The Blog

VAT: Flat Rate Scheme Changes

HMRC has announced that, as from the 1 April 2017, all businesses using the Flat Rate Scheme or intending to use the Scheme will have to consider (in addition to the existing conditions) whether or not their VAT inclusive expenditure on goods is either:

  • less than 2% of their VAT inclusive turnover in a prescribed accounting period; or
  • greater than 2% of their VAT inclusive turnover but less than £1000 per annum, or proportion thereof (ie, £250.00 per quarter or (£83.33 per month).

If this criteria is met then the business will be regarded as a “limited cost trader” and MUST apply a fixed Flat Rate percentage of 16.5% to its’ VAT inclusive turnover.

All businesses using or considering using the Flat Rate Scheme should now review their status.

If you would like to discuss anything in this article please contact either David Pegg or Leanne Macgregor on 01905 777600

Pre VAT registration input tax claims – HMRC approach challenged

Have you been affected by HMRC seeking to restrict input tax claims on pre VAT registration costs?

A newly VAT registered fully taxable business has historically been allowed to fully recover VAT incurred in the following circumstances:

  • on services incurred up to 6 months prior to VAT registration and that have not been supplied on to a third party
  • on stock and assets purchased up to 4 years prior to VAT registration, to the extent that the goods or assets are still on hand at the date of VAT registration and are being used by the business (an apportionment may be required if some have been sold).

However, HMRC has recently been seeking to restrict VAT on qualifying goods and services by attempting to view the “use” of such goods or services over their useful, economic life, and dis-allowing, proportionately, any “use” of the goods, assets or services prior to VAT registration.

A number of businesses have received Assessments of VAT or have been instructed to amend their VAT returns.

This approach has been found to be incorrect and inconsistent with EU legislation and HMRC has now issued Revenue and Customs Brief 16 (2016) confirming that taxpayers who have been assessed or had their input VAT restricted in this way may now seek a refund.

Correcting Errors – Making a Claim?

If you need help with making an input tax claim, please contact us now.

Be warned there are time limits in place to correct errors, which are as follows:

  • 4 years from the end of the VAT period in which any adjustment was made; or
  • 4 years from the end of any VAT period Assessed by HMRC.

If you would like to discuss anything in this article please contact either David Pegg or Leanne Macgregor on 01905 777600.

The 2016 Autumn Statement: how will the announcements affect you?

On 23 November Chancellor of the Exchequer Philip Hammond gave his Autumn Statement to Parliament.

Our summary download provides an overview of the key taxation, business and financial measures announced in the Autumn Statement which could affect you and your business.

Significant announcements include an increase in the National Living Wage and National Minimum Wage rates, the implementation of the business rates reduction package and a freeze on fuel duty for the seventh consecutive year.

The Chancellor also announced a major change to the way fiscal events are scheduled; 2017 will see the final Spring Budget, as from that point on the main Budget will be held in the Autumn.

We supply far more than just the traditional tax and compliance services, and can advise on a comprehensive range of strategies designed to help you and your business.

For advice on any of the topics covered within the Autumn Statement, and how they may have an impact on your business or personal finances, please give us a call on 01905 777600.

Click on the link below to download
Autumn Statement 2016 Summary

Record number of apprentices join Ormerod Rutter

We have taken on our biggest cohort of apprentices this autumn, welcoming 15 accountancy and IT apprentices aged between 16 and 20 to our offices in Droitwich Spa and Bromsgrove.

The successful apprenticeship programme was launched in 2012 in response to a skills shortage across the sector.

Accounts manager Doug Marshall, who devised the scheme, said: “I created the programme with the intention of recruiting young, ambitious individuals who would become the future of our company. In the first year, we recruited five school leavers and the number of apprentices taken on has risen year on year.

“We believe the scheme gives talented youngsters the opportunity to fulfil their potential by offering full study support, mentoring on site and a vibrant working environment.”

We were named medium apprenticeship employer of the year at the 2015 Worcestershire Apprenticeship Awards and sponsored the advanced level apprentice of the year category at this year’s event, which was won by Pippa Dressler-Pearson.

