) you paying and your being a basic rate tax payer, (b) you paying and your being a higher rate tax payer and (c) your company paying. I'll then look at (d) your company paying but a larger donation to leave the charity in receipt of the same funds.

"(a) you paying and your being a basic rate tax payer

"You write a cheque to the charity for £1,000. They recover gift aid on this (provided you fill in a from) equal to £250. The charity therefore gets £1,250.

"As a basic rate tax payer there are no further tax implications.

"In summary, charity gets £1,250, cost to you £1,000.

"(b) you paying and your being a higher rate tax payer

"You write a cheque to the charity for £1,000. They recover gift aid on this (provided you fill in a from) equal to £250. The charity therefore gets £1,250.

"As a higher rate tax payer you get tax relief of £250 on the donation. But you have a higher rate tax bill on your dividend of £250. These two balance out.

"In summary, charity gets £1,250, cost to you £1,000.

"(c) your company makes the donation

"The company pays £1,000 to the charity. The charity gets no additional tax reclaim on this.

"Your company gets 21% Corporation Tax relief on the payment, £210.

"In summary, charity gets £1,000, cost to your company £790.

"(d) your company makes the donation but makes a £1,250 donation to the charity gets the same as (a) or (b)

"The company pays £1,250 to the charity. The charity gets no additional tax reclaim on this.

"Your company gets 21% Corporation Tax relief on the payment, £262.

"In summary, charity gets £1,250, cost to your company £987.

"Thus, by £13, assuming you equalise the payment to the charity, a corporate donation is better than a personal one."

HMRC Scam emails

There is a new HMRC scam email circulating, aiming to extract personal details from you maliciously.

Its entitled "Notice of Underreported Income"

See HMRC info at:

http://www.hmrc.gov.uk/security/examples.htm

Once again, like the "You are due a tax rebate" one its a scam.

Clients are advised to forward any HMRC email to us if they are unsure of its legitimacy.

Equitable Liability

There is a move afoot for HMRC to abolish the practice of Equitable Liability.

Equitable Liability is a tax protection of last resort, normally used where someone has got into arrears with filing tax tax returns, had assessments and penalties levied on them, and by process of time those assessments and penalties have become final with no right of appeal.

When that person then seeks to bring themselves in from the cold they are often faced with tax debts which are considerably larger than the correct amounts due and are manifestly unfair.

Equitable Liability is a last resort protection to adjust eh unfair liabilities to the correct one. It is a protection for the most vulnerable tax payers, those who let paperwork get the better of them, maybe through money worries, maybe through brown envelope fear, maybe through ill health.

The intention to abolish the concept is mean spirited and lacks compassion.

There is a petition against the abolition on the No 10 petitions site:

http://petitions.number10.gov.uk/BeFairHMRC/

We urge as many people as possible to sign it and, if possible, to write to your MP and ask them to take up the issue.

New Companies House forms

From 1 October almost all of the forms for Companies and LLPs that need to be filed at Companies House have been changed.

A complete list of forms is here:

http://www.companieshouse.gov.uk/forms/formsOnline.shtml#Company

The main changes are:

Company forms:

AA01 Change of Accounting reference date (replaces 225)
AA02 Dormant Company Accounts (replaces DCA)
NM01 Change of name (new form, needs RES as well)
RES Written resolution on change of name (new form, to go with NM01)
AD01 Change of Registered office (replaces 287)
AP01 Appointment of director (replaces 288a)
AP02 Appointment of corporate director (replaces 288a)
AP03 Appointment of secretary (replaces 288a)
AP04 Appointment of corporate secretary (replaces 288a)
TM01 Termination of appointment of secretary (replaces 288b)
TM02 Termination of appointment of corporate secretary (replaces 288b)
CH01 Change of directors details (replaces 288c)
CH02 Change of corporate directors details (replaces 288c)
CH03 Change of secretarys details (replaces 288c)
CH04 Change of corporate secretarys details (replaces 288c)
DS01 Striking off application by company (replaces 652a)
SH01 Return of allotment of shares (replaces 88[2])

Apart from the change of name and strike off forms, all the others can be filed online. Fees for strike off and change of name unchanged.

LLP forms in OD/FPE

LLAP01 Appointment of member (replaces LLP288a)
LLAP02 Appointment of corporate member (replaces LLP288a)
LLCH01 Change of details of a member (replaces LLP288c)
LLCH02 Change of details of a corporate member (replaces LLP288c)
LLTM01 Termination of a member (replaces LLP288b)
LLAA01 Change of accounting reference date (replaces LLP225)
LLAD01 Change of registered office (replaces LLP287)
LLAR01 Annual Return of LLP (replaces LLP363)
LLDS01 Striking off application by LLP (replaces LLP652A)

No online filing facility exists for LLP forms.

