Archive for June, 2017

Oh what a night

Tuesday, June 13th, 2017

It is fair to conclude that Mrs May’s ambitions suffered a set-back Thursday last week. She is now attempting to manage a minority government, and Brexit apart, there are other outstanding legislative matters that demand her attention.

One is the remainder of the Finance Bill 2017, that was placed in abeyance in order to accommodate the recent election. Thankfully, Philip Hammond seems to be continuing at number 11, and hopefully, this will result in a degree of continuity regarding the management of the UK’s finances.

Certainly, our job as advisors to the business community, was to a degree placed in purdah, much like the civil service, during the recent campaigning period. One major tax change that was deferred, and is still part of the Finance Bill (in abeyance) 2017, is the matter of progress towards the implementation of HMRC’s Making Tax Digital program. The Bill defines the terms and dates on which the process will commence. Without this legislation reaching the statute books, there is no certainty. Key questions will be subject to speculation, including: will self-employed traders, including landlords, with turnover in excess of the current VAT registration limit, be required to upload their summarised accounts data to HMRC from April 2018?

Tax and accounting software providers must be biting their nails, as over 600 are presently investing in providing links for their users such that uploads from their software can be facilitated from April next year. In fact, as we have said before, Making Tax Digital data uploads can only be provided in this way – by third parties. HMRC are not providing direct access to taxpayers.

Let us hope that there will be a business-like return to parliament, and that the remaining sections of the Finance Bill will be enacted so we all have some certainty. Without this, it is hard to see how we can advise clients, or plan for changes in law that may or may not occur.

Recovery of VAT after deregistration

Thursday, June 8th, 2017

Last week we discussed in this blog, how to recover VAT paid prior to registering for VAT.

This week we are going to sketch out the reverse position: how to reclaim VAT after you have deregistered.

According to HMRC, you can make a claim for relief from VAT charged to you on certain services (not goods) supplied after your registration was cancelled and when you were no longer a registered person. You can only claim relief from VAT on those services which, although supplied to you after your registration was cancelled, related to your taxable activities prior to deregistration.

The most usual costs you could claim for are accountants’ and solicitors’ services where the supply could not be made to you until after your registration was cancelled.

There is no relief from VAT on goods supplied to you after the date of cancellation or on services that are not attributable to taxable supplies.

When you claim relief from VAT, you must produce the relevant invoice(s) (originals only) and satisfy HMRC that the services supplied to you were for the purpose of the business carried on by you before the date on which your registration was cancelled. If, when you were registered, your input tax claims were restricted because you had non-business activities, you must apply the same restriction to this claim. You may not claim any relief on VAT incurred for exempt activities.

The deadline for reclaiming VAT under this option is no more than four years after the date it was incurred.

You can also reclaim VAT paid on your invoices issued to customers before deregistration, that subsequently became bad debts after deregistration – to qualify, you will need to have accounted for VAT on the supplies and can meet all the requirements of the bad debt relief scheme.

If you feel that you may be eligible to make a claim under these provisions, please call, we would be delighted to help.

The hidden tax on car benefits for employers

Tuesday, June 6th, 2017

Businesses that provide employees with taxable benefits: company cars, health insurance and so on, will be aware that a benefit in kind charge is added to the employee’s income and subjected to an income tax charge the same as their salary.

Employers will also be aware that the cumulative sum of all the taxable benefits of their employees are subjected to an employers’ National Insurance charge – at present, this Class 1A charge amounts to 13.8% of all taxable benefits provided.

Which means the true cash cost of providing £10,000 of taxable benefits is £11,380.

Unfortunately, some benefits are not based on an identifiable cost, but on a scale rate applied by HMRC. Of particular concern are car and car fuel benefits for the use of company cars.