For more information about the apprenticeship scheme and to apply for a place in 2017, email hr@ormerodrutter.co.uk

The Making Tax Digital consultation has ended…

On 7 November 2016 the Making Tax Digital (MTD) consultations came to an end. First outlined in the 2015 Budget, it is a move to transform the tax system to make it the ‘most digitally-advanced tax administrations in the world by 2020.’

The controversial plan is set to raise £1bn in additional tax revenue but there is criticism about the potential costs and administrative burden for businesses and individuals.

The six consultations that have taken place are:

  1. Bringing business tax into the digital age
  2. Simplifying tax for unincorporated businesses
  3. Simplified cash basis for unincorporated property businesses
  4. Voluntary pay as you go (PAYG)
  5. The tax administration consultation
  6. Transforming the tax system through the better use of information

There is also a separate overview for small businesses, self-employed and smaller landlords.

The consultation was initially planned to begin in April 2016, but was delayed until later in the year. With the reforms set to be introduced in 2018 businesses and individuals want to know how this will affect them going forward.

What we do know is that all unincorporated businesses and landlords with a turnover of less than £10,000 a year will be exempt.

Additionally, HMRC has said that it will delay the start of MTD for ‘some other small businesses’ to give them enough time to get used to the digital record keeping and submitting of quarterly updates. HMRC then goes on to say that they expect all tax returns to be done digitally by 2020.

With feedback from the consultation due before the end of January 2017, we are actively looking at any changes that may be implemented; and are here to help you during this transition.

If you have any questions or concerns about MTD please feel free to contact us at mail@ormerodrutter.co.uk or calling the office on 01905 777600.

Have you renewed your Fee Protection Insurance?

For those of you who have joined our Fee Protection Insurance scheme against the costs of dealing with an enquiry by the tax authorities, you should have received a renewal letter with the costs of the scheme for the next twelve months, and paid to rejoin.

The renewal date was 31 October 2016.

However, it is not too late to act if you haven’t already. Simply check the quote that should have been sent out to you and make the relevant payment or, if you cannot find the relevant paperwork, ask for a revised renewal quotation to be sent to you.

If you are not familiar with our fee protection insurance, here is a brief overview of the service.

Tax investigations can be intimidating, and with HMRC growing increasingly more powerful, an investigation into your affairs is more likely than ever – even if you’ve paid all your tax. Although we work hard to keep your tax affairs in order, compliance doesn’t necessarily keep you safe.

If you are unlucky enough to have your business investigated by HMRC then our expert team are on-hand to guide you through the process. Our knowledge and experience of dealing with HMRC at all levels will ensure you achieve the best possible outcome. Even if your records are in order and you have paid all your tax, the cost of preparing and presenting your case for investigation can be an unwanted and expensive overhead, which also why we also offer our clients Fee Protection Cover.”

Fee protection covers you for the costs of any compliance check we deal with on your behalf, regarding Income Tax, Corporation Tax, PAYE, National Insurance, CIS, IR35, VAT, National Minimum Wage, IHT and Child Tax Credit enquiries.

A copy of our service summary can be found here

The cost of our Fee Protection scheme is significantly less than the cost of a tax investigation. Is it really a risk worth taking?

If you have any questions about Fee Protection Insurance please feel free to contact us on mail@ormerodrutter.co.uk or by calling the office on 01905 777600.

Government urged to reconsider National Living Wage

Business groups including the Federation of Small Businesses (FSB) and the National Farmers Union (NFU) have written jointly to new Business Secretary, Greg Clark, urging him to reconsider ‘ambitious’ targets for the National Living Wage (NLW).

At least 16 trade associations have recommended that Mr Clark “exercise caution” and would ideally like the Government to drop the current target, which could see National Living Wage rise from its current hourly rate of £7.20 to around £9 by 2020.

The National Living Wage was introduced in April 2016 and is paid to workers aged 25 and over. If current targets are met by 2020, the NLW will represent one of the highest minimum wages in the G7.

They have also called for the restoration of the original powers of the Low Pay Commission (LPC), the independent committee that recommends minimum wage rates every year. The original remit of the LPC was to recommend minimum wage increases that went as far as possible without costing jobs.

However, its new task is to ensure that the rate reaches 60 per cent of median earnings by 2020, “subject to economic growth”.

The letter argues that in light of the “economic uncertainties the country faces” following the vote to leave the EU, firms might find themselves unable to support such a rise.