IR35 Contract Reviews

A query from a client:

"I have a question regarding contract reviews and tax investigation insurance, which I hope you can help me with.

"In recent months I have found myself with insufficient time to get a contract reviewed in the time that the client/agent will allow for a decision from me. As a result, I have been a straight choice between working to an un-reviewed contract, or not working at all - not much of a choice these days. Indeed, I am in a similar situation right now, in that I have a contract, but not yet the full schedule, with a potential start date of next Monday.

"However, I am concerned that if I don't get the contract(s) reviewed, then I am at risk of not being covered for costs incurred in the event of a tax investigation. Am I justified in this concern?"

And our reply:

"Its a common misunderstanding, but we actually don't offer a pre signature contract review service for clients, inter alia not having had a contract reviewed before you start isn't a problem. There is no obligation, for insurance (which I presume you have through us) or for HMRC, to have a contact checked. That said, we will happily review a contract pre signature if there time allows.

"Where the advantage in a review lies is due diligence in proving to HMRC you have been 'responsible' in running your tax affairs in the event of inspection, and in assisting you in building up a portfolio of evidence viz IR35 status.

"In many ways a contract review is best done once you've started the contract, as IR35 status is based more on the actual execution of the contract / working practices than the written contract in any event, and you are better placed to comment on these once you have started the contract."

October Newsletter

Our October Newsletter is now on our www site:

http://www.garbetts.com/news/october2009.htm

Reminder: Spousal Dividends

If you have a company and some of the shares are in your spouses name - or for that matter any other family member, including common law partner or civil partner - then a reminder that your spouses share the dividends need to go on their tax return.

if they don't receive a tax return from HMRC, and their income from all sources exceeds the Higher Rate threshold, or they have untaxed income, then they will need to notify HMRC of chargeability and request a return - we can do this for you on request, but beware we won't always know your spouses circumstances so we cannot alert you automatically.

Reminder: Compulsory online VAT returns

A reminder that from 1 April 2010 most businesses must file their VAT returns electronically - this will apply to all existing business with a turnover in excess of £100,000 and all newly registered businesses regardless of turnover, so the only exemption will be existing businesses turning over less than £100,000.

Earlier this year we gave you some thoughts on how to register and file online, if you are not already doing so:

http://garbetts.blogspot.com/2009/01/online-vat-returns.html

Its worth getting on top of this now.

HMRC revision to status tests in the construction industry

The Government have recently issued a consultation on "False self-employment in Construction: Taxation of Workers". It can be viewed here:

http://www.hm-treasury.gov.uk/d/consult_falseselfemploymentconstruction_200709.pdf

What is being proposed is a statutory definition of employment status in the construction industry, using tighter criteria than the current case law based status tests. This would result in sub contractors being denied self employment and having to become contractors employees, with the attendant rights and obligations of employment, increased NI costs, and loss of tax relief on expenses.

Under the proposed new regime, all workers would be employees unless they either:

- supply plant and equipment (other than customary hand tools) - so, for example, larger items of plant such as diggers or scaffold must be supplied.

- supply all of the materials for a job alongside the labour.

- supply the services of other workers, and take responsibility for paying them (presumably under these rules, and therefore by implication under PAYE).

Anyone familiar with the current employment status rules will instantly see these rules are a lot tighter, and will result in increased compliance obligations on the sector.

Interested parties, particularly contractors and sub contractors, should download a copy of the consultation and make their views known to HM Treasury. The deadline is 12 October 2009.

EC Sales List for Services

Business selling goods to business customers in the European Union will be aware of the requirement to supply a European Sales List (ESL) to HMRC with their vat returns, and to enter the value of goods supplied in box 8 of their VAT return.

Historically - and an often cause of confusion - this applied to goods, not services.

Services supplied to a EU Business Customer were outside of these requirements.

From 1 January 2010 however it requirement will apply to supplies of both goods and services where the VAT is reverse charged on the receipiant business - broadly any siutation where you zero rate supplies of goods or servies to a EU customer.

So services come under the regieme from 1 January.

Supplies outside of the EU, or supplies to a non business customer in the EU will not be affected, and neither will services that are deemed supplied where the supplier is based as these will carry standard UK vat.

September Newsletter

Our September newsletter is now up on our main site:

http://www.garbetts.com/news/september2009.htm

Click here to subscribe to our newsletters

HMRC passwords

BBC News Online are reporting a HMRC warning about Self Assessment passwords being stolen, and then used to make fraudulant tax repayment claims.

http://news.bbc.co.uk/1/hi/business/8186509.stm

Clients are advised to make sure HMRC - and Companies House - passwords are secure.

