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26th September 2018

Making Tax Digital for VAT

Filed Under: Accounting, Business News, Tax, VAT


Making Tax Digital (MTD) is probably the biggest change to the tax system in the UK since the introduction of Self-Assessment.  Full MTD is being phased in over a number of years, with Making Tax Digital for VAT being introduced April 2019.

Outline

With effect from 1 April 2019 all businesses with a taxable turnover above the VAT registration threshold (currently £85,000) will be required to keep digital records and submit VAT returns digitally.  This obligation continues even if their taxable turnover subsequently falls below the VAT threshold.

Businesses that are voluntary registered with a turnover below the threshold are not obligated to keep and submit digital records.  However, these businesses may wish to comply to MTD if they believe that their turnover will exceed the turnover threshold in the foreseeable future.

It will be a requirement to keep digital records; these can be maintained in more than one program or software product. The use of spreadsheets, either to record individual transactions or as part of a suite of software and spreadsheets is permitted. However, the spreadsheet will need to MTD compatible so that data can be sent to and received from HMRC systems. Where the records are maintained in more than one program or product there must be digital links between each of the pieces of software.

Choosing software

There are many software packages out there that offer MTD compatibility, some more expensive than others and some offering more functionality.  Organisations that are already making extensive use of information technology will need to ensure that their software supplier is going to provide MTD compatible versions of the applications that they may use. In these cases the existing and future requirements of an organisation will need to be considered. In recent years we have seen a number of major changes to UK legislation; for example, GDPR, auto-enrolment, open banking and MTD.  In many cases it may well be easier and cost effective for an organisation to choose an application that resides, or is at least connected, to the “cloud”.  Applications that are hosted on the internet (in the cloud) are able to make connections with other digital services and as a result provide increased functionality and flexibility.  Those not currently using software will need to bring their accounts processes up to date.  There are many advantages to using modern cloud-based packages which can help increased efficiency and profits given the right support. It is fair to say that the rate of change in technology and business has never been faster. That rate of change will only ever increase. As a result, all organisations will need to consider how they will remain competitive in the future.

How we can help

We appreciate that this is a big issue for our clients and that decisions made now will impact significantly the future.  We are therefore offering free drop in workshops to look at the various software packages available and to discuss the criteria that you would need to consider ensuring you make informed judgements in your selection process.  Our ‘Getting to Grips with Making Tax Digital’ week commences on 26 November 2018.  More details will follow, and you will be able to sign up to workshops at our Autumn Drinks Party on 5 October 2018.

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22nd November 2017

Summary of the 2017 Autumn Budget

Filed Under: Accounting, Business News, Tax, VAT


Personal Tax

  • Personal Allowance to rise to £11,850 from 6 April 2018.
  • Higher rate tax threshold to increase to £46,350.

Business

  • VAT threshold for small business to remain at £85,000 for two years.
  • Rises in business rates to be pegged to CPI measure of inflation.
  • National Living Wage to rise in April 2018 to £7.83 (from £7.50).
  • The indexation allowances used to calculate the chargeable gain on disposals made incorporated business will be frozen.

Motoring and Travel

  • Fuel duty rise for petrol and diesel cars scheduled for April 2018 to be scrapped.
  • Vehicle excise duty for diesel cars (not vans) that do not meet latest standards to rise by one band in April.
  • Existing diesel supplement in company car tax to rise by 1%.
  • Young person’s railcard extended to 26-30 year olds.

Stamp Duty and Housing

  • From 22 November 2017 first time buyers paying £300,000 or less for a residential property will pay no Stamp Duty Land Tax (SDLT).
  • First time buyers paying between £300,000 and £500,000 will pay SDLT at 5% on the amount of the purchase price in excess of £300,000, a reduction of £5,000 compared to the amount of SDLT they would have previously paid.
  • 100% council tax premium to be levied on empty properties.

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10th March 2017

SIGNIFICANT CHANGES TO THE VAT FLAT RATE SCHEME

Filed Under: Business News, VAT


You may be aware that HMRC are amending the way the VAT flat scheme works.  The changes will affect businesses that use the VAT Flat Rate Scheme but which spend very little on goods, including raw materials – such as firms providing services.

The VAT Flat Rate Scheme simplifies the record keeping and makes it easy to work out the VAT to pay or reclaim  The flat rate scheme was designed to give the government roughly the same amount of VAT, but for smaller businesses it should be much easier to work out.  However, the government is concerned that some businesses are using the Flat Rate Scheme to pay less VAT than is appropriate.

What is changing?

The changes which affect businesses which have a very low cost base. These businesses are now called “limited cost traders”.

Limited cost traders can still use the Flat Rate Scheme, but their percentage will be 16.5%. So if they sell £120 of work, including £20 of VAT, the flat rate amount is £19.80 (£120 x 16.5%).

A limited cost trader is defined as one that spends less than 2% of its sales on goods (not services) in an accounting period.

When working out the amount spent on goods, it cannot include purchases of:

  • capital goods (such as new equipment used in a business)
  • food and drink (such as lunches for staff)
  • vehicles or parts for vehicles (unless running a vehicle hiring business)

Who will this affect?

You’re a limited cost business if the amount you spend on relevant goods including VAT is either:

  • less than 2% of your VAT flat rate turnover
  • greater than 2% of your VAT flat rate turnover but less than £1000 per year

If your return is less than one year the figure is the relevant proportion of £1000. For a quarterly return this is £250.

For some businesses this will be clear, other businesses – particularly those whose goods are close to 2% – may need to complete this test each time they complete their VAT return. This is because you can move from a limited cost rate of 16.5% in one period to your relevant sector rate in another. This would happen if your costs fluctuate above and below 2%.

What to do next?

Firstly you’ll need to check to see if you are a limited cost business.  The easiest way to do this is to use HMRC’s calculator.  This can be found using the following link:

https://www.tax.service.gov.uk/check-your-vat-flat-rate/vat-return-period

If you’re a limited cost trader this means that you may pay more VAT than you do on standard accounting – you may want to check to make sure the Flat Rate Scheme or, if your voluntary registered, whether being VAT registered is still right for you.

Example 1

A business has a flat rate turnover of £10,000 a quarter. It spends £260 on relevant goods.

This is more than 2% of the flat rate turnover and more than £250 so the rate they need to use is the sector rate for their business.

Example 2

A business has a flat rate turnover of £20,000 a quarter. It spends £325 on relevant goods.

This is more than £250 but less than 2% of the flat rate turnover so the rate they need to use is 16.5%.

Example 3

A business has a flat rate turnover of £10,000 a quarter. It spends £225 on relevant goods.

This is more than 2% of the flat rate turnover but less than £250 so the rate they need to use is 16.5%.

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