VAT registration issues

The VAT registration threshold has been fixed at £85,000 from 1 April 2017 until at least 31 March 2022. This may bring more businesses into the VAT fold, if they increase their prices with the rate of inflation.

This threshold can be a cliff edge for many businesses as, once VATable turnover exceeds it, the business must charge VAT on all eligible sales. For your UK sales, you must check the cumulative total of your VATable sales (including zero-rated items) for every 12-month period and register for VAT within 30 days, once this total exceeds £85,000.

Do this calculation every month, as if you tally up your sales just once a year for your accounts, you may miss this 30 day deadline. If your sales suddenly take off, you may be too busy to remember to register for VAT within 30 days. If you register later than the law demands, you can suffer a penalty.

For example, say your annual sales (accruing evenly throughout the year) are £83,000. If you increase your prices by 3% in January 2019, by 31 October 2019 your turnover in the previous 12 months will be £85,075 and you will have to register for VAT within 30 days.

You could restrict your price increase to keep your turnover under £85,000, but if your purchase costs are increasing this will cut your profit margins. Alternatively, you could perhaps restrict your sales by taking longer holidays, if you can afford it.

Another idea is to hive off a part of your business into a separate legal entity, so that each new business has turnover under £85,000. However, this must not be an artificial split.

The two businesses should have a bank account each, keep separate business records and file separate tax returns. Ideally, the businesses should provide different services or goods to separate groups of customers. There must be separate contracts with any common suppliers.

Many businesses, however, may wish to register for VAT earlier than needed. Early registration allows you to claim back VAT on your start-up expenses. You can reclaim VAT on services used within the six months before your VAT registration date, and on goods acquired within four years before that date (if they are still held at the date of registration). The VAT paid on an expensive shop refit could be lost if you delay VAT registration for too long.

However, it’s a balancing act “ if you register earlier than required, you must account for VAT on sales made after your registration date that could otherwise have been VAT-free.

You can’t change the VAT registration date requested once you’ve applied to register. It’s very important to plan your VAT registration, to ensure the registration date falls at the optimum time for your business.

Businesses that sell digital services (such as eBooks or software) to nonbusiness customers in other EU countries are not required to register for VAT in those EU countries, if the total value of their digital sales to other EU countries is less than £8,818. If below this threshold, they will have to charge UK VAT on the digital supplies.

If your annual digital sales to nonbusiness customers in EU countries are likely to be less than £8,818 for 2019, and were less than that threshold for 2018, you can deregister from VAT MOSS (Mini One Stop Shop) from 1 January 2019. We can help you with this. If such sales are above the threshold and a no deal Brexit occurs, businesses will need to register in an EU country for MOSS. It is best to use Eire or Malta, as their forms are in English. This can only be done post Brexit and would have to be done by the 10th of month following the month when the first post Brexit supply is made.

Action Point!
Check your total sales on a 12-month rolling basis.

 

The ATED trap

The Annual Tax on Enveloped Dwellings (ATED) applies when a company (and certain other bodies) owns a UK residential property worth over £500,000. The charge applies for the year from 1 April, but the ATED return, and any payment due, must reach HMRC by 30 April within that period (i.e., by 30 April 2019 for 2019/20).

This annual charge starts at £3,650 and increases, through valuation bands, up to £232,350 for 2019/20. The charge is based on the propertys value as at 1 April 2017, or the purchase date if later.

The owner can claim 100% relief from ATED if the property is let commercially, is under development, or if certain other conditions apply, but the relief must be claimed on an ATED relief form by 30 April for each year.

There are steep penalties for late submission of ATED returns, which are payable even if there is no ATED charge to pay. HMRC can check whether an ATED return is due by accessing the Land Registry database to see who owns which properties.

Action Point!
Remember to claim ATED relief when developing or letting high value homes owned by a company.

 

Timing is everything

The end of the accounting period for your business is a key point for tax planning. You can save or delay tax by moving income and expenditure between accounting periods.

For instance, advancing the acquisition of assets to just within your current accounting period will mean the capital allowances associated with those assets can be claimed earlier.