Changes to non residence rules

From 6 April 2009 the old IR20 guidance on non residence has been withdrawn, and new gudiance is awaited.

In the meantime the position is less certain than it was.

For our PSC clients, gudiance on this is at:

http://www.garbetts.com/download/abroad.pdf

This may well be helpful to our general clients as well, if working abroad is contemplated.

Scam emails purporting to be from HMRC

Scam emails purporting to be from HMRC are circulating, mostly offering tax refunds - in fact they are so called 'pishing' scams to try and get sensative personal information from you for ID fraud.

It goes without saying you should not reply to them - just delete.

HMRC have a page on these at:

http://www.hmrc.gov.uk/security/examples.htm

A change to our PSC tarriffs

The time has come for a periodic review of our popular fixed price packages for Personal Service Companies (PSCs).

We've decided to keep the basic price of our full service at £800+vat however we are going to charge separately for IR35 contract reviews (£100+vat) and references for mortgages, loans and tenancies (£25 to £50+vat dependant on complexity). In addition there is no change to the fee for our entry level service.

We've decided to make the change by excluding these services and pricing them separately as it seems fairer than a across the board rise - many clients don't use these services, others draw on them heavily, so linking the charge to usage seems fairer.

The new charges will apply from 1 August 2009, however for clients who have joined us since 1 January 2008 the introduction will be deferred to 1 August 2010.

Our full service specification for PSCs is at: http://www.garbetts.com/download/tcb2008pscservicespecification.pdf

If there are any queries on this please let us know - obviously no one likes price rises but we've endeavoured to be fair.

A change to our terms of business

We’ve made a change to our terms of business, by inclusion of a new paragraph reading:

--

28. Credit terms

a. Unless agreed otherwise, credit terms for invoices not being settled by standing order, including balances arising where a standing order arrangement is not honoured, are 14 days from invoice date or, in the case of a failed standing order, from demand.

b. We reserve the right to charge interest on overdue accounts at the rate of 2% per month.

c. Queries on invoices must be raised within fourteen days of the date of issue.

d. In the event of credit terms being breached we may levy credit charges and interest in accordance with Late Payment of Commercial Debts (Interest) Act 1988 as amended by EC Directive 2000/35/EC

e. Balances over 30 days old may be passed to our solicitors or to credit managers, and you agree to be liable for their charges and disbursements, including court costs from you, in addition to the principal sum and related interest / charges.

f. As set out in clause 3 of this agreement, for corporate entities the directors or, where relevant, other officers, are responsible for settling the charges for a corporate body.

--

By way of explanation, most of this paragraph brings together existing arrangements and clauses from our terms of business. What is, however, new, is the right for us to add solicitors and credit managers costs onto amounts otherwise due to us- this is a necessary protection for us in the very few cases where we have to pass a outstanding amount across for recovery.

Obviously for the vast majority of our clients – both those who pay by standing order and those who don’t but who pay on time or talk to us proactively when theres a problem – there will be no effect.

Our full terms of business are on our web site at www.garbetts.com/tcb

Change to VAT recovery rate on busines fuel

Because of recent changes oil prices, HMRC have updated the advisory fuel rates which can be used for working out the VAT element of a mileage rate. The changes apply from 1 July 2009 but can be used immediately if easier.

As a reminder, HMRC let you claim 40 p per mile for the first 10,000 miles a year travelled for business in your own car, and 25 p per mile thereafter. These rates are not changing.

What is changing is HMRCs so called advisory rate as to the fuel element of the mileage rate which is used for vat recovery.

The new rates are here: http://www.hmrc.gov.uk/cars/advisory_fuel_current.htm

For example, for a petrol engined car, 1400 to 2000cc, the rate is 12 p per mile, so if you travelled 1000 miles on business:

Mileage claim = 1,000 x 40 p per mile = £400 - your business can pay this to you tax free, and your business claims tax relief on it.

VAT recovery = 1,000 x 12 p per mile x 3 / 23 = £15.65 to be claimed on your vat return - this is based on 15% vat.

Clients using our PSC spreadsheet and not on flat rate vat will need to update the mileage rates manually. To do this:

1. open the worksheet called "Garbetts office use" (far right hand side)2. find the table of VAT receovery rates for fuel, at line 32

3. assuming your Q1 was April, May and June 2009, and therefore 1 July 2009 onwards is Q2 you need to update the Q2, Q3, Q4 & Q5 columns (i.e. cells E32 to H43) (Q5 probably won't be used). If you have started using the sheet mid year, then the first quarter to update will differ, but should cover 1 July 2009 ownards.