Consider Thrifty Ltd, who provide a second hand Toyota to Jane, a salesperson. The annual cost to the company is calculated as:

  • Fuel £200 per month, of which £25 covers private fuel.
  • A further £100 per month to cover insurance, repairs, and road tax, and
  • The car was purchased for £12,000 second hand – and is expected to be worth £4,000 after 4 years – and so the expected annual depreciation amounts to £2,000. The cost of the car when new was £19,000.

The company consider the overall, annual cost of £5,600, including depreciation, to be acceptable.

The CO2 rating of the car is 122 g/km, and Jane’s annual benefit in kind charge for 2016-17 is (£19,000 x 21%) £3,990. The 21% is the scale rate applied by HMRC to cars with a CO2 rating between 120 – 124 g/km). Not bad, Jane is only being taxed on £3,990 when the underlying cost of the car for 2016-17 was £5,600.

Unfortunately, this is not the complete story. The company pays for all of Jane’s fuel, including fuel for private use. This means the car fuel benefit charge applies and this is based on the formula – £22,200 x 21% – £4,662.

Therefore, Jane’s total car and car fuel benefits amount to £8,652 (£3,990 £4,662), when the underlying cost to her employer is just £5,600, and Thrifty Ltd will have to stump up £1,194 in Class 1A NIC, increasing the annual cost of providing the car to £6,794. The true rate of NIC payable is therefore 21.3% (£1,194/£5,600*100).

In this particular case, Jane would be advised to pay Thrifty Ltd the £25 a month to cover her private fuel. At a stroke this would mean the car fuel benefit would no longer apply, and reduce her taxable benefits for the use of the car from £8,652 to £3,990. As a bonus, the company Class 1A NIC would also reduce, from £1,194 to £551. As the true cost of the car is still £5,600, this reduces the effective NIC charge to 9.8% (£551/£5,600*100).

We are happy to discuss this conundrum with readers who feel they could benefit from advice in this area.

Tax Diary June/July 2017

Friday, June 2nd, 2017

1 June 2017 – Due date for Corporation Tax due for the year ended 31 August 2016.

19 June 2017 – PAYE and NIC deductions due for month ended 5 June 2017. (If you pay your tax electronically the due date is 22 June 2017.)

19 June 2017 – Filing deadline for the CIS300 monthly return for the month ended 5 June 2017.

19 June 2017 – CIS tax deducted for the month ended 5 June 2017 is payable by today.

1 July 2017 – Due date for Corporation Tax due for the year ended 30 September 2016.

6 July 2017 – Complete and submit forms P11D return of benefits and expenses and P11D(b) return of Class 1A NICs.

19 July 2017 – Pay Class 1A NICs (by the 22 July 2017 if paid electronically).

19 July 2017 – PAYE and NIC deductions due for month ended 5 July 2017. (If you pay your tax electronically the due date is 22 July 2017.)

19 July 2017 – Filing deadline for the CIS300 monthly return for the month ended 5 July 2017.

19 July 2017 – CIS tax deducted for the month ended 5 July 2017 is payable by today.

Claim back pre-registration VAT

Friday, June 2nd, 2017

It is possible to reclaim VAT you have paid on any business purchases before you have subsequently registered for VAT. In fact, once you have registered your business for VAT the first thing you should consider is the possibility of reclaiming input tax on purchases of goods and services prior to registration.

This article summarises the issues you will need to consider for the two categories: goods and services.

There’s a time limit for backdating claims for VAT paid before registration. From your date of registration, the time limit is:

  • 4 years for goods you still have, or that were used to make other goods you still have
  • 6 months for services

You can only reclaim VAT on purchases for the business now registered for VAT. They must relate to your ‘business purpose’. This means they must relate to VAT taxable goods or services that you supply.

You should reclaim them on your first VAT Return (add them to your Box 4 figure) and keep records including:

  • invoices and receipts
  • a description and purchase dates
  • information about how they relate to your business now

If your pre-registration purchases and other costs are significant, this facility can produce a reasonable cash flow benefit. Please call if you would like our help to assess any possible claim you could make.

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