The cost of qualifying assets which fall within the Annual Investment Allowance (AIA) is given in full as a capital allowance in the year of purchase. The maximum amount that can be claimed under the AIA per year is increasing from £200,000 to £1 million, for expenditure incurred in the two years to 31 December 2020. For accounting periods straddling these dates there are complicated transitional rules.

From 29 October 2018 the cost of constructing, renovating or converting a commercial building to be used by your business qualifies for a 2% p.a. allowance. Costs connected with residential accommodation don’t qualify, neither do the costs of acquiring land or obtaining planning permission.

If your current year profits are looking very healthy, you may want to advance the payment of repairs, training costs, bonuses or pension contributions.

An accrued salary payment, such as a bonus voted before the year-end, is deductible for the period if it is actually paid within nine months after that yearend. However, a pension contribution must be paid within a companys accounting period to be deductible for that period.

Action Point!
Review spending plans and likely profit levels before your year-end.

 

Elect in good time

Events don’t always turn out as expected. For example, you may need to wait for a later profit or loss to arise before you can judge whether it’s right to elect to change the tax treatment of an earlier transaction.

This is why the law allows you extra time, after you have submitted your tax return, to submit a tax election or claim. The elections you may need to make by 31 January 2020 for the 2017/18 tax year include:

  • to set trading losses against your other income
  • to average the profits made from farming, or as an author or artist
  • to treat a property as continuing to qualify as commercial Furnished Holiday Letting if it qualified as such in 2016/17, but otherwise would not

You need to wait for a certificate to arrive before making a claim for your investment under the venture capital schemes “ EIS, SEIS or SITR “ so the claims period for those schemes is five years after the tax return submission date.

Corporate tax claims generally need to be made within two years of the end of the accounting period in which the transaction occurred.

We can help you check what claims or elections you need to make.

Action Point!
Have you made all the necessary tax claims?

 

VAT goes digital

For VAT periods beginning on and after 1 April 2019, most VAT-registered businesses will have to submit their VAT returns directly from some form of software, with no manual retyping of figures. All the VAT records also need to be kept in a digital format.

This new approach to filing VAT returns and keeping records is part of the making tax digital (MTD) project, which will be expanded to include returns for all the main taxes in future years.

For certain businesses, such as those that use the VAT annual accounting scheme, the start date for MTD for VAT is deferred to the first VAT period which begins on or after 1 October 2019.

Businesses that are registered for VAT on a voluntary basis can choose whether to file the VAT return in the current fashion by typing in figures to HMRCs online form, or to join the MTD project and use software to submit the return.

We will be able to submit your VAT return on your behalf as now, but there are some procedures to follow to get your business ready for the MTD regime.

The best way to prepare for this digital revolution is to get into the habit of recording all your sales and purchases using accounting software, or at least on a spreadsheet. We can help you choose and implement the right software for your business.

Action Point!
Is your business ready for MTD?

 

Money for miles

If you use your own car for a business journey, perhaps to travel to a customer, you can claim mileage expenses for that journey. Many employers pay the full tax-free amount of 45p per mile, which drops to 25p for miles in excess of 10,000 in one tax year.

If your employer doesn’t pay the full rate, you can claim tax relief on the shortfall, either on your tax return or on form P87. You need to submit your claim within four years of the end of the tax year in which you made the business journey. Claims for 2014/15 must reach the tax office by 5 April 2019.

Once HMRC has accepted your mileage claim for one tax year, subsequent claims for up to £1,000 per year can be made by phoning the tax office on 0300 200 3300.

Action Point!
Are you due a tax refund for business journeys?

 

Payroll

Most employees, with very limited exceptions, must be paid the National Minimum Wage (NMW) or the National Living Wage (NLW). These hourly rates vary according to the age of the worker, so it’s crucial to keep a sharp eye on the birthdays of your younger workers to ensure they are paid at the right rate for their age band.

The second trap you can fall into is to ignore some of the hours worked. All overtime hours, time spent training, or standing in line for security checks, must be counted. Workers who undertake sleep-in shifts must be paid the NMW for the whole shift.