Despite the pressure however, the Government is expected to proceed with current plans, with a Treasury spokesman saying that it is committed to building an economy that “works for all”, meaning both employers and employees.

Brexit and Business in Britain: What’s next?

On 23 June the UK voted to leave the EU. Currently the decision to invoke Article 50 and give official notice to exit the EU has not happened. As ‘Brexit’ seems to be raising more questions than answers, many UK businesses are wondering what happens next.

VAT

UK VAT law derives from European law and was introduced as part of our original accession to the Common Market in 1973. It is also one of the largest revenue generating taxes for the UK government. As such, it is unlikely to be abolished or significantly changed as a result of Brexit.

However, the way UK VAT currently operates is closely connected to our EU membership, so once the UK has left the EU we may see some changes come into place. For businesses operating mainly within the UK the effects are likely to be less than for more internationally-focused businesses.

Once we leave the EU, the government will have more flexibility over setting VAT rates and liabilities. The current single claim mechanism will cease to apply, making the process for UK businesses to reclaim VAT incurred in EU member states more administratively complex.

We may see the UK maintain a parallel VAT system for the first few years because of the confusion and cost changes would cause.

Customs duties

The UK is currently part of a customs union with other EU member states, which means that goods can flow freely without customs duties or import VAT.

Brexit negotiations are likely to try and preserve these arrangements, but it is likely that the transactional costs of trading with the EU will increase. Additional costs in the form of customs duties may also be considered.

Outside of the EU, the UK will be able to negotiate free trade agreements with other countries, although these agreements can take many years to implement.

UK employers of EU workers

At this stage the arrangements for existing EU workers in the UK is unclear. Speculation in the media has suggested that there are several possible arrangements which may come into place:

  • Those employed may remain in the UK without any restrictions
  • Entry restrictions may be imposed on EU workers
  • EU workers may have to gain a new type of permission to stay

Employers are advised to carry out some contingency planning, such as formalising current EU workers’ employment with paperwork showing that they were employed prior to the Brexit vote.

Emergency Budget

The Chancellor has discounted the possibility of an early Budget in response to Brexit. We can expect the Autumn Statement to set out a roadmap of how the UK’s tax and spending plans will evolve going forward.

Outside the EU, the UK government will have even more flexibility over the administration of taxes and much will depend on the negotiations which take place once Article 50 is invoked.

What’s next?

Until formal negotiations start it will not become clear what ‘Brexit’ really means for business in Britain. These detailed negotiations will determine the exact arrangements going forward.

It is important not to act in haste while so much remains unclear. At this stage there is not enough information to make decisions, however over the coming months we should start to see some clarity over how the UK’s relationship with the EU will evolve.

Businesses should focus on staying informed at this stage and be prepared to undertake some contingency planning on key issues as the political and economic landscape becomes clearer.

HMRC targets ‘late’ taxpayers with text message warnings

UK taxpayers and Small and Medium-sized Enterprises (SMEs) have reported that they have been receiving ‘threatening’ text messages from HMRC.

According to reports, the tax authority has been using new means to inform businesses and individual taxpayers that they are being ‘monitored’ – and to request that they pay debts.

A study has revealed that the text messages are successfully increasing payments among ‘late payers’.

According to a HMRC report, text messages warning taxpayers that they “may face penalties” for late payments have increased payment rates by 7 per cent, whereas those informing taxpayers that they are being ‘monitored’ have raised payments by 3.8 per cent.

Furthermore, the number of ‘late payers’ hitting their payment deadlines after receiving these, or other HMRC text messages, has increased by 50 per cent, according to the tax authority.

However, the news comes at a confusing time after UK crime watchdog Action Fraud reported a rise in complaints of ‘bogus’ telephone calls, text messages and emails from fraudsters, purporting to be from HMRC, and requesting similar action.

A police spokesperson told Action Fraud: “Fraudsters will use various hoaxes to try and scam money out of people so please be vigilant about any unsolicited phone call – remember that the bank or police or HMRC would never ask for your PIN over the phone or send a courier to collect cards or cash”.

Only a third of taxpayers happy with HMRC services, says study

According to a new study, only a third of individual taxpayers say that they would describe HMRC as ‘fair and efficient’.

The statistics come from HMRC’s own data, after the tax authority carried out a satisfaction survey among personal and business users.