The new entries are:

Diesel<2000cc 0.10
Diesel>2000cc 0.13
LPG<1400cc 0.07
LPG>2000cc 0.12
LPG1401-2001cc 0.08
No vat claim/not vat registered nil
Not specified nil
Petrol<1400cc 0.10
Petrol>2000cc 0.18
Petrol1401-2001cc 0.12
Claim vat 0.05
No vat claim nil

4. Save your sheet

Clients on Flat Rate VAT need not make any changes.

Minimum Wage Increases

The National Minimum Wage increases from 1 October 2009:

- main rate, workers aged 22 & over £5.80
-18 to 21 year olds £4.83
- 16 to 17 year olds £3.53

The development rate for workers over 22 no longer exists.

A query about company taxes

A query received:

"I just started a limited company in March 09. I wonder when I need to pay tax. "

And our reply:

"Regarding your query on when taxes are due: there are a lot of whats, ifs and maybes but, broadly:

"Corporation Tax - due 9 months after end of financial year. Charged on profits, which in turn are business income, less business expenses NOT including dividends

"PAYE/NI - due on staff salaries (including directors) - payable monthly, quarterly or, exceptionally, annually, dependant on amounts

"VAT - due quarterly if your business income exceeds the registration threshold.

"In addition you have to file accounts at Companies House by 9 months after the year end, this is separate to your tax obligations.

"For a small business you will need to give early thought to paying yourself - the choices are salary, which is chargeable to PAYE/NI or Dividend which is a post tax appropriation of profit. The two are broadly tax neutral, but salaries incur NI."

Companies House filing deadlines

A reminder about the change in Companies House filing deadlines for accounts from 10 months to 9 months.

This applies to Companies and LLPs for their financial year starting after 6 April 2008.

For most companies with a 31 March year end this means the 10 month deadline still applies for their 31 March 2009 year end, as the year started before 6 April 2008, however these companies will have a 9 month deadline from their 31 March 2010 onwards.

However some companies with a 31 March 2009 year end will have a 9 month deadline if either (i) they have changed their accounting year by shortening it or (ii) this is the first year of trading and is less than a full 365 days (or less than 360 days to be precise).

My tax is too high!

A common query:

"I need to know if there is anything we can do to bring the corporation tax figure down. We have had several lean years of late and we worked really hard last year to turn things around and I just find it hard to believe that we should be paying another record amount of corporation tax. Is there anything we should be doing better to be more tax efficient?"

And the reply:

" Even with the record tax bill, the company option is still the best for you. By way of quick comparison:

- tax this year as a company, £13,436

- equivalent had you been a partnership, £17,852

"OK, what can you do to reduce the tax bill? Alas, I fear not a lot.

"The common question is "Could we spend (eg) £5,000 on advertising". Well, yes you could, but £5,000 spend elsewhere takes £1,000 off of your tax bill - so you still have to "find" £4,000 of your own money. The equation is the same for advertising, repairs, just about any expense - and its the same, or worse, for spending on equipment or plant.

"Putting monies into pension is going to be the same - for every £5 you put in, roughly £1 comes of your tax bill, leaving £4 to be footed by yourselves.

"There are tax privileged investments like EIS and VCT which can actually get you substantially more tax relief, but they are quite risky and I wouldn't be comfortable in recommending them to you (they are not something I would use personally either).

"So in blunt terms, if you need to spend on advertising, repairs, equipment, and so on, fine, you will get about 20% of the expense back in reduced tax, but don't let the tail wag the dog, as you've still got to fund the other 80%. Likewise things like pension - if you can afford to increase pension investment, great, you'll get some tax relief on what you put in, but only about £1 of tax relief for £4 of your own money.

"In short you're doing everything right, and set up as efficiently as possible - we would let you know if you weren't anyway - but a better year means, alas, better profits and a higher tax charge."

Change to our terms of business

We've made a small change to our terms of business, clauses7i and 8e - both clauses are the same, in different sections of the document.

The old wording was:

"At our discretion we may request payment in advance for work"

The new wording is:

"At our discretion we may request payment in advance for work, or withhold aspects of completed work pending settlement of our fees."

The change reflects the current economic climate and some clients, unfortunately, not paying us promptly or at all.

For clients who are not paying us by standing order, once we have your signed approvals back, we will normally hold back:

- bound and spare accounts
- submission of your personal tax returns
- submission of Corporation Tax returns
- issue of Abbreviated Accounts for Companies House

pending our invoice being settled.

We will exercise discretion, particularly if filing deadlines are close, and we will make every effort to ensure that clients are aware that something is being withheld when a filing deadline is imminent.

We regret having to make these changes, but are sure clients will understand the necessity.

For the 75% or so of our clients on standing order, there will be no effect.