All the NMW rates will increase for the first pay period that begins on or after 1 April 2019, and it is important to get these pay calculations exactly right. Tips and gratuities can never be counted towards the NMW paid.

If you underpay by £100 or more across your whole payroll, HMRC can include your details on a list of employers in default, which is published quarterly.

The penalty for failing to pay the correct amount of NMW can be up to £20,000 per employee.

Action Point!
Are you certain your NMW calculations are correct?

 

Excited about electrics

If you are considering acquiring a new company car, take account of the changing tax incentives for electrics.

The taxable benefit for having an electric company car is currently calculated at 13% of its list price when new, but this will rise to 16% on 6 April 2019. Strangely, from 6 April 2020 the taxable benefit for driving an electric company car will drop to 2% of its list price.

Where a business buys a new electric car it can claim 100% of the cost as a capital allowance in the year of purchase, if the car is acquired before 1 April 2021. So 2020/21 will be the sweet spot for acquiring electric company cars.

If a business installs electric vehicle charging points before 31 March 2023 it can claim 100% of the cost in the year.

Where employees are permitted to freely charge up electric vehicles at work, there is no taxable benefit for the use of that free electricity. Drivers of electric company cars who pay for their own charging can claim a tax-free allowance from their employer of 4p per business mile driven.

Drivers who use their own electric cars for business journeys can claim the normal mileage rates of 45p per mile for the first 10,000 miles and 25p for any additional business miles driven in the tax year.

Action Point!
Consider the tax incentives for electric company cars in future years.

 

Innovate to accumulate

Companies which invent new production methods or products can claim enhanced tax relief for the Research and Development (R&D) costs. Small and medium sized companies can claim 230% of qualifying R&D costs, and a 14.5% payable tax credit if this extra deduction results in a loss!

This is a very attractive relief and it’s really quite easy to claim. You can ask HMRC for an advance assurance that your company, and its R&D projects, will meet the requirements for R&D tax relief. We can help you do this.

The main benefit of advance assurance is that HMRC won’t raise further questions about your initial R&D claim, and for R&D claims submitted for the next two accounting periods.

A company can apply for Advance Assurance if it:

  • hasn’t claimed R&D tax relief before
  • has an annual turnover of £2 million or less
  • has fewer than 50 employees

You need to apply for R&D tax relief within two years from the end of the accounting period in which the R&D costs were incurred. So, if your company has been innovative in the recent past, don’t delay your application for R&D tax relief!

Action Point!
Check the R&D expenses for which your company can claim an enhanced deduction.

 

Budget for tax

January is the cruellest month for the self-employed. No one has the money to pay you, and HMRC wants a large tax payment.

Tax and NIC due on your self-employed profits for 2018/19 is paid in two Payments on Account (POA), on 31 January 2019 and 31 July 2019. These amounts are based on the tax liability reported in your 2017/18 self-assessment tax return.

If your final tax liability for 2017/18 is more than the total of POA paid in January and July 2018, you pay the rest on 31 January 2019, plus any Capital Gains Tax you owe for the year. Thus, the amount due on 31 January 2019 is half your normal tax bill paid as a POA for 2018/19, plus your CGT, plus any balance due for 2017/18 “ ouch!

If your tax liability for 2018/19 drops compared to 2017/18, you’ll get some of your tax back for 2018/19 when your 2018/19 return is submitted (due by 31 January 2020) “ but you’ll be out of pocket in the meantime.

Instead of waiting until 2020, you can ask to reduce the next two POAs if you believe your total tax bill for 2018/19 will be less than for 2017/18. We can help you calculate whether your POA will be too large.

You can opt to pay regular monthly or weekly amounts towards your tax bill by setting up a Budget payment plan with HMRC. You decide how much to pay as a regular direct debit. If the total paid is not sufficient to cover the tax due by 31 January or 31 July, you need to make up the shortfall, but this may be far less painful than finding a large sum in one go.

Action Point!
Do you need to discuss reducing your payments on account for 2018/19?

 

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