Following recent criticisms over HMRC’s diminishing telephone services in the wake of Making Tax Digital (MTD), just 45 per cent of Small and Medium-sized Enterprises (SMEs) told the tax authority that they would describe its telephone services as ‘good’.

Only 43 per cent of individual taxpayers agreed.

Furthermore, more than half of individual taxpayers and 43 per cent of SMEs added that they thought HMRC did not ‘have the right systems in place’ to sufficiently prevent taxpayers from making tax return errors which provoke ‘unnecessary investigations’.

Experts predict that thousands of taxpayers fall victim to making ‘honest mistakes’ on their tax returns every year – which inevitably results in HMRC conducting thousands of investigations.

Filling out tax returns can be a complex and lengthy process and a tax investigation can be provoked only too easily – especially when access to HMRC telephone advisers is growing increasingly limited.

If you need help accurately completing your tax return or you need advice about tax investigations, contact us to arrange your free initial consultation today.

Government urged to overhaul Minimum Wage following Brexit vote

The Government is being urged to overhaul the UK’s minimum wage policy following the vote to leave the European Union, with warnings of damage to the economy and businesses if it does not.

According to the British Chambers of Commerce, the Government’s “politically driven” approach to setting the national living wage could cause it to become “unaffordable” to hire staff.

The lobby group argues in its submission to the Low Pay Commission’s consultation on future increases that a failure to calibrate the policy could push up prices, raise unemployment and even force companies out of business.

As of April 2016, the minimum wage for workers over the age of 25 rose by 7.4 per cent to £7.20 and it is proposed that the national living wage could rise to £9 by 2020.

However, the BCC said that the decision to leave the EU means it is vital to return to an “evidence-based” approach when setting the wage floor, otherwise it could lead to increased prices or even bankruptcies.

The group argues that the national living wage policy was set before the result of the vote and therefore the Government should reassess the policy in its aftermath, taking into account new economic data and forecasts, once these become available.

It is the BCC’s contention, based on “conservative” forecasts that the minimum age should rise by 2.4 per cent to £7.39 next April because “pressing ahead blindly” towards the £9 target would hit small businesses hardest.

Given that these organisations account for over 99 per cent of all private sector businesses and employ more than 15 million people, this would be disastrous.

Have HMRC got you in their sights?

Is a visit from the taxman a risk you can afford, or are prepared to take?

HMRC are more determined than ever to ‘claw back’ unpaid tax and ensure all tax due is paid. Millions of pounds have been allocated to target tax evasion and avoidance and the number of people being investigated by the taxman has doubled in one year.

Every year HMRC investigates hundreds of thousands of individuals and businesses in the UK. A tax investigation could happen at any time and everyone is at risk.

HMRC’s increased aggressive stance means more and more innocent businesses and individuals are likely to be investigated. Even if you have done nothing wrong, you are still at risk. HMRC don’t need a reason to investigate you and they can investigate anyone at any time.

You could be at greater risk than you think

Anyone who submits a tax return faces a real threat. HMRC are using a piece of highly efficient software which is accessing and trawling through your financial information right now.

The ‘Connect’ system has access to vast databanks holding information about every taxpayer and their businesses, income, assets and transactions.

From 2017, Connect will go global, with access to further data in 60 countries. It can identify tax discrepancies in seconds which can trigger a tax investigation.

A tax investigation could cost you – even if you’ve done nothing wrong

If they investigate you, HMRC will expect your professional adviser to explain how the computations have been prepared and how the amount of tax payable has been derived. As your trusted adviser, we will also be best placed to support and advise you through the enquiry process and to deal with any specific issues that arise.

Few individuals or businesses have budgeted for the cost of professional services should an investigation arise. However, if you are investigated it could be a substantial upfront cost, and for many this is more than they can afford at short notice.

Protection is available

We recommend that all our clients consider subscribing to our expert Fee Protection Service. If HMRC target you, we are on hand to guide you through the process, and by investing a small amount in our protection service now, you can rest assured that the professional fees are covered too.

A small cost now could save you thousands of pounds in the future.

If you’re currently an Ormerod Rutter client, you can request a free quote online now. If you’re not a client but would like to discuss this further, please contact us to speak to Anthony Middleton.

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